Asta Funding Annual Report 2018

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549 Form 10-K ☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2018 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-35637ASTA FUNDING, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 22-3388607(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 210 Sylvan Avenue, EnglewoodCliffs, NJ 07632(Zip Code)(Address of Principal Executive Offices) Registrant's telephone number, including area code: (201) 567-5648 Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $.01 per share NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☑ ☐ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ☑ No ☐ Table of Contents Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant toRule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required tosubmit such files). Yes ☑ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. ☑ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reportingcompany, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and“emerging growth company” in Rule 12b-2 of the Exchange Act: Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☑ Smaller reporting company ☑ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ The aggregate market value of voting and nonvoting common equity held by non-affiliates of the registrant was approximately $9,641,265 as ofthe last business day of the registrant’s most recently completed second fiscal quarter in 2018. As of December 20, 2018, the registrant had 6,685,415 shares of Common Stock issued and outstanding. Table of Contents DOCUMENTS INCORPORATED BY REFERENCE In accordance with General Instruction G (3) of Form 10-K, certain information required by Part III hereof will either be incorporated into this Form 10-Kby reference to the registrant’s definitive proxy statement for registrant’s 2019 Annual Meeting of Stockholders filed within 120 days of September 30,2018 or will be included in an amendment to this Form 10-K filed within 120 days of September 30, 2018. Table of Contents FORM 10-K TABLE OF CONTENTS PagePART IItem 1.Business3Item 1A.Risk Factors11Item 2.Properties20Item 3.Legal Proceedings21Item 4.Mine Safety Disclosures21 PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities21Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations22Item 8.Financial Statements and Supplementary Data31Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure31Item 9AControls and Procedures31Item 9B.Other Information33 PART IIIItem 10.Directors, Executive Officers and Corporate Governance34Item 11.Executive Compensation34Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters34Item 13.Certain Relationships and Related Transactions, and Director Independence34Item 14.Principal Accounting Fees and Services34 PART IVItem 15.Exhibits and Financial Statement Schedules34 1Table of Contents Caution Regarding Forward Looking Statements This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) . All statements other than statements of historicalfacts included or incorporated by reference in this Annual Report on Form 10-K, including without limitation, statements regarding our future financialposition, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,”“intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation there on or similar terminology orexpressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statementsare not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels ofactivity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed orimplied by such forward-looking statements. Important factors which could materially affect our results and our future performance include, withoutlimitation, the identified material weaknesses in our internal control over financial reporting and our ability to remediate those material weaknesses, ourability to purchase defaulted consumer receivables at appropriate prices, changes in government regulations that affect our ability to collect sufficientamounts on our defaulted consumer receivables, our ability to employ and retain qualified employees, changes in the credit or capital markets, changes ininterest rates, deterioration in economic conditions, negative press regarding the debt collection industry which may have a negative impact on a debtor’swillingness to pay the debt we acquire, and statements of assumption underlying any of the foregoing, as well as other factors set forth under “Item 1A.Risk Factors” and “Item 7-Management’s Discussions and Analysis of Financial Condition and Results of Operation” below. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in theirentirety by the foregoing. Except as required by law, we assume no duty to update or revise any forward-looking statements. 2Table of Contents Part I Item 1.Business. Overview Asta Funding, Inc. (“Asta”), a Delaware corporation, together with its wholly owned significant operating subsidiaries Palisades Collection, LLC,Palisades Acquisition XVI, LLC (“Palisades XVI”), Palisades Acquisition XIX, LLC (“Palisades XIX”), Palisades Acquisition XXIII, LLC (“PalisadesXXIII”), VATIV Recovery Solutions LLC (“VATIV”), ASFI Pegasus Holdings, LLC (“APH”), Fund Pegasus, LLC (“Fund Pegasus”), GAR DisabilityAdvocates, LLC (“GAR Disability Advocates”), Five Star Veterans Disability, LLC (“Five Star”), EMIRIC, LLC (“EMIRIC”), Simia Capital, LLC(“Simia”), Sylvave, LLC (“Sylvave”) (formerly known as Pegasus Funding, LLC (“Pegasus”)), Practical Funding LLC (“Practical Funding”), and othersubsidiaries, which are not all wholly owned (the “Company,” “we” or “us”), is engaged in several business segments in the financial services industryincluding managing for its own account and servicing distressed charged off consumer receivables, disability advocacy through our wholly ownedsubsidiaries GAR Disability Advocates and Five Star and funding of personal injury claims, through our wholly owned subsidiaries Sylvave, Simia andPractical Funding. For the period from October 1, 2017 to January 12, 2018, we owned an 80% interest in Pegasus of which we controlled 50%, and accounted forPegasus under the equity method in accordance with accounting principles generally accepted in the United States (“US GAAP”). On January 12, 2018,the Company acquired the remaining 20% minority shareholder's interest in Pegasus, changed its name to Sylvave, and now currently owns 100% ofSylvave. Commencing on the date of acquisition, the Company consolidated the financial results of this entity, which will remain in operation only tocollect on its current portfolio. We operate principally in the United States in three reportable business segments: consumer receivables, social security disability advocacy andpersonal injury claims. We previously operated a fourth segment when we engaged in the structured settlements business through our wholly ownedsubsidiary CBC Settlement Funding, LLC (“CBC”), which we sold on December 13, 2017. As a result of the sale of CBC all periods presented herein account for CBC as a discontinued operation. This determination resulted in thereclassification of the historical assets and liabilities comprising the structured settlement business to assets and liabilities related to discontinuedoperations in the consolidated balance sheets, and a corresponding adjustment to our consolidated statements of operations to reflect discontinuedoperations for all periods presented. See Note 2 - Discontinued Operations in the Company's notes to the consolidated financial statements. Financial Information about Operating Segments The Company operates through strategic business units that are aggregated into three reportable segments: consumer receivables, social securitydisability advocacy and personal injury claims. The three reportable segments consist of the following: Consumer receivables This segment is engaged in the business of purchasing, managing for its own account and servicing distressed charged off consumer receivables. Recently, our effort has been in the international areas (mainly South America), as we have curtailed our active purchasing of consumer receivables in theUnited States. Personal injury claims This segment is comprised of purchased interests in personal injury claims from claimants who were a party to personal injury litigation. TheCompany advances to each claimant funds on a non-recourse basis at an agreed upon interest rate, in anticipation of a future settlement. The interest ineach claim purchased consists of the right to receive, from such claimant, part of the proceeds or recoveries which such claimant receives by reason of asettlement, judgment or award with respect to such claimant’s claim. Simia commenced funding personal injury settlement claims in January 2017 andceased funding claims in June 2017. The Company is continuing its personal injury claims business in a new entity Practical Funding, which was formedon March 16, 2018. As of September 30, 2018, Practical Funding has not advanced any monies to claimants for personal injury claims. Social security disability advocacy This segment consists of advocacy groups representing individuals nationwide in their claims for social security disability and supplemental socialsecurity income benefits from the Social Security and Veterans Administration. 3Table of Contents The consumer receivable segment and the social security disability advocacy segment each accounted for more than 10% of revenues in fiscal year2018 and 2017. The following table summarizes the net revenues by percentage from the three lines of business for the fiscal years 2018 and 2017: Year Ended September 30, 2018 2017 Finance income (consumer receivables) 73.6% 74.3%Personal injury claims income 5.0 2.0 Social security disability fee income 21.4 23.7 Total revenues 100.0% 100.0% Information about the results of each of the Company’s reportable segments for the last two fiscal years and total assets as of the end of the last twofiscal years, reconciled to the consolidated results, is set forth below. Separate segment MD&A is not provided, as segment revenue corresponds to therevenue presented in the Company's consolidated statement of operations, and material expense items are not allocable to any specific segment. Certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses are reflected inCorporate. Corporate assets include cash and cash equivalents, available-for-sale securities, a note receivable, property and equipment, goodwill, deferredtaxes and other assets. (Dollars in millions) ConsumerReceivables Socialsecuritydisabilityadvocacy PersonalInjuryClaims (2) Corporate (3) Total Fiscal Year Ended September 30, 2018: Revenues $15.9 $4.6 $1.1 $— $21.6 Other income (5) 4.0 — — 0.5 4.5 Segment profit (loss) 17.8 1.1 1.1 (10.4) 9.6 Segment Assets (1) (4) 12.4 1.0 11.8 61.1 86.3 2017: Revenues 15.9 5.1 0.4 — 21.4 Other income — — — (0.1) (0.1)Segment profit (loss) 12.5 (1.7) 4.1 (22.2) (7.3)Segment Assets (1) (4) 20.4 3.9 55.0 122.2 201.5 The Company does not have any intersegment revenue transactions. (1)Includes other amounts in other line items on the consolidated balance sheet.(2)The Company recorded Pegasus as an equity investment in its consolidated financial statements through January 12, 2018. Commencing onJanuary 13, 2018, Sylvave is consolidated in the Company’s financial statements. For segment reporting the Company has included its pro-ratedshare of the earnings and losses from its investment under the Personal Injury Claims segment.(3)Corporate is not part of the three reportable segments, as certain expenses and assets are not earmarked to any specific operating segment.(4)Included in Corporate are approximately $92.2 million of assets related to discontinued operations as of September 30, 2017. See Note 2 -Discontinued Operations in the Company's notes to consolidated financial statements.(5)Included in other income is approximately $4.0 million in gain on settlements. See Note 10 - Settlements in the Company's notes to itsconsolidated financial statements. Principal Markets and Methods of Distribution All of the Company’s lines of business are principally conducted in the United States, with approximately $3.3 million of the receivablesoriginating and being serviced overseas as of September 30, 2018. 4Table of Contents Consumer receivables Prior to purchasing a portfolio, we perform a qualitative and quantitative analysis of the underlying receivables and calculate the purchase pricewhich is intended to offer us an adequate return on our investment after servicing expenses. After purchasing a portfolio, we actively monitor performanceand review and adjust our collection and servicing strategies accordingly. We purchase receivables from credit grantors and others through privately negotiated direct sales. We fund portfolios through internally generatedcash flow. Our objective is to maximize our return on investment in acquired consumer receivable portfolios. As a result, before acquiring a portfolio, weanalyze the portfolio to determine how to best maximize collections in a cost efficient manner and decide whether to use our internal servicing andcollection department, third-party collection agencies, attorneys, or a combination of all three options. When we outsource the servicing of receivables, our management typically determines the appropriate third-party collection agencies and attorneysbased on the type of receivables purchased. Once a group of receivables is sent to third-party collection agencies and attorneys, our management activelymonitors and reviews the third-party collection agencies’ and attorneys’ performance on an ongoing basis. Based on portfolio performanceconsiderations, our management may either (i)move certain receivables from one third-party collection agency or attorney to another, or (ii) sell portionsof the portfolio accounts. Our internal collection unit, which currently employs three collection-related staff, including senior management, assists us inbenchmarking our third-party collection agencies and attorneys, and provides us with flexibility for servicing a portion of our consumer receivableportfolios in-house. We have increased our focus on purchasing consumer receivables internationally from foreign banks via direct sales or credit grantors. We haveestablished relationships in Colombia and Peru with agencies and attorneys,, and we are committed to pursue opportunities available to acquire foreignconsumer receivables. Personal injury claims Simia commenced operations in January 2017, and conducts its business solely in the United States. Simia obtained its business from externalbrokers and internal sales professionals soliciting individuals with personal injury claims. Simia and Sylvave have not funded any new cases since June2017 and April 2017, respectively, but remain in business to liquidate their existing personal injury claim advance portfolios. Practical Funding will relyon generating business from attorneys and internal sales professionals soliciting individuals with personal injury claims. Social security disability advocacy GAR Disability Advocates and Five Star provide its social security disability advocacy services throughout the United States. They rely uponsearch engine optimization (“SEO”) to bring awareness to their intended market. Industry Overview Consumer receivables The purchasing, servicing and collection of distressed charged-off consumer receivables is an industry that is driven by: •increasing levels of consumer debt; •increasing defaults of the underlying receivables; and •increasing utilization of third-party providers to collect such receivables. Personal injury claims The funding of non-recourse personal injury claims is driven by the growth of the market for financing personal injury claims. Individuals withpersonal injury claims incur current cash obligations which will not be recouped until insurance settlements are paid, or adjudicated in favor of theplaintiff, if at all. These funding contracts require a lien on the proceeds of either the settlement or the favorable resolution. The demand for providingfinancing to individuals in need of short term funds pending insurance settlements of their personal injury claims is driven by the long periods of timetaken by the insurance industry to settle and pay such claims, primarily due to lengthy litigation and the court process. 5Table of Contents Social security disability advocacy The social security disability advocacy industry is driven by the increasing number of social security and disability applicants who find it difficultto obtain such benefits without the aid of third party assistance. Strategy Consumer receivables Our primary objective both domestically and internationally is to utilize our management’s experience and expertise by identifying, evaluating,pricing and acquiring consumer receivable portfolios and maximizing collections of such receivables in a cost efficient manner. Our strategies include: •managing the collection and servicing of our consumer receivable portfolios, including outsourcing those activities to maintain low fixedoverhead by partnering with experienced collection and debt buying firms; •selling accounts on an opportunistic basis; and •capitalizing on our strategic relationships to identify and acquire consumer receivable portfolios as pricing, financing and conditionspermit. Personal Injury Claims Practical Funding will rely on developing new and existing relationships with attorneys and Company management. Social security disability advocacy In fiscal year 2018, GAR Disability Advocates and Five Star continue to assist claimants in securing disability benefits from the Social Security andVeteran's administration. Operations Consumer Receivables The Operations Servicing Division of consumer receivables consists of the Collection Department, which handles disputes and correspondence, andthe Accounting and Finance Department. Collection Department The Collection Department is responsible for making contact with and receiving calls from consumers for the purpose of collecting upon theaccounts contained in our consumer receivables portfolios. The Collection Department uses a friendly, customer service approach to collect receivablesand utilizes collection software, a dialer and telephone system to accomplish this goal. Each collector is responsible for: Initiating outbound collection calls and handling incoming calls from the consumer; Identifying the debt and iterating the benefits of paying the obligation; Working with the customer to develop acceptable means of satisfying the obligation; and Offering (if necessary, and based upon the individual situation) an obligor a discount on the overall obligation. Accounting and Finance Department In addition to customary accounting activities, the Accounting and Finance Department is responsible for: Making daily deposits of customer payments; 6Table of Contents Posting payments to customers accounts; and Providing senior management with daily, weekly and monthly receivable activity and performance reports. Additionally, the Accounting Department reviews the results of the collection of consumer receivable portfolios that are being serviced by third-party collection agencies and attorneys. The Accounting and Finance Department also participates in the internal auditing and consolidation of allbusiness segments. Personal Injury Claims The operations of the personal injury claims unit includes: Sales/Underwriting/Collections - The underwriting group is responsible for analyzing the merits of the personal injury claims, collections of theportfolio and for business development and sales. Accounting - The accounting group is responsible for the reporting of all the financial operations of the personal injury claims unit. Social security disability advocacy GAR Disability Advocates and Five Star consists of the following departments: Sales/Marketing - The Sales Group is responsible for the sales strategy and advertising campaigns. Intake - The Intake Department is responsible for client development, including screening leads and developing information on individual cases. Case Management - The Case Management Department oversees client claims, in an attempt to obtain social security disability benefits. Accounting - The accounting group is responsible for the reporting of all the financial operations of the social security disability segment. Marketing Consumer receivables The Company did not make any consumer debt purchases in fiscal year 2018. We have expanded relationships with credit providersinternationally, as well as maintained our existing relationships domestically with brokers, finance companies and other credit providers. We are workingto expand our name recognition internationally by attending international conferences, utilizing email solicitations and attending face-to-face bankmeetings. Personal injury claims Practical Funding will not invest in a formal marketing program at this time. However, it will rely on internal sales, underwrting and attorneys toenhance our presence in the market. Social security disability advocacy Security Disability Advocacy utilizes SEO to bring more awareness to prospective clients. Competition Consumer receivables With the competitive nature of the domestic market, there are strategic advantages of acquiring portfolios internationally in countries such asColombia and Peru. We cannot assure that the international competition will not increase in the future, affecting our consumer receivables financialperformance. 7Table of Contents We compete with: •other purchasers of consumer receivables, including third-party collection companies; and •other financial services companies who purchase consumer receivables. Some of our competitors are larger and more established and may have substantially greater financial, technological, personnel and other resourcesthan we have, including greater access to the credit and capital markets. We compete in the marketplace for consumer receivable portfolios based on many factors, including: •purchase price; •representations, warranties and indemnities requested; •timeliness of purchase decisions; and •reputation. We cannot assure that we will be able to compete successfully against current or future competitors or that competition will not increase in thefuture. Personal injury claims The litigation funding business is highly competitive and fragmented, and we expect that competition from new and existing companies willcontinue. We compete in the litigation funding marketplace based on many factors, including: cost of funds advanced; reputation; and marketing costs. We believe that our personal injury claims funding management team has expertise and experience in identifying, evaluating, pricing, andmanaging the funding of personal injury claim cases. However, we cannot assure that our litigation funding businesses will be able to compete againstcurrent or future competitors or that competition will not increase in the future. Social Security Disability Advocacy The social security disability advocacy environment is competitive. We believe that the management of GAR Disability Advocates and Five Starhave the knowledge to compete in this environment. Nevertheless, we can offer no assurance that the business will remain competitive against current andfuture competitors. Seasonality and Trends Consumer receivables Our management believes that our operations may, to some extent, be affected by high delinquency rates and by lower recoveries on consumerreceivables acquired for liquidation during or shortly following certain holiday periods. Personal injury claims There are no discernible trends to indicate seasonality in the personal injury claims business. Social Security Disability Advocacy There is no indication that seasonality has any noticeable impact on the social security disability process. 8Table of Contents Technology Consumer receivables We believe that a high degree of automation is necessary to enable us to grow and successfully compete with other companies in our businesssector. Accordingly, we continually look to upgrade our technology systems to support the servicing and recovery of consumer receivables acquired forliquidation. Our telecommunications and technology systems allow us to quickly and accurately process large amounts of data necessary to purchase andservice consumer receivable portfolios. In addition, we rely on the information technology of our third-party collection agencies and attorneys andperiodically review their systems to ensure that they can adequately service the consumer receivable portfolios outsourced to them. Due to our desire to increase productivity through automation, we periodically review our systems for possible upgrades and enhancements. We arecontinually working to enhance our international systems capabilities enabling us to effectively compete in the international marketplace. Personal injury claims Practical Funding will be dependent a website to maintain and increase its business and, therefore, must remain current in its technology. Social Security Disability Advocacy GAR Disability and Five Star rely on substantial use of the internet and, therefore, endeavors to remain current technologically. Government Regulation Consumer receivables Our businesses are subject to extensive federal and state regulations. The relationship of a consumer and a creditor is extensively regulated byfederal, state and local laws, rules, regulations and ordinances. These laws include, but are not limited to, the following federal statutes and regulations:the Federal Truth-In-Lending Act, the Fair Credit Billing Act (“FCBA”), the Equal Credit Opportunity Act and the Fair Credit Reporting Act (“FCRA”), aswell as comparable statutes in states where consumers reside and/or where creditors are located. Among other things, the laws and regulations applicableto various creditors impose disclosure requirements regarding the advertisement, application, establishment and operation of credit card accounts or othertypes of credit programs. Federal law requires a creditor to disclose to consumers, among other things, the interest rates, fees, grace periods and balancecalculation methods associated with their accounts. In addition, consumers are entitled to have payments and credits applied to their accounts promptly,to receive prescribed notices and to request that billing errors be resolved promptly. Moreover, some laws prohibit certain discriminatory practices inconnection with the extension of credit. Further, state laws may limit the interest rate and the fees that a creditor may impose on consumers. Failure bycreditors to comply with applicable laws could create claims and rights of offset by consumers that would reduce or eliminate their obligations, whichcould have a material adverse effect on our operations. Pursuant to agreements under which we purchase receivables, we are typically indemnified againstlosses resulting from the failure of the creditor to have complied with applicable laws relating to the receivables prior to our purchase of such receivables. Certain laws, including the laws described above, may limit our ability to collect amounts owing with respect to the receivables regardless of anyact or omission on our part. For example, under the FCBA, a credit card issuer may be subject to certain claims and defenses arising out of certaintransactions in which a credit card is used if the consumer has made a good faith attempt to obtain satisfactory resolution of a problem relative to thetransaction and, except in cases where there is a specified relationship between the person honoring the card and the credit card issuer, the amount of theinitial transaction exceeds $50 and the place where the initial transaction occurred was in the same state as the consumer’s billing address or within100 miles of that address. Accordingly, as a purchaser of defaulted receivables, we may purchase receivables subject to valid defenses on the part of theconsumer. Other laws provide that, in certain instances, consumers cannot be held liable for, or their liability is limited to $50 with respect to, charges tothe credit card credit account that were a result of an unauthorized use of the credit card account. No assurances can be given that certain of thereceivables were not established as a result of unauthorized use of a credit card account, and, accordingly, the amount of such receivables may not becollectible by us. 9Table of Contents Several federal, state and local laws, rules, regulations and ordinances, including, but not limited to, the Fair Debt Collection Practices Act(“FDCPA”) and the Federal Trade Commission Act and comparable state statutes, regulate consumer debt collection activity. Although, for a variety ofreasons, we may not be specifically subject to the FDCPA or certain state statutes that govern third-party debt collectors, it is our policy to comply withlaws in our collection activities. Additionally, our third-party collection agencies and attorneys may be subject to these laws. To the extent that some orall of these laws apply to our collection activities or our third-party collection agencies’ and attorneys’ collection activities, failure to comply with suchlaws could have a material adverse effect on us. In order to comply with the foregoing laws and regulations, we provide a comprehensive development training program for our newcollection/dispute department representatives and on-going training for all collection/dispute department associates. All collection and disputerepresentatives are tested annually on their knowledge of the FDCPA and other applicable laws. Account representatives not achieving our minimumstandards are required to complete a FDCPA review session and are then retested. In addition, annual supplemental instruction in the FDCPA andcollection techniques is provided to all our account representatives. There are significant corporate governance and executive compensation-related provisions in the Dodd Frank Wall Street Reform and Provision Act(“Dodd-Frank Act”) that required the Securities and Exchange Commission (“SEC”) to adopt additional rules and regulations in areas such as corporategovernance, and executive compensation . Our efforts to comply with these requirements have resulted in an increase in expenses and a diversion ofmanagement’s time from other business activities. We are subject to changing rules and regulations of federal and state governments, the Public CompanyAccounting Oversight Board (“PCAOB”), the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the NASDAQ Global Market, all of whichhave issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue todevelop additional regulations and requirements in response to laws enacted by Congress. The Dodd-Frank Act subjects us to substantial additional federal regulation, and we cannot predict the effect of such regulation on our business,results of operations, cash flows or financial condition. Through the Dodd-Frank Act, Congress established the Consumer Financial Protection Bureau(the “CFPB”), which has regulatory, supervisory and enforcement authority over entities involved in consumer financial markets. The CFPB has theauthority to conduct periodic examinations of “larger participants” in each market, and we believe it is likely that we will be subject to an examination. The CFPB published a final rule that allows the agency to federally supervise the larger consumer debt collectors. The CFPB also released the fieldguide that examiners will use to ensure that companies and banks engaging in debt collection are following the law. The consumer debt collection market covered by the rule includes three main types of debt collectors: first, firms that may buy defaulted debt andcollect the proceeds for themselves; second, firms that may collect defaulted debt owned by another company in return for a fee; and third, debt collectionattorneys that collect through litigation. A single company may be involved in any or all of these activities. The CFPB’s supervisory authority over these entities began when the rule took effect on January 2, 2013. Under the rule, any firm that has morethan $10 million in annual receipts from consumer debt collection activities will be subject to the CFPB’s supervisory authority. This authority willextend to about 175 debt collectors, which, according to the CFPB, account for over 60 percent of the industry’s annual receipts in the consumer debtcollection market. Pursuant to the CFPB’s supervisory authority, examiners assess potential risks to consumers and whether debt collectors are complying withrequirements of federal consumer financial law. Among other things, examiners evaluate whether debt collectors provide required disclosures; useaccurate information; maintain a consumer complaint and dispute resolution process; and communicate with consumers in the manner required by law. The CFPB’s general Supervision and Examination Manual, as well as its examination manual specific to the debt collection market, provideguidance on how the bureau conducts its monitoring of debt collection activities. Examiners will evaluate the quality of the regulated entity’scompliance management systems, review practices to ensure they comply with federal consumer financial law, and identify risks to consumers throughoutthe debt collection process. The CFPB can seek relief that includes: rescission or reformation of contracts, restitution, disgorgement of profits, payment ofdamages, limits on activities and civil money penalties of up to $1 million per day for knowing violations. As a company that engages in debt collection, we need to understand the oversight that the CFPB brings. Preparing for a CFPB audit will cost timeand money. Additionally, the CFPB has the power to bring an enforcement action or cause a required settlement. In addition, the amount of privilegedand confidential information the CFPB could release, can lead to private lawsuits, including class and mass actions, as well as other state and federalagency oversight. 10Table of Contents The CFPB is expressly charged with prohibiting unfair, deceptive or abusive acts or practices. Through its broad powers to regulate and enforcefederal consumer financial laws, the CFPB could place restrictions on our business, the businesses of our customers and the business of our affiliates, if theCFPB were to determine through rulemaking, supervisory or enforcement actions, for example, that particular acts or practices were unfair, deceptive orabusive to consumers. The CFPB thus exercises supervisory authority over us. At this time, it is not possible or practical to attempt to provide a comprehensive analysis ofhow these laws and regulations may impact debt collectors. Additionally, the Dodd-Frank Act empowers state attorneys general (or the equivalent thereof) to bring civil actions in federal district court (or astate court that is located in that state and that has jurisdiction over the defendant), to enforce Title X of the Act or regulations issued by the CFPBthereunder. Therefore, we could also be the subject of investigations and enforcement actions by the Federal Trade Commission or by state agencies (e.g.,state attorneys general) with powers to enforce CFPB regulations and the FCRA. Additional laws or amendments to existing laws, may be enacted thatcould impose additional restrictions on the servicing and collection of receivables. Such new laws or amendments may adversely affect our ability tocollect the receivables. The Dodd-Frank Act authorized the CFPB to prescribe rules interpreting the FDCPA. On November 12, 2013, the CFPB signaled its intention topromulgate substantive rules under the FDCPA by publishing an Advance Notice of Proposed Rulemaking (ANPR) with regard to debt collectionpractices. The ANPR requested comments with regard to a wide array of issues relating to debt collection. The comment period closed on February 28,2014. The CFPB has not yet issued a proposed rule. In its Spring 2018 rulemaking agenda, the CFPB stated that it intends to issue a proposed rule inMarch 2019. The Company has and will continue to have a substantive compliance program and maintain procedures to ensure that the law is followed and thatconsumer complaints are dealt with in an appropriate fashion. We currently hold a number of licenses issued under applicable consumer credit laws or other licensing statutes or regulations. Certain of ourcurrent licenses, and any licenses that we may be required to obtain in the future, may be subject to periodic renewal provisions and/or otherrequirements. Our inability to renew licenses or to take any other required action with respect to such licenses could have a material adverse effect uponour results of operation and financial condition. Personal injury claims Numerous states have recently introduced legislation with respect to the litigation funding business, which, up to now, has been largelyunregulated. Recently proposed laws, while varying from state to state, generally would establish requirements for contracts relating to litigationfunding, including setting maximum amounts of interest, fees and other charges that may be imposed. Social security disability advocacy The availability of funds to pay Social Security disability and Veteran's benefits, are dependent on governmental regulation and budgetaryconstraints, which could have a material impact on the GAR Disability Advocates and Five Star business. Employees As of September 30, 2018, we had a total of 60 full-time employees. We are not a party to any collective bargaining agreements. Additional Information Our web address is www.astafunding.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form8-K, proxy statements, amendments thereto, and other SEC reports are available on our website as soon as reasonably practical after filing electronicallywith the SEC. No part of our website is incorporated by reference into this report. Item 1A. Risk Factors. Note Regarding Risk Factors You should carefully consider the risk factors below as well as risks identified throughout this Annual Report on Form 10-K and our other filingswith the SEC in evaluating us. In addition to the following identified risks, there may also be risks that we do not yet know of or that we currently thinkare immaterial that may also impair our business operations. If any of the following risks occur, or if risks that we do not yet know or that we currentlythink are minor occur, our business, results of operation or financial condition could be adversely affected, the trading price of our common stock coulddecline and stockholders might lose all or part of their investment. The risk factors presented below are those which we currently consider material.However, they are not the only risks facing our company. Additional risks not presently known to us, or which we currently consider immaterial, mayalso adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks thatwe face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially fromany possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stockcould decline, and you could lose part or all of your investment. Except as required by law, we expressly disclaim any obligation to update or revise anyforward-looking statements. 11Table of Contents We have identified material weaknesses in our internal control over financial reporting that, if not remediated, could result in additional materialmisstatements in our financial statements. As described in “Part II, Item 9A — Controls and Procedures,” management has identified and evaluated the control deficiencies that gave rise to theaccounting errors related to equity method accounting, foreign currency matters, related party transactions, accounting for significant and/or complextransactions and documentation and reconciliation of social security disability cash receipts, and has concluded that those deficiencies, represent materialweaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control overfinancial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not beprevented or detected on a timely basis. As a result of those material weaknesses, management has concluded that we did not maintain effective internalcontrol over financial reporting as of September 30, 2018. See “Part II, Item 9A — Controls and Procedures.” We are in the process of developing and implementing a remediation plan to address the material weaknesses. If our remediation efforts are insufficientor if additional material weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financialstatements may contain material misstatements and we could be required to further restate our financial results, which could materially and adverselyaffect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significantresources to correct the material weakness, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investorconfidence. Government regulations may limit our ability to recover and enforce the collection of our receivables. Federal, state and local laws, rules, regulations and ordinances may limit our ability to recover and enforce our rights with respect to the receivablesacquired by us. These laws include, but are not limited to, the following federal statutes and regulations promulgated thereunder and comparable statutesin states and foreign jurisdictions such as Colombia and Peru where consumers reside and/or where creditors are located: •The Fair Debt Collection Practices Act; •The Federal Trade Commission Act; •The Truth-In-Lending Act; •The Fair Credit Billing Act; •The Equal Credit Opportunity Act; •The Fair Credit Reporting Act; •The Financial Privacy Rule; •The Safeguards Rule; •Telephone Consumer Protection Act; •Health Insurance Portability and Accountability Act (“HIPAA”)/Health Information Technology for Economical and Clinical Health Act(“HITECH”); •U.S. Bankruptcy Code; and •Credit Card Accountability Responsibility and Disclosure Act of 2009. 12Table of Contents We may be precluded from collecting receivables we purchase where the creditor or other previous owner or third-party collection agency orattorney failed to comply with applicable law in originating or servicing such acquired receivables. Laws relating to the collection of consumer debt alsodirectly apply to our business. Our failure to comply with any laws applicable to us, including state licensing laws, could limit our ability to recover onreceivables and could subject us to fines and penalties, which could reduce our earnings and result in a default under our loan arrangements. In addition,our third-party collection agencies and attorneys may be subject to these and other laws and their failure to comply with such laws could also materiallyadversely affect our finance income and earnings. Additional laws or amendments to existing laws may be enacted that could impose additional restrictions on the servicing and collection ofreceivables. Such new laws or amendments may adversely affect the ability to collect on our receivables, which could also adversely affect our financeincome and earnings. Because our receivables are generally originated and serviced pursuant to a variety of federal, state and/or local laws by a variety of entities and mayinvolve consumers in all 50 states, the District of Columbia, Puerto Rico and South America, there can be no assurance that all originating and servicingentities have, at all times, been in substantial compliance with applicable law. Additionally, there can be no assurance that we or our third-partycollection agencies and attorneys have been or will continue to be at all times in substantial compliance with applicable law. Failure to comply withapplicable law could materially adversely affect our ability to collect our receivables and could subject us to increased costs, fines and penalties. We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock islisted. These entities, including PCAOB, the SEC and the NASDAQ Global Market, have issued a significant number of new and increasingly complexrequirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to lawsenacted by Congress. Changes in governmental laws and regulations could increase our costs and liabilities or impact our operations. Title X of the Dodd-Frank Act (also referred to as the Consumer Financial Protection Act) created a new independent regulator, CFPB. The CFPB hasrulemaking, supervisory, and enforcement and other authorities relating to consumer financial products and services, including debt collection, providedby covered persons. We are subject to the CFPB's supervisory and enforcement authority. The relationship between consumers, lenders and credit card issuers is extensively regulated by consumer protection and related laws andregulations. Changes in laws and regulations or the manner in which they are interpreted or applied may alter our business environment. This could affectour results of operations or increase our liabilities. These negative impacts could result from changes in collection laws, laws related to credit reporting,statutes of limitation, laws related to consumer bankruptcy or insolvency, privacy protection, accounting standards, taxation requirements, employmentlaws and communications laws, among others. The CFPB also accepts debt collection consumer complaints and has provided form letters for consumers to use in their correspondences with debtcollectors. The CFPB makes publicly available its data on consumer complaints, and consumer complaints against us could result in reputational damageto us. The Dodd-Frank Act also mandates the submission of multiple studies and reports to Congress by the CFPB, and CFPB staff is regularly makingspeeches on topics related to credit and debt. All of these activities could trigger additional legislative or regulatory action. The CFPB has rulemaking authority with respect to significant federal statutes that impact the debt collection industry, including the Federal DebtCollection Practices Act ("FDCPA"), the Fair Credit Reporting Act "FCRA", and Section 5 of the Federal Trade Commission ("FTC Act"), which prohibitsunfair or deceptive acts or practices. As a result, the CFPB has the authority to adopt regulations that interpret the FDCPA, and the FTC Act, potentiallydescribing specified acts and practices as being "unfair," "deceptive" or "abusive," impacting the manner in which we conduct our debt collectionbusiness. The CFPB has the authority to conduct hearings and adjudication proceedings, impose monetary penalties for violations of applicable federalconsumer financial laws (including Title X of the Dodd-Frank Act, FDCPA, and FCRA, among other consumer protection statutes) which may requireremediation of practices and include enforcement actions. The CFPB also has the authority to obtain cease and desist orders (which can include orders forrestitution or rescission of contracts, as well as other kinds of affirmative relief), costs, and monetary penalties. In addition, where a company has violatedTitle X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state Attorneys General and other stateregulators to bring civil actions to remedy violations under state law. The CFPB has been active in its supervision, examination and enforcement offinancial services companies, most notably bringing enforcement actions imposing fines and mandating large refunds to customers of several financialinstitutions for practices relating to the extension and collection of consumer credit. If the CFPB, the FTC, acting under the FTC Act or other applicablestatute such as the FDCPA, or one or more state Attorneys General or other state regulators make findings that we have violated any of the applicable lawsor regulations, they could exercise their enforcement powers in ways that could have an adverse effect on our business, results of operations, cash flows, orfinancial condition. 13Table of Contents We may become subject to additional costs or liabilities in the future resulting from our own, or our vendors' supervision or examination by theCFPB, or by changes in, or additions to laws and regulations that could adversely affect our results of operations and financial condition. Further, wecannot definitively predict the scope and substance of any such laws or regulations ultimately adopted by the CFPB related to our activities and the exactefforts required by us to comply therewith, nor can we have any way to know with certainty the ultimate impact on our business, results of operations, andfinancial condition that such regulations may have. Investigations or enforcement actions by governmental authorities may result in changes to our business practices; negatively impact ourreceivables portfolio purchasing volume; make collection of receivables more difficult or expose us to the risk of fines, penalties, restitution paymentsand litigation. Our business practices are subject to review from time to time by various governmental authorities and regulators, including the Consumer FinancialProtection Bureau ("CFPB"), who may commence investigations or enforcement actions or reviews targeted at businesses in the financial servicesindustry. These reviews may involve governmental authority consideration of individual consumer complaints, or could involve a broader review of ourdebt collection policies and practices. Such investigations could lead to assertions by governmental authorities that we are not complying withapplicable laws or regulations. In such circumstances, authorities may request or seek to impose a range of remedies that could involve potentialcompensatory or punitive damage claims, fines, restitution payments, sanctions or injunctive relief, that if agreed to or granted, could require us to makepayments or incur other expenditures that could have an adverse effect on our financial position. Government authorities could also request or seek torequire us to cease certain of our practices or institute new practices. We may also elect to change practices that we believe are compliant with applicable law and regulations in order to respond to the concerns ofgovernmental authorities. In addition, we may become required to make changes to our internal policies and procedures in order to comply with newstatutory and regulatory requirements under the Dodd-Frank Act or other applicable laws. Such changes in practices or procedures could negativelyimpact our results of operations. Negative publicity relating to investigations or proceedings brought by governmental authorities could have an adverseimpact on our reputation, could harm our ability to conduct business with industry participants, and could result in financial institutions reducing oreliminating sales of receivables portfolios to us which would harm our business and negatively impact our financial results. Moreover, changing ormodifying our internal policies or procedures, responding to governmental inquiries and investigations and defending lawsuits or other proceedingscould require significant efforts on the part of management and result in increased costs to our business. In addition, such efforts could divertmanagement's full attention from our business operations. All of these factors could have an adverse effect on our business, results of operations, andfinancial condition. We may not be able to purchase consumer receivable portfolios domestically and internationally at favorable prices or on sufficiently favorableterms if at all. Our success in the consumer receivables business segment depends upon the continued availability of consumer receivable portfolios that meet ourpurchasing criteria and our ability to identify and finance the purchases of such portfolios. The availability of consumer receivable portfolios at favorableprices and on terms acceptable to us, if at all, depends on a number of factors outside of our control, including: •the growth in consumer debt; •the volume of consumer receivable portfolios available for sale; •availability of financing to fund purchases; •competitive factors affecting potential purchasers and sellers of consumer receivable portfolios; •possible future changes in the bankruptcy laws, state laws and homestead acts which could make it more difficult for us to collect, and •The foreign exchange rate changes of the countries in which we do business There is no assurance that we will realize the full value of the deferred tax asset. As of September 30, 2018, we had a net deferred tax asset of $10.9 million. Our ability to use our deferred tax asset is dependent on our ability togenerate future earnings within the operating loss carry-forward periods, which are generally 20 years. Some or all of our deferred tax asset could expireunused if we are unable to generate taxable income in the future sufficient to utilize the deferred tax asset, or we enter into transactions that limit our rightto use it. If a material portion of our deferred tax asset expires unused, it could have a material adverse effect on our future business, results of operations,financial condition and the value of our common stock. Our ability to realize the deferred tax asset is periodically reviewed and any necessary valuationallowance is adjusted accordingly. 14Table of Contents Additionally, on December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces theFederal statutory corporate income tax rate from 35% to 21%. This rate reduction had a significant impact on our provisions for income taxes for periodsbeginning after September 30, 2017, including a one-time impact resulting from the revaluation of our deferred tax assets and liabilities to reflect the newlower rate. Our assessment of the Act resulted in a one-time charge to income taxes of approximately $4.4 million for the year ended September 30, 2018. We may not be able to collect sufficient amounts on our consumer receivable portfolios to recover the costs associated with the purchase of thoseportfolios and to fund our operations. We acquire and collect on consumer receivable portfolios that contain charged-off receivables. In order to operate profitably over the long term, wemust continually purchase and collect on a sufficient volume of receivables to generate revenue that exceeds our purchase costs. For accounts that arecharged-off or semi-performing, the originators or interim owners of the receivables generally have: •made numerous attempts to collect on these obligations, often using both their in-house collection staff and third-party collectionagencies; and/or •subsequently deemed these obligations to be uncollectible. These receivable portfolios are purchased at significant discounts to the amount the consumers owe. These receivables are difficult to collect andactual recoveries may be less than the amount expected. In addition, our collections may worsen in a weak economic cycle. We may not recover amountsin excess of our acquisition and servicing costs. Our ability to recover the purchase costs on our portfolios and produce sufficient returns can be negatively impacted by the quality of the purchasedreceivables. In the normal course of our portfolio acquisitions, some receivables may be included in the portfolios that fail to conform to certain terms ofthe purchase agreements and we may seek to return these receivables to the seller for payment or replacement receivables. However, we cannot guaranteethat any of such sellers will be able to meet their payment obligations to us. Accounts that we are unable to return to sellers may yield no return. If cashflows from operations are less than anticipated as a result of our inability to collect sufficient amounts on our receivables, our ability to satisfy our debtobligations, purchase new portfolios, and achieve future growth and profitability may be materially adversely affected. We may be subject to competition for the purchase of international consumer receivable portfolios which may result in an increase in prices of suchportfolios. We compete with other purchasers of consumer receivable portfolios, with third-party collection agencies and with financial services companies thatmanage their own consumer receivable portfolios. We compete on the basis of price, reputation, industry experience and performance. Some of ourcompetitors have greater capital, personnel and other resources than we have. The possible entry of new competitors, including competitors thathistorically have focused on the acquisition of different asset types, and the expected increase in competition from current market participants may reduceour access to consumer receivable portfolios. Aggressive pricing by our competitors has raised the price of consumer receivable portfolios above levelsthat we are willing to pay, which could reduce the number of consumer receivable portfolios suitable for us to purchase or if purchased by us, reduce theprofits, if any, generated by such portfolios. If we are unable to purchase receivable portfolios at favorable prices or at all, our finance income andearnings could be materially reduced. We depend upon third parties to service a significant portion of our domestic and international consumer receivable portfolios. The loss of certainservicers could have an adverse effect on our financial position and results of operation. At September 30, 2018, 31% of our portfolio face value, which represents approximately 87% of our portfolio face value at all third party collectionagencies and attorneys, is serviced by five organizations domestically and one organization internationally, we are dependent upon the efforts of thesecollection agencies and attorneys to service and collect our consumer receivables. Any failure by our third-party collection agencies and attorneys toadequately perform collection services for us or remit such collections to us could materially reduce our finance income and our profitability. In addition,our finance income and profitability could be materially adversely affected if we are not able to secure replacement third party collection agencies andattorneys and redirect payments from the customers to our new third party collection agencies and attorneys promptly in the event our agreements withour third-party collection agencies and attorneys are terminated, our third-party collection agencies and attorneys fail to adequately perform theirobligations or if our relationships with such third-party collection agencies and attorneys adversely change. 15Table of Contents We may rely on third parties to locate, identify and evaluate consumer receivable portfolios available for purchase. We may rely on third parties, including brokers and third-party collection agencies and attorneys, to identify consumer receivable portfolios and, insome instances, to assist us in our evaluation and purchase of these portfolios. As a result, if such third parties fail to identify receivable portfolios or if ourrelationships with such third parties are not maintained, our ability to identify and purchase additional receivable portfolios could be materiallyadversely affected. In addition, if we, or such parties, fail to correctly or adequately evaluate the value or collectability of these consumer receivableportfolios, we may pay too much for such portfolios and suffer an impairment, which would negatively impact our earnings. We rely on our third party collectors to comply with all rules and regulations and maintain proper internal controls over their accounting andoperations. Because the receivables were originated and serviced pursuant to a variety of federal and/or state laws by a variety of entities and involvedconsumers in all 50 states, the District of Columbia, Puerto Rico, Columbia and Peru, there can be no assurance that all original servicing entities have, atall times, been in substantial compliance with applicable law. Additionally, there can be no assurance that we or our third-party collection agencies andattorneys have been or will continue to be at all times in substantial compliance with applicable law. The failure to comply with applicable law and notmaintain proper controls in accounting and operations could materially adversely affect our ability to collect our receivables and could subject us toincreased costs, fines and penalties. Our collections may decrease if bankruptcy filings increase. During times of economic uncertainty, the amount of defaulted consumer receivables generally increases, which contributes to an increase in theamount of personal bankruptcy filings. Under certain bankruptcy filings, a debtor’s assets are sold to repay credit originators, but since the defaultedconsumer receivables we purchase are generally unsecured, we may not be able to collect on those receivables. Our collections may decline with anincrease in bankruptcy filings. If our actual collection experience with respect to a defaulted consumer receivable portfolio is significantly lower than weprojected when we purchased the portfolio, our earnings could be negatively affected. We are subject to various risks in connection with our litigation funding business. Risks of the litigation funding business include the potential regulation or limitation of interest rates and other fees advanced by our litigationfunding subsidiaries under federal and/or state regulation, a change in statutory or case law which limits or restricts the ability of our litigation fundingsubsidiaries to charge or collect fees and interest at anticipated levels, claimants being unsuccessful in whole or in part in the personal injury claims ordivorce settlement upon which our funds are provided, the continued services of the senior management of our litigation funding subsidiaries to sourceand analyze cases in accordance with the subsidiaries’ respective underwriting guidelines. The loss of any of our executive officers may adversely affect our operations and our ability to successfully acquire receivable portfolios. Our executive officers are responsible for making substantially all management decisions, including determining which portfolios to purchase, thepurchase price and other material terms of such portfolio acquisitions. These decisions are instrumental to the success of our business. Significant lossesof the services of our executive officers or the inability to replace our officers with individuals who have experience in the industry or with the Companycould disrupt our operations and adversely affect our ability to successfully acquire receivable portfolios. The Stern family effectively controls the Company, substantially reducing the influence of our other stockholders. Members of the Stern family own directly or indirectly, approximately 59% of our outstanding shares of common stock as of September 30, 2018.Through January 6, 2019, the Stern family, in conjunction with a voting agreement signed with an activist shareholder in January 2017; is limited tovoting up to 49% of the outstanding shares. As a result, the Stern family is able to significantly influence the actions that require stockholder approval,including: •the election of our directors; and •the approval of mergers, sales of assets or other corporate transactions or matters submitted for stockholder approval. 16Table of Contents As a result, our other stockholders may have reduced influence over matters submitted for stockholder approval. In addition, the Stern family’sinfluence could discourage any unsolicited acquisition of the Company and, consequently, materially adversely affect the price of our common stock. Negative press regarding the debt collection industry may have a negative impact on a customer’s willingness to pay the debt we acquire. Consumers are exposed to information from a number of sources that may cause them to be more reluctant to pay their debts or to pursue legalactions against us. Online, print and other media publish stories about the debt collection industry which cite specific examples of abusive collectionpractices. These stories can lead to the rapid dissemination of the story, adding to the level of exposure to negative publicity about our industry. Variousinternet sites are maintained where consumers can list their concerns about the activities of debt collectors and seek guidance from other website posterson how to handle the situation. Advertisements by debt relief attorneys and credit counseling centers are becoming more common, adding to the negativeattention given to our industry. As a result of this negative publicity, customers may be more reluctant to pay their debts or could pursue legal actionagainst us regardless of whether those actions are warranted. These actions could impact our ability to collect on the receivables we acquire and affect ourrevenues and profitability. Class action suits and other litigation could divert our management’s attention from operating our business and increase our expenses. Originators, debt purchasers and third-party collection agencies and attorneys in the consumer credit industry are frequently subject to putativeclass action lawsuits and other litigation. Claims include failure to comply with applicable laws and regulations and improper or deceptive originationand servicing practices. Being a defendant in such class action lawsuits or other litigation could materially adversely affect our results of operations andfinancial condition. Economic slowdowns increase our credit losses. During periods of economic slowdown or recession, we experience an increase in rates of delinquencies and frequency and severity of credit losses.Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown orrecession than those experienced by more traditional providers of consumer credit because of our focus on the financially underserved consumer market,which may be disproportionately impacted. Because a significant portion of our reported income is based on management’s estimates of the future performance of our asset portfolios and feesreceivable, differences between actual and expected performance of the receivables may cause fluctuations in net income. Significant portions of our reported income (or losses) are based on management’s estimates of cash flows we expect to receive on our assetportfolios and fees receivable, particularly for such assets that we report based on fair value. The expected cash flows are based on management’sestimates of interest rates, default rates, payment rates, cardholder purchases, servicing costs, and discount rates. These estimates are based on a variety offactors, many of which are not within our control. Substantial differences between actual and expected performance of the receivables will occur andcause fluctuations in our net income. For instance, higher than expected rates of delinquencies and losses could cause our net income to be lower thanexpected. Similarly, levels of loss and delinquency can result in our being required to repay our lenders earlier than expected, thereby reducing fundsavailable to us for future growth. We may determine to incur near-term losses based on longer-term strategic considerations. We may consider long-term strategic considerations more important than near-term economic gains when assessing business arrangements andopportunities. We may nevertheless determine to participate in, or structure, future financing transactions based on longer-term strategic considerations. We may experience losses on portfolios consisting of new types of receivables or receivables in new geographies due to our lack of collectionexperience with these receivables, which could harm our business, financial condition and operating results. We continually look for opportunities to expand the classes of assets that make up the portfolios we acquire. Therefore, we may acquire portfoliosconsisting of assets with which we have little or no collection experience or portfolios of receivables in new geographies where we do not historicallymaintain an operational footprint. Our lack of experience with these assets may hinder our ability to generate expected levels of profits from theseportfolios. Further, our existing methods of collections may prove ineffective for these new receivables, and we may not be able to collect on theseportfolios. Our inexperience with these receivables may have an adverse effect on our business, financial condition and operating results. 17Table of Contents We may not be able to manage our growth effectively, including the expansion of our foreign operations. Continued growth will place additional demands on our resources, and we cannot be sure that we will be able to manage our growth effectively. Forexample, continued growth could place strains on our management, operations, and financial resources that our infrastructure, facilities, and personnelmay not be able to adequately support. In addition, the recent expansion of our foreign operations subjects us to a number of additional risks anduncertainties, including: ■compliance with and changes in international laws, including regulatory and compliance requirements that could affect our business; ■increased exposure to U.S. laws that apply abroad, such as the Foreign Corrupt Practices Act; ■social, political and economic instability or recessions; ■fluctuations in foreign economies and currency exchange rates; ■difficulty in hiring, staffing and managing qualified and proficient local employees and advisors to run international operations; ■the difficulty of managing and operating an international enterprise, including difficulties in maintaining effective communications withemployees due to distance, language, and cultural barriers; ■difficulties implementing and maintaining effective internal controls and risk management and compliance initiatives; ■potential disagreements with our joint venture business partners; ■differing labor regulations and business practices; and ■foreign tax consequences. To support our growth and improve our international operations, we continue to make investments in infrastructure, facilities, and personnel in ouroperations; however, these additional investments may not be successful or our investments may not produce profitable results. If we cannot manage ourgrowth effectively, our business, financial condition and operating results may be adversely affected. We may seek to make acquisitions that prove unsuccessful or strain or divert our resources. We may seek to grow through acquisitions of related businesses in the financial services sector. Such acquisitions present risks that could materiallyadversely affect our business and financial performance, including: •the diversion of our management’s attention from our everyday business activities; •the assimilation of the operations and personnel of the acquired business; •the contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, the acquired business; and •the need to expand management, administration and operational systems. If we make such acquisitions, we cannot predict whether: •we will be able to successfully integrate the operations of any new businesses into our business; •we will realize any anticipated benefits of completed acquisitions; or •there will be substantial unanticipated costs associated with acquisitions. In addition, future acquisitions by us may result in: •potentially dilutive issuances of our equity securities; 18Table of Contents •the incurrence of debt; and •the recognition of significant charges for depreciation and impairment charges related to goodwill and other intangible assets. If our technology infrastructure is not operational, our operations could be disrupted and our ability to successfully operate the business could becompromised. Our success depends, in part, on sophisticated telecommunications and computer systems. The temporary loss of our computer ortelecommunications systems, through casualty, operating malfunction or service provider failure, could disrupt our operations. In addition, we mustrecord and process significant amounts of data quickly and accurately to properly bid on prospective acquisitions of receivable portfolios and to access,maintain and expand the databases we use for our collection and monitoring activities. Any failure of our information systems and their backup systemscould interrupt our operations. We may not have adequate backup arrangements for all of our operations and we may incur significant losses if an outageoccurs. In addition, we rely on third-party collection agencies and attorneys who also may be adversely affected in the event of an outage in which thethird-party collection agencies and attorneys do not have adequate backup arrangements. Any interruption in our operations or our third-party collectionagencies’ and attorneys’ operations could have an adverse effect on our results of operations and financial condition. We have implemented a disasterrecovery program to mitigate this risk. A cyber security incident could have a negative effect on our business as we outsource a significant amount of the collection accounts with personalinformation electronically. A security breach could have a detrimental effect on our business as we maintain a significant amount of personal information in our electronic files.A breach of our system or a leak of the personal information we maintain could leave us vulnerable to, among other things, loss of information andpotential litigation each of which could have a material adverse effect on our business. Our organizational documents and Delaware law may make it harder for us to be acquired without the consent and cooperation of our board ofdirectors and management. Several provisions of our organizational documents and Delaware law may deter or prevent a takeover attempt, including a takeover attempt inwhich the potential purchaser offers to pay a per share price greater than the current market price of our common stock. Under the terms of our certificateof incorporation, our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or moreseries and to fix the rights, preferences, privileges and restrictions thereof. The ability to issue shares of preferred stock could tend to discourage takeoveror acquisition proposals not supported by our current board of directors. In addition, we are subject to Section 203 of the Delaware General CorporationLaw, which restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. Future sales of our common stock by our affiliates or other stockholders may depress our stock price. Sales of a substantial number of shares of our common stock in the public market could cause a decrease in the market price of our common stock.We had 6,685,415 shares of common stock issued and outstanding as of December 20, 2018. Of these shares, 3,998,727 are owned by affiliates of thecompany, which are defined as in Rule 405 under the Act as a “person that directly, or indirectly through one or more intermediaries, controls, iscontrolled by, or is under common control with”, an issuer. In addition, options to purchase 728,867 shares of our common stock were outstanding as ofSeptember 30, 2018, of which 710,694 were exercisable. We may also issue additional shares in connection with our business and may grant additionalstock options or restricted shares to our employees, officers, directors and consultants under our present or future equity compensation plans or we mayissue warrants to third parties outside of such plans. As of September 30, 2018, there were 1,323,343 shares available for such purpose with such sharesavailable under the 2012 Stock Option and Performance Award Plan. If a significant portion of these shares were sold in the public market, the marketvalue of our common stock could be adversely affected. We have the ability to issue preferred shares, warrants, convertible debt and other securities without stockholder approval which could dilute therelative ownership interest of current stockholders and adversely affect our share price. Future sales of our equity-related securities in the public market, could adversely affect the trading price of our common stock and our ability toraise funds in new stock offerings. Our common shares may be subordinate to classes of preferred shares issued in the future in the payment of dividendsand other distributions made with respect to common shares, including distributions upon liquidation or dissolution. Our certificate of incorporationpermits our board of directors to issue preferred shares without first obtaining stockholder approval. If we issued preferred shares, these additionalsecurities may have dividend or liquidation preferences senior to our common shares. If we issue convertible preferred shares, a subsequent conversionmay dilute the current common stockholders’ interest. We have similar abilities to issue convertible debt, warrants and other equity securities. 19Table of Contents Climate change and related regulatory responses may adversely impact our business. Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatoryresponses in the near future, including the imposition of a so-called “cap and trade” system. It is impracticable to predict with any certainty the impact onour business of climate change or the regulatory responses to it, although we recognize that they could be significant. The most direct impact is likely tobe an increase in energy costs, which would increase slightly our operating costs, primarily through increased utility and transportations costs. Inaddition, increased energy costs could impact consumers and their ability to incur and repay indebtedness. However, it is too soon for us to predict withany certainty the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses. Our quarterly operating results may fluctuate and cause our stock price to decline. Because of the nature of our business, our quarterly operating results may fluctuate, which may adversely affect the market price of our commonstock. Our results may fluctuate as a result of any of the following: •the timing and amount of collections on our consumer receivable portfolios; •our inability to identify and acquire additional consumer receivable portfolios; •a decline in the estimated future value of our consumer receivable portfolio recoveries; •increases in operating expenses associated with the growth of our operations; •general and economic market conditions; and within various jurisdictions; and •prices we are willing to pay for consumer receivable portfolios. Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies. Our primary exposure to movements in foreign currency exchange rates relates to non- U.S. dollar denominated sales and operating expensesworldwide. The Company does not use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures tofluctuations in foreign currency exchange rates. Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of oursecurities. Responding to activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management andour employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election of directors at ourannual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by managementand our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities. We are a “smaller reporting company” and, as such, are allowed to provide less disclosure than larger public companies. We are currently a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act. As a “smaller reporting company,” we have certaindecreased disclosure obligations in our SEC filings, which may make it harder for investors to analyze our results of operations and financial prospectsand may result in less investor confidence. Item 2. Properties Our executive and administrative offices are located in Englewood Cliffs, New Jersey, where we lease approximately 13,400 square feet of generaloffice space. The lease was renewed September 1, 2015 and expires on August 31, 2020. Our office in Houston, Texas occupies approximately 900 square feet of general office space. The lease expires on August 31, 2019. 20Table of Contents We believe that our existing facilities are adequate for our current needs. Item 3. Legal Proceedings. In the ordinary course of our business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using third partylaw firms, against consumers. Also, consumers occasionally initiate litigation against us, in which they allege that we have violated a federal or state lawin the process of collecting on their account. We do not believe that these ordinary course matters are material to our business and financial condition. Asof the date of this report, we were not involved in any material litigation in which we were a defendant. Originators, debt purchasers and third-party collection agencies and attorneys in the consumer credit industry are frequently subject to putativeclass action lawsuits and other litigation. Claims include failure to comply with applicable laws and regulations and improper or deceptive originationand servicing practices. Being a defendant in such class action lawsuits or other litigation could materially adversely affect our results of operations andfinancial condition. Legal proceedings are subject to substantial uncertainties concerning the outcome of material factual and legal issues relating to the litigation.Accordingly, we cannot currently predict the manner and timing of the resolution of some of these matters and may be unable to estimate a range ofpossible losses or any minimum loss from such matters. Item 4. Mine Safety Disclosures. Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Our Common Stock Our common stock is quoted on the NASDAQ Global Select Market under the symbol “ASFI.” High and low sales prices of our common stock asreported by NASDAQ are set forth below for the periods indicated (such quotations reflect inter-dealer prices without retail markup, markdown, orcommission, and may not necessarily represent actual transactions): High Low Fiscal Year 2017 October 1, 2016 to December 31, 2016 $10.47 $8.65 January 1, 2017 to March 31, 2017 10.35 7.75 April 1, 2017 to June 30, 2017 9.05 6.15 July 1, 2017 to September 30, 2017 8.40 6.80 Fiscal Year 2018 October 1, 2017 to December 31, 2017 $8.45 $7.05 January 1, 2018 to March 31, 2018 11.50 3.55 April 1, 2018 to June 30, 2018 4.05 3.25 July 1, 2018 to September 30, 2018 4.75 2.80 Dividends Future dividend payments will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capitalrequirements and any other factors our board of directors deems relevant. In addition, our agreements with our lender may, from time to time, restrict ourability to pay dividends. Currently there are no restrictions in place. We did not declare any dividends during fiscal year 2017. However, on February 5,2018, we declared a special cash dividend in the amount of $5.30 per share with respect to our common stock, which was paid on February 28, 2018 toholders of record at the close of business on February 16, 2018. The aggregate payment to shareholders was approximately $35.4 million. Holders of Our Common Stock On September 30, 2018, there were 18 holders of record of our common stock. 21Table of Contents Issuer Purchases of Equity Securities The Company did not repurchase any shares of its common stock during the three months ended September 30, 2018. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation. Caution Regarding Forward-Looking Statements This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Annual Report on Form 10-Kare based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number offactors, including those set forth under the caption “Risk Factors” contained in this report and elsewhere herein. The following should be read inconjunction with our annual financial statements contained elsewhere in this report. Overview We are engaged in the businesses of acquiring, managing, servicing and recovering on portfolios of consumer receivables, assisting claimants in theprocess of social security disability claims and funding personal injury claims. For the current year period from October 1, 2017 to January 12, 2018, Pegasus was 80% owned, and accounted for under the equity method. OnJanuary 12, 2018, the Company acquired the remaining 20% minority shareholder's interest in Pegasus, changed its name to Sylvave and now currentlyowns 100% of Sylvave. Commencing on the date of acquisition, the Company consolidated the financial results of this entity. Consumer Receivables The consumer receivable portfolios generally consist of charged-off receivables, which are accounts that have been written-off by the originatorsand may have been previously serviced by collection agencies. We acquire these consumer receivable portfolios at a significant discount to the amount actually owed by the borrowers. We acquire theseportfolios after a qualitative and quantitative analysis of the underlying receivables and calculate the purchase price so that our estimated cash flow offersus an adequate return on our investment after servicing expenses. After purchasing a portfolio, we actively monitor its performance and review and adjustour collection and servicing strategies accordingly. We purchase receivables from credit grantors and others through privately negotiated direct sales, brokered transactions and auctions in whichsellers of receivables seek bids from several pre-qualified debt purchasers. We pursue new acquisitions of consumer receivable portfolios on an ongoingbasis through: •our relationships with industry participants, financial institutions, collection agencies, investors and our financing sources; •brokers who specialize in the sale of consumer receivable portfolios; and •other sources. Personal Injury Claims Acquisition of Equity Method Investment On December 28, 2011, the Company entered into a joint venture, Pegasus Funding, LLC ("Pegasus"), with Pegasus Legal Funding, LLC (“PLF”).The Company historically had an 80% non-controlling interest in the joint venture from the date of formation through January 12, 2018. Pegasuspurchases interests in claims from claimants who are a party to personal injury litigation. Pegasus advances, to each claimant, funds, on a non-recoursebasis at an agreed upon interest rate, in anticipation of a future settlement. The interest in each claim purchased by Pegasus consists of the right to receive,from such claimant, part of the proceeds or recoveries which such claimant receives by reason of a settlement, judgment or award with respect to suchclaimant’s claims. 22Table of Contents On November 8, 2016, the Company entered into a binding Term Sheet (the “Term Sheet”) with ASFI Pegasus Holdings, LLC, Fund Pegasus, LLC,Pegasus Funding, LLC, Pegasus Legal Funding, LLC, Max Alperovich and Alexander Khanas. Pursuant to the Term Sheet, the parties thereto have agreedthat Pegasus would continue in existence in order to collect advances on its existing Portfolio. The Company and PLF decided not to renew the Pegasusjoint venture that, by its terms, was scheduled to terminate on December 28, 2016. The Company would fund overhead expenses relating to the collection of its Portfolio based on a budget agreed upon by the Company and PLF.Any cash received by Pegasus would be distributed to its members in the order provided for in the Operating Agreement. The Company would be repaidan amount equal to 20% of all principal collected on each investment paid back beginning October 1, 2016 and continuing through the collection of thePortfolio, which would be applied against the outstanding balance of overhead expenses previously advanced by the Company to Pegasus. After January2, 2017, additional overhead expenses advanced would be paid back monthly as incurred by the Company prior to the calculation and distribution of anyprofits. The Company filed for arbitration with the American Arbitration Association ("AAA") against Pegasus in April 2017 for breaches in the Operatingand Term Sheet. On January 12, 2018, the Company, ASFI and Fund Pegasus entered into a Settlement Agreement and Release (the “Settlement Agreement”) by andamong the Company, ASFI, Fund Pegasus, Pegasus, the Seller, Max Alperovich, Alexander Khanas, Larry Stoddard, III, Louis Piccolo and A.L. Piccolo &Co., Inc., a New York corporation. The Settlement Agreement releases certain claims in exchange for, among other things, the parties' entry into thePurchase Agreement. Additionally, on January 12, 2018, ASFI Pegasus Holdings, LLC (“ASFI”), a Delaware limited liability company and a subsidiary of Asta Funding,Inc. (the “Company” or “Asta”), a Delaware corporation, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement) with PegasusLegal Funding, LLC, a Delaware limited liability company (the “Seller”). Under the Purchase Agreement, ASFI bought the Seller’s ownership interests ofPegasus Funding, LLC (“Pegasus”), which was 20% of the issued and outstanding limited liability company interests of Pegasus, for an aggregatepurchase price of $1.8 million. As a result of the execution of the Purchase Agreement, ASFI became the owner of 100% of the limited liability companyinterests of Pegasus, and recognized a loss on acquisition of $1.4 million, which is recorded in the Company’s consolidated financial statements.Immediately on acquisition, the Company changed the name from Pegasus to Sylvave. Simia and Sylvave On November 11, 2016, the Company formed Simia, a wholly owned subsidiary, to continue its personal injury claims funding business. Simiacommenced operation in January 2017, and conducts its business solely in the United States. As noted in Note 5 - Equity Method Investments in the Company's notes to consolidated financial statements, effective January 12, 2018, theCompany now accounts for Sylvave, its wholly owned subsidiary, on a consolidated basis. Simia and Sylvave remain in operation to continue to collecton their outstanding personal injury claim portfolios, but will not be funding any new advances to claimants. Practical Funding The Company formed a new wholly owned subsidiary, Practical Funding on March 16, 2018 to continue in the personal injury claims fundingbusiness. To date, Practical Funding has not funded any advances on personal injury claims. Divorce Funding On May 8, 2012, the Company formed EMIRIC, LLC, a wholly owned subsidiary of the Company. EMIRIC, LLC entered into a joint venture withCalifornia-based Balance Point Divorce Funding, LLC (“BP Divorce Funding”). The Venture provides non-recourse funding to a spouse in a matrimonialaction where the marital assets exceed $2.0 million. Such funds can be used for legal fees, expert costs and necessary living expenses. The Venturereceives an agreed percentage of the proceeds received by such spouse upon final resolution of the case. BP Divorce Funding's profits and losses will bedistributed 60% to BPCM and 40% to BP Divorce Funding, after the return of BPCM’s investment on a case by case basis and after a 15% preferred returnto us. BPCM’s initial investment in the Venture consisted of up to $15 million to fund divorce claims to be fulfilled in three tranches of $5 million each.Each investment tranche is contingent upon a minimum 15% cash-on-cash return to us. At BPCM’s option, there could be an additional $35 millioninvestment in divorce claims in tranches of $10 million, $10 million, and $15 million, also with a 15% preferred return and such investments may evenexceed a total of $50 million, at BPCM’s sole option. Should the preferred return be less than 15% on any $5 million tranche, the 60%/40% profit andloss split would be adjusted to reflect BPCM’s priority to a 15% preferred return. As of September 30, 2018 and 2017, BPCM had fully reserved againstits invested amount of $2.5 million, in cases managed by this Venture. There was no income recognized for the years ended September 30, 2018 and2017. 23Table of Contents In 2012, the Company provided a $1.0 million revolving line of credit to partially fund BP Divorce Funding’s operations with such loan bearinginterest at the prevailing prime rate with an initial term of twenty four months. In September 2014, the agreement was revised to extend the term of theloan to August 2016, increase the credit line to $1.5 million and include a personal guarantee of the principal of BP Divorce Funding. The revolving lineof credit is collateralized by BP Divorce Funding’s profits share in the venture and other assets. Effective August 14, 2016, BPCM extended its revolvingline of credit with BP Divorce Funding until March 31, 2017, at substantially the same terms as the September 2014 amendment. On April 1, 2017, BPDivorce Funding defaulted on this agreement, and as such, the loan balance of approximately $1.5 million was deemed uncollectible and was written offin general and administrative expenses in the consolidated statement of operations during the year ended September 30, 2017. Social Security Disability Advocacy Business GAR Disability Advocates and Five Star are disability advocacy groups, which for a fee obtains and represents individuals in their claims for socialsecurity disability, supplemental security income benefits from the Social Security Administration and veterans benefits with the Veteran'sAdministration. Structured Settlement Business- Discontinued Operations On December 13, 2017, we sold all of our issued and outstanding equity capital in CBC Settlement Funding, LLC (“CBC”), our wholly ownedsubsidiary engaged in structured settlements. As a result of this sale, all periods presented in our consolidated financial statements will account for CBCas a discontinued operation. This determination resulted in the reclassification of the historical assets and liabilities comprising our structured settlementbusiness to assets and liabilities related to discontinued operations in the consolidated balance sheets, and a corresponding adjustment to ourconsolidated statements of operations to reflect discontinued operations for all periods presented. As of September 30, 2018, the Company had no assetsor liabilities related to discontinued operations. As of September 30, 2017, the Company had total assets related to discontinued operations of $92.2million, and total liabilities related to discontinued operations of $81.8 million. Total revenues for the years ended September 30, 2018 and 2017 were$2.2 million and $7.2 million, respectively. See Note 2 - Discontinued Operations in the Company's notes to the consolidated financial statements. Critical Accounting Policies The Company may account for its investments in consumer receivable portfolios, using either: •the interest method; or •the cost recovery method. Prior to October 1, 2013 the Company accounted for certain of its investments in Consumer receivables using the interest method in accordancewith the guidance of ASC 310 - 30. Under the guidance of ASC 310 - 30, static pools of accounts are established. These pools are aggregated based oncertain common risk criteria. Each static pool is recorded at cost and is accounted for as a single unit for the recognition of income, principal paymentsand loss provision. Effective October 1, 2013, due to the substantial reduction of portfolios reported under the interest method, and the ability toreasonably estimate cash collections required to account for those portfolios under the interest method, the Company concluded the cost recovery methodis the appropriate accounting method in the circumstances. Although the Company has switched to the cost recovery method on its current inventory of portfolios, the Company must still analyze a portfolioupon acquisition to ensure which method is appropriate, and once a static pool is established for a quarter, individual receivable accounts are not addedto the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). The Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. Under the costrecovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized (zero carryingbalance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. The Company aggregates portfolios of receivables acquired sharing specific common characteristics which were acquired within a given quarter. Inaddition, the Company uses a variety of qualitative and quantitative factors to estimate collections and the timing thereof. The Company obtains andutilizes, as appropriate, input, including but not limited to, monthly collection projections and liquidation rates, from third party collection agencies andattorneys, as further evidentiary matter, to assist in evaluating and developing collection strategies and in evaluating and modeling the expected cashflows for a given portfolio. 24Table of Contents The Company accounts for its investments in personal injury claims at an agreed upon interest rate, in anticipation of a future settlement. Theinterest purchased by Pegasus in each claim will consist of the right to receive from such claimant part of the proceeds or recoveries which such claimantreceives by reason of a settlement, judgment or award with respect to such claimant’s claim. Open case revenue is estimated, recognized and accrued at arate based on the expected realization and underwriting guidelines and facts and circumstances for each individual case. These personal injury claims arenon-recourse. When a case is closed and the cash is received for the advance provided to a claimant, revenue is recognized based upon the contractuallyagreed upon interest rate, and, if applicable, adjusted for any changes due to a settled amount and fees charged to the claimant. Management assesses the quality of the personal injury claims portfolio through an analysis of the underlying personal injury fundings on a case bycase basis. Cases are reviewed through periodic updates with attorneys handling the cases, as well as with third party research tools which monitor publicfilings, such as motions or judgments rendered on specific cases. The Company specifically reserves for those fundings where the underlying cases areidentified as uncollectible, due to anticipated non-favorable verdicts and/or settlements at levels where recovery of the advance outstanding is unlikely.For cases that have not exhibited any specific negative collection indicators, the Company establishes reserves based on the historical collection rates ofthe Company’s fundings. Fee income on advances is reserved for on all cases where a specific reserve is established on the initially funded amount. Inaddition, management also monitors its historical collection rates on fee income and establishes reserves on fee income consistent with the historicallyexperienced collection rates. Management regularly analyzes and updates the historical collection rates of its initially funded cases as well as its feeincome. Prior to its sale, CBC purchased periodic payments under structured settlements and annuity policies from individuals in exchange for a lump sumpayment. The Company elected to carry structured settlements at fair value. Unearned income on structured settlements is recognized as interest incomeusing the effective interest method over the life of the related settlement. Changes in fair value are recorded in unrealized gain (loss) in structuredsettlements in our statements of income. US GAAP requires the results of operations of a component of an entity that either has been disposed of or is classified as held for sale to be reportedas discontinued operations in the consolidated financial statements if the sale or disposition represents a strategic shift that has (or will have) a majoreffect on an entity’s operations and financial results. The Company recognizes revenue for GAR Disability Advocates when cases close and fees are collected. The Company accounts for its impairments in accordance with ASC 310, which provides guidance on how to account for differences betweencontractual and expected cash flows from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences areattributable, at least in part, to credit quality. The recognition of income under ASC 310 is dependent on the Company having the ability to developreasonable expectations of both the timing and amount of cash flows to be collected. In the event the Company cannot develop a reasonable expectationas to both the timing and amount of cash flows expected to be collected, ASC 310 permits the change to the cost recovery method. The Company willrecognize income only after it has recovered its carrying value. If collection projections indicate the carrying value will not be recovered, an impairmentis required. The impairment will be equal to the difference between the carrying value at the time of the forecast and the corresponding estimatedremaining future collections. 25Table of Contents Results of Operations The following discussion of our operations and financial condition should be read in conjunction with our financial statements and notesthereto included elsewhere in this report. In these discussions, dollar amounts have been rounded to aid in its presentation. Years Ended September 30, 2018 2017 Finance income, net $15,863,000 $15,920,000 Personal injury claim income (1) 1,084,000 434,000 Disability fee income 4,598,000 5,085,000 Total revenues 21,545,000 21,439,000 Gain on settlements 4,044,000 — Other (expense) income 479,000 (94,000) 26,068,000 21,345,000 General and administrative expenses 15,429,000 31,900,000 Loss on acquisition of minority interest 1,420,000 — Interest expense 20,000 240,000 Impairments of consumer receivables acquired for liquidation 310,000 1,129,000 Earnings from equity method investment (2) (750,000) (4,619,000) 16,429,000 28,650,000 Income (loss) before income taxes from continuing operations 9,639,000 (7,305,000)Income tax expense 5,502,000 1,077,000 Income (loss) from continuing operations 4,137,000 (8,382,000)Loss from discontinued operations, net of tax (80,000) (4,620,000) Net Income (loss) attributable to Asta Funding, Inc. $4,057,000 $(13,002,000) (1) This line item is comprised of the personal injury claims revenue from Simia and Sylvave (2) This line item is comprised of the net earnings from Pegasus from October 1, 2017 to the date of acquisition and Serlefin Peru (reclassified fromfinance income to earnings from equity method investment in the current year). Year Ended September 30, 2018 Compared to the Year Ended September 30, 2017 Finance income. For the fiscal year ended September 30, 2018 (“fiscal year 2018”), finance income from consumer receivables was flat, as theCompany has continued to collect on its existing cost recovered consumer receivable portfolios. During fiscal year 2018, the Company did not purchaseany portfolios. During fiscal year 2017, the Company acquired $35.0 million in face value of new portfolios at a cost of $2.2 million. The portfoliospurchased during fiscal year 2017 are accounted for on the cost recovery method. Net collections decreased $4.9 million, or 21.1%, to $18.6 million for fiscal year 2018 from $23.5 million for fiscal year 2017. During fiscal year2018, gross collections decreased 16.3% to $35.5 million from $42.5 million for fiscal year 2017, reflecting the lower level of purchases over the last fewyears. Commissions and fees associated with gross collections from our third party collection agencies and attorneys decreased $1.9 million, from $18.9million to $17.0 million, or 10.4% for fiscal year 2018, as compared to the same period in the prior year and averaged 47.7% of collections for fiscal year2018 as compared to 44.6% in the same prior year period. 26Table of Contents For the year ended September 30, 2018 and 2017, approximately 84.4% and 67.7% of collections were recognized in finance income, respectively.The increased percentage in 2018, is the result of consumer portfolio's becoming fully recovered in the current year. Disability Fee income. Disability fee income decreased 9.6% or $0.5 million to $4.6 million in fiscal year 2018, compared to $5.1 million in fiscalyear 2017 as a result of decrease in disability claimants cases being settled in the current year, translating into a decrease in closed cases. Gain on settlements. For the year ended September 30, 2018, the Company recorded a gain on settlements of $4.0 million. The settlements were for$3.4 million and $0.6 million from a third party servicer and a third party financial institution, respectively. See Note 10 - Settlements, in the notes to theCompany's consolidated financial statements. Other income (expense). The following table summarizes other income (expense) for the years ended September 30, 2018 and 2017: 2018 2017 Interest and dividend income $475,000 $765,000 Realized losses — (833,000)Other 4,000 (26,000) $479,000 $(94,000) General and administrative expenses. For fiscal year 2018, general and administrative expenses decreased $16.5 million, or 51.6%, to $15.4 millionfrom $31.9 million for the prior year. The decrease in general and administrative expenses is related to decreased bad debt expenses related to ourinvestment in BP Case Management of $4.0 million and the write off our investment in the Topaz fund of $3.4 million, decreased professional feesprimarily related to the Mangrove matter of $4.1 million, decrease in collection expenses of $1.1 million, payroll related expenses $2.8 million,advertising $0.6 million and other operational expenses $0.5 million. Loss on acquisition of minority interest. For the year ended September 30, 2018, the Company recognized a loss on acquisition of minority interestof $1.4 million on the acquisition of the 20% minority interest in Pegasus, purchased by the Company, which was previously owned by PLF Impairments. For fiscal year 2018, the Company recorded an impairment of $0.3 million of its consumer receivable portfolio, compared to $1.1million for fiscal year 2017. For the year ended September 30, 2018, the Company impaired one domestic and two international portfolios which resultedin a charge to expense of $0.1 million and $0.2 million, respectively. For the year ended September 30, 2017, the Company impaired one domestic andfour international portfolios which resulted in a charge to expense of $0.1 million and $1.0 million, respectively. Earnings from equity method investment. For the fiscal year 2018, earnings from equity method investment decreased $3.8 million to $0.8 million,compared to earnings from equity method of $4.6 million for fiscal year 2017, primarily due to acquisition of the remaining 20% of the non controllinginterest on January 12, 2018, no current year fundings and subsequent income being recorded as part of our personal injury claims income from Sylvaveand Simia in the consolidated statement of operations. Net income before taxes - Consumer Receivables. Net income before taxes increased $5.3 million, to $17.8 million for fiscal year 2018, as comparedto $12.5 million for fiscal year 2017, primarily due to settlement income of $4.0 million, decrease in impairment charges of $0.9 million and decrease incollection expenses $1.0 million partially offset by unfavorable foreign exchange loss of $0.6 million. Net loss before taxes - Social Security Disability Advocacy. Net income before taxes increased $2.8 million to $1.1 million for fiscal year 2018,compared to a net loss of $1.7 million for fiscal year 2017, as a result of decreased revenues of $0.5 million offset by various planned cost reductionmeasures (payroll related $1.8 million, advertising $0.6 million, professional fees $0.3 million, postage of $0.3 million and other operational expenses$0.3 million). Income tax expense (benefit). Income tax expense of $5.5 million was recorded for fiscal year 2018, consisting of a $3.7 million current income taxexpense and a $1.8 million deferred income tax expense. The tax benefit on discontinued operations was $44,000 and there was income tax expense of$5.5 million on continuing operations. The state portion of the income tax provision for the fiscal year 2017 has been offset against state net operatingloss carry forwards, and, as a result, no state taxes were payable. 27Table of Contents Discontinued operations. Loss from discontinued operations, net of tax, decreased $4.5 million or 98.2% to a loss from discontinued operations of$0.1 million in fiscal year 2018, compared to loss from discontinued operations of $4.6 million in fiscal year 2017. The decrease in current year loss wasprimarily due to the sale of CBC during the first quarter of the current fiscal year. Net income (loss). As a result of the above, the Company had net income of $4.1 million for fiscal year 2018, compared to net loss of $13.0 millionfor fiscal year 2017. Liquidity and Capital Resources At September 30, 2018, the Company had $6.3 million in cash and cash equivalents, as well as $38.1 million in level 1 securities that are classifiedas available for sale, on hand and no debt. In addition, the Company had working capital of $84 million at September 30, 2018. We believe that our available cash resources and expected cash inflows from operations will be sufficient to fund operations for the next twelvemonths. Receivables Financing Agreement In March 2007, Palisades XVI borrowed approximately $227 million under the Receivables Financing Agreement, as amended in July2007, December 2007, May 2008, February 2009, October 2010 and August 2013 from BMO, in order to finance the Great Seneca Portfolio Purchase (the“Portfolio Purchase”) which had a purchase price of $300 million. The original term of the agreement was three years. This term was extended by each ofthe Second, Third, Fourth, Fifth Amendments and the most recent agreement signed in August 2013, discussed below. Financing Agreement. The Settlement Agreement and Omnibus Amendment (“Settlement Agreement”) was in effect on August 7, 2013, PalisadesXVI, a 100% owned bankruptcy remote subsidiary, entered into a Settlement Agreement with BMO as an amendment to the Receivables FinancingAgreement. In consideration for a $15 million prepayment funded by the Company, BMO has agreed to significantly reduce minimum monthlycollection requirements and the interest rate. If and when BMO were to receive the next $15 million of collections from the Portfolio Purchase, (the“Remaining Amount”) less certain credits for payments made prior to the consummation of the Settlement Agreement, the Company would be entitled torecover from future net collections the $15 million prepayment that it funded. Thereafter, BMO would have the right to receive 30% of future netcollections. Upon repayment of the Remaining Amount to BMO, the Company would be released from the remaining contractual obligation of theReceivables Financing Agreement (“RFA”) and the Settlement Agreement. On June 3, 2014, Palisades XVI finished paying the Remaining Amount. The final principal payment of $2.9 million included a voluntaryprepayment of $1.9 million provided from funds of the Company. Accordingly, Palisades XVI was entitled to receive $16.9 million of future collectionsfrom the Portfolio Purchase before BMO is entitled to receive any payments with respect to its Income Interest. During the month of June 2016, theCompany received the balance of the $16.9 million, and, as of September 30, 2018, the Company recorded a liability to BMO of approximately$117,000. The funds were subsequently remitted to BMO on October 10, 2018. The liability to BMO is recorded when actual collections are received. With the payment of the Remaining Amount and upon completion of the documents granting the Palisades XVI Income Interest, including awritten confirmation from BMO that the obligation has been paid in full, Palisades XVI has been released from further debt obligations from the RFA. Cash Flow As of September 30, 2018, our cash and cash equivalents decreased $11.3 million to $6.3 million, from $17.6 million at September 30, 2017. Net cash provided by operating activities was $4.0 million during the fiscal year ended September 30, 2018, as compared to $11.9 million used inoperating activities for the fiscal year ended September 30, 2017. The increase in cash provided by operating activities is primarily due to change inprepaid and income taxes receivable of $12.1 million and earnings from equity method investment of $3.9 million. Net cash provided by investingactivities was $18.5 million during the fiscal year ended September 30, 2018, as compared to $55.6 million provided by investing activities during thefiscal year ended September 30, 2017. The decrease in cash provided by investing activities is primarily due to higher proceeds from sales of available-for-sale securities in the prior fiscal year. Net cash used in financing activities was $33.6 million during the fiscal year ended September 30, 2018, ascompared to net cash used in financing activities of $42.7 million during the fiscal year ended September 30, 2017. The decrease in cash used infinancing activities during the current year was primarily due to the purchase of treasury stock in the prior fiscal year, partially offset by payment of aspecial dividend in the current fiscal year. 28Table of Contents Our cash requirements have been and will continue to be significant to operate our various lines of business. Significant requirements include costsinvolved in the collections of consumer receivables, investment in consumer receivable portfolios and investment in personal injury claims. In addition,dividends could be paid if and when approved by the Board of Directors. Acquisitions recently have been financed through cash flows from operatingactivities. We believe we will not be dependent on a credit facility in the short-term, as our cash balances will be sufficient to invest in personal injuryclaims, purchase portfolios and finance the disability advocacy business. We believe our available cash resources and expected cash flows from operations will be sufficient to fund operations for the next twelve months.We do not expect to incur any material capital expenditures during the next twelve months. We are cognizant of the current market fundamentals in the debt purchase and company acquisition markets which, because of significant supplyand tight capital availability, could result in increased buying opportunities. The outcome of any future transaction(s) is subject to market conditions. Inaddition, due to these opportunities, we continue to seek opportunities with banking organizations and others on a possible financing loan facility. Off-Balance Sheet Arrangements As of September 30, 2018, we did not have any off balance sheet arrangements. Recent Accounting Pronouncements In May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers,” that will supersede virtually all existing revenueguidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount thatreflects the entitled consideration received in exchange for those goods or services. The guidance also requires additional disclosure about the nature,amount, timing, and uncertainty of revenue and cash flows arising from the customer contracts. This update is effective for annual reporting periodsbeginning after December 15, 2017 including interim periods within that reporting period. Early application is permitted for annual reporting periodsbeginning after December 15, 2016, including interim periods within that reporting period. The Company has completed its initial assessment of the new standard, including a detailed review of the Company’s revenue streams to identifypotential differences in accounting as a result of the new standard, and selected the modified retrospective method. Based on the Company’s initialassessment, we do not believe that the adoption of the standard and related amendments will have a significant impact on our revenue recognitionpatterns, assuming that our revenue streams will be similar to those currently in place are in effect at the time of our adoption. Through the date ofadoption, we will continue to evaluate the impacts of the standard to ensure that our preliminary conclusions continue to remain accurate. Additionally,we will continue our assessment of the impact of the standard on our financial statement disclosures which are expected to be more extensive based on therequirements of the new standard. In January 2016, the FASB issued Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The mainobjective in developing this update is enhancing the reporting model for financial instruments to provide users of financial statements with moredecision-useful information. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financialinstruments. The effective date for this update is for annual reporting periods beginning after December 15, 2017, including interim periods within thatreporting period. Upon adoption of this ASU, the Company's investments will no longer be classified as available for sale, and any changes in fair valuewill be reflected in the Company's consolidated statement of operations. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which requires lessees to recognize right-of-use assets and lease liabilities onthe balance sheet for all leases with terms longer than 12 months. For a lease with a term of 12 months or less, a lessee is permitted to make an accountingpolicy election by class of underlying asset not to recognize a right-of-use asset and lease liability. Additionally, when measuring assets and liabilitiesarising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise apurchase option or not exercise an option to terminate the lease. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land EasementPractical Expedient for Transition to Topic 842. ASU 2018-01 was issued to address concerns about the cost and complexity of complying with thetransition provisions of ASU 2018-01. The standard becomes effective in for fiscal years beginning after December 15, 2019 and interim periods withinthose years and early adoption is permitted. The Company is in the process of reviewing its existing leases, including service contracts for embeddedleases to evaluate the impact of this standard on its consolidated financial statements and the impact on regulatory capital. 29Table of Contents In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates therequirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously heldinvestment. The amendments in ASU 2016-07 are effective for public companies for fiscal years beginning after December 15, 2016 including interimperiods therein. Early adoption is permitted. The new standard should be applied prospectively for investments that qualify for the equity method ofaccounting after the effective date. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. In March 2016, the FASB issued Update No. 2016-09, Improvements to Employee Share Based Payment Accounting, to simplify and improve areasof generally accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of theinformation provided to users of financial statements. The effective date for this update is for annual reporting periods beginning after December 15,2016, including interim periods within that reporting period. The Company is currently evaluating the impact this update will have on its consolidatedfinancial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historicalexperience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this update will be effective for interim periods and annualperiods beginning after December 15, 2019. Upon adoption, the Company will accelerate the recording of its credit losses in its financial statements. In August 2016 the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments." This ASU will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cashflows. The new standard is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The new standard will requireadoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendmentsprospectively as of the earliest date practicable. The Company is in the process of evaluating the provisions of the ASU, but does not expect it to have amaterial effect on the Company’s consolidated statements of cash flows. In January 2017, the FASB issued ASU No. 2017-01, Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of FinancialAssets and Financial Liabilities. The main objective in developing this update is enhancing the reporting model for financial instruments to provide usersof financial statements with more decision-useful information. The amendments in this update address certain aspects of recognition, measurement,presentation, and disclosure of financial instruments. The effective date for this update is for annual reporting periods beginning after December 15, 2017,including interim periods within that reporting period. The adoption of this update will not have a material impact on the Company’s consolidatedfinancial statements. In January 2017, the FASB issued ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Theobjective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. Theamendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. TheCompany does not believe this update will have a material impact on its consolidated financial statements. In March 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share BasedPayment Accounting, to simplify and improve areas of generally accepted accounting principles for which cost and complexity can be reduced whilemaintaining or improving the usefulness of the information provided to users of financial statements. The effective date for this update is for annualreporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this update will not have amaterial impact on the Company's consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, whichallows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts andJobs Act enacted on December 22, 2017, and requires certain disclosures about stranded tax effects. ASU 2018-02 will be effective for the Company'sfiscal year beginning October 1, 2019, with early adoption permitted, and should be applied either in the period of adoption or retrospectively to eachperiod (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The adoption of this ASU is notexpected to have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the DisclosureRequirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements. The ASU removes the requirementto disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers betweenlevels; and the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for theperiod included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the rangeand weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact this guidance will have onits consolidated financial statements. 30Table of Contents Item 8. Financial Statements and Supplementary Data. The information called for by Item 8 is included following the index to the financials statements of the Company on page F-1 of this Form 10-K. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure thatinformation required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Based on that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2018 dueto the existence of the material weaknesses in internal control over financial reporting described below (which we view as an integral part of ourdisclosure controls and procedures). (b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f)under the Exchange Act). Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a processdesigned to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalreporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (a) pertain tothe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, (c) providereasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the boardof directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assetsthat could have a material effect on the financial statements. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted anassessment of the effectiveness of our internal control over financial reporting as of September 30, 2018. In making this assessment, management usedthe criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”) in Internal Control - IntegratedFramework, issued in 2013. Based on management’s assessment, and based on the criteria in COSO 2013, management concluded that we did notmaintain effective internal control over financial reporting as of September 30, 2018 due to the material weaknesses identified below. (c) Management Identified Material Weaknesses In Internal Control Over Financial Reporting Management identified material weaknesses resulting from the lack of timely and effective review of the Company’s period-end closingprocess. Specifically, management concluded that the material weakness relates to the Company not having adequate personnel and resources inplace to perform a timely and effective review of our period-end closing process. Additionally, management identified material weaknesses resultingfrom the following: 1. The Company did not maintain effective internal controls over financial reporting disclosures specifically associated with concentrations,foreign transactions, significant entities and related party transactions. The material weaknesses related to financial reporting disclosures associatedwith significant and related party transactions at the subsidiary level, were first reported by the Company in its Quarterly Report on Form 10-Q for thequarter ended June 30, 2017, which was filed with the SEC on August 9, 2017, and was also identified as a material weakness in connection with thepreparation of this report . 31Table of Contents Planned Ongoing/Remedial Actions: ●The Company has retained and intends to continue to retain the services of outside consultants, with relevant accountingexperience, skills and knowledge, working under the supervision and direction of the Company’s management, to supplement theCompany’s existing accounting personnel. ●The Company is in the process of developing policies, procedures, and controls for the specific areas identified in this materialweakness. The Company will also hire additional accounting and finance personnel with significant accounting and SEC reportingexperience to join its finance team to ensure consistent application of these accounting principles and adherence to the Company’snewly adopted policies, procedures, and controls. The Company is reviewing the current financial controls to assess if additionalmanagement review controls are necessary and have begun working with all finance personnel to establish the appropriatedocumentation criteria for the existing controls including evidence of review, timeliness and variance thresholds. ●The Company plans to have the Disclosure Committee, which now meets on a quarterly basis, meet more frequently throughout theyear to assure that our SEC filings and other public disclosures are complete, accurate, and otherwise comply with applicableaccounting principles and regulations. The Company’s Disclosure Committee reports to our Chief Executive Officer with oversightprovided by our Audit Committee, and includes individuals knowledgeable about, among other things, SEC rules and regulations,financial reporting, and internal control matters. The Company will also document a formal disclosure policy and procedures togovern the work of the Disclosure Committee. ●Since the original determination regarding the material weakness associated with significant and related party transactions at thesubsidiary level, the Company has installed contract management software to manage all of its contracts and associated obligationsunder those contracts. Management from each department has been trained on the software, and all contracts now require approvalsof designated managers and the accounting department prior to execution. All contracts are reviewed by accounting personnel withrequisite experience in identifying complex accounting transactional and disclosure issues. 2. The Company lacks a formal policy to assess the adequacy of the design and operating effectiveness of controls related to certain of theCompany’s subsidiaries, third party service providers and third party advocates, which was first reported by the Company in its Quarterly Report onForm 10-Q for the quarter ended June 30, 2017, which was filed with the SEC on August 9, 2017, and was also identified as a material weakness inconnection with the preparation of this report . Planned Ongoing/Remedial Actions: The Company has increased the frequency of onsite inspections of third party servicers over the last three months, utilizing existingaccounting/finance personnel familiar with the specific accounting processes involved at each location. The Company has providedtraining to accounting personnel at subsidiary locations, and is developing detailed checklist and processes that can be used, andreviewed by management during period ends. 3. The Company did not maintain effective internal controls over accounting for complex transactions specifically associated with equity methodinvestment, which was first reported by the Company in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which was filed withthe SEC on August 9, 2017, and was also identified as a material weakness in connection with the preparation of this report . 32Table of Contents Planned Ongoing/Remedial Actions: ●The Company has developed policies, procedures, and controls to ensure the proper accounting for complex technical issues areidentified, researched and brought to management's attention. The Company is in the process of training the appropriate personnelon new and existing accounting pronouncements, Company policies, procedures, and controls. 4. The Company did not maintain effective internal controls over accounting for foreign transactions specifically associated with accounting fortransaction and translation adjustments, unallocated payments and cutoff, were first reported by the Company in its Quarterly Report on Form 10-Qfor the quarter ended June 30, 2017, which was filed with the SEC on August 9, 2017, and was also identified as a material weakness in connectionwith the preparation of this report . Planned Ongoing/Remedial Actions: ●The Company has developed and plans to implement improved policies, procedures, processes and controls, as well as, conduct trainingsto ensure the proper accounting for foreign currency matters in accordance with ASC 830, Foreign Currency Matters. ●The Company plans to utilize an accounting system to ensure that all transactions are systematically re-measured and translated at theapplicable foreign currency exchange rate and the associated gain or loss is appropriately recognized in Accumulated OtherComprehensive Income ("AOCI") or earnings. ●The Company is currently reconciling the AOCI account, in a timely manner. 5. The Company’s social security disability advocacy segments controls lack the ability to ensure, in a timely manner, that they are legally entitledto the monies received; whether they have third-party documentation supporting the cash receipts; or whether a specific advocacy case is ongoing orclosed. The aggregation of the impact of these deficiencies rises to the level of a material weakness, being first identified as a material weakness inconnection with the preparation of this report . Planned Remedial Actions: ●The Company plans to implement changes to the software that manages the social security disability business, to reconcile the amountsreceived by the Social Security Administration ("SSA") to SSA's notice of award. Additionally, applicable personnel will be trained onthe new software modifications to ensure compliance in the input and maintenance of claimant's files. ●The Company plans to appropriately reconcile the amounts received from the SSA to the notice of awards, in a timely manner. (d) Changes in Internal Controls over Financial Reporting. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated ourinternal control over financial reporting to determine whether any changes occurring during the fourth quarter of fiscal year 2018 that have materiallyaffected, or are reasonably likely to affect, our internal control over financial reporting. During the fourth quarter of fiscal year 2018, the Companyformalized its Foreign Corrupt Practices Act Policy, a provided training to its employees. Additionally, during fiscal 2018, the Company restructureda portion of the business through a sale of one of its subsidiaries, and the relocation of the other. As of September 30, 2018, all subsidiaries of theCompany were located within the Company's corporate offices. During the fourth quarter of fiscal year 2018, the Company identified an additionalmaterial weakness associated with documentation in the social security disability advocacy segment, described above. Management has concludedthat there have been no other changes that occurred during such quarter that have materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting. Item 9B. Other Information. None. 33Table of Contents PART III Item 10.Directors, Executive Officers and Corporate Governance. The information required by this item will be set forth in our definitive proxy statement with respect to our 2019 annual meeting of stockholders tobe filed not later than 120 days after September 30, 2018 and is incorporated herein by this reference. Item 11.Executive Compensation The information required by this item will be set forth in our definitive proxy statement with respect to our 2019 annual meeting of stockholders tobe filed not later than 120 days after September 30, 2018 and is incorporated herein by this reference. Item 12.Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be set forth in our definitive proxy statement with respect to our 2019 annual meeting of stockholders tobe filed not later than 120 days after September 30, 2018 and is incorporated herein by this reference. Item 13.Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be set forth in our definitive proxy statement with respect to our 2019 annual meeting of stockholders tobe filed not later than 120 days after September 30, 2018 and is incorporated herein by this reference. Item 14.Principal Accounting Fees and Services. The information required by this item will be set forth in our definitive proxy statement with respect to our 2019 annual meeting of stockholders tobe filed not later than 120 days after September 30, 2018 and is incorporated herein by this reference. Part IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed or furnished as part of this report: ExhibitNumber 2.1#Membership Interest Purchase Agreement, dated December 31, 2013, by and among CBC Settlement Funding, LLC, CBCManagement Services Group, LLC, Asta Funding, Inc. and the other parties thereto (incorporated by reference to Exhibit 10.1 toAsta Funding, Inc.’s Current Report on Form 8-K filed January 7, 2014). 2.2Securities Purchase Agreement, dated December 13, 2017, by and between Asta Funding, Inc., and CBC Holdings LLC(incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed December 19, 2017). 2.3#Membership Interest Purchase Agreement, dated January 12, 2018, by and between ASFI Pegasus Holdings, LLC and PegasusLegal Funding, LLC (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed January18, 2018). 2.4#Term Sheet, dated November 8, 2016, by and among Asta Funding, Inc., ASFI Pegasus Holdings, LLC, Fund Pegasus, LLC,Pegasus Funding, LLC, Pegasus Legal Funding, LLC, Max Alperovich and Alexander Khanas (incorporated by reference toExhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed November 15, 2016). 3.1Certificate of Incorporation of Asta Funding, Inc. (incorporated by reference to Exhibit 3.1 to Asta Funding, Inc.’s Quarterly Reporton Form 10-Q filed August 9, 2016). 34Table of Contents 3.2Certificate of Amendment to Certificate of Incorporation of Asta Funding, Inc. (incorporated by reference to Exhibit 3.1(a) to AstaFunding, Inc.’s Quarterly Report on Form 10-QSB filed May 15, 2002). 3.3Certificate of Designation of Series A Junior Preferred Stock of Asta Funding, Inc. (incorporated by reference to Exhibit 3.1 to AstaFunding, Inc.’s Current Report on Form 8-K filed August 24, 2012). 3.4Exhibit 3.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed on May 5, 2017). 3.5Certificate of Designation of Series A Junior Participating Preferred Stock of Asta Funding, Inc. (incorporated by reference toExhibit 3.2 to Asta Funding, Inc.’s Current Report on Form 8-K filed on May 5, 2017). 3.6Amended and Restated By-laws of Asta Funding, Inc. (incorporated by reference to Exhibit 3.3 to Asta Funding, Inc.’s QuarterlyReport on Form 10-Q filed August 9, 2016). 3.7Amendment to Amended and Restated Bylaws of Asta Funding, Inc. (incorporated by reference to Exhibit 3.1 to Asta Funding,Inc.’s Current Report on Form 8-K filed January 9, 2017). 4.1Rights Agreement, dated May 5, 2017, by and between Asta Funding, Inc. and American Stock Transfer & Trust Company, LLC.(incorporated by reference to Exhibit 4.1 to Asta Funding Inc.’s Current Report on Form 8-K filed on May 5, 2017). 10.1+Asta Funding, Inc. 2002 Stock Option Plan (incorporated by reference to Exhibit 10.10 to Asta Funding, Inc.’s Quarterly Report onForm 10-QSB filed May 15, 2002). 10.2+Asta Funding, Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report onForm 8-K filed March 3, 2006). 10.3+Asta Funding, Inc. 2012 Stock Option and Performance Award Plan (incorporated by reference to Appendix A to Asta Funding,Inc.’s Definitive Proxy Statement filed February 17, 2012 for the March 21, 2012 Annual Meeting of Stockholders). 10.4Form of Subordination and Intercreditor Agreement (incorporated by reference to Exhibit 10.26 to Asta Funding, Inc.’s AnnualReport on Form 10-K for the year ended September 30, 2008). 10.5Amended and Restated Management Agreement, dated January 16, 2009, by and between Palisades Collection, L.L.C. and theother party thereto (incorporated by reference to Exhibit 10.27 to Asta Funding, Inc.’s Annual Report on Form 10-K for the yearended September 30, 2008). 10.6Amended and Restated Master Servicing Agreement, dated January 16, 2009, by and between Palisades Collection, L.L.C. and theother party thereto (incorporated by reference to Exhibit 10.28 to Asta Funding, Inc.’s Annual Report on Form 10-K for the yearended September 30, 2008). 10.7First Amendment to Amended and Restated Master Servicing Agreement, by and among Palisades Collection and the other partiesthereto (incorporated by reference to Exhibit 10.29 to Asta Funding, Inc.’s Annual Report on Form 10-K for the year endedSeptember 30, 2008). 10.8Indemnification Agreement, by and among Asta Funding, Inc., GMS Family Investors LLC and Judith R. Feder (incorporated byreference to Exhibit 10.32 to Asta Funding, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2009). 35Table of Contents 10.9Settlement Agreement and Omnibus Amendment, dated August 7, 2013, by and among Asta Funding, Inc., Palisades AcquisitionXVI, LLC, Palisades Collection, L.L.C., Palisades Acquisition XV, LLC, BMO Capital Markets Corp., Fairway Finance Company,LLC and Bank of Montreal (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filedAugust 9, 2013). 10.10Revolving Credit Agreement, dated December 28, 2011, by and between Pegasus Funding, LLC and Fund Pegasus, LLC(incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed January 4, 2012). 10.11Security Agreement, dated December 28, 2011, by and between Pegasus Funding, LLC and Fund Pegasus, LLC (incorporated byreference to Exhibit 10.2 to Asta Funding, Inc.’s Current Report on Form 8-K filed January 4, 2012). 10.12Secured Revolving Credit Note, dated December 28, 2011, by Pegasus Funding, LLC in favor of Fund Pegasus, LLC (incorporatedby reference to Exhibit 10.3 to Asta Funding, Inc.’s Current Report on Form 8-K filed January 4, 2012). 10.13Limited Liability Company Operating Agreement of Pegasus Funding, LLC (incorporated by reference to Exhibit 10.4 to AstaFunding, Inc.’s Current Report on Form 8-K filed January 4, 2012). 10.15Lease Agreement, dated October 27, 2015, by and between ESL 200, LLC and Asta Funding, Inc. (incorporated by reference toExhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed October 29, 2015). 10.16First Amendment to Loan Documents, dated March 30, 2016, by and among Asta Funding, Inc., Palisades Collection, L.L.C. andBank Hapoalim B.M. (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed March31, 2016). 10.17Loan Agreement, dated May 2, 2014, by and among Asta Funding, Inc., Palisades Collection, L.L.C. and Bank Hapoalim B.M.,dated May 2, 2014 (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed May 8,2014). 10.18Security Agreement, dated May 2, 2014, by among Asta Funding, Inc., Palisades Collection, L.L.C., and Bank Hapoalim B.M.(incorporated by reference to Exhibit 10.2 to Asta Funding, Inc.’s Current Report on Form 8-K filed May 8, 2014). 10.19Mutual Confidentiality Agreement, dated May 25, 2016, by and between Asta Funding, Inc. and Mangrove Partners (incorporatedby reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed May 26, 2016). 10.20+Employment Agreement, dated March 15, 2016, by and between Asta Funding, Inc. and Bruce Foster (incorporated by reference toExhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed March 15, 2016). 10.21Settlement Agreement, dated January 6, 2017, by and among Asta Funding. Inc., The Mangrove Partners Master Fund Ltd., TheMangrove Partners Fund, L.P., Mangrove Partners Fund (Cayman), Ltd., Mangrove Partners, Mangrove Capital and NathanielAugust and, solely for purposes of Section 1(c), 1(d), 2 and 8 thereof, Gary Stern, Ricky Stern, Emily Stern, Arthur Stern, AstaGroup, incorporated and GMS Family Investors LLC (incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s CurrentReport on Form 8-K filed on January 9, 2017). 10.22Voting Agreement, dated January 6, 2017, by and among Asta Funding, Inc., Gary Stern, Ricky Stern, Emily Stern, Asta Group,incorporated and GMS Family Investors LLC (incorporated by reference to Exhibit 10.2 to Asta Funding, Inc.’s Current Report onForm 8-K filed on January 9, 2017). 10.23Assignment Agreement, dated April 28, 2017, by and between CBC Settlement Funding, LLC and the other party thereto(incorporated by reference to Exhibit 10.1 to Asta Funding, Inc.’s Current Report on Form 8-K filed May 4, 2017). 36Table of Contents 10.24Indemnification Agreement, dated September 11, 2017, by and between Asta Funding Inc. and Bruce Foster (incorporated byreference to Exhibit 10.24 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.25Indemnification Agreement, dated September 11, 2017, by and between Asta Funding, Inc. and Seth Berman (incorporated byreference to Exhibit 10.25 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.26Indemnification Agreement, dated September 11, 2017, by and between Asta Funding Inc. and Mark Levenfus (incorporated byreference to Exhibit 10.26 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.27Indemnification Agreement, dated September 11, 2017, by and between Asta Funding Inc. and Louis A. Piccolo (incorporated byreference to Exhibit 10.27 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.28Indemnification Agreement, dated September 11, 2017, by and between Asta Funding Inc. and David Slackman (incorporated byreference to Exhibit 10.28 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.29Indemnification Agreement, dated September 11, 2017, by and between Asta Funding Inc. and Ricky Stern (incorporated byreference to Exhibit 10.29 to Asta Funding Inc’s Annual Report on Form 10-K for the year ended September 30, 2017) 10.30Secured Promissory Note, dated as of December 13, 2017, by and between CBC Holdings LLC and Asta Funding, Inc.(incorporated by reference to Exhibit 10.2 to Asta Funding, Inc.’s Current Report on Form 8-K filed December 19, 2017). 10.31Guarantee, dated as of December 13, 2017, by and among 777 Partners, LLC and SuttonPark Capital LLC, for and on behalf of AstaFunding, Inc. (incorporated by reference to Exhibit 10.3 to Asta Funding, Inc.’s Current Report on Form 8-K filed December 19,2017). 10.32Security Agreement, dated as of December 13, 2017, by and between SuttonPark Servicing LLC and Asta Funding, Inc.(incorporated by reference to Exhibit 10.4 to Asta Funding, Inc.’s Current Report on Form 8-K filed December 19, 2017). 10.33Settlement Agreement and Release, dated as of January 12, 2018, by and among, Asta Funding, Inc., ASFI Pegasus Holdings, LLC,Fund Pegasus, LLC, Pegasus Funding, LLC, Pegasus Legal Funding, LLC, Max Alperovich, Alex Khanas, Larry Stoddard III, LouisPiccolo and A.L. Piccolo & Co., Inc. (incorporated by reference to Exhibit 10.2 to Asta Funding, Inc's Current Report on Form 8-Kfiled January 18, 2018). 21.1*Subsidiaries of Asta Funding, Inc. 23.1*Consent of Independent Registered Public Accounting Firm. 31.1*Certification of Gary Stern, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. 31.2*Certification of Bruce R. Foster, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. 32.1**Certification of the Gary Stern, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. 37Table of Contents 32.2**Certification of Bruce R. Foster, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002. 101.INSXBRL Instance. 101.SCHXBRL Taxonomy Extension Schema. 101.CALXBRL Taxonomy Extension Calculation. 101.DEFXBRL Taxonomy Extension Definition. 101.LABXBRL Taxonomy Extension Labels. 101.PREXBRL Taxonomy Extension Presentation. *Filed herewith **This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”),or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the SecuritiesAct of 1933, as amended or the Exchange Act.+Indicates management contract or compensatory plan.#Indicates schedules have been omitted pursuant to Item 6.01(b)(2) of Regulation S-K. Asta Funding Inc. agrees to furnish supplementallya copy of any omitted schedule or exhibit to the SEC upon request. 38Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Contents Page Report of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets as of September 30, 2018 and 2017 F-3Consolidated Statements of Operations for the years ended September 30, 2018 and 2017 F-4Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2018 and 2017 F-5Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2018 and 2017 F-6Consolidated Statements of Cash Flows for the years ended September 30, 2018 and 2017 F-7Notes to Consolidated Financial Statements F-8 F-1Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofAsta Funding, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Asta Funding, Inc. and Subsidiaries (the “Company") as of September 30, 2018 and2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years thenended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all materialrespects, the consolidated financial position of the Company as of September 30, 2018 and 2017, and the consolidated results of their operations andtheir cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rulesand regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control overfinancial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ EisnerAmper LLP We have served as the Company’s auditor since April 2017. EISNERAMPER LLPIselin, New JerseyDecember 21, 2018 F-2Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 2018 2017 ASSETS Cash and cash equivalents $6,284,000 $17,591,000 Available-for-sale investments (at fair value) 38,054,000 5,511,000 Consumer receivables acquired for liquidation (at cost) 3,749,000 6,841,000 Investment in personal injury claims, net 10,745,000 3,704,000 Due from third party collection agencies and attorneys 755,000 819,000 Prepaid and income taxes receivable 5,387,000 9,090,000 Furniture and equipment (net of accumulated depreciation of $1,821,000 at September 30, 2018 and$1,759,000 at September 30, 2017) 100,000 124,000 Equity method investment 236,000 50,474,000 Note receivable 4,313,000 — Settlement receivable 3,339,000 — Deferred income taxes 10,940,000 12,696,000 Goodwill 1,410,000 1,410,000 Other assets 1,003,000 1,043,000 Assets related to discontinued operations — 92,235,000 Total assets $86,315,000 $201,538,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Other liabilities $2,281,000 $4,980,000 Liabilities related to discontinued operations — 81,751,000 Total liabilities 2,281,000 86,731,000 Commitments and contingencies STOCKHOLDERS’ EQUITY Preferred stock, $.01 par value; authorized 5,000,000; issued and outstanding - none — — Preferred stock, Series A Junior Participating, $.01 par value; authorized 30,000 shares; issued andoutstanding - none — — Common stock, $.01 par value, authorized 30,000,000 shares; issued 13,459,708 at September 30, 2018and 13,398,108 at September 30, 2017; and outstanding 6,685,415 at September 30, 2018 and 6,623,815at September 30, 2017 135,000 134,000 Additional paid-in capital 68,551,000 68,047,000 Retained earnings 82,441,000 113,736,000 Accumulated other comprehensive income, net of income taxes 35,000 18,000 Treasury stock (at cost), 6,774,293 shares at September 30, 2018 and at September 30, 2017 (67,128,000) (67,128,000)Total stockholders’ equity 84,034,000 114,807,000 Total liabilities and stockholders’ equity $86,315,000 $201,538,000 See notes to accompanying consolidated financial statements F-3Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Consolidated Statements of Operations Year Ended September 30, 2018 2017 Revenues: Finance income, net $15,863,000 $15,920,000 Personal injury claims income 1,084,000 434,000 Disability fee income 4,598,000 5,085,000 Total revenues 21,545,000 21,439,000 Gain on settlements 4,044,000 — Other income (expense) (includes $0 and ($1,011,000) during the years ended September 30, 2018 and2017, respectively, of accumulated other comprehensive income reclassifications for realized net losseson securities) 479,000 (94,000) 26,068,000 21,345,000 Expenses: General and administrative expenses 15,429,000 31,900,000 Loss on acquisition of minority interest 1,420,000 — Interest expense 20,000 240,000 Impairments of consumer receivables acquired for liquidation 310,000 1,129,000 Earnings from equity method investment (750,000) (4,619,000) 16,429,000 28,650,000 Income (loss) before income tax from continuing operations 9,639,000 (7,305,000)Income tax expense (includes tax (benefit) expense of $0 and $404,000 during the years endedSeptember 30, 2018 and 2017, respectively, of accumulated other comprehensive incomereclassifications for realized net (losses) gains on available for sales securities) 5,502,000 1,077,000 Income (loss) from continuing operations 4,137,000 (8,382,000)Loss from discontinued operations, net of income taxes (80,000) (4,620,000) Net income (loss) $4,057,000 $(13,002,000) Net income (loss) per basic shares: Continuing operations $0.62 $(0.97)Discontinued operations $(0.01) $(0.53) $0.61 $(1.50)Net income (loss) per diluted shares: Continuing operations $0.62 $(0.97)Discontinued operations $(0.01) $(0.53) $0.61 $(1.50)Weighted average number of common shares outstanding: Basic 6,662,600 8,692,668 Diluted 6,664,841 8,692,668 See notes to accompanying consolidated financial statements F-4Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Year Ended September 30, 2018 2017 Comprehensive income (loss) is as follows: Net income (loss) $4,057,000 $(13,002,000) Net unrealized securities loss, net of tax benefit of $9,000 and $8,000 during the years ended September30, 2018 and 2017 respectively. (17,000) (10,000)Reclassification adjustments for securities sold, net of tax benefit of $0 and $404,000, during the yearsended September 30, 2018 and 2017 respectively. — (607,000)Foreign currency translation, net of tax (expense) benefits of ($17,000), and $112,000, during the yearsended September 30, 2018 and 2017 respectively. 34,000 (168,000) Other comprehensive income (loss) 17,000 (785,000) Total comprehensive income (loss) $4,074,000 $(13,787,000) See notes to accompanying consolidated financial statements F-5Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES\Consolidated Statements of Stockholders’ Equity For the years ended September 30, 2018 and 2017 Common Stock IssuedShares Amount AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) TreasuryStock TotalStockholders’Equity Balance, September 30, 2016 13,336,508 $133,000 $67,034,000 $126,738,000 $803,000 $(12,925,000) $181,783,000 Stock based compensation expense — — 58,000 — — — 58,000 Net loss — — — (13,002,000) — — (13,002,000)Amount reclassified from othercomprehensive loss — — — — (607,000) — (607,000)Unrealized loss on marketablesecurities, net — — — — (10,000) — (10,000)Purchase of treasury stock — — — — — (54,203,000) (54,203,000)Foreign currency translation, net — — — — (168,000) — (168,000)Forgiveness of debt — — 552,000 — — — 552,000 Issuance of unrestricted stock 61,600 1,000 403,000 — — — 404,000 Balance, September 30, 2017 13,398,108 $134,000 $68,047,000 $113,736,000 $18,000 $(67,128,000) $114,807,000 Exercise of options 61,600 1,000 398,000 — — — 399,000 Stock based compensation expense — — 106,000 — — — 106,000 Net income — — — 4,057,000 — — 4,057,000 Unrealized loss on marketablesecurities, net — — — — (17,000) — (17,000)Dividends paid — — — (35,352,000) — — (35,352,000)Foreign currency translation, net — — — — 34,000 — 34,000 Balance, September 30, 2018 13,459,708 $135,000 $68,551,000 $82,441,000 $35,000 $(67,128,000) $84,034,000 See notes to accompanying consolidated financial statements F-6Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Year Ended September 30, 2018 2017 Cash flows from operating activities: Net income (loss) from continuing operations $4,137,000 $(8,382,000)Net loss from discontinued operations (80,000) (4,620,000)Net income (loss) 4,057,000 (13,002,000)Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 62,000 97,000 Deferred income taxes 1,765,000 2,619,000 Impairments of consumer receivables acquired for liquidation 310,000 1,129,000 Stock based compensation 106,000 101,000 Loss on sale of available-for-sale securities — 1,011,000 Provision for bad debts – personal injury claims 499,000 — Loss on other investment — 3,590,000 Forgiveness of debt — 552,000 Settlement Receivable (3,884,000) Earnings from equity method investment (750,000) (4,619,000)Changes in: Prepaid and income taxes receivable 3,703,000 (8,376,000)Due from third party collection agencies and attorneys 54,000 228,000 Other assets 40,000 5,550,000 Other liabilities (2,665,000) 825,000 Changes in net assets related to discontinued operations 710,000 (1,568,000) Net cash provided by (used in) operating activities 4,007,000 (11,863,000) Cash flows from investing activities: Purchase of consumer receivables acquired for liquidation — (2,214,000)Principal collected on consumer receivables acquired for liquidation 2,117,000 7,624,000 Principal collected on consumer receivable accounts represented by account sales 3,000 197,000 Purchase of available-for-sale securities (32,569,000) (13,193,000)Proceeds from sales of available-for-sale securities — 62,406,000 Purchase of non-controlling interest (1,800,000) — Proceeds from sale of CBC 4,491,000 — Proceeds from notes receivable 1,437,000 — Proceeds from settlements 1,116,000 — Acquisition of personal injury claims portfolios (14,571,000) — Investments in personal injury claims - advances (60,000) (4,369,000)Investments in personal injury claims - receipts 7,091,000 665,000 Change in equity method investment 52,788,000 2,727,000 Capital expenditures (38,000) (25,000)Change in investing activities related to discontinued operations (1,538,000) 1,793,000 Net cash provided by investing activities 18,467,000 55,611,000 Cash flows from financing activities: Proceeds from exercise of stock options 399,000 — Purchase of treasury stock — (54,203,000)Dividends paid (35,352,000) — Change in financing activities related to discontinued operations 1,387,000 11,500,000 Net cash used in financing activities (33,566,000) (42,703,000)Foreign currency effect on cash 101,000 (155,000)Net (decrease) increase in cash and cash equivalents including cash and cash equivalents classified withinassets related to discontinued operations (10,991,000) 890,000 Less: net (decrease) increase in cash and cash equivalents classified within assets related to discontinuedoperations (316,000) 419,000 Net (decrease) increase in cash and cash equivalents (11,307,000) 1,309,000 Cash and cash equivalents at beginning of year 17,591,000 16,282,000 Cash and cash equivalents and restricted cash at end of year $6,284,000 $17,591,000 Supplemental disclosure of cash flow information: Continuing operations: Cash paid for: Interest $20,000 $149,000 Income taxes $— $6,200,000 Discontinued operations: Cash paid for: Interest $824,000 $3,929,000 Supplemental disclosures of non-cash investing and financing activities: Continuing operations: Note receivable $5,750,000 $— Settlement receivable $3,884,000 $— Discontinued operations: Issuance of unrestricted stock $— $404,000 See notes to accompanying consolidated financial statements F-7Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES [1] The Company: Asta Funding, Inc. (“Asta”), a Delaware Corporation, together with its wholly owned significant operating subsidiaries Palisades Collection, LLC,Palisades Acquisition XVI, LLC (“Palisades XVI”), Palisades Acquisition XIX, LLC (“Palisades XIX”), Palisades Acquisition XXIII, LLC (“PalisadesXXIII”), VATIV Recovery Solutions LLC (“VATIV”), ASFI Pegasus Holdings, LLC (“APH”), Fund Pegasus, LLC (“Fund Pegasus”), GAR DisabilityAdvocates, LLC (“GAR Disability Advocates”), Five Star Veterans Disability, LLC (“Five Star”), EMIRIC, LLC (“EMIRIC”), Simia Capital, LLC(“Simia”), Sylvave, LLC (“Sylvave”) (formerly known as Pegasus Funding, LLC (“Pegasus”)), Practical Funding LLC (“Practical Funding”), and othersubsidiaries, which are not all wholly owned (the “Company,” “we” or “us”), is engaged in several business segments in the financial services industryincluding funding of personal injury claims, through the Company's wholly owned subsidiaries Sylvave, Simia and Practical Funding, social securitydisability advocacy through the Company's wholly owned subsidiaries GAR Disability Advocates and Five Star and the business of purchasing,managing for its own account and servicing distressed consumer receivables, including charged off receivables, and semi-performing receivables. For the current year period from October 1, 2017 to January 12, 2018, Pegasus was 80% owned, but not controlled, and accounted for under theequity method. On January 12, 2018 (“Date of Acquisition”), the Company acquired the remaining 20% minority shareholder's interest, and a controllingfinancial interest, in Pegasus, changed its name to Sylvave and now currently owns 100% of Sylvave. Commencing on the Date of Acquisition, theCompany consolidated the financial results of this entity. We operate principally in the United States in three reportable business segments: consumer receivables, social security disability advocacy andpersonal injury claims. We previously operated a fourth segment when we engaged in the structured settlements business through our wholly ownedsubsidiary CBC Settlement Funding, LLC (“CBC”), which we sold on December 13, 2017. As a result of the sale of CBC all periods presented in the Company's consolidated financial statements account for CBC as a discontinuedoperation. This determination resulted in the reclassification of the historical assets and liabilities comprising the structured settlement business to assetsand liabilities related to discontinued operations in the consolidated balance sheets, and a corresponding adjustment to our consolidated statements ofoperations to reflect discontinued operations for all periods presented. See Note 2 - Discontinued Operations. Consumer receivables This segment is engaged in the business of purchasing, managing for its own account and servicing distressed consumer receivables, charged offreceivables. Recently, our effort has been in the international areas (mainly South America), as we have curtailed our active purchasing of consumerreceivables in the United States. We acquire these consumer receivables at substantial discounts to their face values, based on the characteristics of theunderlying accounts of each portfolio. Personal injury claims This segment is comprised of purchased interests in personal injury claims from claimants who are a party to a personal injury claim. TheCompany advances to each claimant funds on a non-recourse basis at an agreed upon interest rate, in anticipation of a future settlement. The interest ineach claim purchased consists of the right to receive, from such claimant, part of the proceeds or recoveries which such claimant receives by reason of asettlement, judgment or award with respect to such claimant’s claim. The Company historically funded personal injury claims in Simia and Sylvave. TheCompany formed a new wholly owned subsidiary, Practical Funding on March 16, 2018 to continue in the personal injury claims funding business. Todate, Practical Funding has not funded any advances on personal injury claims. Simia commenced operations in January 2017, and conducts its business solely in the United States. Simia obtained its business from externalbrokers and internal sales professionals soliciting attorneys and law firms who represent claimants who have personal injury claims. Business was alsoobtained from its website and through attorneys. The Company accounted for its investment in Sylvave under the equity method of accounting throughJanuary 12, 2018, for subsequent periods the Company includes the financial results of Sylvave in its consolidated statement of operations. Simia andSylvave are not funding any new advances, but continue to collect on outstanding personal claim advances in the ordinary course. F-8Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): [1] The Company (Continued): Social security disability advocacy This segment consists of advocacy groups representing individuals throughout the United States in their claims for social security disability andsupplemental social security income benefits from the Social Security and Veterans Administration. It relies upon Search Engine Optimization (“SEO”) tobring awareness to its intended market. [2] Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and are prepared in accordance withaccounting principles generally accepted in the United States (“U.S. GAAP”) and industry practices. All intercompany accounts have been eliminated inconsolidation. [3] Liquidity: At September 30, 2018, the Company had $6.3 million in cash and cash equivalents, as well as $38.1 million in level 1 securities that are classifiedas available for sale, on hand and no debt. In addition, the Company had working capital of $84 million at September 30, 2018. We believe that our available cash resources and expected cash inflows from operations will be sufficient to fund operations for the next twelvemonths. [4] Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. With respect to income recognitionthe Company takes into consideration the relative credit quality of the underlying receivables constituting the portfolio acquired, the strategy involvedto maximize the collections thereof, the time required to implement the collection strategy as well as other factors to estimate the anticipated cash flows.Actual results could differ from those estimates including management’s estimates of future cash flows and the resultant allocation of collections betweenprincipal and interest resulting there from. Downward revisions to estimated cash flows will result in impairments. [5] Concentration of Credit Risk – Cash, Cash Equivalents and Restricted Cash: The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash balances are maintained at various depository institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”). TheCompany had cash balances with four banks that exceeded the balance insured by the FDIC by approximately $1.1 million at September 30, 2018.Additionally, two foreign banks with an aggregate balance of $1.4 million are not FDIC insured. The Company had $0.5 million of restricted cash atSeptember 30, 2017, which was classified within assets related to discontinued operations on the consolidated balance sheet. The Company does notbelieve it is exposed to any significant credit risk due to concentration of cash. [6] Available-for-Sale Investments: Investments that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-saleand are carried at fair value. Unrealized gains and losses on available-for-sale securities are determined using the specific-identification method. Declines in the fair value of individual available-for-sale securities below their respective costs that are other than temporary will result in write-downs of the individual securities to their fair value. Factors affecting the determination of whether another-than-temporary impairment has occurredinclude: a downgrading of the security by a rating agency, a significant deterioration in the financial condition of the issuer, or that management wouldnot have the ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value. F-9Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): [7] Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination, and is accounted forunder ASC 350. Goodwill has an indefinite useful life and is evaluated for impairment at the reporting-unit level on an annual basis during the fourthquarter, or more frequently if events or changes in circumstances indicate potential impairment between annual measurement dates. The Company has theoption of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. Thequalitative approach assesses whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value ofa reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company determines it is more likely thannot that the fair value is less than carrying value, a two step quantitative impairment test is performed. A step 1 analysis involves calculating the fair valueof the associated reporting unit and comparing it to the reporting unit’s carrying value. If the fair value of the reporting unit exceeds the carrying value ofthe reporting unit including goodwill and the carrying value of the reporting unit is positive, goodwill is considered not to be impaired and no furtheranalysis is required. If the fair value of the reporting unit is less than its carrying value, step 2 of the impairment test must be performed. Step 2 involvescalculating and comparing the implied fair value of the reporting unit’s goodwill with its carrying value. Impairment is recognized if the estimated fairvalue of the reporting unit is less than its net book value. Such loss is calculated as the difference between the estimated impaired fair value of goodwilland its carrying amount. The goodwill of the Company consists of $1.4 million from the purchase of VATIV. [8] Income recognition, Impairments and Accretable yield adjustments: Income Recognition The Company accounts for certain of its investments in consumer receivables using the guidance of Financial Accounting Standards Board(“FASB”) Accounting Standards Codification (“ASC”), Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310” ).Under the guidance of ASC 310, static pools of accounts are established. These pools are aggregated based on certain common risk criteria. Each staticpool is recorded at cost and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Due to the substantialreduction of portfolios reported under the interest method, and the inability to reasonably estimate cash collections required to account for thoseportfolios under the interest method the Company concluded the cost recovery method is the appropriate accounting method under the circumstances. Under the guidance of ASC 310-30, the Company must analyze a portfolio upon acquisition to ensure which method is appropriate, and once astatic pool is established for a quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool(unless sold or returned to the seller). The Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. Under the costrecovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized (zero carryingbalance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. The Company accounts for its investments in personal injury claims at an agreed upon interest rate, in anticipation of a future settlement. TheCompany's interest purchased in personal injury claim advances consists of the right to receive from a claimant part of the proceeds or recoveries whichsuch claimant receives by reason of a settlement, judgment or reward with respect to such claimant’s claim. Open case revenue is estimated, recognizedand accrued at a rate based on the expected realization and underwriting guidelines and facts and circumstances for each individual case. These personalinjury claims are non-recourse. When a case is closed and the cash is received for the advance provided to a claimant, revenue is recognized based uponthe contractually agreed upon interest rate, and, if applicable, adjusted for any changes due to a settled amount and fees charged to the claimant. The Company recognizes revenue for GAR Disability Advocates and Five Star when disability claimants cases close with the social securityadministration and the applicable fees are collected. F-10Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): [8] Income recognition, Impairments and Accretable yield adjustments (Continued): Impairments and accretable yield adjustments The Company accounts for its impairments in accordance with ASC 310, which provides guidance on how to account for differences betweencontractual and expected cash flows from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences areattributable, at least in part, to credit quality. The recognition of income under ASC 310 is dependent on the Company having the ability to developreasonable expectations of both the timing and amount of cash flows to be collected. In the event the Company cannot develop a reasonable expectationas to both the timing and amount of cash flows expected to be collected. ASC 310 permits the change to the cost recovery method. The Company willrecognize income only after it has recovered its carrying value. If collection projections indicate the carrying value will not be recovered, an impairment is required. The impairment will be equal to the differencebetween the carrying value at the time of the forecast and the corresponding estimated remaining future collections. The Company believes it hassignificant experience in acquiring certain distressed consumer receivable portfolios at a significant discount to the amount actually owed by underlyingcustomers. The Company invests in these portfolios only after both qualitative and quantitative analyses of the underlying receivables are performed anda calculated purchase price is paid so that it believes its estimated cash flow offers an adequate return on acquisition costs after servicing expenses.Additionally, when considering larger portfolio purchases of accounts, or portfolios from issuers with whom the Company has limited experience, it hasthe added benefit of soliciting its third party collection agencies and attorneys for their input on liquidation rates and, at times, incorporates such inputinto the estimates it uses for its expected cash flows, and the Company’s ability to recover their cost basis. In October 2014, the Company invested $5.0 million in Class A shares of the Topaz MP Fixed Income Fund (“Topaz Fund”), a closed end fund.The Topaz Fund invests indirectly in various portfolios of Non-Performing Small Consumer Loans. The objective of the fund is to obtain a fixed returncash flow representing interest on the invested capital. According to the investment memorandum of the fund, the Topaz Fund proposed to make semi-annual distributions of 14% annual compounded interest on June and December of each year. Since December 2015, no distribution has been received bythe Company. The Company received letters from the fund’s General Partner explaining that the distributions were not made due to the negativeperformance of the fund for the periods. During the fiscal year 2016, the Company recorded an impairment loss on this investment of $1.0 million, which was included in general andadministrative expenses in the consolidated statements of operations. In fiscal year 2017, the Company received an announcement that the investmentwas being liquidated. After careful consideration, the $3.4 million carrying value of this investment was written off as of March 31, 2017. [9] Equity method investments: Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equitymethod of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of severalfactors including, among others, representation on the investee company's board of directors and ownership level, which is generally a 20% to 50%interest in voting securities of the investee company. Under the equity method of accounting, an investee company's accounts are not reflected within theCompany's consolidated balance sheets and statements of operations, however, the Company's share of the earnings of the investee company is reflectedas earnings and loss from equity method investment in the Company's consolidated statement of operations. The Company's carrying value in an equitymethod investee company is reflected on the Company's consolidated balance sheet, as equity method investment. When the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company'sconsolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When theinvestee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses notpreviously recognized. There were no impairment losses recorded on our equity method investments for the years ended September 30, 2018 and 2017. F-11Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): [10] Personal Injury Claim Advances: Management assesses the quality of the personal injury claims portfolio through an analysis of the underlying personal injury fundings on a caseby case basis. Cases are reviewed through periodic updates with attorneys handling the cases, as well as with third party research tools which monitorpublic filings, such as motions or judgments rendered on specific cases. The Company specifically reserves for those fundings where the underlying casesare identified as uncollectible, due to anticipated non-favorable verdicts and/or settlements at levels where recovery of the advance outstanding isunlikely. For cases that have not exhibited any specific negative collection indicators, the Company establishes reserves based on the historicalcollection rates of the Company’s fundings. Fee income on advances is reserved for on all cases where a specific reserve is established on the initiallyfunded amount. In addition, management also monitors its historical collection rates on fee income and establishes reserves on fee income consistent withthe historically experienced collection rates. Management regularly analyzes and updates the historical collection rates of its initially funded cases aswell as its fee income. [11] Commissions and fees: Commissions and fees are the contractual commissions earned by third party collection agencies and attorneys, and direct costs associated withthe collection effort- generally court costs. The Company expects to continue to purchase portfolios and utilize third party collection agencies andattorney networks. [12] Furniture and equipment: Furniture, equipment and software are stated at cost, less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the assets (3 to 7 years). An accelerated depreciation method is used for tax purposes. [13] Income taxes: Deferred federal and state taxes arise from (i) recognition of finance income collected for tax purposes, but not yet recognized for financialreporting; (ii) provision for impairments/credit losses, all resulting in timing differences between financial accounting and tax reporting; (iii) amortizationof intangibles resulting in timing differences between financial accounting and tax reporting; (iv) stock based compensation; and (v) partnershipinvestments. [14] Fair Value of Financial Instruments: FASB ASC 825, Financial Instruments, (“ASC 825”), requires disclosure of fair value information about financial instruments, whether or notrecognized on the balance sheet, for which it is practicable to estimate that value. Because there are a limited number of market participants for certain ofthe Company’s assets and liabilities, fair value estimates are based upon judgments regarding credit risk, investor expectation of economic conditions,normal cost of administration and other risk characteristics, including interest rate and prepayment risk. These estimates are subjective in nature andinvolve uncertainties and matters of judgment, which significantly affect the estimates. The Company records its available-for-sale investments at estimated fair value on a recurring basis. The accompanying consolidated financialstatements include estimated fair value information regarding its available-for-sale investments as of September 30, 2018, as required by FASB ASC 820,Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer aliability (an exit price) in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchywhich requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financialinstrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement. Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to assess at themeasurement date. Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices inmarkets that are not active for identical or similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market datafor substantially the full term of the asset or liability. F-12Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Level 3 - Unobservable inputs that are supported by little or no market activity and significant to the fair value of the assets or liabilities that aredeveloped using the reporting entities’ estimates and assumptions, which reflect those that market participants would use. FASB ASC 825, Financial Instruments, (“ASC 825”), requires disclosure of fair value information about financial instruments, whether or notrecognized on the balance sheet, for which it is practicable to estimate that value. Because there are a limited number of market participants for certain ofthe Company’s assets and liabilities, fair value estimates are based upon judgments regarding credit risk, investor expectation of economic conditions,normal cost of administration and other risk characteristics, including interest rate and prepayment risk. These estimates are subjective in nature andinvolve uncertainties and matters of judgment, which significantly affect the estimates. [15] Discontinued Operations: US GAAP requires the results of operations of a component of an entity that either has been disposed of or is classified as held for sale to be reportedas discontinued operations in the consolidated financial statements if the sale or disposition represents a strategic shift that has (or will have) a majoreffect on an entity’s operations and financial results. [16] Net income (loss) per share: Basic per share data is determined by dividing net income (loss) by the weighted average shares outstanding during the period. Diluted per sharedata is computed by dividing net income (loss) by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.The assumed proceeds from the exercise of dilutive options are calculated using the treasury stock method based on the average market price for theperiod. [17] Stock-based compensation: The Company accounts for stock-based employee compensation under FASB ASC 718, Compensation - Stock Compensation , (“ASC 718”). ASC718 requires that compensation expense associated with stock options and vesting of restricted stock awards be recognized in the statement ofoperations. [18] Reclassification: Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current yearpresentation. These reclassifications had no effect on previously reported net income or stockholders' equity. [19] Foreign Currency Translation: Most of the Company's operations use their local currency as their functional currency. Financial statements of subsidiaries are translated intoU.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues,expenses, gains and losses. Translation adjustments for subsidiaries whose local currency is their functional currency are recorded as a component ofaccumulated other comprehensive income (loss) within equity. Transaction gains and losses resulting from fluctuations in currency exchange rates ontransactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated statements ofoperations. [20] Impact of Recently Issued Accounting Standards: In May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers,” that will supersede virtually all existing revenueguidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount thatreflects the entitled consideration received in exchange for those goods or services. The guidance also requires additional disclosure about the nature,amount, timing, and uncertainty of revenue and cash flows arising from the customer contracts. This update is effective for annual reporting periodsbeginning after December 15, 2017 including interim periods within that reporting period. Early application is permitted for annual reporting periodsbeginning after December 15, 2016, including interim periods within that reporting period. F-13Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): The Company has completed its initial assessment of the new standard, including a detailed review of the Company’s revenue streams to identifypotential differences in accounting as a result of the new standard, and selected the modified retrospective method. Based on the Company’s initialassessment, we do not believe that the adoption of the standard and related amendments will have a significant impact on our revenue recognitionpatterns, assuming that our revenue streams will be similar to those currently in place are in effect at the time of our adoption. Through the date ofadoption, we will continue to evaluate the impacts of the standard to ensure that our preliminary conclusions continue to remain accurate. Additionally,we will continue our assessment of the impact of the standard on our financial statement disclosures which are expected to be more extensive based on therequirements of the new standard. In January 2016, the FASB issued Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The mainobjective in developing this update is enhancing the reporting model for financial instruments to provide users of financial statements with moredecision-useful information. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financialinstruments. The effective date for this update is for annual reporting periods beginning after December 15, 2017, including interim periods within thatreporting period. Upon adoption of this ASU, the Company's investments will no longer be classified as available for sale, and any changes in fair valuewill be reflected in the Company's consolidated statement of operations. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which requires lessees to recognize right-of-use assets and lease liabilities onthe balance sheet for all leases with terms longer than 12 months. For a lease with a term of 12 months or less, a lessee is permitted to make an accountingpolicy election by class of underlying asset not to recognize a right-of-use asset and lease liability. Additionally, when measuring assets and liabilitiesarising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise apurchase option or not exercise an option to terminate the lease. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842): Land EasementPractical Expedient for Transition to Topic 842. ASU 2018-01 was issued to address concerns about the cost and complexity of complying with thetransition provisions of ASU 2018-01. The standard becomes effective in for fiscal years beginning after December 15, 2019 and interim periods withinthose years and early adoption is permitted. The Company is in the process of reviewing its existing leases, including service contracts for embeddedleases to evaluate the impact of this standard on its consolidated financial statements and the impact on regulatory capital. In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates therequirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously heldinvestment. The amendments in ASU 2016-07 are effective for public companies for fiscal years beginning after December 15, 2016 including interimperiods therein. Early adoption is permitted. The new standard should be applied prospectively for investments that qualify for the equity method ofaccounting after the effective date. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. In March 2016, the FASB issued Update No. 2016-09, Improvements to Employee Share Based Payment Accounting, to simplify and improve areasof generally accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of theinformation provided to users of financial statements. The effective date for this update is for annual reporting periods beginning after December 15,2016, including interim periods within that reporting period. The adoption of this update did not have a material impact on the Company's consolidatedfinancial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historicalexperience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For the Company, this update will be effective for interim periods and annualperiods beginning after December 15, 2019. Upon adoption, the Company expects that it will accelerate the recording of its credit losses in its financialstatements. F-14Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): [20] Impact of Recently Issued Accounting Standards (continued): In August 2016 the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments." This ASU will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cashflows. The new standard is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The new standard will requireadoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendmentsprospectively as of the earliest date practicable. The Company is in the process of evaluating the provisions of the ASU, but does not expect it to have amaterial effect on the Company’s consolidated statements of cash flows. In January 2017, the FASB issued ASU No. 2017-01, Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of FinancialAssets and Financial Liabilities. The main objective in developing this update is enhancing the reporting model for financial instruments to provide usersof financial statements with more decision-useful information. The amendments in this update address certain aspects of recognition, measurement,presentation, and disclosure of financial instruments. The effective date for this update is for annual reporting periods beginning after December 15, 2017,including interim periods within that reporting period. The adoption of this update will not have a material impact on the Company’s consolidatedfinancial statements. In January 2017, the FASB issued ASU 2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Theobjective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. Theamendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. TheCompany does not believe this update will have a material impact on its consolidated financial statements. In March 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share BasedPayment Accounting, to simplify and improve areas of generally accepted accounting principles for which cost and complexity can be reduced whilemaintaining or improving the usefulness of the information provided to users of financial statements. The effective date for this update is for annualreporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this update will not have amaterial impact on the Company's consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, whichallows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts andJobs Act enacted on December 22, 2017, and requires certain disclosures about stranded tax effects. ASU 2018-02 will be effective for the Company'sfiscal year beginning October 1, 2019, with early adoption permitted, and should be applied either in the period of adoption or retrospectively to eachperiod (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The adoption of this ASU is notexpected to have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the DisclosureRequirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements. The ASU removes the requirementto disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers betweenlevels; and the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for theperiod included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the rangeand weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact this guidance will have onits consolidated financial statements. F-15Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 2 - DISCONTINUED OPERATIONS On December 31, 2013, the Company acquired 80% ownership of CBC and its affiliate, CBC Management Services, LLC for approximately $5.9million. On December 31, 2015, the Company acquired the remaining 20% ownership of CBC for $1,800,000, through the issuance of restricted stockvalued at approximately $1.0 million and $0.8 million in cash. Each of the two original principals received 61,652 shares of restricted stock at a fairmarket value of $7.95 per share and $0.4 million in cash. An aggregate of 123,304 shares of restricted stock were issued as part of the transaction. On January 1, 2016, the Company renewed the expiring two-year employment agreements of the two CBC principals for one year terms. Theemployment contracts of the original two principals expired at the end of December 2016. The Company did not renew those contracts. Ryan Silvermanwas appointed CEO/General Counsel effective January 1, 2017. During November 2017, a competitor of CBC alleged that CBC had unlawfully purchased certain of the competitor's trade secrets and customerlists from intermediaries who allegedly arranged and/or paid for said materials from the competitor. CBC denied any wrongdoing and disclaimedliability. The parties settled the matter for a payment of $0.5 million on or about November 22, 2017, in exchange for a complete release. On December 13, 2017, the Company entered into a Purchase Agreement with CBC Holdings LLC, a Delaware limited liability company (the“Buyer”). Under the Purchase Agreement, the Company sold all of the issued and outstanding equity capital of CBC for an aggregate purchase price ofapproximately $10.3 million. Of the aggregate purchase price, approximately $4.5 million was paid in cash, and $5.8 million was paid under a promissorynote at an annual interest rate of 7% to be paid quarterly to the Company and secured by a first priority security interest in and lien on such Buyer’saffiliates’ rights to certain servicing fees. See Note 9 - Note Receivable. The remaining amount of the aggregate purchase price was paid as reimbursementof certain invoices of CBC. The Company recognized a loss of approximately $2.4 million on the above sale of CBC as of September 30, 2017. As a result of the sale of CBC all periods presented in the Company's consolidated financial statements will account for CBC as a discontinuedoperation. This determination resulted in the reclassification of the historical assets and liabilities comprising the structured settlement business to assetsrelated to discontinued operations in the consolidated balance sheets, and a corresponding adjustment to our consolidated statements of operations toreflect discontinued operations for all periods presented. As of September 30, 2018, the Company had no assets or liabilities designated as discontinued operations. As of September 30, 2017, thecomponents of the Company designated as discontinued operations had assets and liabilities of $92.2 million and $81.8 million, respectively. For theyears ended September 30, 2018 and 2017, the Company designated as discontinued operations reported loss, net of income tax benefit of $0.0 millionand $3.4 million, respectively, of $0.1 million and $4.6 million, respectively. The major components of assets and liabilities of the discontinued operations are as follows: September 30, 2018 2017 ASSETS Cash and cash equivalents $— $1,617,000 (1)Restricted cash — 499,000 Structured settlements — 86,971,000 Furniture and equipment (net of accumulated depreciation of $111,000 at September 30, 2017) — 34,000 Goodwill — — Other assets — 3,114,000 Total assets related to discontinued operations $— $92,235,000 LIABILITIES AND MEMBERS’ EQUITY Other debt - CBC $— $78,935,000 Other liabilities — 2,816,000 Total liabilities related to discontinued operations $81,751,000 (1) Cash balance with one bank at September 30, 2017 that exceeded the balance insured by the FDIC by approximately $0.5 million. F-16Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED): The following table presents the operating results, for the years ended September 30, 2018 and 2017, for the components of the Companydesignated as discontinued operations: 2018 2017 Revenues: Unrealized gain on structured settlements $244,000 $4,326,000 Interest income on structured settlements 2,005,000 8,224,000 Loss on sale of structured settlements — (5,353,000)Total revenues 2,249,000 7,197,000 Other income 11,000 58,000 2,260,000 7,255,000 Expenses: General and administrative expenses 1,560,000 9,954,000 Interest expense 824,000 3,927,000 Impairment — 1,405,000 2,384,000 15,286,000 Loss from discontinued operations before income tax (124,000) (8,031,000)Income tax benefit from discontinued operations (44,000) (3,411,000)Net loss from discontinued operations, net of income tax $(80,000) $(4,620,000) Prior to its sale, we, through CBC purchased periodic payments under structured settlements and annuity policies from individuals in exchange fora lump sum payment. The Company elected to carry the structured settlements at fair value. Unearned income on structured settlements is recognized asinterest income using the effective interest method over the life of the related structured settlement. Changes in fair value are recorded in unrealized gain(loss) on structured settlements in the Company’s statements of operations. Unrealized gains on structured settlements is comprised of both unrealizedgains resulting from fair market valuation at the date of acquisition of the structured settlements and the subsequent fair value adjustments resulting fromthe change in the discount rate. Of the $0.2 million of unrealized gains recognized in the fiscal year ended September 30, 2018, approximately $0.2million is due to day one gains on new structured settlements financed during the period. There were no other changes in assumptions during the period.Of the $4.3 million of unrealized gains recognized in the fiscal year ended September 30, 2017, approximately $6.9 million is due to day one gains onnew structured settlements financed during the period, $0.2 million due to a change in the discount rate, offset by a decrease of $2.1 million in realizedgains recognized as realized interest income on structured settlements during the period and a fair value adjustment of $0.7 million. There were no otherchanges in assumptions during the period. We elected the fair value treatment under ASC 825-10-50-28 through 50-32 to be transparent to the user regarding the underlying fair value of thestructured settlement which collateralizes the debt of CBC. The Company believes any change in fair value is driven by market risk as opposed to creditrisk associated with the underlying structured settlement annuity issuer. The purchased personal injury structured settlements result in payments over time through an annuity policy. Most of the annuities acquiredinvolve guaranteed payments with specific defined ending dates. CBC also purchases a small number of life contingent annuity payments with specificending dates but the actual payments to be received could be less due to the mortality risk associated with the measuring life. CBC records a provision forloss each period. The life contingent annuities were not a material portion of assets at September 30, 2017. CBC purchased structured settlement and annuity policies through privately negotiated direct consumer purchases and brokered transactions acrossthe United States. CBC funds the purchases primarily from cash, its revolving line of credit, and its securitized debt, issued through its Blue BellReceivables (“BBR”) subsidiaries. On April 7, 2017, CBC, through its subsidiary BBRVII, LLC, issued approximately $18.3 million of fixed rate asset backed notes with a yield of5.0% and a stated maturity date of January 15, 2069. On April 28, 2017, CBC entered into an Assignment Agreement (the “Assignment Agreement”) by and among CBC and an unrelated third party(“Assignee”). The Assignment Agreement provided for the sale of a portion of the Company’s life contingent asset portfolio included in the Company’sstructured settlements to the Assignee for a purchase price of $7.7 million. The Company realized a loss from the sale of $5.4 million in the year endedSeptember 30, 2017. F-17Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED): On April 28, 2017, CBC entered into the Tenth Amendment, extending the line of credit to June 30, 2017. Other terms and conditions of the NinthAmendment, in effect as of March 31, 2017, remained unchanged. Structured settlements consist of the following as of September 30, 2018 and 2017: September 30, 2018 September 30, 2017 Maturity (1) (2) $— $139,107,000 Unearned income — (52,136,000)Structured settlements, net $— $86,971,000 (1)The maturity value represents the aggregate unpaid principal balance at September 30, 2018 and 2017. (2)There is approximately $0.3 million of structured settlements that are past due, or in non-accrual status at September 30, 2017. Encumbrances on structured settlements as of September 30, 2018 and 2017 are as follows: Interest Rate September 30, 2018 September 30,2017 Notes payable secured by settlement receivables with principal andinterest outstanding payable until June 2025 8.75% $— $1,607,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until August 2026 7.25% — 3,612,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until April 2032 7.125% — 3,891,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until February 2037 5.39% — 17,390,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until March 2034 5.07% — 13,389,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until February 2043 4.85% — 13,001,000 Notes payable secured by settlement receivables with principal andinterest outstanding payable until January 2069 5.00% — 17,456,000 $25,000,000 revolving line of credit 4.25% — 8,589,000 Encumbered structured settlements — 78,935,000 Structured settlements not encumbered — 8,036,000 Total structured settlements $— $86,971,000 F-18Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED): The Company assumed $25.9 million of debt related to the CBC acquisition on December 31, 2013, including a $12.5 million line of credit withan interest rate floor of 5.5%. Between March 27, 2014 and September 29, 2014, CBC entered into three amendments (Sixth Amendment through EighthAmendment), resulting in the line of credit increasing to $22.0 million and the interest rate floor reduced to 4.75%. On March 11, 2015, CBC entered intothe Ninth Amendment. This amendment, effective March 1, 2015, extended the maturity date on its credit line from February 28, 2015 to March 1, 2017.Additionally, the credit line was increased from $22.0 million to $25.0 million and the interest rate floor was decreased from 4.75% to 4.1%. Other termsand conditions were materially unchanged. In March 2017, the credit line was extended to April 28, 2017. On April 28, 2017, CBC entered into the TenthAmendment, extending the credit line maturity date to June 30, 2017. On July 27, 2017 CBC entered into the Eleventh Amendment, extending the creditline maturity date to June 30, 2019. On November 26, 2014, CBC completed its fourth private placement, backed by structured settlement and fixed annuity payments. CBC issued,through its subsidiary, BBR IV, LLC, approximately $21.8 million of fixed rate asset-backed notes with a yield of 5.4%. On September 25, 2015, CBCcompleted its fifth private placement, backed by structured settlements and fixed annuity payments. CBC issued, through its subsidiary, BBR V, LLC,approximately $16.6 million of fixed rate asset-backed notes with a yield of 5.1%. On July 8, 2016, CBC issued, through its subsidiary, BBR VI,approximately $14.8 million of fixed rate asset-backed notes with a yield of 4.85%. On April 7, 2017, CBC issued approximately $18.3 million of fixedrate asset-backed notes with a yield of 5.0%. As of September 30, 2017, the remaining debt amounted to $78.9 million, which consisted of $8.6 million drawdown from a line of credit from aninstitutional source and $70.3 million notes issued by entities 100%-owned and consolidated by CBC. These entities are bankruptcy-remote entitiescreated to issue notes secured by structured settlements. During December 2017, the debt associated with CBC was sold along with CBC's other assets andliabilities. CBC leased its facility in Conshocken, PA. The lease was an operating lease, and the Company incurred related rent expense in the amount of$163,000, for the year ended September 30, 2017. This lease was transferred to the buyer of CBC in December 2017, and the Company was released fromall future obligations under the lease. NOTE 3 - AVAILABLE - FOR - SALE INVESTMENTS Investments classified as available-for-sale at September 30, 2018 and 2017 consist of the following: AmortizedCost UnrealizedGains UnrealizedLosses Fair Value 2018 $38,069,000 $1,000 $(16,000) $38,054,000 2017 $5,500,000 $11,000 $— $5,511,000 The available-for-sale investments, excluding U.S. treasury bills, do not have any contractual maturities. The Company did not sell any investmentsduring the year ended September 30, 2018. The Company sold six investments during the year ended September 30, 2017, with an aggregate realized lossof $1.0 million. Additionally, the Company received $0.2 million in capital gains distributions during fiscal year 2017. At September 30, 2018, the Company had three investments in mutual funds, in addition to investments in U.S. Treasury Bills of $30.5 millionwhich are carried at fair value, and are deemed to be level 1 assets, none of which were in an unrealized loss position that had existed for 12 months ormore. At September 30, 2017 there was one investment, which was in unrealized gain position. Based on the evaluation of the available evidence at thattime, including changes in market rates and credit rating information, management believed that any decline in fair value for these instruments would betemporary. In addition, management had the ability but did not believe it would be required to sell those investment securities for a period of timesufficient to allow for an anticipated recovery or maturity. Should the impairment of any of those securities become other than temporary, the cost basis ofthe investment will be reduced and the resulting loss recognized in net income in the period in which the other-than-temporary impairment wereidentified. Unrealized holding gains and losses on available-for-sale securities are included in other comprehensive income (loss) within stockholders’ equity.Realized gains (losses) on available-for-sale securities are included in other income (loss) and, when applicable, are reported as a reclassificationadjustment in other comprehensive income (loss). F-19Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 4 - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION: Accounts acquired for liquidation are stated at cost and consist primarily of defaulted consumer loans to individuals primarily throughout theUnited States and South America The Company may account for its investments in consumer receivable portfolios, using either: •the interest method; or •the cost recovery method. The Company uses the cost recovery method. Although the Company uses the cost recovery method on its current inventory of portfolios, theCompany must still analyze a portfolio upon acquisition to ensure which method is appropriate, and once a static pool is established for a quarter,individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). The Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. Under the costrecovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized (zero carryingbalance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. The Company aggregates portfolios of receivables acquired sharing specific common characteristics which were acquired within a given quarter. Inaddition, the Company uses a variety of qualitative and quantitative factors to estimate collections and the timing thereof. The Company obtains andutilizes, as appropriate, input, including but not limited to, monthly collection projections and liquidation rates, from third party collection agencies andattorneys, as further evidentiary matter, to assist in evaluating and developing collection strategies and in evaluating and modeling the expected cashflows for a given portfolio. For the year ended September 30, 2018, the Company impaired one domestic and two international portfolios which resultedin a charge to expense of $0.1 million and $0.2 million, respectively. For the year ended September 30, 2017, the Company impaired one domestic andfour international portfolios which resulted in a charge to expense of $0.1 million and $1.0 million, respectively. The following tables summarize the changes in the balance sheet account of consumer receivables acquired for liquidation during the followingperiods: For the Year Ended September 30, 2018 2017 Balance, beginning of period $6,841,000 $13,427,000 Acquisitions of receivable portfolio — 2,213,000 Net cash collections from collection of consumer receivables acquired for liquidation (18,551,000) (23,331,000)Net cash collections represented by account sales of consumer receivables acquired for liquidation (3,000) (197,000)Impairment (310,000) (1,129,000)Effect of foreign currency translation (91,000) (62,000)Finance income recognized 15,863,000 15,920,000 Balance, end of period $3,749,000 $6,841,000 Finance income as a percentage of collections 85.5% 67.7% F-20Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 4 - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION (CONTINUED): During the year ended September 30, 2018, the Company did not purchase any portfolios. During the year ended September 30, 2017, the Companypurchased $35.0 million in face value receivables at a cost of $2.2 million. As of September 30, 2018, the Company held consumer receivables acquired for liquidation from Peru and Colombia of $2.0 million and $1.3million, respectively. The total amount of foreign consumer receivables acquired for liquidation was $3.3 million, or 88.7% of the total consumerreceivables held of $3.7 million at September 30, 2018. Of the total consumer receivables 3 individual portfolios comprise 20%, 11% and 11% of theoverall asset balance at September 30, 2018 As of September 30, 2017, the Company held consumer receivables acquired for liquidation from Peru and Colombia of $3.3 million and $2.9million, respectively. The total amount of foreign consumer receivables acquired for liquidation was $6.2 million, or 89.9% of the total consumerreceivables held of $6.8 million at September 30, 2017. Of the total consumer receivables 3 individual portfolios comprise 18%, 10% and 10% of theoverall asset balance at September 30, 2017. As of September 30, 2018 and 2017, 5.9% and 5.0% of the Company's total assets were related to its international operation, respectively. For theyears ended September 30, 2018 and 2017, 3.6% and 2.6% of the Company's total revenue related to its international operation, respectively. The following table summarizes collections received by the Company’s third-party collection agencies and attorneys, less commissions and direct costsfor the years ended September 30, 2018 and 2017, respectively. 2018 2017 Gross collections(1) $35,512,000 $42,456,000 Less: commissions and fees(2) 16,958,000 18,928,000 Net collections $18,554,000 $23,528,000 (1)Gross collections include collections from third-party collection agencies and attorneys, collections from in-house efforts and collectionsrepresented by account sales. (2)Commissions are earned by third party collection agencies and attorneys, and include direct costs associated with the collection effort, generallycourt costs. In December 2007 an arrangement was consummated with one servicer who also received a 3% fee on gross collections received by theCompany in connection with the related portfolio purchase. The fee is charged for asset location, skip tracing and ultimately suing debtors inconnection with this portfolio purchase. NOTE 5 – EQUITY METHOD INVESTMENTS Acquisition of Equity Method Investment On December 28, 2011, the Company entered into a joint venture, Pegasus Funding, LLC ("Pegasus"), with Pegasus Legal Funding, LLC (“PLF”).The Company had an 80% non-controlling interest in the joint venture from the date of formation through January 12, 2018. Pegasus purchases interestsin claims from claimants who are a party to personal injury litigation. Pegasus advances, to each claimant, funds, on a non-recourse basis at an agreedupon interest rate, in anticipation of a future settlement. The interest in each claim purchased by Pegasus consists of the right to receive, from suchclaimant, part of the proceeds or recoveries which such claimant receives by reason of a settlement, judgment or award with respect to such claimant’sclaims. Pegasus while accounted for as an equity method investment, earned $5.1 million in interest and fees for the three months ended June 30, 2017,and earned $0.8 million and $9.8 million in interest and fees for the period from October 1, 2017 to January 12, 2018, compared to the nine months endedJune 30, 2017, respectively. The Company had a net equity method investment in personal injury claims of $50.5 million on September 30, 2017 and$52.7 million immediately prior to acquisition, which included loans due to Asta of $32.7 million and $31.7 million, respectively, settled in conjunctionwith the acquisition. On November 8, 2016, the Company entered into a binding Term Sheet (the “Term Sheet”) with ASFI Pegasus Holdings, LLC, Fund Pegasus, LLC,Pegasus Funding, LLC, Pegasus Legal Funding, LLC, Max Alperovich and Alexander Khanas. The Company and PLF decided not to renew the Pegasusjoint venture that, by its terms, was scheduled to terminate on December 28, 2016. The Term Sheet amended certain provisions to Pegasus’ operatingagreement dated as of December 28, 2011 (as amended, the “Operating Agreement”) and governed the terms relating to the collection of its existingPegasus portfolio (the “Portfolio”). F-21Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 5 – EQUITY METHOD INVESTMENTS (CONTINUED): Pursuant to the Term Sheet, the parties thereto have agreed that Pegasus would continue in existence in order to collect advances on itsexisting Portfolio. The Company would fund overhead expenses relating to the collection of its Portfolio based on a budget agreed upon by the Companyand PLF. Any cash received by Pegasus would be distributed to its members in the order provided for in the Operating Agreement. The Company wouldbe repaid an amount equal to 20% of all principal collected on each investment paid back beginning October 1, 2016 and continuing throughthe collection of the Portfolio, which would be applied against the outstanding balance of overhead expenses previously advanced by the Company toPegasus. After January 2, 2017, additional overhead expenses advanced would be paid back monthly as incurred by the Company prior to the calculationand distribution of any profits. In connection with the Term Sheet, the parties thereto have also entered into a customary mutual release and non-disparagement agreement as wellas a release from the non-competition obligations under the Operating Agreement. The Company filed for arbitration with the American Arbitration Association ("AAA") against Pegasus in April 2017 for breaches in the OperatingAgreement and Term Sheet. On April 18, 2017, the Company was granted an Emergent Award restraining the cash in Pegasus, until a formal arbitrationpanel was confirmed and could review the case. On July 17, 2017, an arbitration panel was confirmed, and a hearing date was scheduled for August 25, 2017 on the Company's motion to have PLFremoved from managing Pegasus and replacing them with Company designated representatives, and to permit disbursements to the Company inaccordance with the Operating and Liquidation Agreements. On January 12, 2018, the Company, ASFI and Fund Pegasus entered into a Settlement Agreement and Release (the “Settlement Agreement”) by andamong the Company, ASFI, Fund Pegasus, Pegasus, the Seller, Max Alperovich, Alexander Khanas, Larry Stoddard, III, Louis Piccolo and A.L. Piccolo &Co., Inc., a New York corporation. The Settlement Agreement releases certain claims in exchange for, among other things, the parties' entry into thePurchase Agreement. Additionally, on January 12, 2018, ASFI Pegasus Holdings, LLC (“ASFI”), a Delaware limited liability company and a subsidiary of Asta Funding,Inc. (the “Company” or “Asta”), a Delaware corporation, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement) with PegasusLegal Funding, LLC, a Delaware limited liability company (the “Seller”). Under the Purchase Agreement, ASFI bought the Seller’s ownership interests ofPegasus Funding, LLC (“Pegasus”), which was 20% of the issued and outstanding limited liability company interests of Pegasus, for an aggregatepurchase price of $1.8 million. As a result of the execution of the Purchase Agreement, ASFI became the owner of 100% of the limited liability companyinterests of Pegasus, and recognized a loss on acquisition of $1.4 million, which is recorded in the Company’s consolidated financial statements.Immediately on acquisition, the Company changed the name from Pegasus to Sylvave. The fair values of the assets acquired and liabilities assumed at the acquisition date are as follows: Fair Value Cash $5,748,000 Personal injury claim advances portfolio 14,571,000 Accounts payable and accrued expenses (664,000) Total net assets acquired $19,655,000 As a result of the purchase of the Seller’s 20% interest in Pegasus on January 12, 2018 under the Purchase Agreement, beginning on January 13,2018, the Company will consolidate the financial statements of Sylvave. F-22Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 5 – EQUITY METHOD INVESTMENTS (CONTINUED): The results of operations and financial position of the Company’s equity investment in Pegasus are summarized below: Condensed Statement of OperationsInformation 2018 2017 Personal injury claims income $671,000 $11,554,000 Operating expenses (386,000) 5,780,000 Income from operations $1,057,000 $5,774,000 Earnings from equity method investment $845,000 $4,619,000 Condensed Balance Sheet Information September 30, 2018 September 30,2017 Current assets Cash $— $35,631,000(1) Investment in personal injury claims — 16,855,000 Other assets — 109,000 Total Assets $— $52,595,000 Current liabilities $— $31,677,000 Non-current liabilities — 1,952,000 Equity — 18,966,000 Total Liabilities and Equity $— $52,595,000 (1) Included in cash is $35.4 million in restricted cash. The restriction was been put in place during the Company’s arbitration with PLF. Serlefin Serlefin Peru is the Company's 49% owned joint venture. The other 51% is owned by three individuals who share common ownership with SerlefinBPO&O Serlefin S.A. (“Serlefin”). Each owner maintains voting rights equivalent to their share ownership, and the 51% shareholders collectively managethe operations of the business. Based on the Company's ownership and voting rights, the Company lacks requisite control of Serlefin Peru, and thereforeaccounts for its investment in Serlefin Peru under the equity method of accounting. Additionally, the Company and Serlefin jointly purchase international consumer debt portfolios under a purchase agreement. The Company andSerlefin purchase the portfolios on a pro-rata basis of 80% and 20%, respectively. The purchased portfolios are transferred to an administrative andpayment trust, where the Company and Serlefin are trustees. Serlefin provides collection services to the trust, and receives a performance fee determinedby the parties for each loan portfolio acquired. Serlefin received approximately $0.4 million and $0.6 million in performance fees for the years endedSeptember 30, 2018 and 2017, respectively. The carrying value of the investment in Serlefin Peru was $0.2 million as of September 30, 2018 and September 30, 2017. The Company hasincluded the carrying value of this investment in other assets on its consolidated balance sheets. The cumulative net loss from our investment in SerlefinPeru through September 30, 2018 was approximately $0.2 million, and was not significant to the Company's consolidated statement of operations. F-23Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 6 - PERSONAL INJURY CLAIMS FUNDING Simia and Sylvave On November 11, 2016, the Company formed Simia, a wholly owned subsidiary, to continue its personal injury claims funding business followingthe Company's decision not to renew its joint venture with PLF. Simia commenced operation in January 2017, and conducts its business solely in theUnited States. As of September 30, 2018, Simia had a personal injury claims portfolio of $2.4 million, and recognized revenue for the year then ended of$0.4 million. As of September 30, 2017, Simia had a personal injury claims portfolio of $3.4 million, and recognized revenue for the year then ended of$0.4 million. As noted in Note 5 - Equity Method Investments, effective January 12, 2018, the Company now accounts for Sylvave, its wholly owned subsidiary,on a consolidated basis. Simia and Sylvave remain in operation to continue to collect on their outstanding personal injury claim portfolios, but will notbe funding any new advances to claimants. Practical Funding The Company formed a new wholly owned subsidiary, Practical Funding on March 16, 2018 to continue in the personal injury claims fundingbusiness. To date, Practical Funding has not funded any advances on personal injury claims. The following tables summarize the changes in the balance sheet account of personal injury claim portfolios held by Simia and Sylvave for thefollowing periods: For the Year Ended September 30, 2018 2017 Balance, beginning of period $3,704,000 $— Acquisition of personal injury funding portfolio (1) 14,571,000 — Personal claim advances 60,000 4,077,000 Provision for losses (516,000) (7,000)(Write offs) recoveries 17,000 (15,000)Personal injury claims income 1,084,000 434,000 Personal injury claims receipts (8,175,000) (785,000)Balance, end of period $10,745,000 $3,704,000 (1) Fully acquired through the acquisition of Pegasus. The Company recognized personal injury claims income of $1.1 million and $0.4 million for the years ended September 30, 2018, respectively. TheCompany has recorded a net reserve against its investment in personal injury claims of $7.1 million and $7,000 as of September 30, 2018 and 2017,respectively. NOTE 7 - MATRIMONIAL CLAIMS On May 8, 2012, EMIRIC entered into a joint venture with California-based Balance Point Divorce Funding, LLC (“BP Divorce Funding”) to createthe operating subsidiary BP Case Management, LLC (“BPCM”). BPCM is 60% owned by the Company and 40% owned by BP Divorce Funding. BPCMprovides non-recourse funding to a spouse in a matrimonial action. The Company provided a $1.0 million revolving line of credit to partially fundBPCM’s operations, with such loan bearing interest at the prevailing prime rate, with an initial term of twenty-four months. In September 2014, theagreement was revised to extend the term of the loan to August 2016, increase the credit line to $1.5 million and include a personal guarantee of theprincipal of BP Divorce Funding. Effective August 14, 2016, the Company extended its revolving line of credit with BP Divorce Funding until March 31,2017, at substantially the same terms as the September 2014 amendment. On April 1, 2017, BP Divorce Funding defaulted on this agreement, and as such,the loan balance of approximately $1.5 million was deemed uncollectible and was written off to general and administrative expenses on the consolidatedstatement of operations during the year ended September 30, 2017. F-24Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 7 - MATRIMONIAL CLAIMS (CONTINUED): As of September 30, 2018 and 2017, BPCM had fully reserved against its invested amount of $2.5 million, in cases managed by this Venture. A netloss of approximately $4.0 million was recognized during the year ended September 30, 2017, when the remaining assets were fully impaired. There wasno income recognized for the fiscal years ended September 30, 2018 and 2017. NOTE 8 - FURNITURE AND EQUIPMENT Furniture and equipment as of September 30, 2018 and 2017 consist of the following: 2018 2017 Furniture $273,000 $273,000 Equipment 252,000 241,000 Software 1,396,000 1,369,000 1,921,000 1,883,000 Less accumulated depreciation and amortization 1,821,000 1,759,000 $100,000 $124,000 Depreciation and amortization expense for the years ended September 30, 2018 and 2017 was $62,000, and $97,000, respectively. NOTE 9 - NOTE RECEIVABLE Pursuant to Purchase Agreement, dated as of December 13, 2017, between the Purchaser and CBC, CBC sold to the Purchaser all of the issued andoutstanding equity capital of CBC for $10.3 million. In conjunction with this sale the Company received $4.5 million in cash, and a Promissory Note (the“Note”) for $5.8 million from the Purchaser. The Note bears interest at 7% per annum, payable in quarterly installments of principle and interest throughDecember 13, 2020, and is secured pursuant to a Security Agreement (the “Security Agreement”) with an affiliate of the Purchaser. Under the SecurityAgreement the Company has a first priority security interest and lien on all servicing fees received by the affiliate. As of September 30, 2018, thePurchaser is current on all its obligations under the Note, and the principle amount outstanding on this Note is $4.3 million. For the year ended September30, 2018, the Company recorded $0.3 million in interest income, which has been classified as other income in the Company’s consolidated statement ofoperations, associated with this note. See Note 2 – Discontinued Operations. NOTE 10 - SETTLEMENTS In August 2014, the Company filed a lawsuit in Delaware state court against a third party servicer arising from the third party servicer’s failure topay the Company certain amounts that are due the Company under a servicing agreement. The third party servicer filed a counterclaim in the Delawareaction alleging that the Company owes certain amounts to the third party servicer for court costs pursuant to an alleged arrangement between thecompanies. On or about July 12, 2018, the parties agreed to settle the action pursuant to a settlement agreement and release, which provides for, amongother things, the payment by the third party servicer of $4.4 million to the Company pursuant to an agreed upon schedule with a lump sum payment to bemade at the third anniversary of the agreement. These fee based settlements are required to total $2.4 million and $4.4 million by the second and third anniversaries, respectively. To the extent thatthese fee based settlement fees are less than these amounts, the servicer is required to make lump sum true-up payments. The Company determined the fair value of this settlement using (i) historical collection history to estimate the fee based settlement fees that areexpected to be received each month from the servicer; (ii) the contractual true-up dates, discussed above, in order to estimate the anticipated true-uppayments that will be received from the servicer on the second and third anniversaries; and (iii) an imputed interest rate of 8.5%. As of September 30, 2018, the Company has a settlement receivable due from this third party servicer of $3.3 million. During fiscal year 2018, theCompany received $0.6 million in payments from this third party servicer. For the year ended September 30, 2018, the Company recorded a gain onsettlement of $3.4 million, and $0.1 million in interest income, which is included in other income on the Company's consolidated statement ofoperations. Additionally, the Company also recorded a gain on settlement of $0.6 million from a third party financial institution associated with the Company'sprior purchase of a consumer debt portfolio. F-25Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 11 - NON RECOURSE DEBT Non-Recourse Debt - Bank of Montreal (“BMO”) In March 2007, Palisades XVI borrowed approximately $227 million under the Receivables Financing Agreement, as amended in July 2007, December 2007, May 2008, February 2009, October 2010 and August 2013 ( the “RFA”) from Bank of Montreal (“BMO”), in order to finance thePortfolio Purchase which had a purchase price of $300 million. The original term of the agreement was three years. This term was extended by each of theSecond, Third, Fourth and Fifth Amendments and the most recent agreement signed in August 2013. On August 7, 2013, Palisades XVI, a 100% owned bankruptcy remote subsidiary, entered into a Settlement Agreement and Omnibus Amendment(the “Settlement Agreement”) with BMO as an amendment to the RFA. In consideration for a $15 million prepayment funded by the Company, BMOagreed to significantly reduce minimum monthly collection requirements and the interest rate. If and when BMO receives the next $15 million ofcollections from the Portfolio Purchase or from voluntary prepayments by Asta Funding, Inc., less certain credits for payments made prior to theconsummation of the Settlement Agreement (the “Remaining Amount”), Palisades XVI and its affiliates would be automatically released from liability inconnection with the RFA (subject to customary exceptions). A condition to the release was Palisade XVI’s agreement to grant BMO, as of the time of thepayment of the Remaining Amount, the right to receive 30% of net collections from the Portfolio Purchase once Palisades XVI has received from futurenet collections, the sum of $15 million plus voluntary prepayments included in the payment of the Remaining Amount (the “Income Interest”). OnJune 3, 2014, Palisades XVI paid the Remaining Amount. The final principal payment of $2.9 million included a voluntary prepayment of $1.9 millionprovided from funds of the Company. Accordingly, Palisades XVI was entitled to receive $16.9 million of future collections from the Portfolio Purchasebefore BMO would be entitled to receive any payments with respect to its Income Interest. During the month of June 2016, the Company received the balance of the $16.9 million, and, as of September 30, 2018 and 2017, the Companyrecorded a liability to BMO of approximately $117,000 and $148,000, respectively. The funds were subsequently remitted to BMO in October 2018 and2017, respectively. The liability to BMO is recorded when actual collections are received. Bank Hapoalim B.M. (“Bank Hapoalim”) Line of Credit On May 2, 2014, the Company obtained a $20 million line of credit facility from Bank Hapoalim, pursuant to a Loan Agreement (the “LoanAgreement”) among the Company and its subsidiary, Palisades Collection, LLC, as borrowers (“the Borrowers”), and Bank Hapoalim, as agent and lender.The Loan Agreement provides for a $20.0 million committed line of credit and an accordion feature providing an increase in the line of credit of up to$30 million, at the discretion of the lenders. The facility was for a term of three years at an interest rate of either LIBOR plus 275 basis points or prime, atthe Company’s option. The Loan Agreement included covenants that required the Company to maintain a minimum net worth of $150 million and payan unused line fee. The facility was secured pursuant to a Security Agreement among the parties to the Loan Agreement, with property of the borrowersserving as collateral. On March 30, 2016, the Company signed the First Amendment to the Loan Agreement (the “First Amendment”) with BankHapoalim which amended certain terms of their banking arrangement. The First Amendment included (a) the reduction of the interest rate to LIBOR plus225 basis points; (b) a decrease in the Net Equity requirement by $50 million, to $100 million and (c) modified the Net Loss requirement from a quarterlyto an annual basis. All other terms of the original agreement remained in effect. The Company borrowed $9.6 million in February 2017 against thefacility. There was a $10.0 million aggregate balance on deposit at Bank Hapoalim which served as collateral for the line of credit, and was reflected asrestricted cash. On April 28, 2017, the Company renewed the line of credit facility with the new maturity date of August 2, 2017, under the existing termsand conditions. On August 2, 2017, the $9.6 million line of credit expired and the Company satisfied the debt with cash that was held in deposit ascollateral with the bank. As of September 30, 2018 and 2017, there was no outstanding facility. NOTE 12 - OTHER LIABILITIES Other liabilities as of September 30, 2018 and 2017 are as follows: 2018 2017 Accounts payable and accrued expenses $2,281,000 $1,835,000 Lawsuit reserve (see Note 15 - Commitments and Contingencies - Legal Matters ) — 3,145,000 Total other liabilities $2,281,000 $4,980,000 F-26Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 13 - INCOME TAXES The components of the provision for income taxes for the years ended September 30, 2018 and 2017 are as follows: 2018 2017 Current: Federal $3,709,000 $(5,065,000)State — — 3,709,000 (5,065,000) Deferred: Federal 1,525,000 2,322,000 State 224,000 409,000 1,749,000 2,731,000 Sub-total 5,458,000 (2,334,000) Less: income tax benefit on discontinued operations (44,000) (3,411,000) Provision for income taxes $5,502,000 $1,077,000 On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted into law in the United States. The Tax Act significantly revisescorporate income tax law by, among other things, lowering the corporate income tax rates from 35% to 21%. Under GAAP, deferred taxes must beadjusted for enacted changes in tax laws or rates during the period in which new tax legislation is enacted. During the year ended September 30, 2018, taxexpense of approximately $4.4 million was recorded, representing the revaluation of deferred tax assets and liabilities as a result of the lower corporatetax rate established by the Tax Act. As of September 30, 2018, the Company has completed the accounting for the tax effects of the enactment of the TaxAct. The difference between the statutory federal income tax rate on the Company’s pre-tax income and the Company’s effective income tax rate issummarized for the years ended September 30, 2018 and 2017 as follows: 2018 2017 Statutory federal income tax rate 24.5% 35.0%State income tax, net of federal benefit 2.3 (2.7)Permanent difference in municipal interest (1.1) 1.3 Permanent difference other — (4.1)Change in valuation allowance (12.1) (14.0)Impact of the Tax Act (1) 46.3 — Other (2.5) (0.3) Effective income tax rate 57.4% 15.2% (1) The revaluation of the Company's deferred tax assets and liabilities due to the lower corporate tax rate established by the Tax Act resulted in $4.4million of tax expense during the year ended September 30, 2018. F-27Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 13 - INCOME TAXES (CONTINUED): The Company recognized a net deferred tax asset of $10,940,000 and $12,696,000 as of September 30, 2018 and 2017, respectively. Thecomponents are as follows: September 30,2018 September 30,2017 Impairments/bad debt reserves $328,000 $4,380,000 Revenue recognition pertaining to the cost over estimated collections method 6,312,000 8,572,000 State tax net operating loss carry forward 7,421,000 9,603,000 Stock based compensation 2,367,000 3,520,000 Unrealized gain on structured settlements — (5,187,000)Capital loss carry forward 1,724,000 2,597,000 Foreign currency 404,000 472,000 Depreciation, amortization and other 215,000 193,000 Deferred income taxes 18,771,000 24,150,000 Deferred tax valuation allowance (7,831,000) (11,454,000) Deferred income taxes $10,940,000 $12,696,000 The Company files consolidated Federal and state income tax returns. Substantially all of the Company’s subsidiaries are single member limitedliability companies and, therefore, do not file separate tax returns. Majority and minority owned subsidiaries file separate partnership tax returns. Theexpiration date for state net operating loss (“NOL”) carry forwards (from September 30, 2009) is September 30, 2029. The New Jersey NOL carry forwardbalance as of September 30, 2018 is approximately $73.2 million. In addition, the Company has New York State and City NOL of approximately $16.5million and $3.5 million as of September 30, 2018, respectively. The Company has generated approximately $2.2 million of foreign NOL’s, all of whichare fully reserved with a valuation allowance, due to cumulative losses in those jurisdictions. The Company has a federal capital loss carry forward of $6.1million expiring in 2022 that has been fully reserved. The Company accounts for income taxes using the asset and liability method which requires the recognition of deferred tax assets and, ifapplicable, deferred tax liabilities, for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases ofassets and, if applicable, liabilities. Additionally, the Company would adjust deferred taxes to reflect estimated tax rate changes, if applicable. TheCompany conducts periodic evaluations to determine whether it is more likely than not that some or all of its deferred tax assets will be realized. Amongthe factors considered in this evaluation are estimates of future earnings, the future reversal of temporary differences and the impact of tax planningstrategies that the Company can implement, if warranted. The Company is required to provide a valuation allowance for any portion of our deferred taxassets that, more likely than not, will not be realized at September 30, 2018. Based on this evaluation, the Company has recorded a deferred tax assetvaluation allowance on their state NOL’s and capital loss carry forwards of approximately $7.8 million as of September 30, 2018 as compared to $11.5million reported on September 30, 2017. Although the carry forward period for state income tax purposes is up to twenty years, given the economicconditions, such economic environment could limit growth over a reasonable time period to realize the deferred tax asset. The Company determined thetime period allowance for carry forward is outside a reasonable period to forecast full realization of the deferred tax asset, therefore recognized thedeferred tax asset valuation allowance. The Company continually monitors forecast information to ensure the valuation allowance is at the appropriatevalue. As required by FASB ASC 740, Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining thatthe relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than- notthreshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized uponultimate settlement with the relevant tax authority. The Company's amended federal tax return for the year ended September 30, 2014 and 2015 is currently being audited by the Internal RevenueService. The tax returns for the 2016 fiscal year are subject to examination. The Company does not have any uncertain tax positions. F-28Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 14 - NET INCOME PER SHARE: The following table presents the computation of basic and diluted per share data for the fiscal years ended September 30, 2018 and 2017: 2018 2017 Income (loss) from continuing operations $4,137,000 $(8,382,000) Loss from discontinued operations (80,000) (4,620,000) Net income (loss) $4,057,000 $(13,002,000) Basic earnings (loss) per common share from continuing operations $0.62 $(0.97)Basic loss per common share from discontinued operations (0.01) (0.53)Basic earnings (loss) per share $0.61 $(1.50) Diluted earnings (loss) per common share from continuing operations $0.62 $(0.97)Diluted loss per common share from discontinuing operations (0.01) (0.53)Diluted earnings (loss) per share $0.61 $(1.50) Weighted average number of common shares outstanding: Basic 6,662,600 8,692,668 Dilutive effect of stock options 2,241 — Diluted 6,664,841 8,692,668 NOTE 15 - COMMITMENTS AND CONTINGENCIES Leases The Company leases its facilities in (i) Englewood Cliffs, New Jersey, (ii) Houston, Texas, and (iii) Louisville, Kentucky. The leases are operatingleases, and the Company incurred related rent expense in the amounts of $324,000, and $360,000 during the years ended September 30, 2018 and 2017,respectively. The future minimum lease payments are as follows: Year EndingSeptember 30, 2019 $265,000 2020 224,000 $489,000 The Company’s lease of its Louisville, Kentucky facility expires in December 2018. Employment Agreement On March 10, 2016, the Company entered into an employment agreement with an executive of the Company. Under this Agreement, he willreceive a base salary of $275,000, subject to annual increases, and will be eligible to receive cash and non-cash bonuses. The Agreement has an 18 monthnon-compete and non-solicitation provision and has a one ( 1 ) year term, and the term will be extended by one year on each anniversary date of theAgreement. Effective November 11, 2016, the Company entered into a five year employment agreement with Mr. Preece that could be terminated with orwithout “cause” (as defined in the Employment Agreement) and could resign with or without “good reason” (as defined in the Employment Agreement).If Mr. Preece was terminated without “cause” or resigned for “good reason” he would have received severance equal to two years of his base salary. As of July 17, 2017, Mr. Preece was no longer employed as Chief Executive Officer of Simia. On an interim basis Gary Stern, Chairman, ChiefExecutive Officer and President of the Company, assumed the responsibilities of Simia’s Chief Executive Officer. No amounts were paid for any severanceor bonus under his contract. F-29Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED): The employment contracts of the original two CBC principals expired at the end of December 2016. The Company did not renew those contracts.Ryan Silverman was appointed CEO/General Counsel, effective January 1, 2017. The Company is no longer contractually obligated on any CBCemployment agreements, as they were sold with the entity. Legal Matters In June 2015, a putative class action complaint was filed against the Company, and one of its third-party law firm servicers, alleging violation ofthe federal Fair Debt Collection Practices Act and Racketeer Influenced and Corrupt Organizations Act (“RICO”) and state law arising from debtcollection activities and default judgments obtained against certain debtors. The Company filed a motion to strike the class action allegations and compel arbitration or, to the extent the court declines to order arbitration, todismiss the RICO claims. On or about March 31, 2015, the court denied the Company’s motion. The Company filed an appeal with the United StatesCourt of Appeals for the Second Circuit. A mediation session was held in July 2015, at which the Company agreed to settle the action on an individualbasis for a payment of $13,000 to each named plaintiff, for a total payment of $39,000. Payment was made on or about July 24, 2015. The third-party lawfirm servicer has not yet settled and remains a defendant in the case. The plaintiffs’ attorneys advised that they were contemplating the filing of another putative class action complaint against the Company allegingsubstantially the same claims as those that were asserted in this matter. In anticipation of such an eventuality, the Company agreed to non-bindingmediation in order to reach a global settlement with other putative class members, which would avert the possibility of further individual or class actionswith respect to the affected accounts. To date, the parties have attended two mediation sessions and are continuing to discuss a global settlement. Inconnection with such discussions, the parties agreed in principle to settle the action for a payment of $3.9 million (which would be split equally betweenthe Company and the law firm servicer). The Company and law firm servicer have also agreed to cease collection activity on the affected accounts.Accordingly, the Company set up a reserve for settlement costs of $2.0 million during the three months ended March 31, 2017, which was included ingeneral and administrative expenses in the Company's consolidated statement of operations. The Company reassessed the situation at September 30, 2016 and deemed that an additional $0.3 million was necessary to account for legalexpenses, which was made during the three month period ended September 30, 2016. On January 23, 2018, the Company paid $2.3 million as a globalsettlement in conjunction with the putative class action complaint filed against the Company, and one of its third-party law firm servicers. This paymentrepresented the Company's portion of the total settlement of $4.6 million, which was split with the third-party law firm. The Company was a defendant in a lawsuit filed in Montana state court alleging fraud and abuse of process arising from the Company’s businessrelationship with an entity that finances divorce litigation proceedings. On November 24, 2017, the Company paid $0.8 million as a settlement inconjunction with the lawsuit filed against the Company in Montana state court alleging, fraud and abuse of process arising from the Company's businessrelationship with an entity that finances divorce proceedings. As of September 30, 2017, the $0.8 million settlement was accrued for in the Company'sconsolidated balance sheet. In the ordinary course of our business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using our networkof third party law firms, against consumers. Also, consumers occasionally initiate litigation against us, in which they allege that we have violated afederal or state law in the process of collecting their account. We do not believe that these ordinary course matters are material to our business andfinancial condition. The Company is not involved in any other material litigation in which we are a defendant. NOTE 16 - CONCENTRATIONS At September 30, 2018, approximately 31% of the Company’s portfolio face value was serviced by 5 collection organizations. The Company hasservicing agreements in place with these 5 collection organizations, as well as all of the Company’s other third party collection agencies and attorneysthat cover standard contingency fees and servicing of the accounts. While the 5 collection organizations represent only 31% of the Company’s portfolioface value, it does represent approximately 87% of the Company’s portfolio face value at all third party collection agencies and attorneys. F-30Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 16 – CONCENTRATIONS (CONTINUED): At September 30, 2017, approximately 35% of the Company’s portfolio face value was serviced by 5 collection organizations. The Company hasservicing agreements in place with these 5 collection organizations, as well as all of the Company’s other third party collection agencies and attorneysthat cover standard contingency fees and servicing of the accounts. While the 5 collection organizations represent only 35% of the Company’s portfolioface value, it does represent approximately 90% of the Company’s portfolio face value at all third party collection agencies and attorneys. In the currentyear the Company has three consumer receivable portfolios that comprise over 10% of asset balance (20%, 11% and 11%), and one portfolio whichgenerated greater than 10%, at 24% of asset balance. NOTE 17 - STOCK OPTION PLANS 2012 Stock Option and Performance Award Plan On February 7, 2012, the Board of Directors adopted the Company’s 2012 Stock Option and Performance Award Plan (the “2012 Plan”), which wasapproved by the stockholders of the Company on March 21, 2012. The 2012 Plan replaces the Equity Compensation Plan (as defined below). The 2012 Plan provides the Company with flexibility with respect to equity awards by also providing for grants of stock awards (i.e., restricted orunrestricted), stock purchase rights and stock appreciation rights, in addition to the granting of stock options. The Company authorized 2,000,000 shares of Common Stock for issuance under the 2012 Plan. As of September 30, 2018, the Company hasgranted 540,800 options and 245,625 shares of restricted stock since inception of the 2012 Plan. Additionally, 109,768 options have been cancelledduring that time period, leaving 1,323,343 shares available as of September 30, 2018. As of September 30, 2018, approximately 60 of the Company’semployees were eligible to participate in the 2012 Plan. Equity Compensation Plan On December 1, 2005, the board of directors adopted the Company’s Equity Compensation Plan (the “Equity Compensation Plan”), which wasapproved by the stockholders of the Company on March 1, 2006. The Equity Compensation Plan was adopted to supplement the Company’s 2002 StockOption Plan (as defined below). In addition to permitting the grant of stock options, as are permitted under the 2002 Stock Option Plan, the Equity Compensation Plan allows theCompany flexibility with respect to equity awards by also providing for grants of stock awards (i.e., restricted or unrestricted), stock purchase rights andstock appreciation rights. The Company authorized 1,000,000 shares of Common Stock for issuance under the Equity Compensation Plan. As of March 21, 2012, noadditional awards could be issued under this plan. 2002 Stock Option Plan On March 5, 2002, the board of directors adopted the Company’s 2002 Stock Option Plan (the “2002 Plan”), which was approved by theCompany’s stockholders on May 1, 2002. The 2002 Plan was adopted in order to attract and retain qualified directors, officers and employees of, andconsultants to, the Company. The 2002 Plan authorized the granting of incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended(“the “Code”)) and non-qualified stock options to eligible employees of the Company, including officers and directors of the Company (whether or notemployees) and consultants of the Company. The Company authorized 1,000,000 shares of Common Stock for issuance under the 2002 Plan. As of March 5, 2012, no additional awards couldbe issued under this plan. F-31Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 17 - STOCK OPTION PLANS (CONTINUED): Stock Based Compensation The Company accounts for stock-based employee compensation under ASC 718, Compensation - Stock Compensation (“ASC 718”). ASC 718requires that compensation expense associated with stock options and other stock based awards be recognized in the income statement rather than adisclosure in the notes to the Company’s consolidated financial statements. On June 8, 2017, the Compensation Committee granted 56,600 stock options to an officer and employees of the Company, of which 10,000options vested immediately, 10,000 options vested on January 1, 2018, 10,000 options vest on January 1, 2019 and the remaining 26,600 stock optionsvest in three equal annual installments and accounted for as one graded vesting award. The exercise price of these options was at the market price on thatdate. The weighted average assumptions used in the option pricing model were as follows: Risk-free interest rate 1.86%Expected term (years) 5.97 Expected volatility 26.27%Forfeiture rate 3.49%Dividend yield 0.00% Summary Of The Plan Compensation expense for stock options and restricted stock is recognized over the vesting period. Compensation expense for restricted stock isbased upon the market price of the shares underlying the awards on the grant date. The following table summarizes stock option transactions under the 2012 Plan, the 2002 Plan and the Equity Compensation Plan (the “Plans”): Year Ended September 30, 2018 2017 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Outstanding options at the beginning of year 880,567 $8.05 949,667 $8.47 Options granted — — 56,600 6.55 Options forfeited/cancelled (90,100) 8.11 (125,700) 10.59 Options exercised (61,600) 6.48 — — Outstanding options at the end of year 728,867 $8.17 880,567 $8.05 Exercisable options at the end of year 710,694 $8.18 796,962 $8.14 F-32Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 17 - STOCK OPTION PLANS (CONTINUED): Summary Of The Plan (Continued): The following table summarizes information about the plans’ outstanding options as of September 30, 2018: Options Outstanding Options Exercisable Range ofExercise Price NumberOutstanding WeightedAverageRemainingContractualLife (In Years) WeightedAverageExercisePrice NumberExercisable WeightedAverageExercisePrice $2.8751-$5.7500 1,200 0.6 $2.95 1,200 $2.95 $5.7501-$8.6250 618,167 3.7 7.97 599,994 7.97 $8.6251-$11.5000 109,500 4.3 9.37 109,500 9.37 728,867 3.8 $8.17 710,694 $8.18 The Company recognized $106,000 and $58,000 of compensation expense related to stock options, for the fiscal years ended September 30, 2018and 2017 respectively. As of September 30, 2018, there was $7,000 of unrecognized compensation cost related to unvested stock options. The weightedaverage remaining period over which such costs are expected to be recognized is 0.2 years. The intrinsic value of the outstanding and exercisable options as of September 30, 2018 was approximately $1,200 and $1,200 respectively. Theintrinsic value of the options exercised during fiscal year 2018 was approximately $265,000.There were no options exercised during the fiscal year 2017.The fair value of the options exercised during the fiscal year ended September 30, 2018 was $664,000. The proceeds from the exercise of stock optionsduring the fiscal years ended September 30, 2018 were approximately $399,000. The weighted average remaining contractual life of exercisable optionsas of September 30, 2018 is 3.8 years. The fair value of the stock options that vested during the 2018 and 2017 fiscal years was approximately $258,000and $685,000, respectively. The fair value of options granted during the fiscal year ended September 30, 2017 was approximately $371,000. There wereno options granted during the year ended September 30, 2018. The Company did not grant any restricted stock awards during the years ended September 30, 2018 and 2017. As of September 30, 2018 and 2017,there was no unrecognized compensation cost related to restricted stock awards. NOTE 18 - STOCKHOLDERS’ EQUITY The Company has 30,000,000 authorized preferred shares with a par value of $0.01 per share. The Board of Directors are authorized to divide theauthorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of allother series and classes. There were no shares of preferred stock issued and outstanding as of September 30, 2018 and 2017. Dividends are declared at the discretion of the Board of Directors and depend upon the Company’s financial condition, operating results, capitalrequirements and other factors that the Board of Directors deems relevant. In addition, agreements with the Company’s lenders may, from time to time,restrict the ability to pay dividends. As of September 30, 2018, there were no such restrictions, as there were no lending agreements in place. On February 5, 2018, the Board of Directors of the Company declared a special cash dividend in the amount of $5.30 per share with respect to itsCommon Stock, payable on February 28, 2018 to holders of record of the Company’s Common Stock at the close of business on February 16, 2018, withan ex-dividend date of March 1, 2018. The aggregate payment to shareholders was approximately $35.4 million. F-33Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 18 - STOCKHOLDERS’ EQUITY (CONTINUED): Stockholder Rights Agreement On May 5, 2017, the Board of the Company adopted a stockholder rights plan (the “Rights Agreement”), pursuant to which the Company declared adividend of one right (a “Right”) for each of the Company’s issued and outstanding shares of common stock. The dividend was declared to thestockholders of record at the close of business on May 15, 2017. Each Right entitled the holder, subject to the terms of the Rights Agreement, to purchasefrom the Company one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock (the “Preferred Stock”) at a price of$28.60, subject to certain adjustments. The Rights generally became exercisable on the earlier of (i) ten business days after any person or group obtains beneficial ownership of 10% ormore of the Company’s outstanding common stock (an “Acquiring Person”), or (ii) ten business days after commencement of a tender or exchange offerresulting in any person or group becoming an Acquiring Person. The exercise price payable and the number of shares of Preferred Stock or other securities or property issuable, upon exercise of the Rights weresubject to adjustment from time to time to prevent dilution. In the event that, after a person or a group has become an Acquiring Person, the Company isacquired in a merger or other business combination transaction (or 50% or more of the Company’s assets or earning power are sold), proper provisionwould be made so that each holder of a Right will thereafter have had the right to receive, upon the exercise thereof at the then-current exercise price ofthe Right, that number of shares of common stock of the acquiring company having a market value at the time of that transaction equal to two times theexercise price. The Company had the right to redeem the Rights at any time before a person or group becomes an Acquiring Person at a price of $0.01 perRight, subject to adjustment. At any time after any person or group became an Acquiring Person, the Company could generally exchange each Right inwhole or in part at an exchange ratio of one shares of common stock per outstanding Right, subject to adjustment. Unless terminated on an earlier date pursuant to the terms of the Rights Agreement, the Rights was set to expire on June 1, 2018, or such later date asmay have been established by the Board as long as any such extension is approved by a vote of the stockholders of the Company by June 1, 2018. TheCompany concluded any value associated with the Right given to shareholders as a dividend was deemed deminimus. The Rights and Rights Agreement expired unexercised on June 1, 2018. NOTE 19 - RETIREMENT PLAN The Company maintains a 401(k) Retirement Plan covering all of its eligible employees. Matching contributions made by the employees to theplan are made at the discretion of the board of directors each plan year. Contributions for the years ended September 30, 2018 and 2017 were $127,000and $139,000, respectively. F-34Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 20 - FAIR VALUE OF FINANCIAL MEASUREMENTS AND DISCLOSURES: Disclosures about Fair Value of Financial Instruments The estimated fair value of the Company’s financial instruments is summarized as follows: September 30, 2018 September 30, 2017 CarryingAmount FairValue CarryingAmount FairValue Financial assets Cash equivalents (Level 1) $1,786,000 $1,786,000 $68,000 $68,000 Available-for-sale investments (Level 1) 38,054,000 38,054,000 5,511,000 5,511,000 Consumer receivables acquired for liquidation (Level 3) 3,749,000 27,574,000 6,841,000 32,603,000 The following assets have been reclassified to discontinued operations as of September 30, 2017: September 30, 2017 CarryingAmount FairValue Financial asset Structured settlements (Level 3) $86,971,000 $86,971,000 Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The Company uses the following methods andassumptions to estimate the fair value of financial instruments: Cash equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cashequivalents. The carrying amount of cash equivalents approximates fair value. Available-for-sale investments - The available-for-sale securities consist of mutual funds and U.S. treasury bills that are valued based on quotedprices in active markets. The U.S. treasury bills have been classified as available for sale by the Company, as they are deemed to be short terminvestments, and can be liquidated as needed by the Company. The Company’s available-for-sale investments are classified as Level 1 financial instruments based on the classifications described above. TheCompany did not have any transfers into (out of) Level 1 investments during the fiscal year ended September 30, 2017. The Company had no Level 2 orLevel 3 available-for-sale investments during the fiscal year ended September 30, 2017. Consumer receivables acquired for liquidation - The Company computed the fair value of the consumer receivables acquired for liquidation usingits proprietary forecasting model. The Company’s forecasting model utilizes a discounted cash flow analysis. The Company’s cash flows are an estimateof collections for consumer receivables based on variables fully described in Note 4 - Consumer Receivables Acquired for Liquidation. These cash flowsare discounted to determine the fair value. Structured settlements (included in discontinued operations) - The Company determined the fair value based on the discounted forecasted futurecollections of the structured settlements. Unrealized gains on structured settlements is comprised of both unrealized gains resulting from fair marketvaluation at the date of acquisition of the structured settlements and the subsequent fair value adjustments resulting from the change in the discount rate.The $0.2 million of unrealized gains recognized in the fiscal year ended September 30, 2018, are due to day one gains. Of the $4.3 million of unrealizedgains recognized in the fiscal year ended September 30, 2017, approximately $6.9 million is due to day one gains on new structured settlements financedduring the period, $0.2 million due to a change in the discount rate, offset by a decrease of $2.1 million in realized gains recognized as realized interestincome on structured settlements during the period and fair value adjustment of $0.7 million. A significant unobservable input used in the fair value measurement of structured settlements is the discount rate. Significant increases anddecreases in the discount rate used to estimate the fair value of structured settlements could decrease or increase the fair value measurement of thestructured settlements. The discount rate could be affected by factors, which include, but are not limited to, creditworthiness of insurance companies,market conditions, specifically competitive factors, credit quality of receivables purchased, the diversity of the payers of the receivables purchased, theweighted average life of receivables, current benchmark rates (i.e. 10 year treasury or swap rate) and the historical portfolio performance of the originatorand/or servicer. F-35Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 20 - FAIR VALUE OF FINANCIAL MEASUREMENTS AND DISCLOSURES (CONTINUED): Disclosures about Fair Value of Financial Instruments (Continued): The changes in structured settlements at fair value using significant unobservable inputs (Level 3) during the year ended September 30, 2018 wereas follows: Balance at September 30, 2017 $86,971,000 Structured settlements sold in conjunction with sale of CBC on December 13, 2017 (86,971,000)Structured settlements as of September 30, 2018 $— Realized and unrealized gains and losses on structured settlements included in earnings in the accompanying consolidated statements ofoperations for the year ended September 30, 2018 are reported in the following revenue categories: Total gains included in the year ended September 30, 2018 $244,000 Change in unrealized gains (losses) relating to assets held at September 30, 2018 $— NOTE 21 - RELATED PARTY TRANSACTIONS On September 17, 2015, the Company and Piccolo agreed to terms to a new two-year, $80,000 contract, pursuant to which Piccolo would provideconsulting services. The compensation was to be paid quarterly. The consulting agreement with Piccolo terminated on September 30, 2017, and was notrenewed. During fiscal 2018, the Company did not pay Piccolo any amounts under this agreement. For the year ended September 30, 2017, the Companypaid Piccolo $80,000 for such services. In addition, A. L. Piccolo & Co., Inc. (“ALP”), which is also owned by Louis Piccolo, received a fee from Pegasus, prior to acquisition, which wascalculated based on amounts loaned to Pegasus by Fund Pegasus up to maximum of $700,000. The fee was payable over nine years including interest at4% per annum from Pegasus during the term of the Pegasus Operating Agreement that expired on December 28, 2016. Thereafter, it was payable by PLFand its affiliates. For the years ended September 30, 2018 and 2017, Pegasus paid ALP $33,000 and $133,000, which includes fees and interest paidduring the period. As of September 30, 2018 and 2017, the Company owed Piccolo $0 and $66,000, respectively, which was recorded in other liabilitieson the Company’s consolidated balance sheet at September 30, 2017. In June 2015, CBC entered into an asset purchase agreement with Fortress Funding, LLC (“Fortress”) to acquire an interest in certain tangible andintangible assets of Fortress, which included customer lists, equipment and other intellectual property. In consideration for these assets CBC agreed topay Fortress $0.5 million, as well as up to an additional $1.2 million based on conversion of customers from the acquired lists obtained in the transaction.Fortress is owned by Michelle Silverman, the wife of Ryan Silverman, who in connection with the agreement was offered employment as General Counselof CBC. For the years ended September 30, 2018 and 2017, the Company made payments of $0 and $203,000, respectively, to Fortress. As of September 30,2018 and 2017, the Company had no liability due to Fortress. Subsequent to the sale of CBC, on December 13, 2017, Fortress is no longer considered arelated party. F-36Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 22 - SEGMENT REPORTING The Company operates through strategic business units that are aggregated into three reportable segments: Consumer receivables, personal injuryclaims and Social security disability advocacy. The three reportable segments consist of the following: •Consumer receivables - This segment is engaged in the business of purchasing, managing for its own account and servicing distressed consumerreceivables, including judgment receivables, charged off receivables and semi-performing receivables. Judgment receivables are accounts whereoutside attorneys have secured judgments directly against the consumer. Primary charged-off receivables are accounts that have been written-offby the originators and may have been previously serviced by collection agencies. Semi-performing receivables are accounts where the debtor iscurrently making partial or irregular monthly payments, but the accounts may have been written-off by the originators. Distressed consumerreceivables are the unpaid debts of individuals to banks, finance companies and other credit providers. A large portion of our distressedconsumer receivables are MasterCard ® , Visa ® and other credit card accounts which were charged-off by the issuers or providers for non-payment. We acquire these and other consumer receivable portfolios at substantial discounts to their face values. The discounts are based on thecharacteristics (issuer, account size, debtor location and age of debt) of the underlying accounts of each portfolio. Recently, the Company'sefforts have been in the international areas (mainly South America), as we have curtailed our active purchasing of consumer receivables in theUnited States. The Company holds consumers receivable acquired for liquidation in both Colombia and Peru of approximately $3.3 million. Thebusiness conducts its activities primarily under the name Palisades Collection, LLC. •Personal injury claims - This segment is comprised of purchased interests in personal injury claims from claimants who are a party in personalinjury litigation or claim. The Company advances to each claimant funds on a non-recourse basis at an agreed upon interest rate, in anticipationof a future settlement. The interest in each claim purchased consists of the right to receive, from such claimant, part of the proceeds or recoverieswhich such claimant receives by reason of a settlement, judgment or award with respect to such claimant’s claim. The Company historicallyfunded personal injury claims in Simia and Sylvave. The Company formed a new wholly owned subsidiary, Practical Funding on March 16,2018 to continue in the personal injury claims funding business. To date, Practical Funding has not funded any advances on personal injuryclaims. Simia commenced operations in January 2017, and conducts its business solely in the United States. Simia obtained its business from externalbrokers and internal sales professionals soliciting attorneys and law firms who represent claimants who have personal injury claims. Business wasalso obtained from its website and through attorneys. The Company accounted for its investment in Sylvave under the equity method ofaccounting through January 12, 2018, for subsequent periods the Company includes the financial results of Sylvave in its consolidatedstatement of operations. Simia and Sylvave are not funding any new advances, but continue to collect on outstanding personal injury claimadvances in the ordinary course. •Social security disability advocacy - GAR Disability and Five Star are advocacy groups representing individuals throughout the United Statesin their claims for social security disability and supplemental social security income benefits from the Social Security and VeteransAdministration. Certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses are reflectedin Corporate. Corporate assets include cash and cash equivalents, available-for-sale investments, a note receivable, property and equipment, goodwill,deferred taxes and other assets. F-37Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 22 - SEGMENT REPORTING (CONTINUED) The following table shows results for continuing operations by reporting segment for the years ended September 30, 2018 and 2017. (Dollars in millions) ConsumerReceivables Social securitydisabilityadvocacy PersonalInjuryClaims (2) Corporate (3) Total Fiscal Year Ended September 30, 2018: Revenues $15.9 $4.6 $1.1 $- $21.6 Other income (5) 4.0 - - 0.5 4.5 Segment profit (loss) 17.8 1.1 1.1 (10.4) 9.6 Segment Assets (1) 12.4 1.0 11.9 61.0 86.3 2017: Revenues 15.9 5.1 0.4 - 21.4 Other income - - - (0.1) (0.1)Segment profit (loss) 12.5 (1.7) 4.1 (22.2) (7.3)Segment Assets (1) (4) 20.4 3.9 55.0 122.2 201.5 The Company does not have any intersegment revenue transactions. (1)Includes other amounts in other line items on the consolidated balance sheet.(2)The Company recorded Pegasus as an equity investment in its consolidated financial statements through January 12, 2018. Commencing on January13, 2018, Sylvave is consolidated in the Company’s financial statements. For segment reporting the Company has included its pro-rated share of theearnings and losses from its investment under the Personal Injury Claims segment.(3)Corporate is not part of the three reportable segments, as certain expenses and assets are not earmarked to any specific operating segment.(4)(5)Included in Corporate are approximately $92.8 million of assets related to discontinued operations as of September 30, 2017.Included in other income is approximately $4.0 million in gain on settlements. See Note 10 - Settlements. F-38Table of Contents ASTA FUNDING, INC. AND SUBSIDIARIES Notes to Consolidated Financial StatementsSeptember 30, 2018 and 2017 NOTE 23 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) consists of: Year Ended September 30, 2018 2017 Unrealizedgain onmarketablesecurities Foreigncurrencytranslation, net Total Unrealizedgain onmarketablesecurities Foreigncurrencytranslation, net Total Beginning Balance $7,000 $11,000 $18,000 $624,000 $179,000 $803,000 Change in unrealized gains (losses) onforeign currency translation, net - 34,000 34,000 - (168,000) (168,000)Change in unrealized gains (losses) onmarketable securities (17,000) - (17,000) (10,000) - (10,000)Amount reclassified from accumulatedother comprehensive income - - - (607,000) - (607,000) Net current-period other comprehensiveincome (17,000) 34,000 17,000 (617,000) (168,000) $(785,000) Ending balance $(10,000) $45,000 $35,000 $7,000 $11,000 $18,000 F-39Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized. ASTA FUNDING, INC. By: /s/ Gary Stern Gary Stern President and Chief Executive Officer (Principal Executive Officer) Dated: December 21, 2018 Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated: Signature Title Date/s/ Gary Stern Chairman of the Board, President, and ChiefExecutive December 21, 2018Gary Stern Officer /s/ Bruce R. Foster Chief Financial Officer December 21, 2018Bruce R. Foster (Principal Financial Officer and AccountingOfficer) /s/ David Slackman Director December 21, 2018David Slackman /s/ Louis A. Piccolo Director December 21, 2018Louis A. Piccolo /s/ Mark Levenfus Director December 21, 2018Mark Levenfus /s/ Timothy H. Bishop Director December 21, 2018Timothy H. Bishop Exhibit 21.1 Subsidiary Companies NameJurisdictionUnderWhichOrganized PercentageOwned Asta Funding, Inc.Delaware Asta Funding Acquisition I, LLCDelaware 100%Asta Funding Acquisition II, LLCDelaware 100%Asta Commercial, LLCDelaware 100%Asta Funding.com, LLCDelaware 100%Palisades Acquisition I, LLCDelaware 100%Palisades Acquisition II, LLCDelaware 100%Palisades Acquisition IV, LLCDelaware 100%CBC Settlement Funding, LLCDelaware 100%Computer Finance, LLCDelaware 100%Palisades Collection, LLCDelaware 100%Palisades Acquisition VIII, LLCDelaware 100%Option Card, LLCColorado 100%Palisades Acquisition IX, LLCDelaware 100%VATIV Recovery Solutions LLCTexas 100%Palisades Acquisition X, LLCDelaware 100%Cliffs Portfolio Acquisition I, LLCDelaware 100%Sylvan Acquisition I, LLCDelaware 100%Palisades Acquisition XI LLCDelaware 100%Palisades Acquisition XII LLCDelaware 100%Palisades Acquisition XIII LLCDelaware 100%Palisades Acquisition XIV LLCDelaware 100%Palisades Acquisition XV LLCDelaware 100%Palisades Acquisition XVI LLCDelaware 100%Palisades Acquisition XVII LLCDelaware 100%Palisades Acquisition XVIII LLCDelaware 100%LBLINY, LLCDelaware 100%Prestiga Funding, LLCDelaware 100%ASFI Litigation Holdings LLCDelaware 100%ASFI Pegasus Holdings, LLCDelaware 100%Sylvave, LLCDelaware 100%GAR Disability Advocates, LLCDelaware 100%EMIRIC LLCDelaware 100%Snappy Rent, LLCDelaware 100%Palisades Acquisition XIX, LLCDelaware 10 0%Palisades Acquisition XXII, LLCDelaware 100%Palisades Acquisition XXIII, LLCDelaware 100%Palisades XXIV SpADelaware 100%Simia Capital, LLCDelaware 100%Blue Bell Receivables I, LLCDelaware 100%Blue Bell Receivables II, LLCDelaware 100%Blue Bell Receivables III, LLCDelaware 100%Blue Bell Receivables IV, LLCDelaware 100%Blue Bell Receivables V, LLCDelaware 100%Blue Bell Receivables VI, LLCDelaware 100%Five Star Veterans Disability, LLCDelaware 100% Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements of Asta Funding, Inc. on Form S-8 (Nos. 333-185175, 333-142201, 333-99911, and 333-38836) of our report dated December 21, 2018, on our audits of the consolidated financial statements as of September 30, 2018 and 2017and for each of the years then ended, which report is included in this Annual Report on Form 10-K to be filed on or about December 21, 2018. /s/ EisnerAmper LLP EISNERAMPER LLPIselin, New JerseyDecember 21, 2018Exhibit 31.1 CERTIFICATION I, Gary Stern, certify that: 1. I have reviewed this annual report on Form 10-K of Asta Funding, Inc.: 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. /s/ Gary Stern Gary Stern Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: December 21, 2018 A signed original of this written statement required by Section 302 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff per request. Exhibit 31.2 CERTIFICATION I, Bruce R. Foster, certify that: 1. I have reviewed this annual report on Form 10-K of Asta Funding, Inc.: 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrantand have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ Bruce R. Foster Bruce R. Foster Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: December 21, 2018 A signed original of this written statement required by Section 302 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff per request. EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Asta Funding, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2018 as filed withthe Securities and Exchange Commission (the “Report”), I, Gary Stern, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the company asof the dates presented and the consolidated result of operations of the Company for the periods presented. /s/ Gary Stern Gary Stern President and Chief Executive Officer (Principal Executive Officer) Dated: December 21, 2018 This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the 10-K asa separate disclosure statement. EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Asta Funding, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2018 as filed withthe Securities and Exchange Commission (the “Report”), I, Bruce R. Foster, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company asof the dates presented and the consolidated result of operations of the Company for the periods presented. /s/ Bruce R. Foster Bruce R. Foster Chief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer) Dated: December 21, 2018 This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the 10-K asa separate disclosure statement. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff per request.

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