ASTA FUNDING, INC. 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-K are 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 of factors, including those set forth under the caption "Risk Factors" contained in this report and elsewhere herein. The following should be read in conjunction with our annual consolidated financial statements contained in Item 8 in this report. Overview
We are engaged in the businesses of acquiring, managing, servicing and recovering on portfolios of consumer receivables, assisting claimants in the process of social security disability claims and funding personal injury claims.
Consumer Receivables
The consumer receivable portfolios generally consist of charged-off receivables,
which are accounts that have been written-off by the originators and 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 these portfolios after a
qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow offers us an
adequate return on our investment after servicing expenses. After purchasing a
portfolio, we actively monitor its performance and review and adjust our
collection and servicing strategies accordingly.
We purchase receivables from credit grantors and others through privately
negotiated direct sales, brokered transactions and auctions in which sellers of
receivables seek bids from several pre-qualified debt purchasers. We pursue new
acquisitions of consumer receivable portfolios on an ongoing basis 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 OnDecember 28, 2011 , we entered into a joint venture,Pegasus Funding, LLC ("Pegasus"), withPegasus Legal Funding, LLC ("PLF"). We had an 80% non-controlling interest in the joint venture from the date of formation throughJanuary 12, 2018 . During this time period we had operational disagreements with PLF, resulting in the amendment of the Pegasus operating agreement, the execution of a liquidation agreement and finally our filing of an arbitration against PLF. OnJanuary 12, 2018 , we, ASFI and Fund Pegasus entered into a Settlement Agreement and Release (the "Settlement Agreement") by and among the parties, ASFI, Fund Pegasus, Pegasus, the Seller,Max Alperovich , Alexander Khanas,Larry Stoddard , III,Louis Piccolo andA.L. Piccolo & Co., Inc. , aNew York corporation. The Settlement Agreement releases certain claims in exchange for, among other things, the parties' entry into the Purchase Agreement (defined below). 23
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OnJanuary 12, 2018 , ASFI entered into a Membership Interest Purchase Agreement (the "Purchase Agreement) with PLF. Under the Purchase Agreement, ASFI bought PLF's ownership interests of Pegasus, which was 20% of the issued and outstanding limited liability company interests of Pegasus, for an aggregate purchase 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 company interests of Pegasus, and recognized a loss on acquisition of$1.4 million , which is recorded in our condensed consolidated financial statements. Immediately on acquisition, we changed the name from Pegasus to Sylvave. As ofJanuary 12, 2018 , we owned 100% of Pegasus, and commencing in the quarter endingMarch 31, 2018 , the financial activity of Pegasus was consolidated into our financial statements. As ofJanuary 12, 2018 , we were entitled to 100% of all distributions made from Pegasus. OnNovember 11, 2016 , we formed Simia, a wholly owned subsidiary. Simia commenced funding personal injury settlement claims inJanuary 2017 . Simia was formed in response to our decision not to renew our joint venture with PLF. As ofSeptember 30, 2019 , Sylvave's net investment in personal injury claim advances were approximately$3.7 million , and Simia's personal injury claim advances were approximately$1.3 million . The Company formed a new wholly owned subsidiary, Arthur Funding, onMarch 16, 2018 to continue in the personal injury claims funding business. Arthur Funding commenced funding personal injury settlement claims inMay 2019 . As ofSeptember 30, 2019 , Arthur Funding's net investment in personal injury claim advances were approximately$0.2 million . Divorce Funding InFebruary 2018 , the Company filed a lawsuit againstBP Divorce Funding and its principal for, among other things, breach of contract arising from the default. InMay 2019 , the Company entered into a settlement agreement and mutual release withBP Divorce Funding and its principal. Under the terms of the settlement,BP Divorce Funding's principal is required to make periodic payments to the Company such that the outstanding balance of the loan will be repaid on or beforeJanuary 21, 2022 . The settlement calls for a balloon payment on or beforeJanuary 21, 2022 of the then-outstanding balance of the loan, which is currently estimated to be approximately$900,000 . The first payment of$25,000 was made on or aboutMay 21, 2019 . If any payment is not made in a timely manner,BP Divorce Funding's principal may be declared in default of the settlement agreement.
Social Security Disability Advocacy Business
GAR Disability Advocates and Five Star are disability advocacy groups, which for a fee obtain and represent individuals throughoutthe United States in their claims for social security disability, supplemental security income benefits from theSocial Security Administration and veterans benefits with theDepartment of Veterans Affairs .
Structured Settlement Business - Discontinued Operations
OnDecember 13, 2017 , we sold all of our issued and outstanding equity capital inCBC Settlement Funding, LLC ("CBC"), our wholly owned subsidiary engaged in structured settlements. As a result of this sale, all periods presented in our consolidated financial statements accounted for CBC as a discontinued operation. This determination resulted in the reclassification of the historical assets and liabilities comprising our structured settlement business to assets and liabilities related to discontinued operations in the consolidated balance sheets, and a corresponding adjustment to our consolidated statements of operations to reflect discontinued operations for all periods presented. As ofSeptember 30, 2018 , the Company had no assets or liabilities related to discontinued operations. Total revenues for the year endedSeptember 30, 2018 was$2.2 million .
Critical Accounting Policies
The Company may account for its investments in consumer receivable portfolios, using either:
• the interest method; or • the cost recovery method. Consumer Receivables Prior toOctober 1, 2013 the Company accounted for certain of its investments in Consumer receivables using the interest method in accordance with the guidance of Accounting Standards Codification ("ASC")ASC 310 - 30. Under the guidance of ASC 310 - 30, static pools of accounts are established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost and is accounted for as a single unit for the recognition of income, principal payments and loss provision. EffectiveOctober 1, 2013 , due to the substantial reduction of portfolios reported under the interest method, and the ability to reasonably estimate cash collections required to account for those portfolios under the interest method, the Company concluded the cost recovery method is the appropriate accounting method under the circumstances. 24
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Although the Company has switched to the cost recovery method on its current inventory of portfolios, the Company 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 cost recovery method, no income is recognized until the cost of the portfolio has been fully recovered. A pool can become fully amortized (zero carrying balance 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. In addition, the Company uses a variety of qualitative and quantitative factors to estimate collections and the timing thereof. The Company obtains and utilizes, as appropriate, input, including but not limited to, monthly collection projections and liquidation rates, from third party collection agencies and attorneys, as further evidentiary matter, to assist in evaluating and developing collection strategies and in evaluating and modeling the expected cash flows for a given portfolio. Personal Injury The Company accounts for its investments in personal injury claims at an agreed upon interest rate, in anticipation of a future settlement. The interest purchased by Pegasus in each claim will consist 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 such claimant's claim. Open case revenue is estimated, recognized and accrued at a rate based on the expected realization and underwriting guidelines and facts and circumstances for each individual case. These personal injury 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 upon the contractually agreed 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 by case basis. Cases are reviewed through periodic updates with attorneys handling the cases, as well as with third party research tools which monitor public filings, such as motions or judgments rendered on specific cases. The Company specifically reserves for those fundings where the underlying cases are identified 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 of the Company's fundings. Fee income on advances is reserved for on all cases where a specific reserve is established on the initially funded amount. In addition, management also monitors its historical collection rates on fee income and establishes reserves on fee income consistent with the historically experienced collection rates. Management regularly analyzes and updates the historical collection rates of its initially funded cases as well as its fee income.
Social Security Disability Advocacy
The Company recognizes revenue for GAR Disability Advocates when cases close and fees are collected or when the Company receives a notice of award from theSocial Security Administration that stipulates the amount of fee approved by the SSA to be paid to the Company. The Company accounts for its impairments in accordance with ASC 310, which provides guidance on how to account for differences between contractual and expected cash flows from an investor's initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. The recognition of income under ASC 310 is dependent on the Company having the ability to develop reasonable expectations of both the timing and amount of cash flows to be collected. In the event the Company cannot develop a reasonable expectation as 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 will recognize 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 difference between the carrying value at the time of the forecast and the corresponding estimated remaining future collections. 25
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Results of Operations
The following discussion of our operations and financial condition should be
read in conjunction with our financial statements and notes thereto included in
Item 8 in this report.
Years Ended September 30,
2019 2018
Finance income, net $ 14,050,000 $ 15,863,000
Personal injury claim income (1) 2,202,000 1,084,000
Disability fee income 4,861,000 4,598,000
Total revenues 21,113,000 21,545,000
Gain on settlements 596,000 4,044,000
Interest and dividend income 1,593,000 475,000
Other income, net 142,000 4,000
23,444,000 26,068,000
General and administrative expenses 13,378,000 15,429,000
Loss on acquisition of minority interest --
1,420,000
Interest expense --
20,000
Impairments of consumer receivables acquired for liquidation 225,000
310,000
Earnings from equity method investment (2) 87,000 (750,000 )
13,690,000 16,429,000
Income before income taxes from continuing operations 9,754,000
9,639,000
Income tax expense 2,579,000
4,969,000
Income (loss) from continuing operations 7,175,000
4,670,000
(Loss) from discontinued operations, net of tax --
(80,000 )
Net income attributable to Asta Funding, Inc.$ 7,175,000 $ 4,590,000
(1) This line item is comprised of the personal injury claims revenue from Simia, Sylvave and Arthur Funding.
(2) This line item is comprised of the net earnings from Pegasus from
Year Ended
Finance income. For the fiscal year endedSeptember 30, 2019 ("fiscal year 2019"), finance income from consumer receivables decreased$1.8 million , or 11.4% to$14.1 million , as the Company has continued to collect on its existing cost recovered consumer receivable portfolios. During fiscal year 2019 and 2018, the Company did not purchase any portfolios. 26
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Net collections decreased$2.9 million , or 15.1%, to$15.7 million for fiscal year 2019 from$18.6 million for fiscal year 2018. During fiscal year 2019, gross collections decreased 12.1% to$31.2 million from$35.5 million for fiscal year 2018, reflecting the lower level of purchases over the last few years. Commissions and fees associated with gross collections from our third party collection agencies and attorneys decreased$1.5 million , from$17.0 million to$15.5 million , or 8.7% for fiscal year 2019, as compared with the same period in the prior year and averaged 49.6% of collections for fiscal year 2019 as compared with 47.8% in the same prior year period.
For the year ended
Personal Injury Claims income. Personal injury claims income increased 103.1% or$1.1 million to$2.2 million in fiscal year 2019, compared to$1.1 million in fiscal year 2018 as a result of the acquisition of the remaining 20% interest in Sylvave now being consolidated in our financial statements. Disability Fee income. Disability fee income increased 5.7% or$0.3 million to$4.9 million in fiscal year 2019, compared to$4.6 million in fiscal year 2018 as a result of increase in disability claimants cases being settled in the current year, translating into an increase in closed cases. Gain on settlements. For the year endedSeptember 30, 2019 , the Company recorded gains on settlements of$0.6 million associated with prior overcharges billed to the Company by a third-party servicer in excess of contractually permitted amounts, a bankruptcy settlement from a previous third party service provider, a gain on settlement associated with Balance Point Divorce Funding andStacey Napp and a gain on settlement associated with a complaint against a former employee. For the year endedSeptember 30, 2018 , the Company recorded a gain on settlements of$4.0 million . The settlements during the fiscal year 2018 were for$3.4 million and$0.6 million from a third-party servicer and a third-party financial institution, respectively. Interest and dividend income. For the year endedSeptember 30, 2019 , interest and dividend income was$1.6 million compared with$0.5 million in fiscal 2018. The increase was primarily due to higher balances inU.S. Treasuries, Unifund settlement interest, notes receivable interest and interest received from a tax refund. Other income. The following table summarizes other income for the years endedSeptember 30, 2019 and 2018: 2019 2018 Realized gain$ 25,000 $ - Unrealized gain 57,000 - Other 60,000 4,000$ 142,000 $ 4,000 General and administrative expenses. For fiscal year 2019, general and administrative expenses decreased$2.0 million , or 13.3%, to$13.4 million from$15.4 million for the prior year. The decrease in general and administrative expenses is related to decreases in bad debt expenses of$0.9 million , professional fees of$1.4 million , and other taxes of$0.3 million partially offset by increases in collection expenses of$0.4 million and unfavorable foreign exchange translation adjustment of$0.2 million . Loss on acquisition of minority interest. For the year endedSeptember 30, 2018 , the Company recognized a loss on acquisition of minority interest of$1.4 million on the acquisition of the 20% minority interest in Pegasus, purchased by the Company, which was previously owned by Pegasus Legal Funding. No such losses were incurred in the current period. Impairments. For fiscal year 2019, the Company recorded an impairment of$0.2 million of its consumer receivable portfolio, compared to$0.3 million for fiscal year 2018. For the year endedSeptember 30, 2019 , the Company impaired one domestic and two international portfolios which resulted in a charge to expense of$0.1 million and$0.1 million , respectively. For the year endedSeptember 30, 2018 , the Company impaired one domestic and two international portfolios which resulted in a charge to expense of$0.1 million and$0.2 million , respectively. Earnings from equity method investment. For the fiscal year 2019, earnings from equity method investment decreased$0.8 million to a loss of$0.1 million , compared to earnings from equity method investment of$0.7 million for fiscal year 2018, primarily due to acquisition of the remaining 20% of the non-controlling interest onJanuary 12, 2018 , no current year fundings and subsequent income being recorded as part of our personal injury claims income from Sylvave, Simia and Arthur Funding in the consolidated statement of operations. The loss from the equity method investment in the current year is related to the Company's joint venture with Serlefin Peru. Segment profit - Consumer Receivables. Segment profit decreased$5.4 million , to$12.4 million for fiscal year 2019, as compared with$17.8 million for fiscal year 2018, primarily due to decreased revenue of$1.8 million , decreased settlement income of$3.2 million , an increase in collection expenses$0.3 million , and an unfavorable foreign exchange loss of$0.2 million partially offset by a decrease in impairment charges of$0.1 million . 27
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Segment profit - Social Security Disability Advocacy. Segment profit increased$0.4 million to$1.5 million for fiscal year 2019, compared to a segment profit of$1.1 million for fiscal year 2018, as a result of increased revenues of$0.3 million , decrease in professional fees of$0.2 million , and decreases in payroll related expenses of$0.1 million , partially offset by an increase in advertising expenses$0.2 million . Income tax expense. Income tax expense of$2.6 million was recorded for fiscal year 2019, consisting of a$3.0 million current income tax expense and a$0.4 million deferred income tax benefit. Income tax expense of$5.0 million was recorded for fiscal year 2018, consisting of a$3.7 million current income tax expense and a$1.2 million deferred income tax expense. The tax benefit on discontinued operations was$44,000 and there was income tax expense of$5.0 million on continuing operations. Discontinued operations. Loss from discontinued operations, net of tax, was$0.1 million in fiscal year 2018 due to the sale of CBC during the first quarter of the prior fiscal year. Net income. As a result of the above, the Company had net income of$7.2 million for fiscal year 2019, compared to net income of$4.6 million for fiscal year 2018.
Liquidity and Capital Resources
At
Our primary source of cash from operations is collections on the receivable portfolios that we have acquired, the funds generated from our personal injury claim portfolios and the fees received from our disability advocacy business. Our primary uses of cash include costs involved in the collection of consumer receivables, the liquidation of our personal injury portfolio, and the costs to run our disability advocacy business.
Receivables Financing Agreement
InMarch 2007 , Palisades XVI borrowed approximately$227 million under the Receivables Financing Agreement, as amended inJuly 2007 ,December 2007 ,May 2008 ,February 2009 ,October 2010 andAugust 2013 from the Bank of Montreal ("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 of the Second, Third, Fourth, Fifth Amendments and the most recent agreement signed inAugust 2013 , discussed below. Financing Agreement. The Settlement Agreement and Omnibus Amendment ("Settlement Agreement") was in effect onAugust 7, 2013 , Palisades XVI, a 100% owned bankruptcy remote subsidiary, entered into a Settlement Agreement with BMO as an amendment to the Receivables Financing Agreement. In consideration for a$15 million prepayment funded by the Company, BMO has agreed to significantly reduce minimum monthly collection 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 to recover from future net collections the$15 million prepayment that it funded. Thereafter, BMO would have the right to receive 30% of future net collections. Upon repayment of the Remaining Amount to BMO, the Company would be released from the remaining contractual obligation of the Receivables Financing Agreement ("RFA") and the Settlement Agreement. OnJune 3, 2014 , Palisades XVI finished paying the Remaining Amount. The final principal payment of$2.9 million included a voluntary prepayment of$1.9 million provided from funds of the Company. Accordingly, Palisades XVI was entitled to receive$16.9 million of future collections from the Portfolio Purchase before BMO is entitled to receive any payments with respect to its Income Interest. During the month ofJune 2016 , the Company received the balance of the$16.9 million , and, as ofSeptember 30, 2019 and 2018, the Company recorded a liability to BMO of approximately$22,000 and$117,000 , respectively. The funds were subsequently remitted to BMO onOctober 10, 2019 and 2018, respectively. 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 a written confirmation from BMO that the obligation has been paid in full, Palisades XVI has been released from further debt obligations from the RFA. 28
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As of
Net cash provided by operating activities was$11.3 million during the fiscal year endedSeptember 30, 2019 , as compared with$4.0 million provided by operating activities for the fiscal year endedSeptember 30, 2018 . The increase in cash provided by operating activities was primarily due to changes in net income of$2.6 million , receipt of income tax carryback claim of$7.9 million , change in income tax receivable of($6.5) million , income taxes payable of$0.6 million , and settlement receivable of$3.9 million . Net cash used in investing activities was$12.6 million during the fiscal year endedSeptember 30, 2019 , as compared with$18.5 million provided by investing activities during the fiscal year endedSeptember 30, 2018 . The decrease in cash provided by investing activities was primarily due to higher purchases of equity securities and available-for-sale debt securities during the current fiscal year. Net cash used in financing activities was$0.8 million during the fiscal year endedSeptember 30, 2019 , as compared with net cash used in financing activities of$33.6 million during the fiscal year endedSeptember 30, 2018 . The decrease in cash used in financing activities during the current year was primarily due to payment of a special dividend in the prior fiscal year, partially offset by purchase of treasury stock in the current fiscal year. Our cash requirements have been and will continue to be significant to operate our various lines of business. Significant requirements include costs involved in the collections of consumer receivables, investment in consumer receivable portfolios, investment in personal injury claims and the operating expenses of disability advocacy segment. In addition, dividends could be paid if and when approved by the Board of Directors. Acquisitions recently have been financed through cash flows from operating activities. We believe we will not be dependent on a credit facility in the short-term to fund operations, as our cash balances will be sufficient to invest in personal injury claims, 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 operating 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 supply and tight capital availability, could result in increased buying opportunities. The outcome of any future transaction(s) is subject to market conditions. In addition, due to these potential opportunities, we continue to maintain relationships with banking organizations and other financial intermediaries on possible loan facility financing. Shares Repurchase Plan OnMay 17, 2019 , the Board of Directors approved the repurchase of up to$10.5 million of the Company's common stock and authorized management of the Company to enter into the Shares Repurchase Plan under Sections 10b-18 and 10(b)5-1 of the Securities and Exchange Act (the "Shares Repurchase Plan"). The Shares Repurchase Plan was effective throughAugust 17, 2019 . During the year endedSeptember 30, 2019 , the Company purchased 117,650 shares pursuant to the terms of the Shares Repurchase Plan.
The following table contains information about purchases by us of our common
stock during the year ended
Maximum Number
(or
Total Number of Approximate
Shares Dollar Value) of
Purchased as Shares that May
Total Number Average Part of Publicly Yet Be
of Shares Price Paid Announced Purchased Under
Period Purchased per Share Plans the Plans
April 1- 30, 2019 - $ - - $ -
May 1- 31, 2019 11,700 $ 7.05 11,700 $ 10,417,246
June 1- 30, 2019 67,800 $ 7.02 67,800 $ 9,939,750
July 1- 31, 2019 29,600 $ 7.39 29,600 $ 9,720,516
August 1- 17, 2019 8,550 $ 7.48 8,550 $ 9,656,380
Year ended September
30, 2019 117,650 $ 7.15 117,650 $ -
Off-Balance Sheet Arrangements
As of
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Recent Accounting Pronouncements
Adopted During the Year Ended
OnOctober 1, 2018 , we adopted FASB update ASC 606, "Revenue from Contracts with Customers," that requires use of a single principles-based model for recognition of revenue from contracts with customers. The core principle of the model is to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects 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. We adopted the new guidance using the modified retrospective approach which did not require the restatement of prior periods, and recognized a cumulative effect adjustment resulting in an increase in total assets and retained earnings of$173,000 , net of taxes of$80,000 . The most significant impact of ASC 606 relates to our accounting for revenue associated with disability claimants' contracts. Previously we recognized disability fee income when the disability claimants' cases closed with the social security administration and the applicable fees were collected. Under the new guidance we determined that the various advocacy services, performed on behalf of a claimant, constitute one performance obligation as they represent an integrated set of services designed to provide a claimant with a successful award. It was also determined that the benefit of these services is conveyed to the claimant at the point in time that the award is determined to be successful. In addition, we have made estimates of variable consideration under the expected value method. Therefore, for these arrangements, we will recognize revenue when each case is closed, when cash is received or when we receive a notice of award, stipulating our fees earned on each case directly from the social security administration orDepartment of Veterans Affairs . The primary impact of adopting the new standard results in acceleration of revenues for the aforementioned contractual arrangements, which relate to the social security disability advocacy segment. Disability fee income represents approximately 23.0% and 21.3% of total consolidated revenues for the years endedSeptember 30, 2019 and 2018, respectively. The following line items in our consolidated statement of operations and comprehensive income for the current year and consolidated balance sheet as ofSeptember 30, 2019 have been provided to reflect both the adoption of ASC 606 as well as a comparative presentation in accordance with ASC 605 previously in effect: Consolidated Statement of Operations and Comprehensive Income (Loss) for the year As Reported Balances Without Impact of ended (in accordance Adoption of Adoption September 30, 2019: with ASC 606) ASC 606 Higher/(Lower) Disability fee income$ 4,861,000 $ 4,848,000 $ 13,000 Income from continuing operations before income tax$ 9,754,000 $ 9,741,000 $ 13,000 As of September 30, 2019 As Reported Balances Without Impact of (in accordance Adoption of Adoption Consolidated Balance Sheet with ASC 606) ASC 606 Higher/(Lower) Asset Accounts receivable, net$ 266,000 $ -$ 266,000 Stockholders' equity Retained earnings$ 88,172,000 $
87,919,000$ 253,000 (1)
(1) Does not include the tax impact of
OnOctober 1, 2018 , we adopted FASB Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provision of this guidance requires certain equity investments to be measured at fair value with changes in fair value recognized in net earnings; separate presentation in other comprehensive income for changes in fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk; and changes in disclosures associated with the fair value of financial instruments. Upon adoption of this ASU, our investments in equity securities are no longer classified as available for sale, and changes in fair value are reflected in other income, net on our consolidated statement of operations. In conjunction with this adoption we recorded a cumulative effect adjustment with a decrease to opening retained earnings of$10,000 and an increase to opening accumulated other comprehensive income of$10,000 , net of tax benefit of$5,000 . 30
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InAugust 2016 the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This ASU made eight targeted changes as to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard was effective for fiscal years beginning afterDecember 15, 2017 . Early adoption was permitted. The new standard required adoption on a retrospective basis unless it was impracticable to apply, in which case the Company would have been required to apply the amendments prospectively as of the earliest date practicable. Our adoption of the ASU did not have a material effect on the Company's consolidated statements of cash flows. InJanuary 2017 , the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The new rules provide for the application of a screen test to consider whether substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test determines this to be true, the set is not a business. The new standard was effective for the Company in the first quarter of 2019. The adoption of the new accounting rules did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. InMarch 2017 , the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) Improvements to Employee Share Based Payment Accounting, to simplify and improve areas of generally accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The effective date for this update is for annual reporting periods beginning afterDecember 15, 2017 , including interim periods within that reporting period. The adoption of this update did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
InFebruary 2016 , the FASB issued ASU 2016-02, Leases (Topic 842) which requires lessees to recognize right-of-use assets and lease liabilities on the 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 accounting policy election by class of underlying asset not to recognize a right-of-use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option or not exercise an option to terminate the lease. InJanuary 2018 , the FASB issued ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. ASU 2018-01 was issued to address concerns about the cost and complexity of complying with the transition provisions of ASU 2018-01. Additionally, inJuly 2018 , the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements," which provides an alternative transition method that permits an entity to use the effective date of ASU No. 2016-02 as the date of initial application through the recognition of a cumulative effect adjustment to the opening balance of retained earnings upon adoption. The standard becomes effective for the Company in fiscal years beginning afterDecember 15, 2018 and interim periods within those years, and early adoption is permitted. The Company believes that the adoption of this ASU will not have a material impact on its consolidated financial statements. The Company will adopt the new accounting standard using the modified retrospective transition option on adoption onOctober 1, 2019 . While we are continuing to assess all impacts of the standard, we anticipate this standard will have an immaterial impact to our consolidated balance sheet. Upon adoption, we expect to record additional lease liabilities of approximately$636,000 attributable to our operating leases based on the present value of the remaining minimum lease payments with an increase to right-of-use assets of approximately$636,000 . The Company does not expect the adoption of this standard to have a material impact on its consolidated statements of operations or cash flows. InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, 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 annual periods beginning afterDecember 15, 2022 . Upon adoption, the Company will accelerate the recording of its credit losses and is continuing to assess the impact on its consolidated financial statements. InJanuary 2017 , the FASB issued ASU 2017-04 Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual periods beginning afterDecember 15, 2019 , and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its consolidated financial statements. InFebruary 2018 , the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted onDecember 22, 2017 , and requires certain disclosures about stranded tax effects. ASU 2018-02 will be effective for the Company's fiscal year beginningOctober 1, 2019 , with early adoption permitted, and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in theU.S. federal corporate income tax rate in the Act is recognized. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements. 31
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InAugust 2018 , the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to 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 between levels; and the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
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