Note

7—Litigation

Funding

Personal Injury Claims

December

28,

2011,

the Company entered into a joint venture with Pegasus Legal Funding, LLC (“PLF”) to form the operating subsidiary of Pegasus. Pegasus purchases interests in claims from claimants who are a party to personal injury litigation. Pegasus advances, to each claimant, funds, on a non-recourse basis 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 such claimant’s claims. The Company, through Pegasus, earned

$2.3

million and

$3.1

million in interest and fees during the

first

quarter of fiscal years

2017

and

2016,

respectively. The Company had a net invested balance in personal injury claims of

$47.9

million and

$48.3

million on

December

31,

2016

and

September

30,

2016,

respectively. Pegasus records reserves for bad debts, which, at

December

31,

2016

and

2015

amounted to

$9.5

million, and

$5.5

million, respectively, as follows:

	For the Three Months Ended December 31,
	2016			2015
Balance at beginning of period	$	8,542,000		$	5,459,000
Provisions for losses		1,389,000			412,000
Write offs		(389,000	)		(375,000	)
Balance at end of period	$	9,542,000		$	5,496,000

November

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. Pegasus is currently the Company’s personal injury claims funding business and is a joint venture that is

80%

owned by the Company and

20%

owned by PLF. The Company and PLF have decided not to renew the Pegasus joint venture that, by its terms, terminated on

December

28,

2016.

The Term Sheet amends certain provisions to Pegasus’ operating agreement dated as of

December

28,

2011

(as amended, the “Operating Agreement”) and governs the terms relating to the collection of its existing Pegasus portfolio (the “Portfolio”).

Pursuant to the Term Sheet, the parties thereto have agreed that Pegasus will continue in existence in order to collect advances on its existing Portfolio. The Company will 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 will be distributed to its members in the order provided for in the Operating Agreement. The Company will be repaid an amount equal to

20%

of all principal collected on each investment paid back beginning

October

2016

and continuing through the collection of the Portfolio, which will be applied against the outstanding balance of overhead expenses previously advanced by the Company to Pegasus. After

January

2017,

additional overhead expenses advanced will be paid back monthly as incurred by the Company prior to the calculation and 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 well as a release from the non-competition obligations under the Operating Agreement.

November

11,

2016,

the Company announced that it will continue its personal injury claims funding business through the formation of a wholly owned subsidiary, Simia. In connection with its formation, Simia entered into an employment agreement with Patrick F. Preece to serve as its Chief Executive Officer.

Matrimonial Claims (included in Other Assets)

May

18,

2012,

the Company formed BP Case Management, LLC (“BPCM”) a wholly owned subsidiary of the Company. BPCM entered into a joint venture with California-based Balance Point Divorce Funding, LLC (“BP Divorce Funding”). BPCM provides non-recourse funding to a spouse in a matrimonial action. The Company provided a

$1.0

million revolving line of credit to partially fund BPCM’s operations, with such loan bearing interest 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 the loan to

August

2016,

increase the credit line to

$1.5

million and include a personal guarantee of the principal 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. The loan balance at

December

31,

2016

was approximately

$1.5

million. The revolving line of credit is collateralized by BP Divorce Funding’s profits share in BPCM and other assets. As of

December

31,

2016,

the Company’s investment in cases through BPCM was approximately

$2.5

million. There was no income recognized in the

three

month periods ended

December

31,

2016

and

2015.