<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K


(X)      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended September 30, 2006

                  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: 0-26906

                               ASTA FUNDING, INC.
-------------------------------------------------------------------------------
               (EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)

  Delaware                                               22-3388607
--------------------------------                -------------------------------
(STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

  210 Sylvan Avenue, Englewood Cliffs, NJ                    07632
---------------------------------------------    ------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)

    Issuer's telephone number, including area code: (201) 567-5648

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

    Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
           ---------------------------------------------------------
                                (Title of Class)

         Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act Yes ( ) No (X)

         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 (X)

         Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 to such filing
requirements for the past 90 days. Yes (X) No ( )

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 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
of this Form 10-K or any amendment to this Form 10-K. ( )

         Indicate by check mark whether the registrant is a large accelerated
filer or a non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act

  Large accelerated filer ( )  Accelerated filer (X)  Non-accelerated filer ( )

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes ( ) No (X)
<PAGE>

         The aggregate market value of voting and nonvoting common equity held
by non-affiliates of the registrant was approximately $331,674,000, as of the
last business day of the registrant's most recently completed second fiscal
quarter.

As of December 8,2006, the registrant had 13,765,157 shares of Common Stock
issued and outstanding.

Documents Incorporated by Reference:

         The information called for by Part III of this Form 10-K is
incorporated by reference from the Company's Proxy Statement to be filed with
the Commission on or before January 26, 2007.
















                                      -2-
<PAGE>


                                    FORM 10-K
                                TABLE OF CONTENTS


                                     PART I


Item 1.    Business
Item 1A    Risk Factors
Item 1B    Unresolved Staff Comments
Item 2.    Properties
Item 3.    Legal Proceedings
Item 4.    Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters
           and Issuer Purchases of Equity Securities
Item 6.    Selected Financial Data
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operation
Item 7A.   Quantitative and Qualitative Disclosure About Market Risk
Item 8.    Financial Statements and Supplementary Data
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure
Item 9A.   Controls and Procedures
Item 9B.   Other information
                                    PART III

Item 10.   Directors, Executive Officers and Corporate Governance
Item 11.   Executive Compensation
Item 12.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters
Item 13.   Certain Relationships and Related Transactions, and
           Director Independence
Item 14.   Principal Accounting  Fees and Services

                                     PART IV

Item 15.   Exhibits, Financial Statement Schedules

           Signatures
           Certifications












                                      -3-
<PAGE>

Caution Regarding Forward Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by use of terms such as
"may", "will", "should", "plan", "expect", "anticipate", "estimate", and similar
words, although some forward-looking statements are expressed differently.
Forward looking statements represent our judgment regarding future events, but
we can give no assurance that such judgments will prove to be correct. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected in such forward-looking
statements. Certain factors which could materially affect our results and our
future performance are described below under "Risk Factors" and "Critical
Accounting Policies" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." Forward-looking statements are
inherently uncertain as they are based on current expectations and assumptions
concerning future events and are subject to numerous known and unknown risks and
uncertainties. We caution you not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date of this report. Except as required by law, we undertake no obligation to
update or publicly announce revisions to any forward-looking statements to
reflect future events or developments. Unless the context otherwise requires,
the terms "we", "us", "the Company", or "our" as used herein refer to Asta
Funding, Inc. and our subsidiaries.


Part I

Item 1. Business.

Overview

The Company acquires, manages, collects and services portfolios of consumer
receivables for its own account. These portfolios generally consist of one or
more of the following types of consumer receivables:

      o  charged-off receivables -- accounts that have been written-off by the
         originators and may have been previously serviced by collection
         agencies;

      o  semi-performing receivables -- accounts where the debtor is currently
         making partial or irregular monthly payments, but the accounts may have
         been written-off by the originators; and

      o  performing receivables -- accounts where the debtor is making regular
         monthly payments that may or may not have been delinquent in the past.

We acquire these consumer receivable portfolios at a significant discount to the
total amounts actually owed by the debtors. 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.

                                      -4-
<PAGE>

We purchase receivables from creditors and others through privately negotiated
direct sales, brokered transactions and auctions in which sellers of receivables
seek bids from several pre-qualified debt purchasers. These receivables consist
primarily of MasterCard(R), Visa(R), private label credit card accounts, and
telecommunication charge-offs, among other types of receivables. We pursue new
acquisitions of consumer receivable portfolios from originators of consumer
debt, on an ongoing basis through:

      o  our relationships with industry participants, collection agencies,
         investors and our financing sources;

      o  brokers who specialize in the sale of consumer receivable portfolios;
         and

      o  other sources.

Our objective is to maximize our return on investment in acquired consumer
receivable portfolios. As a result, before acquiring a portfolio, we analyze the
portfolio to determine how to best maximize collections in a cost efficient
manner and decide whether to use our internal servicing and collection
department, third-party collection agencies and attorneys, or a combination of
all three options.

If we elect to outsource the servicing of receivables, our management typically
determines the appropriate third-party collection agencies and attorneys based
on the type of receivables purchased. Once a group of receivables is sent to
third-party collection agencies and attorneys, our management actively monitors
and reviews the third-party collection agencies' and attorneys' performance on
an ongoing basis. Based on portfolio performance considerations, our management
either will move certain receivables from one third-party collection agency and
attorney to another or to our internal servicing department if it anticipates
that this will result in an increase in collections or it will sell the
portfolio. In December 2002, we acquired a collection center, which expanded our
internal collection and servicing capabilities. The collection center currently
employs approximately 60 staff, including senior management and has the capacity
for more than 100 employees. We believe that the retention of these employees,
as well as the increased capacity available at the collection center, will
better assist us in monitoring our third-party collection agencies and
attorneys, while giving us greater flexibility in the future for servicing a
larger percentage of our consumer receivable portfolios in-house.

We acquire portfolios through a combination of internally generated cash flow
and bank debt. In the past, on certain large portfolio acquisitions we have
partnered with a large financial institution in which we shared in the finance
income generated from the collections on the portfolios.

For the years ended September 30, 2006, 2005 and 2004, our finance income was
approximately $101.0 million, $69.5 million and $51.2 million, respectively, and
our net income was approximately $45.8 million, $31.0 million and $22.2 million,
respectively. During these same years our net cash collections were
approximately $214.5 million, $168.9 million and $114.0 million, respectively.

We were formed in 1994 as an affiliate of Asta Group, Incorporated, an entity
owned by Arthur Stern, our Chairman of the Board and an Executive Vice
President, Gary Stern, our President and Chief Executive Officer, and other
members of the Stern family, to purchase, at a small discount to face value,
retail installment sales contracts secured by motor vehicles. We became a public
company in November 1995. In 1999, we decided to capitalize on our management's
more than 40 years of experience and expertise in acquiring and managing
consumer receivable portfolios for Asta Group. As a result, we ceased purchasing
automobile contracts and, with the assistance and financial support of Asta
Group and a partner, purchased our first significant consumer receivable
portfolio. Since then, Asta Group ceased acquiring consumer receivable
portfolios and, accordingly, does not compete with us.

                                      -5-
<PAGE>

Industry Overview

The purchasing, servicing and collection of charged-off, semi-performing and
performing consumer receivables is a growing industry that is driven by:

      o  increasing levels of consumer debt;

      o  increasing defaults of the underlying receivables; and

      o  increasing utilization of third-party providers to collect such
         receivables.

According to the U.S. Federal Reserve Board, consumer credit has increased from
$1.2 trillion at December 31, 1997, to $2.3 trillion at July 31, 2006. According
to the Nilson Report, a credit card industry newsletter, credit card charge-offs
totaled more than $40.0 billion in 2005, up from $18.0 billion in 1995.

We believe that as a result of the difficulty in collecting these receivables
and the desire of originating institutions to focus on their core businesses and
to generate revenue from these receivables, originating institutions are
increasingly electing to sell these portfolios.

Strategy

Our primary objective is to utilize our management's experience and expertise to
effectively grow our business by identifying, evaluating, pricing and acquiring
consumer receivable portfolios and maximizing collections of such receivables in
a cost efficient manner. Our strategy includes:

      o  managing the collection and servicing of our consumer receivable
         portfolios, including outsourcing a majority of those activities to
         maintain low fixed overhead;

      o  selling accounts on an opportunistic basis, generally when our efforts
         have been exhausted through traditional collecting methods, when
         pricing is at our indifference point, or when we can capitalize on
         pricing during times when we feel the pricing environment is high;

      o  expanding financial flexibility through increased capital and lines of
         credit;

      o  capitalizing on our strategic relationships to identify and acquire
         consumer receivable portfolios; and

      o  expanding our business through the purchase of consumer receivables
         from new sources and consisting of different asset classes.

We believe that as a result of our management's experience and expertise, and
the fragmented yet growing market in which we operate, we are well-positioned to
successfully implement our strategy.



                                      -6-
<PAGE>

We are a Delaware corporation whose principal executive offices are located at
210 Sylvan Avenue, Englewood Cliffs, New Jersey 07632. We were incorporated in
New Jersey on July 7, 1994 and were reincorporated in Delaware on October 12,
1995 as a result of a merger with a Delaware corporation.

Consumer Receivables Business

Receivables Purchase Program

We purchase bulk receivable portfolios that include charged-off receivables,
semi-performing receivables and performing receivables. These receivables
consist primarily of MasterCard(R), Visa(R), private label credit card accounts,
and telecom receivables, among other types of receivables.

From time to time, we may acquire directly, and indirectly through the consumer
receivable portfolios that we acquire, secured consumer asset portfolios.

We identify potential portfolio acquisitions on an ongoing basis through:

      o  our relationships with industry participants, collection agencies,
         investors and our financing sources;

      o  brokers who specialize in the sale of consumer receivable portfolios;
         and

      o  other sources.

Historically, the purchase prices of the consumer receivable portfolios we have
acquired have ranged from less than $500,000 to more than $50 million. As a part
of our strategy to acquire consumer receivable portfolios, we have, from time to
time, entered into, and may continue to enter into, participation and profit
sharing agreements with our sources of financing and our third-party collection
agencies and attorneys. These arrangements may take the form of a joint bid,
with one of our third-party collection agencies and attorneys or financing
source who assists in the acquisition of a portfolio and provides us with more
favorable non-recourse financing terms or a discounted servicing commission.

We utilize our relationships with brokers, third-party collection agencies and
attorneys, and sellers of portfolios to locate portfolios for purchase. Our
senior management is responsible for:

      o  coordinating due diligence, including, in some cases, on-site visits to
         the seller's office;

      o  stratifying and analyzing the portfolio characteristics;

      o  valuing the portfolio;

      o  preparing bid proposals;

      o  negotiating pricing and terms;


                                      -7-
<PAGE>

      o  negotiating and executing a purchase contract;

      o  closing the purchase; and

      o  coordinating the receipt of account documentation for the acquired
         portfolios.

The seller or broker typically supplies us with either a sample listing or the
actual portfolio being sold through an electronic form of media. We analyze each
consumer receivable portfolio to determine if it meets our purchasing criteria.
We may then prepare a bid or negotiate a purchase price. If a purchase is
completed, management monitors the portfolio's performance and uses this
information in determining future buying criteria and pricing.

We purchase receivables at substantial discounts from the balance actually owed
by the consumer. We determine how much to bid on a portfolio by evaluating many
different variables, such as:

      o  The number of collection agencies previously attempting to collect the
         receivables in the portfolio;

      o  the average balance of the receivables;

      o  the age of the receivables;

      o  past history of performance of similar assets;

      o  number of days since charge-off;

      o  payments made since charge-off;

      o  the credit originator and their credit guidelines;

      o  the locations of the debtors;

      o  assets found within portfolios; and

      o  the ability to obtain customer statements from the original issuer.

Once a receivable portfolio has been identified for potential purchase, we
prepare various analyses based on extracting customer level data from external
sources, other than the issuer, to analyze the potential collectibility of the
portfolio. We also analyze the portfolio by comparing it to similar portfolios
previously acquired by us. In addition, we perform qualitative analyses of other
matters affecting the value of portfolios, including a review of the
delinquency, charge off, placement and recovery policies of the originator as
well as the collection authority granted by the originator to any third party
collection agencies, and, if possible, by reviewing their recovery efforts on
the particular portfolio. After these evaluations are completed, members of our
senior management discuss the findings, decide whether to make the purchase and
finalize the price at which we are willing to purchase the portfolio.



                                      -8-
<PAGE>

We purchase most of our consumer receivable portfolios directly from originators
and other sellers including, from time to time, our third-party collection
agencies and attorneys through privately negotiated direct sales and through
auction type sales in which sellers of receivables seek bids from several
pre-qualified debt purchasers. We also, from time to time, use the services of
brokers for sourcing consumer receivable portfolios. In order for us to consider
a potential seller as a source of receivables, a variety of factors are
considered. Sellers must demonstrate that they have:

      o  adequate internal controls to detect fraud;

      o  the ability to provide post sale support; and

      o  the capacity to honor put-back and return warranty requests.

Generally, our portfolio purchase agreements provide that we can return certain
accounts to the seller within a specified time period. However, in some
transactions, we may acquire a portfolio with few, if any, rights to return
accounts to the seller. After acquiring a portfolio, we conduct a detailed
analysis to determine which accounts in the portfolio should be returned to the
seller. Although the terms of each portfolio purchase agreement differ, examples
of accounts that may be returned to the seller include:

      o  debts paid prior to the cutoff date;

      o  debts in which the consumer filed bankruptcy prior to the cutoff date;

      o  debts in which the consumer was deceased prior to cutoff date; and

      o  fraudulent accounts.

Accounts returned to sellers for the fiscal years ended 2006, 2005 and 2004 have
been determined to be immaterial. Our purchase agreements generally do not
contain any provision for a limitation on the number of accounts that can be
returned to the seller.

We generally use third-parties to determine bankrupt and deceased accounts,
which allows us to focus our resources on portfolio collections. Under a typical
portfolio purchase agreement, the seller refunds the portion of the purchase
price attributable to the returned accounts or delivers replacement receivables
to us. Occasionally, we will acquire a well seasoned, or older, portfolio at a
reduced price from a seller that is unable to meet all of our purchasing
criteria. When we acquire such portfolios, the purchase price is discounted
beyond the typical discounts we receive on the portfolios we purchase that meet
our purchasing criteria.

In February 2006, we acquired VATIV Recovery LLC, ("VATIV") located in Sugar
Land, Texas. VATIV Recovery Systems LLC provides bankruptcy and deceased account
servicing. The acquisition of VATIV provides Asta with internal experience and
proprietary systems in support of servicing our own bankruptcy and deceased
accounts, while also affording us the opportunity to enter new markets for
acquisitions in the bankruptcy and deceased account fields.








                                      -9-
<PAGE>

Receivable Servicing

Our objective is to maximize our return on investment on acquired consumer
receivable portfolios. As a result, before acquiring a portfolio, we analyze the
portfolio to determine how to best maximize collections in a cost efficient
manner and decide whether to use our internal servicing and collection
department or third-party collection agencies and attorneys.

Therefore, if we are successful in acquiring the portfolios, we can promptly
process the receivables that were purchased and commence the collection process.
Unlike collection agencies that typically have only a specified period of time
to recover a receivable, as the portfolio owners we have significantly more
flexibility and can establish payment programs.

Once a portfolio has been acquired, we or our third-party collection agencies or
attorneys generally download all receivable information provided by the seller
into our account management system and reconcile certain information with the
information provided by the seller in the purchase contract. We or our
third-party collection agencies or attorneys send notification letters to
obligors of each acquired account explaining, among other matters, our new
ownership and asking that the obligor contact us. In addition, we notify the
three major credit reporting agencies of our new ownership of the receivables.

We presently outsource the majority of our receivable servicing to third-party
collection agencies and attorneys. Our senior management typically determines
the appropriate third-party collection agency and attorneys based on the type of
receivables purchased. Once a group of receivables is sent to a third-party
collection agency or attorney, our management actively monitors and reviews the
third-party collection agencies' and attorneys' performance on an ongoing basis.
Our management receives detailed analyses, including collection activity and
portfolio performance, from our internal servicing departments to assist it in
evaluating the results of the efforts of the third-party collection agencies and
attorneys. Based on portfolio performance guidelines, our management will move
certain receivables from one third-party collection agency or attorney to
another, or to our internal servicing department if it anticipates that this
will result in an increase in collections.

In December 2002, we acquired a collection center that currently employs
approximately 60 experienced persons with the capacity for over 100 employees.
This facility expands our internal collection and servicing capabilities, gives
us greater flexibility and control over the servicing of our consumer
receivables portfolios and assists us in monitoring our third-party collection
agencies and attorneys.

      We have four main internal servicing departments:

      o  collection/skiptrace;

      o  legal;

      o  customer service; and

      o  accounting.



                                      -10-
<PAGE>

Collection/Skiptrace. The collection/skiptrace department is responsible for
making contact with the obligors and collecting on our consumer receivable
portfolios that are not being serviced by third-party collection agencies and
attorneys. This department uses a friendly, customer service approach to collect
on receivables. Through the use of our collection software and telephone system,
each collector is responsible for:

      o  contacting customers;

      o  explaining the benefits of making payment on the obligations; and

      o  working with the customers to develop acceptable means to satisfy their
         obligations.

We and our third-party collection agencies and attorneys have the flexibility to
structure repayment plans that accommodate the needs of obligors by:

      o  offering obligors a discount on the overall obligation; and/or

      o  tailoring repayment plans that provide for the payment of these
         obligations as a component of the obligor's monthly budget.

We also use a series of collection letters, late payment reminders, and
settlement offers that are sent out at specific intervals or at the request of a
member of our collection department. When the collection department cannot
contact the customer by either telephone or mail, the account is referred to the
skiptrace department.

The skiptrace department is responsible for locating and contacting customers
who could not be contacted by either the collection or legal departments. The
skiptrace employees use a variety of public and private third-party databases to
locate customers. Once a customer is located and contact is made by a
skiptracer, the account is then referred back to the collection or legal
department for follow-up. The skiptrace department is also responsible for
finding current employers and locating assets of obligors when this information
is deemed necessary.

Legal. If the collection department determines that the customer has the ability
to satisfy his obligation but our normal collection activities have not resulted
in any resolution of the customer's obligations, the account is referred to the
legal department, which consists of non-lawyer administrative staff experienced
in collection work. The legal department refers legal case proceedings to
outside counsel. The legal department also refers accounts to the skiptrace
department to obtain a current phone number, address, the location of assets of
the obligor or the identity of the obligor's employer. In addition, the legal
department communicates with the collection attorneys that we utilize throughout
the country. Over the past two and a half years, we have employed a more
aggressive legal strategy that we believe will yield more collections over a
longer period of time.







                                      -11-
<PAGE>

Customer Service. The customer service department is responsible for:

      o  handling incoming calls from debtors and third-party collection
         agencies that are responsible for collecting on our consumer receivable
         portfolios;

      o  coordinating customer inquiries and assisting the collection agencies
         in the collection process;

      o  handling buy-back and information requests from companies who have
         purchased receivables from us;

      o  working with the buyers during the transition period and post sale
         process; and

      o  handling any issues that may arise once a receivable portfolio has been
         sold.

Accounting. In addition to the customary accounting function, the accounting
department is responsible for:

      o  making daily deposits of customer payments;

      o  posting these payments to the customer's account;

      o  mailing monthly statements to customers; and

      o  in conjunction with the customer service department, providing senior
         management with weekly and monthly receivable activity and performance
         reports.

Accounting employees also assist collection department employees in handling
customer disputes with regard to payment and balance information. The accounting
department also assists the customer service department in the handling of
buy-back requests from companies who have purchased receivables from us. In
addition, the accounting department reviews the results of the collection of
consumer receivable portfolios that are being serviced by third-party collection
agencies and attorneys.

Collections Represented by Account Sales

Certain collections represent account sales to other debt buyers to help
maximize revenue and cash flows. We feel that our business model of not having a
large number of collectors, coupled with a legal strategy which is focused on
attempting to attach liens and judgments on obligors, allows us the flexibility
to sell accounts at prices that are attractive to us and as important, sell the
less desirable accounts within our collective portfolios. There are many factors
that contribute to the decision of which receivable to sell and which to
service, including:

      o  the age of the receivables;

      o  the status of the receivables -- whether paying or non-paying; and

      o  the selling price.



                                      -12-
<PAGE>

Collections represented by account sales for the fiscal years ended September
30, 2006, 2005 and 2004 were $55.0 million, $64.7 million and $40.3 million,
respectively. Collections represented by account sales as a percentage of total
collections for the fiscal years ended September 30, 2006, 2005 and 2004 were
25.7%, 38.3% and 35.3%, respectively.

Marketing

The Company has established relationships with brokers who market consumer
receivable portfolios from banks, finance companies and other credit providers.
In addition, the Company subscribes to national publications that list consumer
receivable portfolios for sale. The Company also directly contacts banks,
finance companies or other credit providers to solicit consumer receivables for
sale.

Competition

Our business of purchasing distressed consumer receivables is highly competitive
and fragmented, and we expect that competition from new and existing companies
will increase. We compete with:

      o  other purchasers of consumer receivables, including third-party
         collection companies; and

      o  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 resources
than we have, including greater access to the capital market system. We believe
that no individual competitor or group of competitors has a dominant presence in
the market.

We compete with our competitors for consumer receivable portfolios based on many
factors, including:

      o  purchase price;

      o  representations, warranties and indemnities requested;

      o  speed in making purchase decisions; and

      o  reputation of the purchaser.

Our strategy is designed to capitalize on the market's lack of a dominant
industry player. We believe that our management's experience and expertise in
identifying, evaluating, pricing and acquiring consumer receivable portfolios
and managing collections coupled with our strategic alliances with third-party
collection agencies and attorneys and our sources of financing give us a
competitive advantage. However, we cannot assure that we will be able to compete
successfully against current or future competitors or that competition will not
increase in the future.







                                      -13-
<PAGE>

Management Information Systems

We believe that a high degree of automation is necessary to enable us to grow
and successfully compete with other finance companies. Accordingly, we
continually upgrade our computer hardware and, when necessary, our software to
support the servicing and recovery of consumer receivables acquired for
liquidation. Our telecommunications and computer systems allow us to quickly and
accurately process large amounts of data necessary to purchase and service
consumer receivable portfolios. In addition, we rely on the information
technology of our third-party collection agencies and attorneys and periodically
review their systems to ensure that they can adequately service our consumer
receivable portfolios.

Due to our desire to increase productivity through automation, we periodically
review our systems for possible upgrades and enhancements.

Government Regulation

The relationship of a consumer and a creditor is extensively regulated by
federal, state and municipal 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, the Equal
Opportunity Act and the Fair Credit Reporting Act, as well as comparable
statutes in states where consumers reside and/or where creditors are located.
Among other things, the laws and regulations applicable to various creditors
impose disclosure requirements regarding the advertisement, application,
establishment and operation of credit card accounts or other types of credit
programs. Federal law requires a creditor to disclose to consumers, among other
things, the interest rates, fees, grace periods and balance calculations 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 require billing errors to be resolved promptly. In addition, some
laws prohibit certain discriminatory practices in connection with the extension
of credit. Further, state laws may limit the interest rate and the fees that a
creditor may impose on consumers. Failure by the creditors to have complied with
applicable laws could create claims and rights to offset by consumers that would
reduce or eliminate their obligations, which could have a material adverse
effect on our operations. Pursuant to agreements under which we purchase
receivables, we are typically indemnified against losses 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 any act or
omission on our part. For example, under the Federal Fair Credit Billing Act, a
credit card issuer may be subject to certain claims and defenses arising out of
certain transactions 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
the transaction and, except in cases where there is a specified relationship
between the person honoring the card and the credit card issuer, the amount of
the initial transaction exceeds $50 and the place where the initial transaction
occurred was in the same state as the consumer's billing address or within 100
miles of that address. Accordingly, as a purchaser of defaulted receivables, we
may purchase receivables subject to valid defenses on the part of the consumer.
Other laws provide that, in certain instances, consumers cannot be held liable
for, or their liability is limited to $50 with respect to, charges to the 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 the receivables were not
established as a result of unauthorized use of a credit card account, and,
accordingly, the amount of such receivables may not be collectible by us.





                                      -14-
<PAGE>

Several federal, state and municipal laws, rules, regulations and ordinances,
including, but not limited to, the Federal Fair Debt Collection Practices Act
and the Federal Trade Commission Act and comparable state statutes regulate
consumer debt collection activity. Although, for a variety of reasons, we may
not be specifically subject to the FDCPA and certain state statutes specifically
addressing third-party debt collectors, it is our policy to comply with
applicable laws in our collection activities. Additionally, our third-party
collection agencies and attorneys may be subject to these laws. To the extent
that some or all of these laws apply to our collection activities or our
third-party collection agencies' and attorneys' collection activities, failure
to comply with such laws could have a material adverse effect on us.

Additional laws may be enacted that could impose additional restrictions on the
servicing and collection of receivables. Such new laws may adversely affect the
ability to collect the receivables.

We currently hold a number of licenses issued under applicable consumer credit
laws. Certain of our current licenses and any licenses that we may be required
to obtain in the future may be subject to periodic renewal provisions and/or
other requirements. Our inability to renew licenses or to take any other
required action with respect to such licenses could have a material adverse
effect upon our results of operation and financial condition.

Employees

As of September 30, 2006, we had 166 full-time employees. We are not a party to
any collective bargaining agreement.

You can visit our web site at www.astafunding.com. Copies of our 10-Ks, 10-Qs,
8-Ks and other SEC reports are available there as soon as reasonably practical
after filing electronically with the SEC.

Item 1A. Risk Factors.

You should carefully consider these risk factors in evaluating the Company. In
addition to the following risks, there may also be risks that we do not yet know
of or that we currently think are immaterial that may also impair our business
operations. If any of the following risks occur, our business, results of
operation or financial condition could be adversely affected, the trading price
of our common stock could decline and shareholders might lose all or part of
their investment.

We may not be able to purchase consumer receivable portfolios at favorable
prices or on sufficiently favorable terms or at all.

Our success depends upon the continued availability of consumer receivable
portfolios that meet our purchasing criteria and our ability to identify and
finance the purchases of such portfolios. The availability of consumer
receivable portfolios at favorable prices and on terms acceptable to us depends
on a number of factors outside of our control, including:

      o  the continuation of the current growth trend in consumer debt;

      o  the continued volume of consumer receivable portfolios available for
         sale;




                                      -15-
<PAGE>

      o  competitive factors affecting potential purchasers and sellers of
         consumer receivable portfolios; and

      o  possible future changes in the bankruptcy laws, state laws and
         homestead acts which could make it more difficult for us to collect.


We may not be able to continually replace our defaulted consumer receivables.

To operate profitably, we must continually acquire a sufficient amount of
distressed consumer receivables to generate continued revenue. Furthermore, we
cannot predict how our ability to identify and purchase receivables and the
quality of those receivables would be affected if there is a shift in consumer
lending practices whether caused by changes in the regulations or accounting
practices applicable to debt buying and sustained economic downturn.

We have seen at certain times that the market for acquiring consumer receivable
portfolios has become more competitive, thereby diminishing from time to time
our ability to acquire such receivables at prices we are willing to pay.

The growth in consumer debt may also be affected by:

      o  a slowdown in the economy;

      o  reductions in consumer spending;

      o  changes in the underwriting criteria by originators; and

      o  changes in laws and regulations governing consumer lending.

Any slowing of the consumer debt growth trend could result in a decrease in the
availability of consumer receivable portfolios for purchase that could affect
the purchase prices of such portfolios. Any increase in the prices we are
required to pay for such portfolios in turn will reduce the profit, if any, we
generate from such portfolios.

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 common stock. Our
results may fluctuate as a result of any of the following:

      o  the timing and amount of collections on our consumer receivable
         portfolios;

      o  our inability to identify and acquire additional consumer receivable
         portfolios;

      o  a decline in the estimated future value of our consumer receivable
         portfolio recoveries;

      o  increases in operating expenses associated with the growth of our
         operations;

      o  general and economic market conditions; and



                                      -16-
<PAGE>

      o  prices we are willing to pay for consumer receivable portfolios.

Our projections of future cash flows from our portfolio purchases may prove to
be inaccurate, which could result in reduced revenues or the recording of an
impairment charge if we do not achieve the collections forecasted by our model.

      We use qualitative and quantitative analysis to project future cash flows
from our portfolio purchases. There can be no assurance, however, that we will
be able to achieve the collections forecasted by our analysis. If we are not
able to achieve these levels of forcasted collection, our revenues will be
reduced or we may be required to record an impairment charge, which could result
in a reduction of our earnings.


We may not be able to recover sufficient amounts on our consumer receivable
portfolios to recover the costs associated with the purchase of those portfolios
and to fund our operations.

We acquire and collect on consumer receivable portfolios that contain
charged-off, semi-performing and performing receivables. In order to operate
profitably over the long term, we must continually purchase and collect on a
sufficient volume of receivables to generate revenue that exceeds our costs. For
accounts that are charged-off or semi-performing, the originators or interim
owners of the receivables generally have:

      o  made numerous attempts to collect on these obligations, often using
         both their in-house collection staff and third-party collection
         agencies;

      o  subsequently deemed these obligations as uncollectible; and

      o  charged-off these obligations.

These receivable portfolios are purchased at significant discounts to the amount
the consumers owe. These receivables are difficult to collect and actual
recoveries may vary and be less than the amount expected. In addition, our
collections may worsen in a weak economic cycle. We may not recover amounts in
excess of our acquisition and servicing costs.

Our ability to recover on our portfolios and produce sufficient returns can be
negatively impacted by the quality of the purchased receivables. In the normal
course of our portfolio acquisitions, some receivables may be included in the
portfolios that fail to conform to certain terms of the purchase agreements and
we may seek to return these receivables to the seller for payment or replacement
receivables. However, we cannot guarantee that 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 cash flows from operations are less than
anticipated as a result of our inability to collect sufficient amounts on our
receivables, our ability to satisfy our debt obligations, purchase new
portfolios and our future growth and profitability may be materially adversely
affected.






                                      -17-
<PAGE>

We are subject to intense competition for the purchase of consumer receivable
portfolios.

We compete with other purchasers of consumer receivable portfolios, with
third-party collection agencies and with financial services companies that
manage their own consumer receivable portfolios. We compete on the basis of
price, reputation, industry experience and performance. Some of our competitors
have greater capital, personnel and other resources than we have. The possible
entry of new competitors, including competitors that historically have focused
on the acquisition of different asset types, and the expected increase in
competition from current market participants may reduce our access to consumer
receivable portfolios. Aggressive pricing by our competitors could raise the
price of consumer receivable portfolios above levels that 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 the profits, if any, generated by such
portfolios. If we are unable to purchase receivable portfolios at favorable
prices or at all, our finance income and earnings could be materially reduced.

We are dependent upon third parties to service a majority of our consumer
receivable portfolios.

Although we utilize our in-house collection staff to collect some of our
receivables, we outsource a majority of our receivable servicing. As a result,
we are dependent upon the efforts of our third- party collection agencies and
attorneys to service and collect our consumer receivables. However, any failure
by our third party collection agencies and attorneys to adequately 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 and attorneys and redirect
payments from the debtors to our new third party collection agencies and
attorneys promptly in the event our agreements with our third-party collection
agencies and attorneys are terminated, our third-party collection agencies and
attorneys fail to adequately perform their obligations or if our relationships
with such third-party collection agencies and attorneys adversely change.

We rely on our third party collectors to comply with all rules and regulations
and maintain proper internal controls over their accounting and operations.

Because the receivables were originated and serviced pursuant to a variety of
federal and/or state laws by a variety of entities and involved consumers in all
50 states, the District of Columbia, Puerto Rico and outside the United States,
there can be no assurance that all original servicing entities have at all times
been in substantial compliance with applicable law. Additionally, there can be
no assurance that we or our third-party collection agencies and attorneys have
been or will continue to be at all times in substantial compliance with
applicable law. The failure to comply with applicable law and not maintain
proper controls in their accounting and operations could materially adversely
affect our ability to collect our receivables and could subject us to increased
costs and fines and penalties.

Our collections may decrease if bankruptcy filings increase.

During times of economic recession, the amount of defaulted consumer receivables
generally increases, which contributes to an increase in the amount of personal
bankruptcy filings. Under certain bankruptcy filings, a debtor's assets are sold
to repay credit originators, but since the defaulted consumer receivables we
purchase are generally unsecured we often would not be able to collect on those
receivables. We cannot assure you that our collection experience would not
decline with an increase in bankruptcy filings. If our actual collection
experience with respect to a defaulted consumer receivables portfolio is
significantly lower than we projected when we purchased the portfolio, our
earnings could be negatively affected.





                                      -18-
<PAGE>

If we are unable to access external sources of financing, we may not be able to
fund and grow our operations.

We depend on loans from our credit facility and other external sources in part,
to fund and expand our operations. Our ability to grow our business is dependent
on our access to additional financing and capital resources. The failure to
obtain financing and capital as needed would limit our ability to:

      o  purchase consumer receivable portfolios; and

      o  achieve our growth plans.

In addition, our financing source imposes certain restrictive covenants,
including financial covenants. Failure to satisfy any of these covenants could:

      o  cause our indebtedness to become immediately payable;

      o  preclude us from further borrowings from these existing sources; and

      o  prevent us from securing alternative sources of financing necessary to
         purchase consumer receivable portfolios and to operate our business.

We use estimates for recognizing finance income on substantially all of our
consumer receivable portfolio investments and our earnings would be reduced if
actual results are less than estimated.

We utilize the interest method of revenue recognition for determining our income
recognized on finance receivables, which is based on projected cash flows that
may prove to be less than anticipated and could lead to reductions in revenue or
impairment charges under the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 03-3 Accounting for Loans or Certain
Securities Acquired in a Transfer. Under the guidance of SOP 03-3 (and the
amended Practice Bulletin 6); 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. 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). SOP 03-3 (and the amended Practice Bulletin 6) requires that the excess
of the contractual cash flows over expected cash flows not be recognized as an
adjustment of revenue or expense or on the balance sheet. The SOP initially
freezes the internal rate of return, referred to as IRR, estimated when the
accounts receivable are purchased as the basis for subsequent impairment
testing. Significant increases in actual, or expected future cash flows may be
recognized prospectively through an upward adjustment of the IRR over a
portfolio's remaining life. Any increase to the IRR then becomes the new
benchmark for impairment testing. Effective for fiscal years beginning October
1, 2005 under SOP 03-3 and the amended Practice Bulletin 6, rather than lowering
the estimated IRR if the collection estimates are not received or projected to
be received, the carrying value of a pool would be written down to maintain the
then current IRR. If cash collections increase subsequent to recording an
impairment, reversal of the previously recognized impairment is made prior to
any increase to the IRR. Any reduction in our earnings could materially
adversely affect our stock price.



                                      -19-
<PAGE>

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, in some
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 our
relationships with such third parties are not maintained, our ability to
identify and purchase additional receivable portfolios could be materially
adversely affected. In addition, if we, or such parties fail to correctly or
adequately evaluate the value or collectibility of these consumer receivable
portfolios, we may pay too much for such portfolios and suffer an impairment and
our earnings could be negatively affected.

The loss of an asset type could impact our ability to acquire receivable
portfolios.

In the event one of the asset classes of receivables which we purchase is no
longer available to us, our purchases may decline and our results might suffer.

We may not be successful at acquiring receivables of new asset types or in
implementing a new pricing structure.

We may pursue the acquisition of receivable portfolios of asset types in which
we have little current experience. We may not be successful in completing any
acquisitions of receivables of these asset types and our limited experience in
these asset types may impair our ability to collect on these receivables. This
may cause us to pay too much for these receivables, and consequently, we may not
generate a profit from these receivable portfolio acquisitions.

The loss of any of our executive officers may adversely affect our operations
and our ability to successfully acquire receivable portfolios.

Arthur Stern, our Chairman and Executive Vice President, Gary Stern, our
President and Chief Executive Officer, and Mitchell Cohen, our Chief Financial
Officer are responsible for making substantially all management decisions,
including determining which portfolios to purchase, the purchase price and other
material terms of such portfolio acquisitions. These decisions are instrumental
to the success of our business. The loss of the services of any of our executive
officers could disrupt our operations and adversely affect our ability to
successfully acquire receivable portfolios. Currently, the three executives are
not under contract with the Company.

The Stern family effectively controls Asta, substantially reducing the influence
of our other stockholders.

Members of the Stern family including Arthur Stern, Gary Stern and Barbara
Marburger, daughter of Arthur Stern and sister of Gary Stern, trusts or
custodial accounts for the benefit of minor children of Barbara Marburger and
Gary Stern, Asta Group, Incorporated, and limited liability companies controlled
by Judith R. Feder, niece of Arthur Stern and cousin of Gary Stern, in which
Arthur Stern, Alice Stern (wife of Arthur Stern and mother of Gary Stern and
Barbara Marburger), Gary Stern and trusts for the benefit of the issue of Arthur
Stern and the issue of Gary Stern hold all economic interests, own in the
aggregate approximately 24.6% of our outstanding shares of common stock. In
addition, other members of the Stern Family, such as adult children of Gary
Stern and Barbara Marburger, own additional shares. As a result, the Stern
family is able to influence significantly the actions that require stockholder
approval, including:

                                      -20-
<PAGE>

      o  the election of a majority of our directors; and

      o  the approval of mergers, sales of assets or other corporate
         transactions or matters submitted for stockholder approval.

As a result, our other stockholders may have little or no influence over matters
submitted for stockholder approval. In addition, the Stern family's influence
could preclude any unsolicited acquisition of us and consequently materially
adversely affect the price of our common stock.

We have experienced rapid growth over the past several years, which has placed
significant demands on our administrative, operational and financial resources
and could result in an increase in our expenses.

We plan to continue our growth, which could place additional demands on our
resources and cause our expenses to increase. Future internal growth will depend
on a number of factors, including:

      o  the effective and timely initiation and development of relationships
         with sellers of consumer receivable portfolios and strategic partners;

      o  our ability to maintain the collection of consumer receivables
         efficiently; and

      o  the recruitment, motivation and retention of qualified personnel.

Sustaining growth will also require the implementation of enhancements to our
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that we will be
able to manage our expanding operations effectively or that we will be able to
maintain or accelerate our growth or attract additional management talent and
any failure to do so could adversely affect our ability to generate finance
income and control our expenses.

Government regulations may limit our ability to recover and enforce the
collection of our receivables.

Federal, state and municipal laws, rules, regulations and ordinances may limit
our ability to recover and enforce our rights with respect to the receivables
acquired by us. These laws include, but are not limited to, the following
federal statutes and regulations promulgated thereunder and comparable statutes
in states where consumers reside and/or where creditors are located:

      o  the Fair Debt Collection Practices Act;

      o  the Federal Trade Commission Act;

      o  the Truth-In-Lending Act;

      o  the Fair Credit Billing Act;



                                      -21-
<PAGE>

      o  the Equal Credit Opportunity Act; and

      o  the Fair Credit Reporting Act.

We may be precluded from collecting receivables we purchase where the creditor
or other previous owner or third-party collection agency and attorney failed to
comply with applicable law in originating or servicing such acquired
receivables. Laws relating to the collection of consumer debt also directly
apply to our business. Our failure to comply with any laws applicable to us,
including state licensing laws, could limit our ability to recover on
receivables 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 materially adversely
affect our finance income and earnings.

Additional laws may be enacted that could impose additional restrictions on the
servicing and collection of receivables. Such new laws may adversely affect the
ability to collect on our receivables, which could also adversely affect our
finance income and earnings.

Because our receivables are generally originated and serviced pursuant to a
variety of federal and/or state laws by a variety of entities and may involve
consumers in all 50 states, the District of Columbia and Puerto Rico, there can
be no assurance that all original servicing entities have at all times been in
substantial compliance with applicable law. Additionally, there can be no
assurance that we, or our third-party collection agencies and attorneys have
been or will continue to be at all times in substantial compliance with
applicable law. The failure to comply with applicable law could materially
adversely affect our ability to collect our receivables and could subject us to
increased costs, fines and penalties.


We may incur substantial debt from time to time in connection with our purchase
of consumer receivable portfolios which could affect our ability to obtain
additional funds and may increase our vulnerability to economic or business
downturns.

We may incur substantial indebtedness from time to time in connection with the
purchase of consumer receivable portfolios and would be subject to the risks
associated with incurring such indebtedness, including:

      o  we would be required to dedicate a portion of our cash flows from
         operations to pay debt service costs and, as a result, we would have
         less funds available for operations, future acquisitions of consumer
         receivable portfolios, and other purposes;

      o  it may be more difficult and expensive to obtain additional funds
         through financings, if available at all;

      o  we would be more vulnerable to economic downturns and fluctuations in
         interest rates, less able to withstand competitive pressures and less
         flexible in reacting to changes in our industry and general economic
         conditions; and

                                      -22-
<PAGE>

      o  if we defaulted under our existing credit facility or if our creditors
         demanded payment of a portion or all of our indebtedness, we may not
         have sufficient funds to make such payments.


We have pledged all of our portfolios of consumer receivables to secure our
borrowings and are subject to covenants that may restrict our ability to operate
our business.

Our new amended and restated loan and security agreement increased our line of
credit to $175 million from $125 million, with an expandable feature which
allows the Company the ability to increase the line to $225 million with the
consent of the banks. The agreement expires on July 10, 2009.

Any indebtedness that we incur under our existing line of credit is
collateralized by all of our portfolios of consumer receivables acquired for
liquidation. If we default under the indebtedness secured by our assets, those
assets would be available to the secured creditor to satisfy our obligations to
the secured creditor. In addition, our credit facility imposes certain
restrictive covenants, including financial covenants. Failure to satisfy any of
these covenants could result in all or any of the following:

      o  acceleration of the payment of our outstanding indebtedness;

      o  cross defaults to and acceleration of the payment under other financing
         arrangements;

      o  our inability to borrow additional amounts under our existing financing
         arrangements; and

      o  our inability to secure financing on favorable terms or at all from
         alternative sources.

Any of these consequences could adversely affect our ability to acquire consumer
receivable portfolios and operate our business.

Class action suits and other litigation in our industry could divert our
management's attention from operating our business and increase our expenses.

Certain originators and third-party collection agencies and attorneys in the
consumer credit industry have been subject to class actions and other
litigation. Claims include failure to comply with applicable laws and
regulations and improper or deceptive origination and servicing practices. If we
become a party to such class action suits or other litigation, our results of
operations and financial condition could be materially adversely affected.

We may seek to make acquisitions that prove unsuccessful or strain or divert our
resources.

We may seek to grow Asta through acquisitions of related businesses. Such
acquisitions present risks that could materially adversely affect our business
and financial performance, including:

      o  the diversion of our management's attention from our everyday business
         activities;

      o  the assimilation of the operations and personnel of the acquired
         business;



                                      -23-
<PAGE>

      o  the contingent and latent risks associated with the past operations of,
         and other unanticipated problems arising in, the acquired business; and

      o  the need to expand management, administration and operational systems.

If we make such acquisitions we cannot predict whether:

      o  we will be able to successfully integrate the operations of any new
         businesses into our business;

      o  we will realize any anticipated benefits of completed acquisitions; or

      o  there will be substantial unanticipated costs associated with
         acquisitions.

In addition, future acquisitions by us may result in:

      o  potentially dilutive issuances of our equity securities;

      o  the incurrence of additional debt; and

      o  the recognition of significant charges for depreciation and
         amortization related to goodwill impairment and other intangible
         assets.

Although we have no present plans or intentions, we continuously evaluate
potential acquisitions of related businesses. However, we have not reached any
agreement or arrangement with respect to any particular future acquisition and
we may not be able to complete any acquisitions on favorable terms or at all.

Our investments in other businesses and entry into new business ventures may
adversely affect our operations.

We have and may continue to make investments in companies or commence operations
in businesses and industries that are not identical to those with which we have
historically been successful. If these investments or arrangements are not
successful, our earnings could be materially adversely affected by increased
expenses and decreased finance income.

If our technology and phone systems are not operational, our operations could be
disrupted and our ability to successfully acquire receivable portfolios could be
adversely affected.

Our success depends in part on sophisticated telecommunications and computer
systems. The temporary loss of our computer and telecommunications systems,
through casualty, operating malfunction or service provider failure, could
disrupt our operations. In addition, we must record 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 or monitoring activities. Any failure of our
information systems and their backup systems would interrupt our operations. We
may not have adequate backup arrangements for all of our operations and we may
incur significant losses if an outage occurs. 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 the third-party collection agencies and
attorneys does not have adequate backup arrangements. Any interruption in our
operations or our third-party collection agencies' and attorneys' operations
could have an adverse effect on our results of operations and financial
condition.







                                      -24-
<PAGE>

Our organizational documents and Delaware law may make it harder for us to be
acquired without the consent and cooperation of our board of directors and
management.

Several provisions of our organizational documents and Delaware law may deter or
prevent a takeover attempt, including a takeover attempt in which 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 certificate of incorporation, our
board of directors has the authority, without further action by the
stockholders, to issue shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof. The ability to
issue shares of preferred stock could tend to discourage takeover or acquisition
proposals not supported by our current board of directors. In addition, we are
subject to Section 203 of the Delaware General Corporation Law, which restricts
business combinations with some stockholders once the stockholder acquires 15%
or more of our common stock.

Future sales of our common stock 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
13,765,157 shares of common stock issued and outstanding as of the date hereof.
Of these shares, 3,385,008 are held by our affiliates and are saleable under
Rule 144 of the Securities Act of 1933, as amended. The remainder of our
outstanding shares were freely tradeable. In addition, options to purchase
approximately 1,414,439 shares of our common stock were outstanding as of
September 30, 2006, all of which were vested due to the acceleration of all
unvested options as approved by the Board of Directors on September 30, 2005.
The exercise prices of such options were substantially lower than the current
market price of our common stock. We may also issue additional shares in
connection with our business and may grant additional stock options to our
employees, officers, directors and consultants under our present or future stock
option plans or warrants to third parties. As of September 30, 2006 there were
1,411,334 shares available for such purpose, including the shares available
under the new Equity Compensation Plan approved by the shareholders in March
2006 . If a significant portion of these shares were sold in the public market,
the market value of our common stock could be adversely affected.

On September 11, 2006, the Company's Chairman, Arthur Stern and GMS Family
Investors LLC, an entity not controlled by Gary Stern, but whose principal
beneficiaries include Gary Stern, President and Chief Executive Officer and his
family, and Chief Financial Officer, Mitchell Cohen adopted prearranged stock
trading plans in accordance with guidelines specified by Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended. The plan stipulates Arthur Stern,
GMS Family Investors LLC and Mitchell Cohen to sell 200,000 shares, 300,000
shares, and 10,000 shares respectively. As of December 8, 2006 Arthur Stern, GMS
Family Investors and Mitchell Cohen have sold 136,000 shares, 232,000 shares and
10,000 shares, respectively.






                                      -25-
<PAGE>

On September 15, 2005, the Company's Chairman, Arthur Stern and President and
Chief Executive Officer, Gary Stern adopted prearranged stock trading plans in
accordance with guidelines specified by Rule 10b5-1 under the Securities
Exchange Act of 1934, as amended. Chairman Arthur Stern and President and Chief
Executive Officer Gary Stern and his affiliates sold 56,856 shares and 83,656
shares, respectively.

Item 1B. Unresolved Staff Comments.


The Company has received no written comments regarding its periodic or current
reports from the staff of the Securities and Exchange Commission that were
issued 180 days or more preceding the end of its 2006 fiscal year and that
remain unresolved.


Item 2. Properties.

Our executive and administrative offices are located in Englewood Cliffs, New
Jersey, where we lease approximately 12,000 square feet of general office space
for approximately $18,000 per month, plus utilities. The lease expires on July
31, 2010.

In addition, our call center is located in Bethlehem, Pennsylvania, where we
lease approximately 9,070 square feet of general office space for approximately
$9,000 per month. The lease expires on December 31, 2009. Our office in
Sugarland Texas occupies approximately 1,408 square feet of general office space
for approximately $2,300 per month. The lease expires October 31, 2007.

We believe that our existing facilities are adequate for our current and
anticipated 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 our network of
third party law firms, against consumers. Also, consumers occasionally initiate
litigation against us, in which they allege that we have violated a federal or
state law in the process of collecting on their account. We do not believe that
these ordinary course matters are material to our business and financial
condition. As of the date of this Form 10-K, we were not involved in any
material litigation in which we were a defendant.

Item 4. Submission of Matters to a Vote of Security Holders.

None.














                                      -26-
<PAGE>

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.

Since August 15, 2000, our common stock has been quoted on the NASDAQ National
Market system under the symbol "ASFI." On December 8, 2006 there were
approximately 23 holders of record of our common stock. High and low sales
prices of our common stock since October 1, 2004 as reported by NASDAQ are set
fourth below (such quotations reflect inter-dealer prices without retail markup,
markdown, or commission, and may not necessarily represent actual transactions):




                                                High           Low
                                                ----           ---
October 1, 2004 to December 31, 2004           28.28          15.82
January 1, 2005 to March 31, 2005              29.23          20.51
April 1, 2005 to June 30, 2005                 29.65          19.06
July 1, 2005 to September 30, 2005             32.49          24.20

October 1, 2005 to December 31, 2005           33.45          23.25
January 1, 2006 to March 31, 2006              35.36          26.80
April 1, 2006 to June 30, 2006                 43.29          30.67
July 1, 2006 to September 30, 2006             39.30          31.67

Dividends

During the year ended September 30, 2006, the Company declared quarterly cash
dividends aggregating $7,687,000 which includes $0.04 per share, per quarter,
plus a one time special dividend declared September 11, 2006 of $0.40 per share
of which $6,052,000 was paid November 1, 2006. During the year ended September
30, 2005 the Company declared quarterly cash dividends aggregating $1,901,000
($0.035 per share, per quarter) of which $476,000 was paid November 1, 2005.
During the year ended September 30, 2004, the Company declared quarterly cash
dividends of $1,606,000 ($0.035 per share, per quarter), of which $470,000 was
paid November 1, 2004. We expect to pay a regular cash dividend in future
quarters. This will be at the discretion of the board of directors and will
depend upon our financial condition, operating results, capital requirements and
any other factors the board of directors deems relevant. In addition, our
agreements with our lenders may, from time to time, restrict our ability to pay
dividends. All per share amounts have been retroactively restated to give effect
to a 2:1 stock split in March 2004.













                                      -27-
<PAGE>

Securities Authorized for Issuance under Equity Compensation Plans

Included in the following table are the number options outstanding, the average
price and the number of available options remaining available for future
issuance under equity compensation plans.

<TABLE>
<S>                                     <C>                               <C>                       <C>
--------------------------------------  --------------------------------  ------------------------   -----------------------------
Equity compensation Plan                Number of securities              Weighted-average           Number of securities
information:Plan category               to be issued upon                 exercise price of          remaining available
                                        exercise of outstanding           outstanding options,       for future issuance under
                                        options, warrants and rights      warrants and rights        equity compensation plans
                                                                                                     (excluding securities
                                                                                                     reflected in column (a))

                                        (a)                               (b)                        (c)

--------------------------------------  --------------------------------  ------------------------  -----------------------------
Equity compensation plans approved
by security holders

                                                              1,414,439                    $9.45                 1,411,334
--------------------------------------  --------------------------------  ------------------------  -----------------------------
Equity compensation plans not
approved by security holders

                                                                      0                        0                         0
--------------------------------------  --------------------------------  ------------------------  -----------------------------
Total                                                         1,414,439                    $9.45                 1,411,334
--------------------------------------  --------------------------------  ------------------------  -----------------------------
</TABLE>












                                      -28-
<PAGE>

Item 6. Selected Financial Data.

The following tables set forth a summary of our consolidated financial data as
of and for the five fiscal years ended September 30, 2006. The selected
financial data for the five fiscal years ended September 30, 2006, have been
derived from our audited consolidated financial statements. The selected
financial data presented below should be read in conjunction with our
consolidated financial statements, related notes, other financial information
included elsewhere, and Item 7. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this Annual Report. All share
and per share amounts have been retroactively restated to give effect to a 2:1
stock split in March 2004.

<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
                                                                        ------------------------------------------------------------
                                                                          2006         2005        2004          2003        2002
                                                                        --------     --------     --------     --------     --------
                                                                                    (in thousands, except per share data)
<S>                                                                     <C>          <C>          <C>          <C>          <C>
Operations Statement Data:
Finance income ....................................................     $101,024     $ 69,479     $ 51,175     $ 34,862     $ 35,793
Equity in earnings of venture .....................................          550                      --                        --
Other income ......................................................          405                                                 219
                                                                        --------     --------     --------     --------     --------
Total revenue .....................................................      101,979       69,479       51,175       34,862       36,012
                                                                        --------     --------     --------     --------     --------

Costs and expenses:
General and administrative................................ ........       18,268       15,340       11,258        7,837        6,698
Interest expense ..................................................        4,641        1,853          845        1,855        3,643
Impairments .......................................................        2,245         --           --           --           --
Third party servicing .............................................         --                       1,316        5,564        7,433
Provision for credit losses .......................................         --                         300         --            950
                                                                        --------     --------     --------     --------     --------
Total expenses ....................................................       25,154       17,193       13,719       15,256       18,724
                                                                        --------     --------     --------     --------     --------

Income before provisions for income taxes .........................       76,825       52,286       37,456       19,606       17,288
Provisions for income taxes .......................................       31,060       21,290       15,219        8,032        6,905
                                                                        --------     --------     --------     --------     --------

Net income ........................................................     $ 45,765     $ 30,996     $ 22,237     $ 11,574     $ 10,383
                                                                        ========     ========     ========     ========     ========

Basic net income per share ........................................     $   3.36     $   2.29     $   1.67     $   1.23     $   1.29
                                                                        ========     ========     ========     ========     ========

Diluted net income per share ......................................     $   3.13     $   2.15     $   1.57     $   1.13     $   1.19
                                                                        ========     ========     ========     ========     ========
</TABLE>




<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
                                                                      -----------------------------------------------------------
                                                                        2006        2005        2004         2003          2002
                                                                      --------    --------    --------     --------      --------
                                                                                                (in millions)
<S>                                                                   <C>         <C>         <C>          <C>           <C>
Other Financial Data:
Cash collections ..................................................   $   214.5   $   168.9   $   114.0    $    80.5     $    78.6
Portfolio purchases, at cost ......................................       200.2       126.0       103.7        115.6          36.6
Portfolio purchases, at face ......................................     5,194.0     3,445.2     2,833.6      3,576.4       1,495.7
Cumulative aggregate purchases, at face ...........................    18,701.9    13,507.9    10,062.7      7,349.0       3,772.7
Return on average assets (1) ......................................       19.6%       18.3%       16.3%        15.0%         21.6%
Return on average stockholders' equity (1) ........................       27.8%       23.9%       21.5%        18.4%         36.9%
</TABLE>

(1) The return on average assets is computed by dividing net income by average
total assets for the fiscal year. The return on average stockholders' equity is
computed by dividing net income by the average stockholders' equity for the
fiscal year. Both ratios have been computed using beginning and period-end
balances.





                                      -29-
<PAGE>



Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.

Cautions Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by use of terms such as
"may", "will", "should", "plan", "expect", "anticipate", "estimate", and similar
words, although some forward-looking statements are expressed differently.
Forward looking statements represent our judgment regarding future events, but
we can give no assurance that such judgments will prove to be correct. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected in such forward-looking
statements. Certain factors which could materially affect our results and our
future performance are described below under "Risk Factors" and "Critical
Accounting Policies" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." Forward-looking statements are
inherently uncertain as they are based on current expectations and assumptions
concerning future events and are subject to numerous known and unknown risks and
uncertainties. We caution you not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date of this report. Except as required by law, we undertake no obligation to
update or publicly announce revisions to any forward-looking statements to
reflect future events or developments. Unless the context otherwise requires,
the terms "we", "us" "the Company", or "our" as used herein refer to Asta
Funding, Inc. and our subsidiaries.


Overview

We are primarily engaged in the business of acquiring, managing, servicing and
recovering on portfolios of consumer receivables. These portfolios generally
consist of one or more of the following types of consumer receivables:

      o  charged-off receivables - accounts that have been written-off by the
         originators and may have been previously serviced by collection
         agencies;

      o  semi-performing receivables - accounts where the debtor is making
         partial or irregular monthly payments, but the accounts may have been
         written-off by the originators; and

      o  performing receivables - accounts where the debtor is making regular
         monthly payments that may or may not have been delinquent in the past.

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 acquisition costs and servicing expenses. After
purchasing a portfolio, we actively monitor its performance and review and
adjust our collection and servicing strategies accordingly.





                                      -30-
<PAGE>

We purchase receivables from credit grantors and others through privately
negotiated direct sales 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:

      o  our relationships with industry participants, collection agencies,
         investors and our financing sources;


      o  brokers who specialize in the sale of consumer receivable portfolios;
         and

      o  other sources.


Critical Accounting Policies

We account for our investments in consumer receivable portfolios, using either:

      o  the interest method; or

      o  the cost recovery method.

Generally, each purchase is considered a separate portfolio of receivables and
is considered a financial investment. Based upon the expected performance
characteristics of the receivables in the portfolio, we determine whether the
portfolio should be accounted for using the interest method or the cost recovery
method. If we can reasonably estimate the amount to be collected on a portfolio
and can reasonably determine the timing of such payments based on historic
experience and other factors, we use the interest method. If we cannot
reasonably estimate the future cash flows, we use the cost recovery method.
Substantially all of our portfolios are currently accounted for using the
interest method.

Prior to October 1, 2005, the Company accounted for its investment in finance
receivables using the interest method under the guidance of Practice Bulletin 6,
"Amortization of Discounts on Certain Acquired Loans" provided we could
reasonably estimate the amount to be collected on the portfolio and could
reasonably determine the timing of such payments. Effective October 1, 2005, the
Company adopted and began to account for its investment in finance receivables
using the interest method under the guidance of AICPA Statement of Position
("SOP") 03-3, "Accounting for Loans or Certain Securities Acquired in a
Transfer." Practice Bulletin 6 was amended by SOP 03-3 as described further in
this note. Under the guidance of SOP 03-3 (and the amended Practice Bulletin 6);
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. 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). SOP 03-3 (and the
amended Practice Bulletin 6) requires that the excess of the contractual cash
flows over expected cash flows not be recognized as an adjustment of revenue or
expense or on the balance sheet. The SOP initially freezes the internal rate of
return, referred to as IRR, estimated when the accounts receivable are purchased
as the basis for subsequent impairment testing. Significant increases in actual,
or expected future cash flows may be recognized prospectively through an upward
adjustment of the IRR over a portfolio's remaining life. Any increase to the IRR
then becomes the new benchmark for impairment testing. Effective for fiscal
years beginning October 1, 2005 under SOP 03-3 and the amended Practice Bulletin
6, rather than lowering the estimated IRR if the collection estimates are not
received or projected to be received, the carrying value of a pool would be
written down to maintain the then current IRR. If cash collections increase
subsequent to recording an impairment, reversal of the previously recognized
impairment is made prior to any increase to the IRR.



                                      -31-
<PAGE>

We originally set up a discounted present value calculation based on anticipated
cash flows based upon the characteristics of the portfolio purchased. Based on
our experience with the type of portfolio acquired, and based on the liquidation
rates expected, we then evaluate the performance of the actual cash flows to the
expected cash flows. In the event the actual cash flows are exceeding the
original expectations, and we believe this is indicative of a trend, we will
adjust the effective rate.

The significant portion of our portfolio purchases are credit card and wireless
telecom charge-offs from issuers whom we deal with regularly and for many years.
These portfolios generally have the same characteristics from purchase to
purchase and thus based on our experience, the risk characteristics have not
changed.

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
elsewhere in this prospectus. In these discussions, most percentages and dollar
amounts have been rounded to aid presentation. As a result, all such figures are
approximations.


<TABLE>
<CAPTION>
----------------------------------------------------  ---------------------------------------
                                                          Years ending September 30
----------------------------------------------------  ---------------------------------------
                                                           2006          2005        2004
----------------------------------------------------  ------------  ------------  -----------
<S>                                                   <C>          <C>          <C>
Finance income                                             99.1%        100.0%       100.0%
----------------------------------------------------  ------------  ------------  -----------
Equity in earnings of venture                                0.5%          0.0%        0.0%
----------------------------------------------------  ------------  ------------  -----------
Other income                                                 0.4%          0.0%         0.0%
----------------------------------------------------  ------------  ------------  -----------
Total revenue                                              100.0%        100.0%       100.0%
----------------------------------------------------  ------------  ------------  -----------
General and administrative                                  17.9%         22.1%        22.0%
----------------------------------------------------  ------------  ------------  -----------
Interest expense                                             4.6%          2.7%         1.7%
----------------------------------------------------  ------------  ------------  -----------
Impairments                                                  2.2%          0.0%         0.0%
----------------------------------------------------  ------------  ------------  -----------
Provision for credit and other losses                        0.0%          0.0%         0.6%
----------------------------------------------------  ------------  ------------  -----------
Third party servicing                                        0.0%          0.0%         2.6%
----------------------------------------------------  ------------  ------------  -----------
Income before provision for income taxes                    75.3%         75.3%        73.1%
----------------------------------------------------  ------------  ------------  -----------
Provision for income taxes                                  30.5%         30.6%        29.7%
----------------------------------------------------  ------------  ------------  -----------
Net Income                                                  44.9%         44.6%        43.4%
----------------------------------------------------  ------------  ------------  -----------
</TABLE>

Year Ended September 30, 2006 Compared to the Year Ended September 30, 2005

Finance income. For the year ended September 30, 2006, finance income increased
$31.5 million or 45.4% to $101.0 million from $69.5 million for the year ended
September 30, 2005. The increase in finance income was primarily due to an
increase in finance income earned on consumer receivables acquired for
liquidation, which resulted from an increase in the average outstanding accounts
acquired for liquidation during the fiscal year ended September 30, 2006, as
compared to the same prior year period, coupled with the effect of increased
yields on certain portfolios. For the fiscal year ended September 30, 2006, we
acquired receivables at a cost of $200.2 million as compared to $126.0 million
for the year ended September 30, 2005. For the fiscal year ended September 30,
2006, we had an average of $215.0 million in consumer receivables acquired for
liquidation as compared to $159.4 million for the year ended September 30, 2005,
a 34.8% increase. Finance income recognized from collections represented by
account sales was $32.0 million and $24.9 million for the years ended September
30, 2006 and 2005, respectively, while collections represented by account sales
decreased by 15.0%, or $9.7 million from $64.7 million to $55.0 million. This
decrease is primarily due to the sales of certain portfolios purchased in 2003
and 2004 with higher rates of return primarily recognized in 2006.



                                      -32-
<PAGE>

Adjustments to accretable yields on certain portfolios were made based on
available information, and based on improved liquidation rates attained and
forecasted to be attained by our third party collection agencies and attorneys.
Management believes the anticipated collections on these portfolios to be in
excess of our original projections. As we believe these improved liquidation
rates will continue, we adjusted our accretable yields by $44.5 million which
impacted revenue this year and will impact revenue in future years as well.

In 2004 the Company decided to increase its utilization of the legal process to
increase collections. This strategy has proven to be effective to date, as we
continue to utilize this strategy. The commissions and fees associated with
gross collections from our third-party collection agencies and attorneys were
approximately $105.7 million, or 33.0% of gross collections, in the fiscal year
ended September 30, 2006, as compared to $49.9 million, or 22.8% of gross
collections in the prior year. As we continue to purchase portfolios and utilize
our third party collection agencies and attorney networks, we anticipate these
costs will rise; however the contingency fees should stabilize in the range of
30% to 33% of gross collections based upon the current mix of portfolios.

Other income. Other income of $405,000 for the year ended September 30, 2006
includes service fee income generated by VATIV and interest income from banks
and other loan instruments.

Equity in earnings of venture. In August 2006 the Company invested approximately
$7.8 million for a 25% interest in a newly formed venture. The venture
invested in a bankruptcy liquidation that will collect on existing rental
contracts and the liquidation of inventory. The investment is expected to return
to the Company its normal expected investment results over a two to three year
period. The Company's share of the income of $550,000 in 2006 is primarily due
to sales of the higher valued inventory early in the venture's life. The Company
has received approximately $2.4 million through September 30, 2006 in cash
distributions from the venture and an additional $1.8 million through November
30, 2006 as returns of its investment.

General and Administrative Expenses. For the year ended September 30, 2006,
general and administrative expenses increased $3.0 million or 19.1% to $18.3
million from $15.3 million for the year ended September 30, 2005. The increase
was primarily due to an increase in the administrative costs associated with the
34.9% increase in the accounts acquired for liquidation. The increase in the
administrative expenses included increased media costs, technology costs,
salaries, and related benefits, professional fees, telephone charges and rent.






                                      -33-
<PAGE>

Interest Expense. For the year ended September 30, 2006, interest expense
increased $2.7 million or 150.5% to $4.6 million from $1.9 million for the year
ended September 30, 2005. The increase was primarily due to the increase in the
average outstanding borrowings under our line of credit during the year ended
September 30, 2006, as compared to the same prior year period. The average
outstanding balance during the year ended September 30, 2006 was $63.2 million
as compared to $34.3 million for the period ended September 30, 2005.
Also, the average interest rate for the year, excluding unused credit line fees,
increased to 6.97% from 5.17% in 2005.

Net income. For the year ended September 30, 2006, net income increased $14.8
million or 47.7% to $45.8 million from $31.0 million for the year ended
September 30, 2005. Net income per share for the year ended September 30, 2006
increased $0.98 per diluted share or 45.6% to $3.13 per diluted share from $2.15
per diluted share for the year ended September 30, 2005.

Year Ended September 30, 2005 Compared to the Year Ended September 30, 2004

Finance income. For the year ended September 30, 2005, finance income increased
$18.3 million or 35.8% to $69.5 million from $51.2 million for the year ended
September 30, 2004. The increase in finance income was primarily due to an
increase in finance income earned on consumer receivables acquired for
liquidation, which resulted from an increase in the average outstanding accounts
acquired for liquidation during the fiscal year ended September 30, 2005, as
compared to the same prior year period. For the fiscal year ended September 30,
2005, we acquired receivables at a cost of $126.0 million as compared to $103.7
million for the year ended September 30, 2004. For the fiscal year ended
September 30, 2005, we had an average of $159.4 million in consumer receivables
acquired for liquidation as compared to $125.9 million for the year ended
September 30, 2004, a 26.7% increase. Finance income recognized from collections
represented by account sales was $24.9 million and $14.9 million for the years
ended September 30, 2005 and 2004, respectively. Based on actual cash flows for
the year ended September 30, 2005, and projected cash flows we did not change
our estimates of collections during the year ended September 30, 2005. Based on
actual cash flows for the year ended September 30, 2004, and the then projected
future cash flows on certain portfolios as compared to what we estimated at
September 30, 2003, a revision was made to the estimated collections. Such
change in accounting estimate has resulted in approximately a $9.8 million
increase in finance income recognized for the year ended September 30, 2004 for
these portfolios. In 2004 The Company decided to increase its utilization of the
legal process to increase collections. This strategy has proven to be effective
and we will continue to utilize this strategy. The commissions and fees
associated with gross collections from our third-party collection agencies and
attorneys were approximately $49.9 million, or 22.8% of gross collections, in
the fiscal year ended September 30, 2005, as compared to $25.9 million, or 18.5%
of gross collections in the prior year.

General and Administrative Expenses. For the year ended September 30, 2005,
general and administrative expenses increased $4.0 million or 36.3% to $15.3
million from $11.3 million for the year ended September 30, 2004. The increase
was primarily due to an increase in the administrative costs associated with the
26.7% increase in the accounts acquired for liquidation. The increase in the
administrative expenses included court costs, data processing costs, salaries,
payroll taxes and benefits, professional fees, including implementation of the
Sarbanes-Oxley requirements, telephone charges and rent.

Third-party Servicing Expenses. Third-party servicing expenses related to a
specific portfolio serviced by an exclusive agent. The resulting decrease in
third party-party servicing expenses was due to the elimination of these
accounts and thus the exclusive relationship regarding these accounts no longer
exists. For the year ended September 30, 2005, third-party servicing expenses
decreased $1.3 million to $0 million from $1.3 million for the year ended
September 30, 2004. For the years ended September 30, 2005 and 2004, the total
gross finance income related to third party servicing costs, which is included
in finance income was $0 and $4.3 million, respectively.



                                      -34-
<PAGE>

Interest Expense. For the year ended September 30, 2005, interest expense
increased $1.0 million or 119.3% to $1.9 million from $.8 million for the year
ended September 30, 2004. The increase was primarily due to the increase in the
average outstanding borrowings under our line of credit during the year ended
September 30, 2005, as compared to the same prior year period. The average
outstanding balance during the year ended September 30, 2005 was $34.3 million
as compared to $27.8 million for the period ended September 30, 2004. Also, the
average interest rate for the year increased slightly to 5.17%.

Provision for Credit Losses. For the year ended September 30, 2005, the
provision for credit losses decreased $.3 million to $0 from $.3 for the year
ended September 30, 2004. The provision during 2004 was due to a write down on
one of our financed portfolio of receivables.

Net income. For the year ended September 30, 2005, net income increased $8.8
million or 39.4% to $31.0 million from $22.2 million for the year ended
September 30, 2004. Net income per share for the year ended September 30, 2005
increased $0.58 per diluted share or 36.9% to $2.15 per diluted share from $1.57
per diluted share for the year ended September 30, 2004


Liquidity and Capital Resources

As of September 30, 2006, we had cash and cash equivalents of $7.8 million
compared to $4.0 million at September 30, 2005. The increase in cash and cash
equivalents at September 30, 2006, was primarily due to the timing of our credit
line payments, other liability payments and tax payments for the year ended
September 30, 2006 as compared to the prior year. The primary source of cash
from operations is the collections on the receivable portfolios that we have
acquired and the primary source of cash from financing activities is the net
borrowings under our line of credit. These sources of cash were used mainly for
the purchase of consumer receivables, partially offset by principal payments
received from collections of consumer receivables acquired for liquidation. We
rely significantly upon our lenders to provide the funds necessary for the
purchase of consumer and commercial accounts receivable portfolios. In July of
2006, we entered into the Fourth Amended and Restated Loan Agreement with a
consortium of banks, and as a result, the credit facility is now $175 million up
from $125 million, with an expandable feature which allows the Company the
ability to increase the line to $225 million with the consent of the banks. The
new agreement expires on July 10, 2009. The line of credit bears interest at the
lesser of LIBOR plus an applicable margin, or the prime rate minus an applicable
margin based on certain leverage ratios. The credit line is collateralized by
all portfolios of consumer receivables acquired for liquidation and contains
customary financial and other covenants (relative to tangible net worth,
interest coverage, and leverage ratio, as defined) that must be maintained in
order to borrow funds. The applicable rate at September 30, 2006 and 2005,
respectively, was 7.25% and 6.25%. The average interest rate for the years ended
September 30, 2006 and 2005, respectively, was 6.97% and 5.17%. The average rate
is the result of using the LIBOR calculation.

In January 2006, the Company entered into an amended and restated loan and
security agreement that increased the line of credit with a consortium of banks
from $100 million to $125 million. The amended and restated loan and security
agreement had an original expiration date of May 11, 2006, which was extended 60
days to July 11, 2006 to finalize negotiations on the new agreement.



                                      -35-
<PAGE>

In addition, we may arrange for financing on a transactional basis. While we
have historically been able to finance portfolio purchases, we do not have
committed loan facilities, other than our line of credit with a financial
institution. As of December 8, 2006, September 30, 2006, and September 30, 2005,
we had outstanding borrowings of $82.9, $82.8, and $29.3 million respectively
under this facility and we were in compliance with all of the covenants under
this line of credit.

The following table shows the changes in finance receivables, including amounts
paid to acquire new portfolios:


<TABLE>
<CAPTION>
                                                                                          Year Ended September 30,
                                                                         ----------------------------------------------------------
                                                                          2006         2005         2004         2003         2002
                                                                         ------       ------       ------       ------       ------
                                                                                             (in millions)
<S>                                                                     <C>          <C>          <C>          <C>          <C>
Balance at beginning of period ....................................      $172.7       $146.1       $105.6       $ 36.1       $ 43.8
Acquisitions of finance receivables,
net of buybacks ...................................................       200.2        126.0        103.7        115.6         36.6
Cash collections from debtors
applied to principal (1) ..........................................       (90.4)       (59.6)       (37.6)       (27.4)       (44.3)
Cash collections represented by account sales
   applied to principal (1) .......................................       (23.0)       (39.8)       (25.3)       (18.2)
Impairment/Portfolio writedown ....................................        (2.2)        --           (0.3)        (0.5)        --
                                                                         ------       ------       ------       ------       ------
Balance at end of period ..........................................      $257.3       $172.7       $146.1       $105.6       $ 36.1
                                                                         ======       ======       ======       ======       ======
</TABLE>

(1) Cash collections applied to principal consists of cash collections less
income recognized on finance receivables plus amounts received by us from the
sale of consumer receivable portfolios to third parties.

Net cash provided by operating activities was $48.9 million during the year
ended September 30, 2006, compared to $32.1 million during the year ended
September 30, 2005. The increase was primarily due to an increase in net income
partially offset by an increase in amount due from third party collection
agencies and attorneys and other assets at September 30, 2006, compared to the
prior year.

Net cash used in investing activities was $97.4 million during the year ended
September 30, 2006, compared to $21.0 million during the year ended September
30, 2005. The increase in cash used in investing activities was primarily due to
an increase in the purchase of consumer receivables acquired for liquidation, a
distribution from the venture, offset by increase in principal collections, and
investment in an acquisition and investment in the venture.

Net cash provided by financing activities was $52.3 million during the year
ended September 30, 2006, compared to net cash used in financing activities of
$10.3 million for the prior year. The increase in the net cash provided by
financing was primarily due to a $53.5 million increase in borrowings during the
year ended September 30, 2006, as compared to repayments of $10.1 million in the
prior year. On July 11, 2006, the Company entered into the Fourth Amended and
Restated Loan Agreement with a consortium of banks, and, as a result, the credit
facility is now $175 million, up from $125 million, with an expandable feature
which allows the Company the ability to increase the line to $225 million with
the consent of the banks. The line of credit bears interest at the lesser of
LIBOR plus an applicable margin, or the prime rate minus an applicable margin
based on certain leverage ratios. The credit line is collateralized by all
portfolios of consumer receivables acquired for liquidation and contains
customary financial and other covenants (relative to tangible net worth,
interest coverage, and leverage ratio, as defined) that must be maintained in
order to borrow funds. The term of the agreement is three years. The applicable
rate at September 30, 2006 and 2005, respectively, was 7.25% and 6.25%. The
average interest rate for the years ended September 30, 2006 and 2005,
respectively was 6.97% and 5.17% excluding unused credit line fees. The average
rate is the result of using the LIBOR calculation.



                                      -36-
<PAGE>

In January 2006, the Company entered into an amended and restated loan and
security agreement that increased the line of credit with a consortium of banks
from $100 million to $125 million. The amended and restated loan and security
agreement had an original expiration date of May 11, 2006, which was extended 60
days to July 11, 2006 to finalize negotiations on the new agreement.

Our cash requirements have been and will continue to be significant. We depend
on external financing to acquire consumer receivables. During the year ended
September 30, 2006, we acquired consumer portfolios at a cost of approximately
$200.2 million having an aggregate outstanding balance totaling approximately
$5.2 billion.

We anticipate funds available under our current credit facility and cash from
operations will be sufficient to satisfy our estimated cash requirements for at
least the next 12 months. If, for any reason, our available cash otherwise
proves to be insufficient to fund operations (because of future changes in the
industry, general economic conditions, unanticipated increases in expenses, or
other factors, including acquisitions), we may be required to seek additional
funding.

We may consider possible acquisitions of, or investments in, complementary
businesses. Any such possible acquisitions or investments may be material and
may require us to incur a significant amount of debt or issue a significant
amount of equity securities. Further, any business that we acquire or invest in
will likely have its own capital needs, which may be significant, and which we
may be called upon to satisfy.

Supplementary Information on Consumer Receivables Portfolios:

                               Portfolio Purchases

<TABLE>
<CAPTION>
                                                     Year Ended September 30,
                                                 ------------------------------------
                                                   2006          2005         2004
                                                 --------      --------      --------
                                                          (in millions)
<S>                                              <C>           <C>           <C>
Aggregate Purchase Price ..................      $  200.2      $  126.0      $  103.7
Aggregate Portfolio Face Amount............       5,194.0       3,445.2       2,833.5
</TABLE>

The prices we pay for our consumer receivable portfolios are dependent on many
criteria including the age of the portfolio, the number of third party
collection agencies and attorneys that have been involved in the collection
process and the geographical distribution of the portfolio. When we pay higher
prices for portfolios which are performing or fresher, we believe it is not at
the sacrifice of our expected returns. Price fluctuations for portfolio
purchases from quarter to quarter or year over year are indicative of the
overall mix of the types of portfolios we are purchasing.






                                      -37-
<PAGE>

              Schedule of Portfolios by Income Recognition Category

<TABLE>
<CAPTION>
                                                 September 30, 2006            September 30, 2005           September 30, 2004
                                             -------------------------      -------------------------    ------------------------
                                                Cost         Interest          Cost         Interest        Cost         Interest
                                              Recovery       Method          Recovery       Method        Recovery       Method
                                             Portfolios     Portfolios      Portfolios     Portfolios    Portfolios    Portfolios
                                             ----------     ----------      ----------     ----------    -----------   ----------
                                                                                   (in millions)
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
Original Purchase
Price (at period end) ..................      $    50.6      $   655.0      $    49.3      $   454.8      $    49.3      $   328.8
Cumulative Aggregate
Managed Portfolios
(at period end) ........................        2,205.0       16,332.8        2,168.4       11,339.5        2,168.4        7,894.3
Receivable Carrying
Value (at period end) ..................            1.1          256.3            0.1          172.6            1.3          144.8
Finance Income Earned
(for the respective
period) ................................            3.4           97.6            5.4           64.1            5.4           45.3
Total Cash Flows (for
the respective
period) ................................            3.7          210.8            6.6          162.3            7.6          104.5
</TABLE>

The original purchase price reflects what we paid for the receivables from 1998
through the end of the respective period. The cumulative aggregate managed
portfolio balance is the original aggregate amount owed by the borrowers at the
end of the respective period. Additional differences between year to year period
end balances may result in the transfer of portfolios between the interest
method and the cost recovery method. We purchase consumer receivables at
substantial discounts from the face amount. We record finance income on our
receivables under either the cost recovery or interest method. The receivable
carrying value represents the current basis in the receivables after collections
and amortization of the original price.

Collections Represented by Account Sales

                                           Collections
                                           Represented             Finance
                                            By account             Income
Year                                          Sales              Recognized
----                                       -----------           -----------

2006 .......................               $55,035,000           $32,041,000

2005 .......................                64,731,000            24,918,000

2004 .......................                40,260,000            14,948,000

Finance income recognized from collections represented by account sales in 2006
increased due to sales of certain portfolios purchased in 2004 with higher rates
of return.









                                      -38-
<PAGE>

                            Portfolio Performance (1)

The following table summarizes our historical portfolio purchase price and cash
collections on accrual basis portfolios on an annual vintage basis since October
1, 2001 through September 30, 2006.

<TABLE>
<CAPTION>
                                              Net Cash Collections       Estimated                Total           Total Collections
Purchase                     Purchase           Including Cash           Remaining              Estimated          as a Percentage
Period                       Price(2)              Sales (3)            Collections(4)        Collections(5)      of Purchase Price
------                     ------------       --------------------      --------------        --------------      -----------------
<S>                        <C>                    <C>                                             <C>                    <C>
2001 ...........           $ 65,120,000           $ 94,603,000                   --               94,603,000             145%
2002 ...........             36,557,000             51,816,000                   --               51,816,000             142%
2003 ...........            115,626,000            172,924,000             25,816,000            198,740,000             172%
2004 ...........            103,743,000            132,659,000             29,700,000            162,359,000             157%
2005 ...........            126,023,000            103,830,000            102,935,000            206,765,000             164%
2006 ...........            200,237,000             63,704,000            241,548,000            305,252,000             152%
</TABLE>

(1)  Total collections do not represent full collections of the Company with
     respect to this or any other year.

(2)  Purchase price refers to the cash paid to a seller to acquire a portfolio
     less the purchase price refunded by a seller due to the return of
     non-compliant accounts (also defined as put-backs).

(3)  Cash collections include: net collections from our third-party collection
     agencies and attorneys, collections from our in-house efforts and
     collections represented by account sales.

(4)  Does not include estimated collections from portfolios that are zero basis

(5)  Total estimated collections refers to the actual net cash collections,
     including cash sales, plus estimed remaining collections.

We do not anticipate collecting the majority of the purchased principal amounts.
Accordingly, the difference between the carrying value of the portfolios and the
gross receivables is not indicative of future finance income from these accounts
acquired for liquidation. Since we purchased these accounts at significant
discounts, we anticipate collecting only a portion of the face amounts.

For the year ended September 30, 2006, we recognized finance income of $3.4
million under the cost recovery method because we collected $3.4 million in
excess of our purchase price on certain of these portfolios. In addition, we
earned $97.6 million of finance income under the interest method based on
actuarial computations which in turn are based on actual collections during the
period and on what we project to collect in future periods. During the year
ended September 30, 2006, we purchased portfolios with an aggregate purchase
price of $200.2 million with a face value (gross contracted amount) of $5.2
billion.

New Accounting Pronouncements

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued
in order to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB 108 requires that registrants
quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all
relevant quantitative and qualitative factors are considered, is material. SAB
108 must be implemented by the end of the Company's fiscal 2007. The Company is
currently assessing the potential effect of SAB 108 on its financial statements.



                                      -39-
<PAGE>

In September 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 158, Employer's Accounting for Defined Benefit Pension and Other
Postretirement Plans - and amendment of FASB Statements No. 87, 88, 106 and
132(R). This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity. This Statement also improves financial reporting by requiring
an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. The Company
believes that, when adopted will not impact the Company.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. FASB Statement No. 157 will be
effective for our financial statements issued for our fiscal year beginning
October 1, 2008. We do not expect the adoption of FASB Statement No. 157 to have
a material impact on our financial reporting, and we are currently evaluating
the impact, if any, the adoption of FASB Statement No. 157 will have on our
disclosure requirements.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48), which prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 will be effective for our fiscal year beginning October 1,
2007. We do not expect the adoption of FIN 48 to have a material impact on our
financial reporting and disclosure.

In March 2006, the FASB issued FASB Statement No. 156, Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140. This Statement:

1.   Requires an entity to recognize a servicing asset or servicing liability
     each time it undertakes an obligation to service a financial asset by
     entering into a servicing contract under certain situations.

2.   Requires all separately recognized servicing assets and servicing
     liabilities to be initially measured at fair value, if practicable.

3.   Permits an entity to choose either the amortization method or the fair
     value measurement method subsequent measurement methods for each class of
     separately recognized servicing assets and servicing liabilities:

                                      -40-
<PAGE>

4.   At its initial adoption, permits a one-time reclassification of
     available-for-sale securities to trading securities by entities with
     recognized servicing rights, without calling into question the treatment of
     other available-for-sale securities under Statement 115, provided that the
     available-for-sale securities are identified in some manner as offsetting
     the entity's exposure to changes in fair value of servicing assets or
     servicing liabilities that a servicer elects to subsequently measure at
     fair value.

5.   Requires separate presentation of servicing assets and servicing
     liabilities subsequently measured at fair value in the statement of
     financial position and additional disclosures for all separately recognized
     servicing assets and servicing liabilities.

We do not expect FASB No. 156 to have a material impact on our financial
reporting, and we are currently evaluating the impact, if any, the adoption of
FASB No. 156 will have on our disclosure requirements. The statement becomes
effective after the beginning of the first fiscal year that begins after
September 15, 2006.

In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain
Hybrid Financial Instruments - and amendment of FASB Statements No. 133 and 140.
This Statement:

     a.   Permits fair value remeasurement for any hybrid financial instrument
          that contains an embedded derivative that otherwise would require
          bifurcation

     b.   Clarifies which interest-only strips and principal-only strips are not
          subject to the requirements of Statement 133

     c.   Establishes a requirement to evaluate interests in securitized
          financial assets to identify interests that are freestanding
          derivatives or that are hybrid financial instruments that contain an
          embedded derivative requiring bifurcation

     d.   Clarifies that concentrations of credit risk in the form of
          subordination are not embedded derivatives

     e.   Amends Statement 140 to eliminate the prohibition on a qualifying
          special-purpose entity from holding a derivative financial instrument
          that pertains to a beneficial interest other than another derivative
          financial instrument.

The statement became effective for us on October 1, 2006. We do not expect the
adoption of FASB No. 155 to have a material impact on our financial reporting
and disclosure.

In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections
- a replacement of APB Opinion No. 20 and FASB Statement No. 3" (SFAS 154),
which requires a retrospective application to prior periods' financial
statements of changes in accounting principle for all periods presented. This
statement replaces APB Opinion No. 20 which required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
The provisions of SFAS 154 are effective for fiscal years beginning after
December 15, 2006. Currently there is no impact on the Company.

Inflation:

We believe that inflation has not had a material impact on our results of
operations for the years ended September 30, 2006, 2005 and 2004.



                                      -41-
<PAGE>

Seasonality and Trends

Our management believes that our operations may, to some extent, be affected by
high delinquency rates and by lower recoveries on consumer receivables acquired
for liquidation during or shortly following certain holiday periods and during
the summer months. In addition, on occasion the market for acquiring distressed
receivables does become more competitive thereby possibly diminishing our
ability to acquire such distressed receivables at attractive prices in such
periods.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various types of market risk in the normal course of business,
including the impact of interest rate changes and changes in corporate tax
rates. A material change in these rates could adversely affect our operating
results and cash flows. At September 30, 2006, our $175 million credit facility,
all of which is variable debt, had an outstanding balance of $82.8 million. A 25
basis-point increase in interest rates would have increased our annual interest
expense by $150,000 based on the average balance outstanding during the fiscal
year. We do not currently invest in derivative financial or commodity
instruments.



Item 8. Financial Statements And Supplementary Data.

The Financial Statements of the Company, the Notes thereto and the Report of
Independent Auditors thereon required by this item appear in this report on the
pages indicated in the following index:

      Index to Audited Financial Statements:                               Page
      --------------------------------------                               ----

      Report of Independent Registered Public Accounting Firm              F-2

      Consolidated Balance Sheets - September 30, 2006 and 2005            F-3

      Consolidated Statements of Operations - Years ended
      September 30, 2006, 2005 and 2004                                    F-4

      Consolidated Statements of Shareholders' Equity - Years ended
      September 30, 2006, 2005 and 2004                                    F-5

      Consolidated Statements of Cash Flows - Years ended
      September 30, 2006, 2005 and 2004                                    F-6

      Notes to Consolidated Financial Statements                           F-7


Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

None.



                                      -42-
<PAGE>

Item 9A. Controls and Procedures.

      Disclosure Controls and Procedures

The Company's chief executive officer and chief financial officer have reviewed
and evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e)) as
of the end of the period ended September 30, 2006. Based on that evaluation,
they have concluded that the Company's disclosure controls and procedures as of
the end of the period covered by this report are effective in timely providing
them with material information relating to the Company required to be disclosed
in the reports the Company files or submits under the Exchange Act.


      Management's Annual Report on Internal Control Over Financial Reporting

The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Under the supervision and with the participation of the
Company's management, including its principal executive officer and principal
financial officer, the Company conducted an assessment of the effectiveness of
its internal control over financial reporting. In making this assessment, the
Company used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control - Integrated Framework. Based on
management's assessment the Company believes that, as of September 30, 2006, the
Company's internal control over financial reporting is effective based on those
criteria.

The Company's internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles in the U.S. The Company's internal control over
financial reporting includes those policies and procedures that:

     (i)  pertain to the maintenance of records that, in reasonable detail,
          accurately and fairly reflect the transactions and dispositions of the
          assets of the Company;

     (ii) provide reasonable assurance that transactions are recorded as
          necessary to permit preparation of financial statements in accordance
          with accounting principles generally accepted in the U.S., and that
          receipts and expenditures of the Company are being made only in
          accordance with authorization of management and directors of the
          Company; and

     (iii) provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of the Company's
          assets that could have a material effect on the consolidated financial
          statements.

There are inherent limitations to the effectiveness of any control system. A
control system, no matter how well conceived and operated, can provide only
reasonable assurance that its objectives are met. No evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or because the degree of
compliance with the policies and procedures may deteriorate.



                                      -43-
<PAGE>

There have not been any changes in the Company's internal controls over
financial reporting identified in connection with an evaluation thereof that
occurred during the Company's fourth fiscal quarter that have materially
affected, or are reasonable likely to materially affect the Company's internal
control over financial reporting. There were no significant deficiencies or
material weaknesses, and therefore no corrective actions were taken.

Eisner LLP, the independent registered public accounting firm who also audited
the Company's consolidated financial statements have issued an audit report on
management's assessment of the Company's internal control over financial
reporting as of September 30, 2006. Eisner's attestation report on management's
assessment of the Company's internal control over financial reporting is
included below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Asta Funding, Inc. and Subsidiaries

We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting, that
Asta Funding, Inc. and subsidiaries maintained effective internal control over
financial reporting as of September 30, 2006, based on, criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Asta Funding, Inc. and
subsidiaries management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. A
company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company's assets that
could have a material effect on the financial statements.



                                      -44-
<PAGE>

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Asta Funding, Inc. and subsidiaries
maintained effective internal control over financial reporting as of September
30, 2006, is fairly stated, in all material respects, based on, the COSO
criteria. Also, in our opinion, Asta Funding, Inc. and subsidiaries maintained,
in all material respects, effective internal control over financial reporting as
of September 30, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Asta Funding, Inc. and subsidiaries as of September 30, 2006 and 2005, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 2006,
and our report dated December 6, 2006, expressed an unqualified opinion on
those consolidated financial statements.

Eisner LLP
New York, New York
December 6, 2006



Item 9B. Other Information.

None.



PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information contained under the caption "Directors, Executive Officers, and
Corporate Governance in our definitive Proxy Statement to be filed with the
Commission on or before January 26, 2007, is incorporated by reference in
response to this Item 10.

We have adopted a Code of Ethics for our Senior Financial Officers that is
incorporated into this Form 10-K in Exhibit 14.1.

Item 11. Executive Compensation.

Information contained under the caption "Executive Compensation" in our
definitive Proxy Statement to be filed with the Commission on or before January
26, 2007 is incorporated by reference in response to this Item 11.






                                      -45-
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in our definitive Proxy Statement to be filed
with the Commission on or before January 26, 2007 is incorporated herein by
reference in response to this Item 12.

Item 13. Certain Relationships and Related Transactions, and Director
Independence.

Information contained under the caption "Certain Relationships and Related
Transactions" in our definitive Proxy Statement to be filed with the Commission
on or before January 26, 2007 is incorporated by reference in response to this
Item 13.

Item 14.  Principal Accounting Fees and Services.

Information contained under the caption "Principla Accounting Fees and Services"
in our definitive Proxy Statement to be filed with the Commission on or before
January 26, 2007 is incorporated by reference in response to this Item 14.



Part IV

Item 15. Exhibits, Financial Statement Schedules.

Exhibits designated by the symbol * are filed with this Annual Report on Form
10-K. All exhibits not so designated are incorporated by reference to a prior
filing as indicated.

Exhibits designated by the symbol + are management contracts or compensatory
plans or arrangements that are required to be filed with this report pursuant to
this Item 15.

The Company undertakes to furnish to any stockholder so requesting a copy of any
of the following exhibits upon payment to us of the reasonable costs incurred by
us in furnishing any such exhibit.

   (a) The following documents are filed as part of this report

      1. Financial Statements - See Index to Consolidated Financial Statements
         in Part II, Item 8

            2. Exhibits

                Exhibit
                Number

                  3.1      Certificate of Incorporation. (1)

                  3.2      Amendment to Certificate of Incorporation (3)

                  3.3      By laws. (2)

                  10.1     Asta Funding, Inc 1995 Stock Option Plan as Amended
                           (1) +

                  10.2     Asta Funding, Inc. 2002 Stock Option Plan (3) +

                  10.3     Asta Funding, Inc. Equity Compensation Plan (6) +

                  10.4     Third Amended and Restated Loan and Security
                           Agreement dated May 11, 2004, between the Company and
                           Israel Discount Bank of NY (5)



                                      -46-
<PAGE>

                  10.5     Fourth Amended and Restated Loan and Security
                           Agreement dated July 10, 2006, between the Company
                           and Israel Discount Bank of NY (7)

                  10.6     Lease agreement between the Company and 210 Sylvan
                           Avenue LLC dated July 29, 2006 (8)

                  14.1     Code of Ethics for Senior Financial Officers (4)

                  21.1     Subsidiaries of the Company*

                  31.1     Certification of Registrant's Chief Executive
                           Officer, Gary Stern, pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002. *

                  31.2     Certification of Registrant's Chief Financial
                           Officer, Mitchell Cohen, pursuant to Section 302 of
                           the Sarbanes-Oxley Act of 2002. *

                  32.1     Certification of the Registrant's Chief Executive
                           Officer, Gary Stern, pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.*

                  32.2     Certification of the Registrant's Chief Financial
                           Officer, Mitchell Cohen, pursuant to Section 906 of
                           the Sarbanes-Oxley Act of 2002.*

(1)  Incorporated by reference to an Exhibit to Asta Funding's Registration
     Statement on Form SB-2 (File No. 33-97212).

(2)  Incorporated by reference to an Exhibit to Asta Funding's Annual Report on
     Form 10-KSB for the year ended September 30, 1999.

(3)  Incorporated by reference to an Exhibit to Asta Funding's Quarterly Report
     on Form 10-QSB for the three months ended March 31, 2002.

(4)  Incorporated by reference to Exhibit 14.1 to Asta Funding's Annual Report
     on form 10-K for the year ended September 30, 2004.

(5)  Incorporated by reference to Exhibit 10.1 to Asta Funding's Current Report
     on Form 8-K filed May 19, 2004.

(6)  Incorporated by reference to Exhibit 10.1 to Asta Funding's Current Report
     on Form 8-K filed March 3, 2006.

(7)  Incorporated by reference to Exhibit 10.1 to Asta Funding's Current Report
     on Form 8-K filed July 12, 2006.

(8)  Incorporated by reference to Exhibit 10.1 to Asta Funding's Current Report
     on Form 8-K filed August 1, 2005.




                                      -47-
<PAGE>



                                   SIGNATURES

                  In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly
authorized.

                                          ASTA FUNDING, INC.


Dated:  December 14, 2006                 By:/s/Gary Stern
                                          -------------------------------------
                                          Gary Stern
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)

































                                      -48-
<PAGE>

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
Signature                                      Title                                             Date
---------                                      -----                                             ----
<S>                                    <C>                                                    <C>
/s/Gary Stern                          President, Chief Executive Officer and Director        December14, 2006
---------------------
Gary Stern

/s/Mitchell Cohen                      Chief Financial Officer                                December 14, 2006
---------------------
Mitchell Cohen

/s/Arthur Stern                        Chairman of the Board and Executive                    December 14, 2006
---------------------                  Vice President
Arthur Stern

/s/Herman Badillo                      Director                                               December 14, 2006
---------------------
Herman Badillo

/s/Edward Celano                       Director                                               December 14, 2006
---------------------
Edward Celano

/s/Harvey Leibowitz                    Director                                               December 14, 2006
---------------------
Harvey Leibowitz

/s/David Slackman                      Director                                               December 14, 2006
---------------------
David Slackman

/s/Alan Rivera                         Director                                               December 14, 2006
---------------------
Alan Rivera

/s/Louis A. Piccolo                    Director                                               December 14, 2006
---------------------
Louis A. Piccolo
</TABLE>





                                      -49-
<PAGE>



                       ASTA FUNDING, INC. AND SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                           SEPTEMBER 30, 2006 and 2005


<PAGE>



ASTA FUNDING, INC. AND SUBSIDIARIES


Contents

                                                                      Page
                                                                      ----

Consolidated Financial Statements

      Report of Independent Registered Public Accounting Firm         F-2

      Balance sheets as of September 30, 2006 and 2005                F-3

      Statements of operations for the years ended
           September 30, 2006, 2005 and 2004                          F-4

      Statements of stockholders' equity for the years ended
           September 30, 2006, 2005 and 2004                          F-5

      Statements of cash flows for the years ended
           September 30, 2006, 2005 and 2004                          F-6

      Notes to consolidated financial statements                      F-7





















<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Asta Funding, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Asta Funding,
Inc. and subsidiaries as of September 30, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended September 30, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Asta Funding, Inc. as
of September 30, 2006 and 2005, and the consolidated results of their operations
and their consolidated cash flows for each of the years in the three-year period
ended September 30, 2006, in conformity with accounting principles generally
accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Asta Funding,
Inc. and Subsidiaries internal control over financial reporting as of September
30, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated December 6, 2006 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.

Eisner LLP
New York, New York
December 6, 2006






                                                                             F-2
<PAGE>

ASTA FUNDING, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                    September 30,
                                                                                          ----------------------------------
                                                                                              2006                   2005
                                                                                          ------------          ------------
<S>                                                                                       <C>                   <C>
ASSETS
  Cash and cash equivalents                                                               $  7,826,000          $  4,059,000
  Consumer receivables acquired for liquidation (at net realizable value)                  257,275,000           172,727,000
  Due from third party collection agencies and attorneys                                     3,062,000             1,425,000
  Investment in venture                                                                      5,965,000
  Furniture and equipment (net of accumulated depreciation of $1,769,000
       in 2006 and $1,426,000 in 2005)                                                       1,101,000               989,000

  Deferred income taxes                                                                      7,577,000
  Other assets                                                                               5,034,000               838,000
                                                                                          ------------          ------------

                                                                                          $287,840,000          $180,038,000
                                                                                          ============          ============

LIABILITIES
  Advances under line of credit                                                           $ 82,811,000          $ 29,285,000
  Other liabilities                                                                          4,338,000             3,704,000
  Dividends payable                                                                          6,052,000               476,000
  Income taxes payable                                                                      10,377,000             1,243,000
  Deferred income taxes                                                                           --                 153,000
                                                                                          ------------          ------------

       Total liabilities                                                                   103,578,000            34,861,000
                                                                                          ------------          ------------

Commitments

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000;
    issued - none
Common stock, $.01 par value, authorized 30,000,000 shares, issued
      and outstanding 13,755,157 shares in 2006 and 13,595,324 in 2005                         138,000               136,000
Additional paid-in capital                                                                  61,803,000            60,798,000
Retained earnings                                                                          122,321,000            84,243,000
                                                                                          ------------          ------------

       Total stockholders' equity                                                          184,262,000           145,177,000
                                                                                          ------------          ------------

                                                                                          $287,840,000          $180,038,000
                                                                                          ============          ============
</TABLE>



See notes to consolidated financial statements                              F-3


<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                           Year Ended
                                                                          September 30,
                                                       ------------------------------------------------------------
                                                          2006                    2005                     2004
                                                       ------------            ------------            ------------
<S>                                                    <C>                     <C>                     <C>
Revenues:
Finance income                                         $101,024,000            $ 69,479,000            $ 51,175,000
Other income                                                405,000                    --                      --
Equity in earnings of venture                               550,000                    --                      --
                                                       ------------             ------------           ------------
                                                        101,979,000              69,479,000              51,175,000

General and administrative expenses                      18,268,000              15,340,000              11,258,000

Interest expense                                          4,641,000               1,853,000                 845,000

Impairments                                               2,245,000                    --                      --

Provisions for credit and other losses                         --                      --                   300,000

Third-party servicing expenses                                 --                      --                 1,316,000
                                                       ------------            ------------            ------------
                                                         25,154,000              17,193,000              13,719,000
                                                       ------------            ------------            ------------

Income before provision for income taxes                 76,825,000              52,286,000              37,456,000

Provision for income taxes                               31,060,000              21,290,000              15,219,000
                                                       ------------            ------------            ------------

Net income                                             $ 45,765,000            $ 30,996,000            $ 22,237,000
                                                       ============            ============            ============

Basic net income per share                             $       3.36            $       2.29            $       1.67
                                                       ============            ============            ============
Diluted net income per share                           $       3.13            $       2.15            $       1.57
                                                       ============            ============            ============

Weighted average shares:
    Basic                                                13,637,406              13,543,580              13,346,125
    Diluted                                              14,615,148              14,410,275              14,154,125
</TABLE>




See notes to consolidated financial statements                              F-4
<PAGE>

ASTA FUNDING, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                            Additional
                                                Common Stock                 Paid-in         Retained
                                           Shares           Amount           Capital         Earnings           Total
                                        ------------     ------------      ------------     ------------      ------------
<S>                                    <C>             <C>               <C>              <C>              <C>
Balance, September 30, 2003              13,180,926      $    132,000      $ 57,718,000     $ 34,517,000      $ 92,367,000

Exercise of options                         251,668             2,000         1,363,000                          1,365,000

Tax benefit from exercise of
  non qualified stock options                                                   103,000                            103,000

Dividends                                                                                     (1,606,000)       (1,606,000)

Net income                                                                                    22,237,000        22,237,000
                                       ------------      ------------      ------------     ------------      ------------
Balance, September 30, 2004              13,432,594           134,000        59,184,000       55,148,000       114,466,000

Exercise of options                         162,730             2,000         1,417,000                          1,419,000

Tax benefit arising from exercise
  of non qualified stock options                                                197,000                            197,000
Dividends                                                                                     (1,901,000)       (1,901,000)
Net income                                                                                    30,996,000        30,996,000
                                       ------------      ------------      ------------     ------------      ------------
Balance, September 30, 2005              13,595,324           136,000        60,798,000       84,243,000       145,177,000

Exercise of options                         159,833             2,000           870,000                            872,000
Tax benefit arising from exercise
  of non qualified stock options                                                 30,000                             30,000
Dividends                                                                                     (7,687,000)       (7,687,000)
Compensation expense                                                            105,000                            105,000
Net income                                                                                    45,765,000        45,765,000
                                       ------------      ------------      ------------     ------------      ------------
Balance, September 30, 2006              13,755,157      $    138,000      $ 61,803,000     $122,321,000      $184,262,000
                                       ============      ============      ============     ============      ============
</TABLE>





See notes to consolidated financial statements                              F-5
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
                                                                               2006              2005                2004
                                                                           -------------      -------------      -------------
<S>                                                                        <C>                <C>                <C>
Cash flows from operating activities:
 Net income                                                                $  45,765,000      $  30,996,000      $  22,237,000
   Adjustments to reconcile net income to net cash provided by
    operating activities:
      Depreciation and amortization                                              575,000            485,000            356,000
      Deferred income taxes                                                   (7,730,000)           109,000            (41,000)
      Impairments of consumer receivables acquired for liquidation             2,245,000
      Stock based compensation                                                   105,000
      Equity in earnings of venture                                             (550,000)
      Cash distribution from venture                                             550,000
      Provision for credit and other losses                                                                            300,000
 Changes in:
   Due from third party collection agencies and attorneys                     (1,637,000)          (588,000)          (777,000)
   Other assets                                                                 (191,000)           622,000           (398,000)
   Income taxes payable                                                        9,134,000           (182,000)           623,000
   Other liabilities                                                             632,000            615,000           (530,000)
   Restricted cash and cash equivalents                                                                --               54,000


                                                                           -------------      -------------      -------------
        Net cash provided by operating activities                             48,898,000         32,057,000         21,824,000
                                                                           -------------      -------------      -------------

Cash flows from investing activities:

   Purchase of consumer receivables acquired for liquidation                (200,237,000)      (113,537,000)      (103,743,000)
   Principal payments received from collection of consumer
      receivables acquired for liquidation                                    90,450,000         59,648,000         37,558,000
   Principal payments received from collections represented
      By sales of consumer receivables acquired for liquidation               22,994,000         39,813,000         25,312,000
   Investment in venture                                                      (7,810,000)
   Cash distribution received from venture                                     1,845,000
   Change in other assets and investments                                     (2,862,000)
   Acquisition of businesses, net of cash acquired                            (1,406,000)       (13,521,000)
   Capital expenditures                                                         (423,000)          (685,000)          (146,000)
   Deposit on receivable purchase                                                                 7,288,000         (7,288,000)
   Auto loan principal payments collected                                                                                5,000
                                                                           -------------      -------------      -------------
        Net cash used in investing activities                                (97,449,000)       (20,994,000)       (48,302,000)
                                                                           -------------      -------------      -------------

Cash flows from financing activities:
   Borrowings (repayments)  under line of credit, net                         53,526,000        (10,070,000)        22,974,000
   Dividends paid                                                             (2,110,000)        (1,894,000)        (1,466,000)
   Proceeds from exercise of stock options                                       872,000          1,419,000          1,365,000
Tax benefit arising from exercise of non-qualified stock options                  30,000            197,000            103,000

                                                                           -------------      -------------      -------------
Net cash provided by (used in) financing activities                           52,318,000        (10,348,000)        22,976,000
                                                                           -------------      -------------      -------------

Net increase (decrease) in cash and cash equivalents                           3,767,000            715,000         (3,502,000)
Cash and cash equivalents at beginning of year                                 4,059,000          3,344,000          6,846,000
                                                                           -------------      -------------      -------------

Cash and cash equivalents at end of year                                   $   7,826,000      $   4,059,000      $   3,344,000
                                                                           =============      =============      =============

Supplemental disclosure of cash flow information:
 Cash paid for:
   Interest                                                                $   4,766,000      $   1,927,000      $     766,000
                                                                           =============      =============      =============
   Income taxes                                                            $  29,535,000      $  21,244,000      $  14,534,000
                                                                           =============      =============      =============

</TABLE>


See notes to consolidated financial statements                              F-6
<PAGE>

ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005



NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

[1]  The Company:

     Asta Funding, Inc., together with its wholly owned subsidiaries, (the
     "Company") is engaged in the business of purchasing, managing for their own
     account and servicing charged-off receivables, semi-performing receivables
     and performing receivables Charged-off receivables are accounts that have
     been written-off by the originators and may have been previously serviced
     by collection agencies Semi-performing receivables -- accounts where the
     debtor is currently making partial or irregular monthly payments, but the
     accounts may have been written-off by the originators. Performing
     receivables are accounts where the debtor is making regular monthly
     payments that may or may not have been delinquent in the past. Distressed
     consumer receivables are the unpaid debts of individuals to banks, finance
     companies and other credit providers. A large portion of our distressed
     consumer receivables are MasterCard(R), Visa(R), other credit card accounts
     and telecommunication accounts which were charged-off by the issuers for
     non-payment. We acquire these portfolios at substantial discounts from
     their face values that are based on the characteristics (issuer, account
     size, debtor location and age of debt) of the underlying accounts of each
     portfolio.

[2]  Principles of consolidation:

     The consolidated financial statements include the accounts of the Company
     and its wholly owned subsidiaries. The Company's investment in the
     venture, representing a 25% interest, is accounted for using the
     equity method. All significant intercompany balances and transactions
     have been eliminated in consolidation.

[3]  Cash and cash equivalents:

     The Company considers all highly liquid investments with a maturity of
     three months or less at the date of purchase to be cash equivalents.

     The Company maintains cash balances in various financial institutions.
     Management periodically evaluates the creditworthiness of such
     institutions. Cash balances may, from time to time, exceed FDIC limits.

[4]  Income recognition:

     Prior to October 1, 2005, the Company accounted for its investment in
     finance receivables using the interest method under the guidance of
     Practice Bulletin 6, "Amortization of Discounts on Certain Acquired Loans."
     Effective October 1, 2005, the Company adopted and began to account for its
     investment in finance receivables using the interest method under the
     guidance of AICPA Statement of Position ("SOP") 03-3, "Accounting for Loans
     or Certain Securities Acquired in a Transfer." Practice Bulletin 6 was
     amended by SOP 03-3 as described further in this note. Under the guidance
     of SOP 03-3 (and the amended Practice Bulletin 6); 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. 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).
     SOP 03-3 (and the amended Practice Bulletin 6) requires that the excess of
     the contractual cash flows over expected cash flows not be recognized as an
     adjustment of revenue or expense or on the balance sheet. The SOP initially
     freezes the internal rate of return, referred to as IRR, estimated when the
     accounts receivable are purchased as the basis for subsequent impairment
     testing. Significant increases in actual, or expected future cash flows may
     be recognized prospectively through an upward adjustment of the IRR over a
     portfolio's remaining life. Any increase to the IRR then becomes the new
     benchmark for impairment testing. Effective for fiscal years beginning
     October 1, 2005 under SOP 03-3 and the amended Practice Bulletin 6, rather
     than lowering the estimated IRR if the collection estimates are not
     received or projected to be received, the carrying value of a pool would be
     written down to maintain the then current IRR.

[5]  Furniture and equipment:

     Furniture and equipment is stated at cost. Depreciation is provided using
     the straight-line method over the estimated useful lives of the assets (5
     to 7 years).



                                                                            F-7
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[6]  Impairments:

     In October 2003, the American Institute of Certified Accountants ("AICPA")
     issued Statement of Position ("SOP") 03-3, "Accounting for Loans or Certain
     Securities Acquired in a Transfer." This SOP proposes guidance on
     accounting 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. Increases in expected cash flows should be recognized
     prospectively through an adjustment of the internal rate of return while
     decreases in expected cash flows should be recognized as impairment. This
     SOP became effective October 1, 2005. Implementation of this SOP will make
     it more likely that impairment losses and accretable yield adjustments will
     be recorded, as all downward revisions in collection estimates will result
     in impairment charges, given the requirement that the IRR of the affected
     pool be held constant.


[7]  Income taxes:

     Deferred federal and state taxes arise from temporary differences resulting
     primarily from (i) recognition of finance income collected for tax
     purposes, but not yet recognized for financial reporting, (ii) provision
     for impairment/credit losses, and (iii) investee income recognized on the
     equity method, all resulting in timing differences between financial
     accounting and tax reporting.

[8] Net income per share:

     Basic per share data is determined by dividing net income by the weighted
     average shares outstanding during the period. Diluted per share data is
     computed by dividing net income by the weighted average shares outstanding,
     assuming all dilutive potential common shares were issued. With respect to
     the assumed proceeds from the exercise of dilutive options, the treasury
     stock method is calculated using the average market price for the period.

The following table presents the computation of basic and diluted per share data
for the years ended September 30, 2006, 2005 and 2004:

<TABLE>
<CAPTION>
                           2006                                  2005                                     2004
                -------------------------------------  -------------------------------------  -------------------------------------
                              Weighted                               Weighted                              Weighted
                    Net        Average     Per Share      Net         Average     Per Share     Net         Average       Per Share
                  Income       Shares       Amount       Income       Shares       Amount      Income        Shares        Amount
                -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
<S>             <C>           <C>         <C>          <C>           <C>         <C>          <C>           <C>         <C>
Basic           $45,765,000   13,637,406  $      3.36  $30,996,000   13,543,580  $      2.29  $22,237,000   13,346,125  $      1.67
                                          ===========                            ===========                            ===========
Dilutive
 Effect of
 Stock
 Options                         977,742                                866,695                                808,000
                -----------  -----------               -----------  -----------               -----------  -----------
Diluted         $45,765,000   14,615,148  $      3.13  $30,996,000   14,410,275  $      2.15  $22,237,000   14,154,125  $      1.57
                ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>


[9]  Use of estimates:

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. With respect
     to income recognition under the interest method, the Company takes into
     consideration the relative credit quality of the underlying receivables
     constituting the portfolio acquired, the strategy involved to 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 between
     principal and interest resulting therefrom. Downward revisions to estimated
     cash flows will result in impairments.


                                                                             F-8
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005



NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[10] Stock-based compensation:

The Company accounts for stock-based employee compensation under Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123
(Revised 2005), Share-Based Payment ("SFAS 123R"). SFAS 123R which the Company
adopted October 1, 2005, requires that compensation expense associated with
stock options be recognized in the statement of operations, rather than a
disclosure in the notes to the Company's consolidated financial statements.

Effective September 30, 2005, the Company accelerated the vesting of all
unvested stock options previously awarded to employees, officers and directors
under the Company's stock option plans. In order to prevent unintended personal
benefits to employees, officers and directors, the Board imposed restrictions on
any shares received through the exercise of accelerated options held by those
individuals. These restrictions prevent the sale of any stock obtained through
exercise of an accelerated option prior to the earlier of the original vesting
date or the individual's termination of employment. Financial Accounting
Standards Board ("FASB") Financial Interpretation No. 44 requires the Company to
recognize compensation expense under certain circumstances, such as the change
in the vesting schedule, that would allow an employee to vest in an option that
would have otherwise been forfeited based on the award's original terms. The
Company is required to recognize compensation expense over the new expected
vesting periods based on estimates of the numbers of options that employees
ultimately will retain that otherwise would have been forfeited, absent the
modifications. The accelerated options, absent the acceleration, would
substantially have vested over the period October 1, 2005 through April 30,
2007. Such estimates are based on such factors such as historical and expected
employee turnover rates and similar statistics. Of the 587,000 stock options
that were affected by the acceleration of the vesting of all stock options as of
September 30, 2005, 276,000 shares would not have vested at September 30, 2006,
had it not been for the acceleration of the vesting of these shares 263,000, or
95.3%, are attributable to officers and directors of the Company representing
$2.5 million of the $2.6 million intrinsic value of the vested stock options. As
of September 30, 2005, 547,000 were attributable to officers and directors of
the Company representing $9.0 million of the $9.7 million intrinsic value of the
vested stock options.The Company is unable to estimate the number of options
that employees will ultimately retain that otherwise would have been forfeited,
absent the modification. Based on the current circumstances, market price above
the grant price, concentration of options awarded to officers and directors and
low historical turnover rates, no compensation expense applicable to current
officers and directors resulting from the new measurement date has been
recognized through September 30, 2006. With regard to an exercise of 6,667 stock
options that would have otherwise been forfeited by an employee that terminated
employment, the Company recognized $105,000 in stock based compensation expense
in March 2006 in accordance with Financial Interpretation No. 44. The primary
purpose of the accelerated vesting is to eliminate the compensation expense the
Company would otherwise recognize in its income statement with respect to these
accelerated stock options based upon the adoption of Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123 (Revised
2005), Share-Based Payment ("SFAS 123R").




                                                                             F-9
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 Pro-forma net income for the years ended September 30, 2005 and 2004 if the
fair value based method as prescribed by disclosure only provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock Based
Compensation and SFAS No. 148 Accounting for Stock Based Compensation -
Transition and Disclosure" is displayed in the following table.

<TABLE>
<CAPTION>
                                                                         Year Ended           Year Ended
                                                                        September 30,       September 30,
                                                                             2005               2004
                                                                        ---------------    ---------------

<S>                                                                     <C>                <C>
Net income as reported .............................................    $    30,996,000    $    22,237,000
Stock based compensation expense
 Determined under fair value method, net of related tax effects ....         (3,746,000)        (2,184,000)
                                                                        ---------------    ---------------
Pro forma net income ...............................................    $    27,250,000    $    20,053,000
                                                                        ===============    ===============
Earnings per share:
 Basic -- as reported ..............................................    $          2.29    $          1.67
                                                                        ===============    ===============
 Basic -- pro forma ................................................    $          2.01    $          1.50
                                                                        ===============    ===============
 Diluted -- as reported ............................................    $          2.15    $          1.57
                                                                        ===============    ===============
 Diluted -- pro forma ..............................................    $          1.89    $          1.42
                                                                        ===============    ===============
</TABLE>

The weighted average fair value of the options granted during 2005 and 2004 was
$18.44 and $15.18 per share on the dates of grant, respectively using the
Black-Scholes option pricing model with the following assumptions: dividend
yield 0.8% for 2005 and 0.3% for 2004, weighted average volatility 40% (2005)
and 41% (2004) , expected life 10 years, weighted average risk free interest
rate of 4.19% in 2005 and 4.28% in 2004.

[11] Impact of Recently Issued Accounting Standards

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued
in order to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB 108 requires that registrants
quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all
relevant quantitative and qualitative factors are considered, is material. SAB
108 must be implemented by the end of the Company's fiscal 2007. The Company is
currently assessing the potential effect of SAB 108 on its financial statements.

In September 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 158, Employer's Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R) This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity. This Statement also improves financial reporting by requiring
an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. The Company
believes that the statement, when adopted, will not impact the Company.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. FASB Statement No. 157 will be
effective for our financial statements issued for our fiscal year beginning
October 1, 2008. We do not expect the adoption of FASB Statement No. 157 to have
a material impact on our financial reporting, and we are currently evaluating
the impact, if any, the adoption of FASB Statement No. 157 will have on our
disclosure requirements.

                                                                            F-10
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005



NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" (FIN 48), which prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 will be effective for our fiscal year beginning October 1,
2007. We do not expect the adoption of FIN 48 to have a material impact on our
financial reporting and disclosure.

In March 2006, the FASB issued FASB Statement No. 156, Accounting for Servicing
of Financial Assets - an amendment of FASB Statement No. 140. This Statement:

1.   Requires an entity to recognize a servicing asset or servicing liability
     each time it undertakes an obligation to service a financial asset by
     entering into a servicing contract under certain situations.

2.   Requires all separately recognized servicing assets and servicing
     liabilities to be initially measured at fair value, if practicable.

3.   Permits an entity to choose either the amortization method or the fair
     value measurement method subsequent measurement methods for each class of
     separately recognized servicing assets and servicing liabilities:

4.   At its initial adoption, permits a one-time reclassification of
     available-for-sale securities to trading securities by entities with
     recognized servicing rights, without calling into question the treatment of
     other available-for-sale securities under Statement 115, provided that the
     available-for-sale securities are identified in some manner as offsetting
     the entity's exposure to changes in fair value of servicing assets or
     servicing liabilities that a servicer elects to subsequently measure at
     fair value.

5.   Requires separate presentation of servicing assets and servicing
     liabilities subsequently measured at fair value in the statement of
     financial position and additional disclosures for all separately recognized
     servicing assets and servicing liabilities.

We do not expect FASB No. 156 to have a material impact on our financial
reporting, and we are currently evaluating the impact, if any, the adoption of
FASB No. 156 will have on our disclosure requirements. The statement becomes
effective after the beginning of the first fiscal year that begins after
September 15, 2006.

In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain
Hybrid Financial Instruments - and amendment of FASB Statements No. 133 and 140.
This Statement:

     a.   Permits fair value remeasurement for any hybrid financial instrument
          that contains an embedded derivative that otherwise would require
          bifurcation

     b.   Clarifies which interest-only strips and principal-only strips are not
          subject to the requirements of Statement 133

     c.   Establishes a requirement to evaluate interests in securitized
          financial assets to identify interests that are freestanding
          derivatives or that are hybrid financial instruments that contain an
          embedded derivative requiring bifurcation

     d.   Clarifies that concentrations of credit risk in the form of
          subordination are not embedded derivatives

     e.   Amends Statement 140 to eliminate the prohibition on a qualifying
          special-purpose entity from holding a derivative financial instrument
          that pertains to a beneficial interest other than another derivative
          financial instrument.

The statement became effective for us on October 1, 2006. We do not expect the
adoption of FASB No. 155 to have a material impact on our financial reporting
and disclosure.

In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections
- a replacement of APB Opinion No. 20 and FASB Statement No. 3" (SFAS 154),
which requires a retrospective application to prior periods' financial
statements of changes in accounting principle for all periods presented. This
statement replaces APB Opinion No. 20 which required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
The provisions of SFAS 154 will become effective for our fiscal year beginning
October 1, 2007. Currently there is no impact on the Company.


                                                                            F-11
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE A -THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[12] Reclassifications:

Certain items in prior years' financial statements have been reclassified to
conform to current year's presentation.

Note B - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION

Accounts acquired for liquidation are stated at their net realizable value and
consist mainly of defaulted consumer loans to individuals throughout the
country.

Prior to October 1, 2005, the Company accounted for its investment in finance
receivables using the interest method under the guidance of Practice Bulletin 6,
"Amortization of Discounts on Certain Acquired Loans." Effective October 1,
2005, the Company adopted and began to account for its investment in finance
receivables using the interest method under the guidance of AICPA Statement of
Position ("SOP") 03-3, "Accounting for Loans or Certain Securities Acquired in a
Transfer." Practice Bulletin 6 was amended by SOP 03-3 as described further in
this note. Under the guidance of SOP 03-3 (and the amended Practice Bulletin 6);
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. 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). SOP 03-3 (and the
amended Practice Bulletin 6) requires that the excess of the contractual cash
flows over expected cash flows not be recognized as an adjustment of revenue or
expense or on the balance sheet. The SOP initially freezes the internal rate of
return, referred to as IRR, estimated when the accounts receivable are purchased
as the basis for subsequent impairment testing. Significant increases in actual,
or expected future cash flows may be recognized prospectively through an upward
adjustment of the IRR over a portfolio's remaining life. Any increase to the IRR
then becomes the new benchmark for impairment testing. Effective for fiscal
years beginning October 1, 2005 under SOP 03-3 and the amended Practice Bulletin
6, rather than lowering the estimated IRR if the collection estimates are not
received or projected to be received, the carrying value of a pool would be
written down to maintain the then current IRR. If cash collections increase
subsequent to recording an impairment, reversal of the previously recognized
impairments is made prior to any increase to the IRR. For the fiscal year ended
September 30, 2006, the Company recorded impairments of $2,245,000. No
impairments were taken in the prior year. Income on finance receivables is
earned based on each static pool's effective IRR. Under the interest method,
income is recognized on the effective yield method based on the actual cash
collected during a period and future estimated cash flows and timing of such
collections and the portfolio's cost. Revenue arising from collections in excess
of anticipated amounts attributable to timing differences is deferred. The
estimated future cash flows are reevaluated quarterly. 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. Additionally, the Company
uses the cost recovery method when collections on a particular pool of accounts
cannot be reasonably predicted.








                                                                            F-12
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005



Note B - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION (continued)


The following tables summarize the changes in the balance sheet of the
investment in receivable portfolios during the following periods.

<TABLE>
<CAPTION>
                                                                           For the Year Ended September 30, 2006
                                                                   ---------------------------------------------------------
                                                                     Accrual               Cash
                                                                      Basis                Basis
                                                                    Portfolios            Portfolios               Total
                                                                   -------------         -------------         -------------
<S>                                                                <C>                   <C>                   <C>
Balance, beginning of period ...............................       $ 172,636,000         $      91,000         $ 172,727,000
Acquisitions of receivable portfolios, net .................         200,237,000                                 200,237,000
Net cash collections from collection of consumer
    receivables acquired for liquidation .................          (155,960,000)           (3,473,000)         (159,433,000)
Net cash collections represented by account sales of
    consumer receivables acquired for liquidation .......            (54,800,000)             (235,000)          (55,035,000)

Transfer to cost recovery ..................................          (1,291,000)            1,291,000

Impairments ................................................          (2,245,000)                                 (2,245,000)

Finance income recognized ..................................          97,622,000             3,402,000           101,024,000
                                                                   -------------         -------------         -------------
Balance, end of period .....................................       $ 256,199,000         $   1,076,000         $ 257,275,000
                                                                   =============         =============         =============
Revenue as a percentage of collections .....................                46.3%                 91.7%                 47.1%
</TABLE>

<TABLE>
<CAPTION>
                                                                             For the Year Ended September 30, 2005
                                                                   ---------------------------------------------------------
                                                                      Accrual                Cash
                                                                       Basis                Basis
                                                                    Portfolios            Portfolios                Total
                                                                   -------------         -------------         -------------
<S>                                                                <C>                   <C>                   <C>
Balance, beginning of period ...............................       $ 144,812,000         $   1,353,000         $ 146,165,000
Acquisitions of receivable portfolios, net .................         126,023,000                                 126,023,000
Net cash collections from collection of consumer
   receivables acquired for liquidation ....................         (99,438,000)           (4,771,000)         (104,209,000)
Net cash collections represented by account sales of
   consumer receivables acquired for liquidation ...........         (62,817,000)           (1,914,000)          (64,731,000)

Finance income recognized ..................................          64,056,000             5,423,000            69,479,000
                                                                   -------------         -------------         -------------
Balance, end of period .....................................       $ 172,636,000         $      91,000         $ 172,727,000
                                                                   =============         =============         =============
Revenue as a percentage of collections .....................                39.5%                 81.1%                 41.1%
</TABLE>


We presently outsource the majority of our receivables to third-party collection
agencies and attorneys. Third-party collection agencies and attorneys are
compensated on a contingency basis, earning a fee based on the amount collected
from a debtor. Third-party collection agencies and attorneys withhold their fees
and direct collection costs from the proceeds and are remitted to the Company.






                                                                            F-13
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


Note B - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION (continued)

 As of September 30, 2006 the Company had $257,275,000 in consumer receivables
acquired for liquidation, of which $256,199,000 are accounted for on the
interest method. Based upon current projections, net cash collections, applied
to principal for interest method portfolios will be as follows for the twelve
months in the periods ending:


September 30, 2007                      $72,361,000
September 30, 2008                       83,270,000
September 30, 2009                       66,183,000
September 30, 2010                       43,214,000
September 30, 2011                        8,608,000
                                       ------------
                                        273,636,000

Deferred revenue                        (17,437,000)
                                       ------------
Total                                  $256,199,000
                                       ============

Accretable yield represents the amount of income the Company can expect to
generate over the remaining life of its existing portfolios based on estimated
future net cash flows as of September 30, 2006. The Company adjusts the
accretable yield upward when it believes, based on available evidence, that
portfolio collections will exceed amounts previously estimated. Changes in
accretable yield for the fiscal year ended September 30, 2006 are as follows:

                                                            Year Ended
                                                         September 30, 2006
                                                         ------------------
Balance at beginning of period, October  1, 2005            $  94,022,000

Income recognized on finance receivables, net                 (97,622,000)
Additions representing expected revenue from purchases        103,061,000
Impairments                                                      (151,000)
Reclassifications from nonaccretable difference                44,490,000
                                                            --------------
Balance at end of period, September 30, 2006                $ 143,800,000
                                                            =============

During the year ended September 30, 2006, the Company purchased $5.2 billion of
face value charged-off consumer receivables at a cost of $200.2 million. During
the year ended September 30, 2005 the Company purchased $3.4 billion of face
value charged-off consumer receivables at a cost of $126.0 million. At
September 30, 2006, the estimated remaining net collections on the receivables
purchased during the fiscal year ended September 30, 2006 are $241.5 million.



                                                                            F-14
<PAGE>

ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


Note B - CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION (continued)

The following table summarizes collections on a gross basis as received by our
third-party collection agencies and attorneys, less commissions and direct costs
for the twelve month periods ended September 30, 2006 and 2005, respectively.

                                         For the Years Ended, September 30,
                                             2006                  2005
                                          ------------        -------------

Gross collections (1)                     $320,203,000        $218,919,000

Commissions and fees (2)                   105,735,000          49,979,000
                                          ------------        -------------
Net collections                           $214,468,000        $168,940,000
                                          ============        ============

         (1) Gross collections include: collections from third-party collection
agencies and attorneys, collections from our in-house efforts and collections
represented by account sales.

         (2) Commissions and fees are the contractual commissions earned by
third party collection agencies and attorneys, and direct costs associated with
the collection effort- generally court costs. As we continue to purchase
portfolios and utilize our third party collection agencies and attorney
networks, we anticipate these costs will rise; however the contingency fees
should stabilize in the range of 30% to 33% of gross collections based upon the
current mix of portfolios.


Finance income recognized on collections represented by account sales was $32.0
million, $24.9 million and $14.9 million for the fiscal years ended September
30, 2006, 2005 and 2004, respectively.

Note C - ACQUISITIONS

In February 2006, the Company acquired VATIV Recovery Solutions, LLC ("VATIV")
for approximately $1.4 million in cash. VATIV provides bankruptcy and deceased
account servicing. The purchase price has been allocated to goodwill. The
revenue and operating results of VATIV are immaterial to the Company.


In March 2005, through a wholly owned subsidiary, the Company acquired Option
Card, LLC, a Denver, Colorado based consumer debt buyer and debt management
company. Benefits accruing to the Company include portfolios of distressed
consumer receivable debt of approximately $197 million in face value that
consist of paying accounts, accounts already within a legal network, and
non-paying accounts, The purchase price, substantially all of which was applied
to the cost of the portfolios, was approximately $13.5 million in cash.

The following table summarizes the estimated fair values of the assets acquired
and the liabilities assumed at the date of acquisition.

    Consumer receivables acquired for liquidation               $12,486,000

    Other assets                                                  1,242,000
                                                                -----------

        Total assets acquired                                    13,728,000

    Current liabilities                                             207,000
                                                                -----------

    Net assets acquired                                         $13,521,000
                                                                ===========




                                                                            F-15
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE D - INVESTMENT

In August 2006, the Company acquired a 25% interest in a newly formed venture
for $7,810,000. The Company accounts for its investment in the venture using the
equity method. This venture is in business to liquidate the assets of a retail
business which it acquired through bankruptcy proceedings. It is anticipated the
liquidation will be completed over the next 24 to 36 months. Through September
30, 2006, the venture made distributions to its owners, the Company's pro rata
portion of which was $2,395,000. Subsequent to September 30, 2006 and through
November 30, 2006, the venture returned an additional $1,825,000 to the Company.

Summarized financial information as of September 30, 2006 and for the period
from August 6, 2006, commencement of operations, to September 30, 2006 follows:

Results of Operations:

                                    2006
                                    ----

Revenues                        $13,574,000
                                ===========
Net income                      $ 2,200,000
                                ===========

Balance Sheet:

Assets                          $24,755,000
                                ===========

Liabilities                     $   895,000

Members' equity                  23,860,000
                                -----------
                                $24,755,000
                                ===========

NOTE E - FURNITURE AND EQUIPMENT

Furniture and equipment as of September 30, 2006 and 2005 consist of the
following:

                                           2006               2005
                                       -----------        -----------
    Furniture                          $   307,000        $   307,000
    Equipment                            2,563,000          2,108,000
                                       -----------        -----------

                                         2,870,000          2,415,000
    Less accumulated depreciation        1,769,000          1,426,000
                                       -----------        -----------

    Balance, end of period             $ 1,101,000        $   989,000
                                       ===========        ===========


Depreciation expense for the years ended September 30, 2006, 2005 and 2004
aggregated $324,000, $272,000 and $260,000 respectively.

NOTE F - ADVANCES UNDER LINE OF CREDIT

On July 11, 2006, the Company entered into the Fourth Amended and Restated Loan
Agreement with a consortium of banks, and as a result the credit facility is now
$175 million, up from $125 million with an expandable feature which allows the
Company the ability to increase the line to $225 million with the consent of the
banks. The line of credit bears interest at the lesser of LIBOR plus an
applicable margin, or the prime rate minus an applicable margin based on certain
leverage ratios. The credit line is collateralized by all portfolios of consumer
receivables acquired for liquidation and contains customary financial and other
covenants (relative to tangible net worth, interest coverage, and leverage
ratio, as defined) that must be maintained in order to borrow funds. The term of


                                                                            F-16
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE F - ADVANCES UNDER LINE OF CREDIT (CONTINUED)

the agreement is three years. The applicable rate at September 30, 2006 and
2005, respectively was 7.25% and 6.25%. The average interest rate excluding
unused credit line fees for the years ended September 30, 2006 and 2005,
respectively was 6.97% and 5.17%. The average rate is the result of using the
LIBOR calculation.

Earlier in the fiscal year, in January 2006, the Company entered into an amended
and restated loan and security agreement that increased the line of credit with
a consortium of banks from $100 million to $125 million. The amended and
restated loan and security agreement had an original expiration date of May 11,
2006, which was extended 60 days to July 11, 2006 to finalize negotiations on
the new agreement.

NOTE G - OTHER LIABILITIES

Other liabilities as of September 30, 2006 and 2005 are as follows:

                                                   2006             2005
                                                -----------      -----------
   Accounts payable and Accrued expenses        $ 3,205,000      $ 2,460,000
   Other                                          1,133,000        1,244,000
                                                -----------      -----------
     Total other liabilities                    $ 4,338,000      $ 3,704,000
                                                ===========      ===========


NOTE H - INCOME TAXES

The components of the Company's deferred taxes as of September 30, 2006 is the
income from the unincorporated business venture temporary difference due to
different tax years of the Company and the venture, offset by the depreciation
temporary difference being reported. The Company's deferred tax liability in
2005 is the depreciation temporary difference being reported for financial
accounting and tax purposes in different periods.

The components of the provision for income taxes for the years ended September
30, 2006, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
                                        2006             2005              2004
                                    ------------     ------------      ------------
<S>                                 <C>              <C>               <C>
   Current:
         Federal                    $ 29,206,000     $ 15,947,000      $ 11,899,000
         State                         9,584,000        5,234,000         3,361,000
                                    ------------     ------------      ------------
                                      38,790,000       21,181,000        15,260,000
                                    ------------     ------------      ------------
   Deferred:
         Federal                      (5,820,000)          82,000           (31,000)
         State                        (1,910,000)          27,000           (10,000)
                                    ------------     ------------      ------------

                                      (7,730,000)         109,000           (41,000)
                                    ------------     ------------      ------------

   Provision for income taxes       $ 31,060,000     $ 21,290,000      $ 15,219,000
                                    ============     ============      ============
</TABLE>


                                                                           F-17
<PAGE>

ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE H - INCOME TAXES (CONTINUED)


The difference between the statutory federal income tax rate on the Company's
pre-tax income and the Company's effective income tax rate is summarized as
follows:

<TABLE>
<CAPTION>
                                               2006            2004            2004
                                              ------          ------          ------
<S>                                             <C>             <C>             <C>
Statutory federal income tax rate               35.0%           35.0%           35.0%
State income tax, net of federal benefit         5.8             5.8             5.8
Other                                           (0.4)           (0.1)           (0.1)
                                              ------          ------          ------
Effective income tax rate                       40.4%           40.7%           40.7%
                                              ======          ======          ======
</TABLE>


NOTE I - COMMITMENTS AND CONTINGENCIES

The Company leases its facilities in Englewood Cliffs, New Jersey, Bethlehem,
Pennsylvania and Sugar Land, Texas. The leases are operating leases, and the
Company incurred related rent expense in the amounts of $381,000, $381,000 and
$335,000 during the years ended September 30, 2006, 2005 and 2004, respectively.
The future minimum lease payments are as follows:

             Year
            Ending
        September 30,
       -----------------
            2007                       $  367,000
            2008                          337,000
            2009                          341,000
            2010                          213,000
            2011                             --
                                       ----------
                                       $1,258,000
                                       ==========

CONTINGENCIES

In the fourth quarter of 2006, a subsidiary of the Company received subpoenas
from three jurisdictions to produce information in connection with debt
collection practices in those jurisdictions. The Company has fully cooperated
with the issuing agencies and has provided the requested documentation.

In the course of conducting its business, the Company is required by certain of
the jurisdictions within which it operates to obtain licenses and permits to
conduct its collection activities. The Company has been notified by one such
jurisdiction that it did not operate for a period of time from February 1, 2005
to April 17, 2006 with the proper license.

The Company has not made any provision with respect to these matters in the
financial statements.


NOTE J - STOCK OPTION PLANS

Equity Compensation Plan

         On December 1, 2005, the Board of Directors adopted the Company's
Equity Compensation Plan (the "Equity Compensation Plan"), subject to the
approval of the stockholders of the Company. The Equity Compensation Plan was
adopted to supplement the Company's existing 2002 Stock Option Plan. In addition
to permitting the grant of stock options as are permitted under the 2002 Stock
Option Plan, the Equity Compensation Plan allows the Company flexibility with
respect to equity awards by also providing for grants of stock awards (i.e.
restricted or unrestricted), stock purchase rights and stock appreciation
rights. One million shares are available for issuance under the Equity
Compensation Plan. The Equity Compensation Plan was ratified by the shareholders
on March 1, 2006.

         The general purpose of the Equity Compensation Plan is to provide an
incentive to our employees, directors and consultants, including executive
officers, employees and consultants of any subsidiaries, by enabling them to
share in the future growth of our business. The Board of Directors believes that
the granting of stock options and other equity awards promotes continuity of

                                                                            F-18
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005

NOTE J - STOCK OPTION PLANS (CONTINUED)

management and increases incentive and personal interest in the welfare of the
Company by those who are primarily responsible for shaping and carrying out our
long range plans and securing our growth and financial success.

         The Board believes that the Equity Compensation Plan will advance our
interests by enhancing our ability to (a) attract and retain employees,
directors and consultants who are in a position to make significant
contributions to our success; (b) reward employees, directors and consultants
for these contributions; and (c) encourage employees, directors and consultants
to take into account our long-term interests through ownership of our shares.

2002 Stock Option Plan

         On March 5, 2002, the Board of Directors adopted the Asta Funding, Inc.
2002 Stock Option Plan (the "2002 Plan"), which plan was approved by the
Company's stockholders on May 1, 2002. The 2002 Plan was adopted in order to
attract and retain qualified directors, officers and employees of, and
consultants to, the Company. The following description does not purport to be
complete and is qualified in its entirety by reference to the full text of the
2002 Plan, which is included as an exhibit to the Company's reports filed with
the SEC.

         The 2002 Plan authorizes the granting of incentive stock options (as
defined in Section 422 of the Code) and non-qualified stock options to eligible
employees of the Company, including officers and directors of the Company
(whether or not employees) and consultants of the Company.

         The Company has 1,000,000 shares of Common Stock authorized for
issuance under the 2002 Plan and 411,334 were available as of September 30,
2006. As of September 30, 2006, approximately 140 of the Company's employees
were eligible to participate in the 2002 Plan. Future grants under the 2002 Plan
have not yet been determined.

1995 Stock Option Plan

         The 1995 Stock Option Plan expired on September 14, 2005. The plan was
adopted in order to attract and retain qualified directors, officers and
employees of, and consultants, to the Company. The following description does
not purport to be complete and is qualified in its entirety by reference to the
full text of the 1995 Stock Option Plan, which is included as an exhibit to the
Company's reports filed with the SEC.

         The 1995 Stock Option 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 not
employees) and consultants to the Company.

     The Company authorized 1,840,000 shares of Common Stock authorized for
issuance under the 1995 Stock Option Plan. All but 96,002 shares were utilized.
As of September 14, 2005, no more options could be issued under this plan.



                                      F-19
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005

NOTE J - STOCK OPTION PLANS (CONTINUED)

The following table summarizes stock option transactions under the plans:

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                  --------------------------------------------------------------------------
                                                                 2006             2005                       2004
                                                  -----------------------  -----------------------  ------------------------
                                                                Weighted                 Weighted                Weighted
                                                                Average                  Average                  Average
                                                                Exercise                 Exercise                Exercise
                                                    Shares       Price       Shares       Price       Shares       Price
                                                  ----------   ----------  ----------   ----------  ----------   ----------
<S>                                                <C>         <C>          <C>         <C>          <C>         <C>
Outstanding options at the beginning of year       1,580,605   $     9.11   1,364,171   $     6.27   1,225,000   $     3.24
Options granted                                         --           0.00     422,500        18.44     392,833        15.18
Options cancelled                                     (6,333)       22.36     (43,002)       12.21      (1,998)        7.50
Options exercised                                   (159,833)        5.51    (163,064)        8.70    (251,664)        5.43
                                                  ----------               ----------               ----------

Outstanding options at the end of year             1,414,439   $     9.45   1,580,605   $     9.11   1,364,171   $     6.27
                                                  ==========               ==========               ==========

Exercisable options at the end of year             1,414,439   $     9.45   1,580,605   $     9.11     934,290   $     3.83
                                                  ==========               ==========               ==========
</TABLE>


The aggregate intrinsic value of the outstanding and exercisable options as of
September 30, 2006 is $40.4 million.


The following table summarizes information about the plans' outstanding options
as of September 30, 2006:

<TABLE>
<CAPTION>
                                       Options Outstanding                 Options Exercisable
                            -------------------------------------------  ---------------------------
                                              Weighted
                                               Average        Weighted                   Weighted
                                              Remaining       Average                     Average
       Range of                Number        Contractual      Exercise       Number       Exercise
    Exercise Price          Outstanding     Life (in Years)    Price      Exercisable      Price
  --------------------      -----------         ---------      --------   -----------    -----------
<S>                         <C>                <C>         <C>           <C>          <C>
  $ 0.8100 - $ 3.7000          600,000            3.5         $ 2.0208       600,000     $  2.0208
  $ 3.7001 - $ 7.4000          135,334            6.0           4.8345       135,334        4.8345
  $14.8001 - $18.5000          670,771            7.7          16.9131       670,771       16.9131
  $18.5001 - $22.2000            8,334            8.1          18.7600         8,334       18.7600
                             ---------                                    ----------
                             1,414,439            5.8         $ 9.4510     1,414,439      $ 9.4510
                             =========                                    =========
</TABLE>


NOTE K - STOCKHOLDERS' EQUITY

During the year ended September 30, 2006, the Company declared quarterly cash
dividends aggregating $7,687,000 which includes $0.04 per share, per quarter,
plus a special dividend of $0.40 per share which in total amounted to $6,052,000
and was paid November 1, 2006. During the year ended September 30, 2005 the
Company declared quarterly cash dividends aggregating $1,901,000 ($0.035 per
share, per quarter) of which $476,000 was paid November 1, 2005. During the year
ended September 30, 2004, the Company declared quarterly cash dividends
aggregating $1,606,000 ($0.035 per share, per quarter), of which $470,000 was
paid November 1, 2004. We expect to pay a regular cash dividend in future
quarters. This will be at the discretion of the board of directors and will
depend upon our financial condition, operating results, capital requirements and
any other factors the board of directors deems relevant. In addition, our
agreements with our lenders may, from time to time, restrict our ability to pay
dividends. All per share amounts have been retroactively restated to give effect
to a 2:1 stock split in March 2004.


                                                                            F-20
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005


NOTE L - RETIREMENT PLAN

The Company maintains a 401(k) Retirement Plan covering all of its eligible
employees. Matching contributions made by the employees to the plan are made at
the discretion of the board of directors each plan year. Contributions for the
years ended September 30, 2006, 2005 and 2004 were $96,000, $70,000 and $70,000,
respectively.

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("SFAS 107"), requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because there
are a limited number of market participants for certain of the 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 and involve uncertainties and matters
of judgment, which significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
The tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered in the estimates.

The following summarizes the information as of September 30, 2006 and 2005 about
the fair value of the financial instruments recorded on the Company's financial
statements in accordance with SFAS 107:

<TABLE>
<CAPTION>
                                                  2006                                2005
                                     ----------------------------        ------------------------------
                                     Carrying Value    Fair Value        Carrying Value      Fair Value
                                     --------------    ----------        --------------      ----------
<S>                                     <C>           <C>                <C>                <C>
Cash, and
  cash equivalents                      $7,826,000    $   7,826,000      $   4,059,000      $   4,059,000
Consumer receivables
  acquired for liquidation             257,275,000      346,300,000        172,727,000        193,454,000

Advances under lines of
  credit, notes payable and
  Due to affiliates                    82,811,000        82,811,000         29,285,000         29,285,000
</TABLE>

The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:

Cash and cash equivalents: The carrying amount approximates fair value.

Consumer receivables acquired for liquidation:
The Company has estimated the fair value based on the present value of expected
future cash flows.

Advances under lines of credit, notes payable and due to affiliates:
Since these are variable rate and short-term, the carrying amounts approximate
fair value.


                                                                            F-21
<PAGE>
ASTA FUNDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
September 30, 2006 and 2005

NOTE N - SUMMARIZED QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                  First          Second             Third           Fourth          Full
                                                 Quarter         Quarter           Quarter          Quarter         Year
                                               ------------     ------------     ------------     ------------     ------------
<S>                                            <C>              <C>              <C>              <C>              <C>
2006
    Total revenue                              $ 20,260,000     $ 24,829,000     $ 26,426,000     $ 30,464,000     $101,979,000
    Income before provision for income
         Taxes                                   15,645,000       18,679,000       19,810,000       22,691,000       76,825,000
    Net income                                    9,312,000       11,103,000       11,780,000       13,570,000       45,765,000
    Basic net income per share                 $       0.68     $       0.82     $       0.86     $       0.99     $       3.36
    Diluted net income per share               $       0.64     $       0.76     $       0.80     $       0.93     $       3.13

2005
    Total revenue                              $ 13,830,000     $ 16,662,000     $ 19,028,000     $ 19,959,000     $ 69,479,000
    Income before provision for income
         Taxes                                   10,379,000       12,241,000       14,363,000       15,303,000       52,286,000
    Net income                                    6,175,000        7,281,000        8,536,000        9,004,000       30,996,000
    Basic net income per share                 $       0.46     $       0.54     $       0.63     $       0.66     $       2.29
    Diluted net income per share               $       0.43     $       0.51     $       0.59     $       0.62     $       2.15

2004
    Total revenue                              $ 11,455,000     $ 12,864,000     $ 12,050,000     $ 14,806,000     $ 51,175,000
    Income before provision for income            7,879,000        9,144,000        9,409,000       11,024,000       37,456,000
         Taxes
    Net income                                    4,688,000        5,433,000        5,607,000        6,509,000       22,237,000
    Basic net income per share                 $       0.36     $       0.41     $       0.42     $       0.48     $       1.67
    Diluted net income per share               $       0.34     $       0.38     $       0.40     $       0.46     $       1.57
</TABLE>

o    Due to rounding the sum of quarterly totals for earnings per share may not
     add to the yearly total.


                                      F-22