<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                  FORM 10-KSB


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

              For the fiscal year ended September 30, 1997

         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.
--------------------------------------------------------------------------------
                (NAME OF SMALL BUSINESS ISSUER 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)

                  Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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

                  Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no
disclosure will 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-KSB or any amendment to this Form 10-KSB. (X)

                  The Registrant's revenues for the fiscal year ended
September 30, 1997 were $5,674,201

                  As of December 15, 1997, the aggregate market value of the
Registrant's Common Stock (based upon the closing sales price for the Common
Stock as reported by NASDAQ on such date) held by non-affiliates of the
Registrant was approximately $2,940,000. (Aggregate market value has been
estimated solely for the purpose of this report. For the purpose of this
report it has been assumed that all officers and directors are affiliates of
the Registrant. The statements made herein shall not be construed as an
admission for the purposes of determining the affiliate status of any person.)
As of December 15, 1997, the Registrant had 3,920,000 shares of Common Stock
issued and outstanding.

Transitional Small Business Disclosure Format (check one):     Yes     No   X
                                                                   ---     ---
                  Documents Incorporated by Reference:

                  The information called for by Part III of this Form 10-KSB
is incorporated by reference from the Company's Proxy Statement to be filed
with the Commission on or before January 30, 1998.




<PAGE>

Part I

Item 1.             Description of Business.

General

Asta Funding, Inc. (the "Company") is a consumer finance company specializing
in the business of purchasing, selling and servicing retail automobile
installment contracts ("Contracts") originated by dealers ("Dealers") in the
sale primarily of used automobiles. Through its purchases, the Company
provides indirect financing to borrowers with limited credit histories, lower
than average incomes or past credit problems ("Sub-Prime Borrowers"). The
Company serves as an alternative source of financing for Dealers as compared
to more traditional sources of automobile financing such as banks, credit
unions or finance companies affiliated with automobile manufacturers.
Sub-Prime Borrowers typically pay a higher rate of interest than do prime
credit borrowers utilizing traditional financing sources.

                  The Company is a Delaware corporation whose principal
executive offices are located at 210 Sylvan Avenue, Englewood Cliffs, New
Jersey 07632. The Company was incorporated in New Jersey on July 7, 1994 and
was reincorporated in Delaware on October 12, 1995 as a result of a merger
with a Delaware corporation. Unless the context otherwise requires, the terms
"Company" or "Registrant" as used herein refer to Asta Funding, Inc.

                  The Company typically purchases Contracts from new-car
franchise Dealers who sell both new and used automobiles as well as
independent used car Dealers. As of September 30, 1997, the Company has
entered into its standard-form dealer agreement ("Dealer Agreement") with more
than 650 Dealers, all of which are located in the States of New York, New
Jersey, Connecticut, Delaware, Maryland, Pennsylvania, Virginia and Maine.
Dealers are under no obligation to submit any Contracts to the Company, nor is
the Company obligated to purchase any Contracts. The Company enters into
Dealer Agreements and solicits Contracts from Dealers primarily through the
efforts of sales representatives and the Company's staff. The success of the
Company's business is substantially dependent upon its ability to develop and
maintain relationships with Dealers.

                  The Company currently services all of the Contracts it has
purchased for its own account as well as those Contracts it purchased and
subsequently sold. Servicing consists of the collection of principal, interest
and other payments on the Contracts, providing related accounting and
reporting services and, when necessary, the repossession and sale of
collateral upon an event of default.

Automobile Financing Industry

         Automobile financing is the largest category, by dollar amount, of
consumer installment debt in the United States. Most traditional sources of
automobile financing, such as commercial banks, credit unions and captive
finance companies affiliated with automobile manufacturers, generally provide
automobile financing for the most creditworthy, or so-called "prime"
borrowers.

                  Although prime borrowers represent the largest segment of
the automobile financing market, many potential purchasers of automobiles do
not possess the qualifications required for prime borrowers. The sub-prime
credit market is comprised of consumers who are deemed to be relatively high
credit risks due to various factors, including, among other things, previous
credit problems, the absence or limited extent of their prior credit history
or limited financial resources and, therefore, are unable to obtain credit
from traditional sources of automobile financing. The Company believes that
there is




<PAGE>

substantial demand for Sub-Prime Borrower financing because the market has not
been effectively served by traditional financing sources.

Business Strategy

The Company's primary objective is to increase revenues through the expansion
of its purchasing, selling and servicing of Contracts by, among other things:

     o    Expanding its existing Dealer network to include additional Dealers
          who generate Contracts from Sub-Prime Borrowers who meet the
          Company's underwriting criteria;

     o    Increasing Contract purchases from Dealers in the Company's existing
          Dealer network;

     o    The possible expansion and obtainment of licenses in additional
          states.


Purchase and Sale of Contracts

Dealer Contract Purchase Program

As of September 30, 1997, the Company was a party to Dealer Agreements with
more than 650 Dealers, all of which are located in the states of New York, New
Jersey, Connecticut, Delaware, Maryland, Pennsylvania, Virginia and Maine.
Approximately 74% of these Dealers are independent used car dealers and the
remainder are franchised new car dealers selling both new and used
automobiles. For the twelve months ended September 30, 1997, approximately 98%
of the Contracts purchased by the Company consisted of financing for used cars
and the remaining approximately 2% for new cars. Pursuant to the Dealer
Agreement, dealers are under no obligation to submit any Contracts to the
Company, nor is the Company obligated to purchase any Contracts. During the
twelve months ended September 30, 1997, three Dealers under common ownership
accounted for approximately 7.66% of the aggregate principal amount of
Contracts purchased by the Company and 5.62% of the total number of Contracts
purchased by the Company. Two other Dealers accounted for approximately 6.83%
and 6.46%, respectively, of the aggregate principal amount of Contracts
purchased by the Company and approximately 6.84% and 6.80% respectively of the
total number of Contracts purchased by the Company. For the year ended
September 30, 1997, approximately 40%, 24% and 16% of Contracts purchased by
the Company were from borrowers who reside in the states of New York , New
Jersey and Pennsylvania, respectively.

Dealers generate applications from retail automobile buyers who indicate an
interest in obtaining financing from a Dealer to purchase an automobile, light
truck or passenger van. Typically, a Dealer will submit the buyer's
application to more than one financing source for review. The Company believes
the Dealer's decision to finance the automobile purchase with the Company or
other financing source is based primarily upon an analysis of the discounted
purchase price offered for the Contract, the promptness of the financing
source in approving or disapproving loan applications, the ability of the
financing source to promptly consummate the purchase and any purchase
conditions.
 
Based upon the Company's underwriting criteria and its review of the
information contained in a credit bureau report ordered by the Company, the
application, the proposed transaction structure and a verification of the
value of the automobile securing the Contract, the Company may either approve
the application as submitted, approve the application upon modified terms or
reject the application. The Company's credit analyst's will document their
decision and notify the Dealers by facsimile

<PAGE>

transmission and or telephone. The Company does not purchase all of the
Contracts approved for purchase because Dealers typically offer to sell
Contracts to more than one finance source and applicants often decide not to
purchase a vehicle from Dealers to whom they have submitted a credit
application. The Company buys Contracts directly from Dealers and does not
make loans directly to purchasers of automobiles.

The Company purchases Contracts from Dealers at an average discount of 10%
from the total amount financed under the Contracts. In addition, the Company
charges an acquisition fee ranging from $150 to $300 for each Contract
purchased The Company believes that the level of discounts and fees are a
significant factor in the Dealer's decision to submit a Contract to the
Company for purchase.

The Company attempts to control Dealer misrepresentation by carefully
screening the Dealers and the Contracts it purchases. The Company's efforts
include establishing and maintaining sound professional business relationships
with Dealers and obtaining certain representations and warranties regarding
the nature and enforceability of the Dealer Agreement and the corresponding
Contracts. In addition, if a Dealer breaches its representations or
warranties, pursuant to the Dealer Agreement, the Company has the right to
require the Dealer to repurchase any Contract. There can be no assurance,
however, that any Dealer will have the financial resources to satisfy its
repurchase obligations to the Company.

Contract  Purchase Criteria

To be eligible for purchase by the Company, a Contract must have been
originated by a Dealer that has entered into a Dealer Agreement to sell
Contracts to the Company. The Contracts must be secured by a first priority
security interest in the purchased vehicle and must meet the Company's
underwriting criteria. In addition, each Contract requires the borrower to
maintain physical damage insurance covering the financed vehicle and naming
the Company as a loss payee. Although each borrower is required to maintain
insurance, losses may occur upon theft or physical damage of any financed
vehicle if the borrower fails to maintain insurance as required and is unable
to pay for repairs to or replacement of the vehicle or is otherwise unable to
payoff the Contract in full.

All of the Contracts purchased by the Company are fully amortizing and provide
for equal payments over the term of the Contract. The Contracts may be prepaid
at any time without premium or penalty. In the event a borrower elects to
prepay a Contract in full, the payoff amount is calculated by deducting the
unearned interest (as determined by the actuarial or the simple interest
method or such other interest amortization method as is submitted by
applicable state law) from the Contract balance.

Each Contract purchased by the Company prohibits the sale or transfer of the
financed vehicle without the secured party's consent and provides for the
acceleration of the maturity of the Contract upon a sale or transfer without
such consent. In most circumstances, the Company will not consent to a sale or
transfer of a financed vehicle unless the Contract is prepaid in full.

The Company seeks to control loss exposure on Contracts by: (i) requiring that
the applicant pay a substantial portion of the purchase price (usually 15% to
20%) for the vehicle with funds not borrowed from the Company or Dealer; (ii)
verifying the credibility of the applicant and determining whether the
applicant meets the Company's underwriting criteria, particularly whether the
applicant has sufficient disposable income to meet such applicant's existing
obligations and the obligations resulting from the proposed transaction; (iii)
limiting the credit the Company is willing to extend


<PAGE>

based upon its assessment of the applicant's ability to meet payment
obligations and the value of the underlying collateral; (iv) requiring
physical damage insurance, under which the Company is a loss payee, to be
maintained on all vehicles at all times by the obligor to protect the
Company's financial interest; (v) purchasing insurance to cover the risk of
the borrower's failure to maintain insurance and certain other risks; and (vi)
acquiring a first priority security interest in the financed vehicle. There
can be no assurances, however that these methods will afford adequate
protection against risk of loss exposure.

The degree of exposure in any transaction is a function of: (a) the
creditworthiness of the applicant, (b) the extent of credit granted compared
to the value of the underlying collateral, (c) the possibility of physical
damage to, or the loss of the collateral, and (d) the potential for any legal
impediment to the collection of the obligation or the repossession of the
collateral. The Company generally determines the value of collateral based
upon national recognized pricing services.

The Company has implemented specific procedures to control borrower
misrepresentation at the point of origination. The Company requires each
Dealer submitting a potential Contract to provide certain information to the
Company, including a completed signed loan application which lists the
applicant's income, credit and employment history as well as other personal
information. The Company verifies the employment and certain other information
provided by the borrower by contacting the related references noted on the
borrower's application. The Company also evaluates the applicants credit
history as provided by at least one independent credit bureau. The credit
report typically contains information on matters such as historical payment
experience, credit history with merchants and lenders, installment debt
payments, defaults and bankruptcies, if any. The Company also may require
verification of certain other information provided by the applicant or the
Dealer prior to making its credit decision. This verification process in many
instances requires submission of supporting documentation and is performed
solely by Company personnel. The Company evaluates applicants by considering
the relationship of the applicant's monthly income to monthly expenses,
including expenses relating to the Contract and ownership of the financed
vehicle. There can be no assurances, however that these procedures will afford
adequate protection against borrower misrepresentation.

The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Sub-Prime Borrowers. These
criteria include standards for price, term, installment payment and interest
rate, mileage, age and type of vehicle, amount of the loan in relation to the
value of the vehicle and the amount of the down payment, the borrower's income
level, job and residence stability, credit history and debt serviceability and
other factors. These criteria are subject to change from time to time at the
discretion of the Company as circumstances may warrant.

If a Dealer sells a Contract to the Company, the requisite financing documents
are generated by the Dealer on a standardized form of Contract supplied by the
Company. The Dealer and the borrower sign the Contract, the Dealer assigns the
Contract to the Company and the Dealer forwards the signed Contract to the
Company along with other items, including the vehicle title information
indicating the Company's security interest. The Company thereupon forwards
payment to the Dealer for the Contract upon completion of all loan funding
procedures.

Securitization of Contracts

In May 1996, the Company entered into an agreement with Greenwich Capital
Markets, Inc. ("Greenwich Capital") that provides the Company with a committed
forty-eight month securitization Contract program totaling $200 million. As of
September 30, 1997, the Company had completed two



<PAGE>

securitizations aggregating approximately $44 million in Contracts pursuant to
the agreement with Greenwich Capital.

The Company purchases Contracts with the intention of reselling them to
institutional investors as asset backed securities ("ABS"). The structure of
these securitizations with Greenwich Capital (and the general structure the
Company intends to utilize with future securitizations) included the following
steps. First, the Company sells a portfolio of Contracts to a wholly-owned
subsidiary which had been established for the limited purpose of buying and
reselling the Company's Contracts. The wholly-owned subsidiary then sells the
portfolio of Contracts to a grantor trust and the the grantor trust in turn
issues interest-bearing ABS in an amount equal to the aggregate principal
balance of the Contracts. Institutional investors purchase these ABS, the
proceeds of which are used by the grantor trust to purchase the Contracts from
the subsidiary. The wholly-owned subsidiary uses the proceeds to purchase the
Contracts from the Company. The Company also provides a credit enhancement for
the benefit of the trust investors through the use of an initial cash deposits
to a specified trust account ("Spread Account") and agrees to deposit certain
residual interest cash flows which may be received in the future. Purchasers
of the ABS received a particular coupon rate (the "Pass-Through Rate")
established at the time of the sale.

The Company receives periodic base servicing fees for its duties relating to
the accounting for and collection of the Contracts. In addition, the Company
is entitled to certain residual interest cash flows that represent collections
on the Contracts in excess of the amounts required to pay the investors
principal and interest, the base servicing fees and certain other fees such as
trustee and custodial fees. The company sells the Contracts in the portfolio
at face value and without recourse except that certain of the representations
and warranties made by the Dealer to the Company in the Dealer Agreement were
similarly made by the Company to the ABS investors.

At the end of the month, the aggregate cash collections relating to the
portfolio of Contracts are allocated first to the base servicing fees and
certain fees such as trustee and custodial fees for the period, then to the
ABS certificate holder in an amount equal to the interest accrued at the
Pass-Through Rate on the portfolio plus the amount by which the portfolio
balance decreased (due to payments, payoffs or charge offs) during the period.
If the amount of cash required for the above allocations exceeds the amount
collected during the monthly period, the shortfall is drawn from the Spread
Accounts. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related Spread
Accounts from prior periods, the excess is returned to the Company. The excess
cash flows are considered by the Company to be cash receipts from the residual
interest, part of which the Company recognizes as a gain on sale bases on an
estimate of the discounted present value of the excess cash flows.

Because the annual percentage rate on the Contracts received by the Company is
relatively high in comparison to the Pass-Through Rate paid to investors, the
net present value described above can be significant. In calculating the net
gain on the sales described above, the Company must estimate the future rates
of prepayments, delinquencies, defaults and default loss severity as they
impact the amount and timing of the cash flows in the net present value
calculation. The cash flows received by the Company are then discounted at an
interest rate that the Company believes a third-party purchaser would require
as a rate of return. Expected losses are discounted using a rate equivalent to
the risk free rate for securities with a duration similar to that estimated
for the underlying Contracts.



<PAGE>


In future periods, the Company will recognize additional revenue from the
servicing fees if the actual performance of the Contracts is better than the
original discounted estimate. If the actual performance of the Contracts is
worse than the original discounted estimate, then a write-down would be
required.

In connection with the sale of the Contracts, the Company is required to make
certain representations and warranties, which generally duplicate the
substance of the representations and warranties made by Dealers in connection
with the Company's purchase of the Contracts. If the Company breaches any of
its representations or warranties to a purchaser of the Contracts, the Company
will be obligated to repurchase the Contract from such purchaser at a price
equal to such purchaser's purchase price less the related cash securitization
reserve and any payments received by such purchaser of the Contract. In most
cases, the Company would then be entitled under the terms of its Dealer
Agreement to require the selling Dealer to repurchase the Contracts at a price
equal to the Company's purchase price, less any payments made by the borrower.
Subject to any recourse against Dealers, the Company will bear the risk of
loss on repossession and resale of vehicles under Contracts repurchased by it.

Terms of Servicing Agreements

The Company currently services all Contracts it has purchased, including those
it has subsequently sold.

The Company currently has a servicing agreement with several trustees ( the
"Servicing Agreements") relating to the securitizations with Greenwhich
Capital pursuant to which the Company is obligated to service all Contracts
sold to the trusts in accordance with the Company's standard procedures. The
Servicing Agreements provide that the Company will bear all costs and expenses
incurred in connection with the management, administration and collection of
the Contracts serviced. The Servicing Agreements also provide that the Company
will take all actions necessary or reasonable requested by the investor to
maintain perfection and priority of the investors' or the trust's security
interest in the financed vehicles.

Pursuant to the Servicing Agreements, the Company mails to borrowers monthly
invoices directing them to mail payments on the Contracts to a
lock-box-account. The Company engages an independent lock-box-processing agent
to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the trust's bank account of the entire amount of
each day's lock-box receipts. In addition, the agent prepares a listing of all
payments received and sends a photo copy of each payment along with the
envelope in which the payment was received to the Company for posting to the
borrowers account on a daily basis. Pursuant to the Servicing Agreements, the
Company is required to deliver to the trustee monthly information of all
transaction activity with respect to the Contracts.

The Company is entitled under the Servicing Agreements to receive a base
monthly servicing fee of 3.0% computed as a percentage of the declining
outstanding principal balance of each Contract in the portfolio that is not in
default as of the beginning of the month. Each month, after payment of the
Company's base monthly servicing fee and certain other fees, the investors
receive the paid principal reduction of the Contracts in their portfolio and
interest at the Pass-Through Rate. If, in any month, collections on the
Contracts are insufficient to pay such amounts and any principal reduction due
to charge-off, the shortfall is satisfied from the cash securitization reserve
established in connection with the sale of the portfolio. (If the cash
securitization reserve is not sufficient to satisfy a shortfall, then the
trust may suffer a loss to the extent that the shortfall exceeds the cash
securitization reserve.)



<PAGE>

If collections on the Contracts exceeds such amounts, the excess is utilized,
first, to build up or replenish the cash securitization reserve to the extent
required and the balance, if any, constitutes residual interest cash flows,
which are distributed to the Company. If, in any month, the cash
securitization reserve balances are in excess of that required under the
Servicing Agreements, the Company is entitled to receive such excess.

Pursuant to the Servicing Agreements, the Company is required to charge-off
the balance of any Contracts when the Contract becomes 120 days delinquent or,
in the case of repossessions, the month that the proceeds from liquidation of
the financed vehicle are received by the Company. In the case of a
repossession, the amount of the charge-off is the difference between the
outstanding principal balance on the Contract and the repossession sale
proceeds. In the event collections on the Contracts are not sufficient to pay
the investors the entire principal balance of any Contracts charged-off during
the month, the securitization reserve established in connection with the sale
of the Contracts is reduced by the unpaid principal amount of such Contracts.
Such amount would then have to be restored to the cash securitization reserve
from future collections on the Contracts remaining in the portfolio before the
Company would again be entitled to residual interest cash flows. In addition,
the Company would not be entitled to receive any further base monthly
servicing fees with respect to the defaulted Contracts. Subject to any
recourse against the Company in the event of a breach of the Company's
representations and warranties with respect to any Contracts, the ABS
investors bear the risk of all charge-offs on the Contracts in excess of the
cash securitization reserve. However, the Company would experience a reduction
of residual interest cash flows in the event of greater than anticipated
charge-offs or prepayments on Contracts sold and serviced by the Company which
could result in losses on the residual interest and investments in Spread
Accounts.

The Servicing Agreements are terminable by the ABS investors in the event of
certain defaults by the Company and under certain other circumstances.

Servicing of Contracts

The Company's servicing activities have been tailored to the Sub-Prime
Borrower market. Such activities consist of: (a) collection of payments; (b)
accounting for and posting all payments received; (c) responding to borrower
inquiries; (d) taking necessary action to maintain the security interest in
the financed vehicle; (e) investigating delinquencies and communicating with
the borrower to obtain timely payments; (f) monitoring the Contract and its
related collateral; and (g) when necessary, repossessing and disposing of the
financed vehicle.

The Company believes that its ability to monitor performance and collect
payments owed from Sub-Prime Borrowers with limited financial resources
primarily is a function of its collection approach and support systems. The
Company believes that if payment problems are identified early and the
Company's collection staff works closely with borrowers to address these
concerns, it is possible to correct a portion of these problems before they
deteriorate further. To this end, the Company utilizes pro-active collection
procedures, which include making early and frequent telephone contact with
delinquent borrowers and educating borrowers as to the importance of
maintaining good credit.

The Company issues to each borrower a monthly invoice approximately two weeks
before the due date of a payment. If a payment is not received on or before
its due date, the Company typically contacts the borrower by telephone within
five days after the due date. The Company's personnel attempt to stay in
regular contact with the borrower until the delinquency is cured. If the
borrower does not cure the delinquency within two to four weeks after the due
date, the Company typically

<PAGE>

causes its licensed repossession agents to repossess the vehicle immediately.
All such agents used by the Company are licensed and bonded against claims
relating to improper repossessions.

                  When a vehicle is repossessed, the Company gives the
borrower written notice in accordance with applicable laws and the opportunity
to redeem the repossessed vehicle upon payment to the Company of all past due
obligations on the Contract, including the costs of repossession. If the
vehicle is not redeemed by the borrower, the Company usually sells the vehicle
at a public sale.

                  Based upon the experience of the Company's management in the
consumer finance industry, as well as the results of the Company's collection
efforts during its limited operating history, the Company believes that its
collection policies and procedures will be effective to minimize the incidence
of borrower defaults and loss on default. However, there can be no assurance
that such policies and procedures will afford adequate protection against the
risks of borrower defaults.



<PAGE>


The tables below document the delinquency, repossession and net credit loss
experience of all Contracts originated and/or sold by the Company since
inception through September 30, 1997. All amounts and percentages are based on
the principal amount to be paid on each Contract. The information in the
tables represent all Contracts purchased by the Company including Contracts
subsequently sold by the Company which it continues to service. Management has
reviewed the credit losses experienced by other Sub-Prime lenders for which
information is available and believes that the Company's allowance for credit
losses as a percentage of loans outstanding is within the range employed by
similar lenders and, based upon the performance of the portfolio to date, is
adequate. Additionally, management periodically evaluates the portfolio
primarily by analyzing the trends in past due loans and repossessed vehicles
and the portfolios historical performance.

                          Delinquency Experience (1)
<TABLE>
<CAPTION>

                                                              September 30,1997 September 30, 1996

                                             Number                                Number
                                            Of Loans            Amount            Of Loans               Amount
                                            --------            ------            --------               ------
<S>                                           <C>            <C>                    <C>               <C>        
Gross Servicing Portfolio                     3936           $32,946,674            2869              $27,312,981

Period of delinquency (2)
    31-60 days                                 175             1,696,722             107                1,198,716
    61-90 days                                  48               478,540              17                  185,958
    91- + days                                  36               400,084              14                  123,306
                                              ----           -----------            ----              -----------

Total delinquencies                            259             2,575,346             138                1,507,980

Amount in repossession (3)                     107             1,015,380             124                1,161,771

Total delinquencies and                        366             3,590,726             262                2,669,771
amount in repossession

Delinquencies as a percent
Of Gross Servicing Portfolio                 6.58%                  7.82%           4.81%                    5.52%

Total delinquencies and amount in
Repossession as a percent of
Gross Servicing Portfolio                     9.30%                10.90%           9.13%                    9.77%
</TABLE>

(1) All amounts and percentages are based on the remaining unpaid principal
balance on each Contract. The information in the table represents the
principal amount of all Contracts purchased by the Company, including
Contracts subsequently sold by the Company which it continues to service.

(2) The Company considers a Contract delinquent when an obligor fails to make
at least 95% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past
due. Amounts shown do not include Contracts which are less than 31 days
delinquent.

(3) Amount in repossession represents vehicles which have been repossessed but
not yet liquidated.


<PAGE>


                         Net Charge-Off Experience (1)

                                    YearEnded                     Year Ended
                                 September 30, 1997          September 30, 1996
                                 ------------------          ------------------

Average Servicing Portfolio
Outstanding                        $30,129,928                  $16,143,339

Net charge-offs as a percent of
Average Servicing Portfolio              10.69%                        1.01%

(1) Net charge-off includes the remaining principal balance, after the
application of net proceeds from liquidation of the vehicle. Post-liquidation
amounts received on previously charged-off Contracts are applied to the period
in which the related Contract was originally charged-off.

Proposed Portfolio Purchases

In addition to the purchase of individual Contracts from Dealers, the Company
may purchase portfolios of Contracts in bulk from Dealers or financial
institutions. Such portfolios may consist of Contracts with borrowers of a
different credit standing than the Sub- Prime Borrowers that are parties to
most of the Company's Contracts, may be comprised of Contracts that contain
terms different than the typical Contract purchased by the Company and may
include "non-performing" Contracts in which there have been delinquencies
and/or defaults. The purchase (or sale) of Contracts in bulk requires the
consent of BankAmerica Business Credit, Inc. ("BankAmerica") pursuant to the
Company's Credit Facility (as defined below).

Generally, the purchase price for portfolios will be paid in cash. Such
purchase price will be based upon the aging of Contracts in the portfolio, the
delinquency rates of borrowers that are parties to the Contracts in the
portfolio, the value of the collateral securing the Contracts in the portfolio
and the interest rates and the maturity dates of Contracts in the portfolio.
There can be no assurance that the Company will make any bulk purchases of
Contracts or, that, if opportunities to make a purchase arise, the terms of
such a purchase would be acceptable to the Company or that the Company will
have sufficient capital to make the purchase. Moreover, there can be no
assurance that a purchase or purchases of portfolios of Contracts in bulk will
not result in losses to the Company.

Marketing

The Company establishes relationships with Dealers through Company
representatives that contact prospective Dealers. Each representative presents
the Dealer with a marketing package, which includes the current program
offered by the Company for the purchase of Contracts, a copy of the Company's
standard-form Dealer Agreement and examples of required documentation relating
to Contracts. The Company's acceptance of a Dealer is subject to its analysis
of, among other things, the Dealer's operating history and financial
condition. After initial contact, the Company's representatives frequently
communicate with Dealers to obtain feedback on the program and address any
problems or additional requirements that Dealers may have in connection with
the program. As of September 30, 1997, the Company had 9 representatives, 5 of
whom are employees and 4 of whom are independent sales representatives.



<PAGE>


Seasonality

Management of the Company believes that the Company's operations may, to some
extent, be affected by high delinquency rates by borrowers on Contracts during
or shortly following certain holiday periods as well as seasonal changes in
Contract purchases due to the purchasing patterns of Sub-Prime Borrowers. In
addition, the Company believes that purchases of used automobiles, and
therefore financing activity, will decrease significantly in northern states
during periods of poor winter weather. Conversely, purchases and financing
activity may increase somewhat in late spring when many people receive tax
refunds.

Competition

The automobile financing business is highly competitive and fragmented. The
Company competes with a number of national, local and regional finance
companies with operations similar to those of the Company. Although the
Company does not believe it currently competes with commercial banks, thrift
institutions, savings and loan associations, credit unions or captive
automobile finance companies, such companies are capable of providing retail
loan financing for used automobiles. Many of the Company's competitors and
potential competitors possess substantially greater financial, marketing,
technical, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability
and cost of its capital in relation to the availability and cost of capital to
its competitors.

The Company's existing and potential competitors include larger, more
established companies that have access to capital markets, including those for
commercial paper, asset-backed securities and rated debt which may be
unavailable to the Company. Many of these competitors also have long-standing
relationships with Dealers. As the Company seeks to increase market
penetration, its success will depend, in part, on its ability to gain market
share from established competitors. The Company believes that no individual
competitor or group of competitors has a dominant presence in the market. The
Company's strategy is designed to capitalize on the market's lack of a major
national financing source.

The Company believes that the principal competitive factors affecting a
Dealer's decision to offer Contracts for sale to a particular financing source
are the proposed purchase price for the Contracts, the reasonableness of the
underwriting guidelines and documentation requests of the financing source and
the predictability and timeliness of purchase.

The Company believes that it can obtain sufficient Contracts for purchase at
attractive prices by consistently applying reasonable underwriting criteria
and making timely purchases of qualifying Contracts. Management of the Company
believes, however, that its underwriting criteria tend to be more conservative
than many other financing sources available to Sub-Prime Borrowers as the
Company finances a lower percentage of the vehicle's book value and bases its
book value figures on a relatively conservative industry estimate. The
Company's practice could lead to the loss of Contracts to financing sources
maintaining less conservative policies. Competition by existing and potential
competitors could result in financial pressures, including reductions in the
number of Contracts purchased by the Company, reduced discounts on the
purchase price for Contracts paid to Dealers and reduced interest spreads,
that would materially adversely affect the Company's profitability.





<PAGE>

Regulation

Several federal and state consumer protection laws, including the Federal
Truth- In-Lending Act, the Federal Equal Credit Opportunity Act, the Federal
Fair Debt Collection Practices Act and the Federal Trade Commission Act,
regulate the extension of credit in consumer credit transactions. These laws
mandate certain disclosures with respect to finance charges on Contracts and
impose certain other restrictions on Dealers. Certain state laws impose
limitations on the amount of finance charges that may be charged by Dealers on
credit sales. The so-called Lemon Laws enacted by the federal government and
certain states provide certain rights to purchasers with respect to motor
vehicles that fail to satisfy express warranties. The application of Lemon
Laws or violation of such other federal and state laws may give rise to a
claim or defense of a borrower against a Dealer and its assignees, including
the Company and purchasers of Contracts from the Company. The Dealer Agreement
contains representations by the Dealer that the sale of the motor vehicle
covered by the Contract was effected in accordance with all applicable
federal, state and local laws covering the sale. Although a Dealer would be
obligated to repurchase Contracts that involve a breach of such warranty,
there can be no assurance that the Dealer will have the financial resources to
satisfy its repurchase obligations to the Company. Certain of these laws also
regulate the Company's Contract servicing activities, including its methods of
collection.

Although the Company believes that it is currently substantially in compliance
with applicable statutes and regulations, there can be no assurance that the
Company will be able to maintain such compliance. The failure to comply with
such statutes and regulations could have a material adverse effect upon the
Company. Furthermore, the adoption of additional statutes and regulations, or
the expansion of the Company's business into jurisdictions that have adopted
more stringent regulatory requirements than New York, New Jersey, Delaware,
Connecticut, Maryland, Pennsylvania, Virginia or Maine could have a material
adverse effect upon the Company.

The Company is not licensed to make loans directly to borrowers. Certain of
the Company's licenses and licenses that it may be required to obtain in the
future are subject to periodic renewal provisions and provisions governing
changes in control, or acquisitions of certain percentages of stock, of the
Company. The Company intends to renew all licenses necessary to the lawful
operation of its business.

The Dealer Agreement contains an undertaking by the Dealer that at the time of
sale of a Contract to the Company, (i) the Dealer will submit an application
for state registration of the financed vehicle, naming the Company as a
secured party with respect to the vehicle, and (ii) that all necessary steps
will be taken to obtain a perfected first priority security interest in each
financed vehicle in favor of the Company under the laws of the state in which
the financed vehicle is registered. If a Dealer or the Company, because of
clerical error or otherwise, has failed to timely take such action or maintain
such interest with respect to a financed vehicle, neither the Company nor any
subsequent purchaser of the related Contract would have a perfected security
interest in the financed vehicle and its security interest may be subordinate
to the interest of, among others, later purchasers of the financed vehicle,
holders of perfected security interests and a trustee in bankruptcy of the
borrower. The security interest of the Company may also be subordinate to the
interests of such third parties in the case of fraud or forgery by the
borrower, administrative error by state recording officials or in certain
other circumstances.

The Company may take action to enforce the security interest in financed
vehicles with respect to any related Contracts in default by repossession and
resale of the financed vehicles. The Uniform Commercial Code ("UCC") and other
state laws regulate repossession sales by requiring that the



<PAGE>

secured party provide the borrower with reasonable notice of the date, time
and place of any public sale of the collateral, the date after which any
private sale of the collateral may be held and of the borrower's right to
redeem the financed vehicle prior to any such sale and providing that any such
sale be conducted in a commercially reasonable manner.

In the event of a repossession and resale of a financed vehicle, after payment
of outstanding liens for storage, repairs and unpaid taxes, the secured party
would be entitled to be paid the full outstanding balance of the Contract out
of the sale proceeds before payments are made to the holders of junior
security interests in the financed vehicle, to unsecured creditors of the
borrower, or, thereafter, to the borrower. Under the UCC and other laws
applicable in most states, a creditor is entitled to obtain a deficiency
judgment from a borrower for any deficiency on repossession and resale of the
motor vehicle securing the unpaid balance of such borrower's motor vehicle
loan. However, some states impose prohibitions or limitations on deficiency
judgments. If a deficiency judgment were granted, the judgment would be a
personal judgment against the borrower for the shortfall, and a defaulting
borrower may often have insufficient capital or few sources of income
available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment against a borrower or, if one is
obtained, it may be settled at a significant discount.

Risk Factors

Dependence on Credit Facilty

In November 1995, the Company entered into a credit facility agreement with
BankAmerica ( the "Credit Facility") pursuant to which BankAmerica agreed to
provide the Company with a maximum of $15 million. The Credit Facility has a
term of two years. The outstanding principal amount of the indebtedness under
the Credit Facility bears interest at the rate of 1% per annum over
BankAmerica's reference rate from time to time in effect. As of November 30,
1997, BankAmerica's reference rate was 8.50%. Commencing 120 days after the
date of execution of the Credit Facility, the Company was required to pay a
fee calculated at the rate of .25% per annum on the average unused amount of
the Credit Facility. Under the Credit Facility, the Company may borrow up to
between 70% and 80% (the "advance rate") of its net eligible installment loan
receivables (depending upon the trade-in value of the automobiles securing the
receivables), but in no event more than $15 million. The advance rates are
subject to decrease based on the rate of borrower delinquencies on such
receivables. The Company's ability to continue to borrow under the Credit
Facility will be dependent upon its compliance with the terms thereof,
including compliance with certain financial covenants such as the maintenance
of a minimum ratio of earnings before interest and taxes to interest expense,
a minimum tangible net worth and a maximum ratio of total liabilities to
tangible net worth. In addition, events of default under the Credit Facility
will occur if, among other things, borrower delinquencies of 30 days or more
on Contracts exceed 4% of the Company's gross receivables at any time on loans
that have not yet been sold, if the existing stockholders of the Company no
longer own at least 51% of the outstanding Common Stock, or if there occurs a
material adverse change in the Company's financial condition. Pursuant to the
Credit Facility, BankAmerica's consent will be required for the Company to
make bulk purchases or sales of Contracts.

All of the Company's obligations under the Credit Facility are secured by a
first priority security interest in the Company's installment loan receivables
and a pledge by the Company's principal stockholders of 2,252,000 shares of
the Company's common stock.


<PAGE>


The Company is currently in negotiations with BankAmerica to extend the Credit
Facility another two years. In November 1997, BankAmerica extended the Credit
Facility until January 31, 1998. There can be no assurance that BankAmerica
will extend the Credit Facility after January 31, 1998. If BankAmerica does
not extend the Credit Facility, there can be no assurance that the Company
will be able to negotiate for and obtain further financing, or if so, on what
terms. The failure of BankAmerica to extend the Credit Facility or the
Company's failure to obtain further financing could have a material adverse
effect on the Company's business, financial condition and results of
operations.

Default and Prepayment Risks

The Company's results of operations, financial condition and liquidity depend,
to a material extent, on the performance of Contracts purchased and held by
the Company prior to their sale in a securitization transaction as well as the
subsequent performance of receivables sold to securitization trusts. A portion
of the loans purchased by the Company may default or prepay during the period
prior to their sale in a securitization transaction or if they remain owned by
the Company. The Company bears the full risk of losses resulting from payment
defaults during such period. In the event of a payment default, the collateral
value of the financed vehicle may not cover the outstanding loan balance and
costs of recovery. The Company maintains an allowance for losses on loans held
by the Company, which reflects management's estimates of anticipated losses
for such loans. If the allowances is inadequate, then the Company would
recognize as an expense the losses in excess of such allowance and results of
operations could be adversely affected. In addition, under the terms of the
Credit Facility the Company is not able to borrow against defaulted loans and
loans greater than 60 days delinquent held by the Company.

The Company also retains a substantial portion of the default and prepayment
risk associated with the receivables that it sells pursuant to
Company-sponsored securitizations. A large component of the gain recognized on
such sales and the corresponding asset recorded on the Company's balance sheet
is excess servicing receivable which is based on the present value of
estimated future excess cash flows from the securitized receivables which will
be received by the Company. Accordingly, the residual interest is calculated
on the basis of management's assumptions concerning, among other things,
defaults and prepayments. Actual defaults and prepayments may vary from
management's assumptions, possibly to a material degree. In addition, the
Company is required to deposit substantial amounts of the cash flows generated
by its interests in Company sponsored securitizations ("restricted cash") into
spread accounts.

The Company regularly measures its default, prepayment and other assumptions
against the actual performance of securitized receivables. If the Company were
to determine, as a result of such regular review or otherwise, that it
underestimated defaults and/or prepayments, or that any other material
assumptions were inaccurate, the Company would be required to adjust the
carrying value of the residual interest on its balance sheet. Future cash
flows from securitization trusts may also be less than expected and the
Company's results of operations and liquidity would be adversely affected,
possibly to a material degree. In addition, an increase in prepayments and
defaults would reduce the size of the Company's servicing portfolio which
would reduce the Company's servicing fee income, further adversely affecting
results of operations and cash flows. A write-down of the residual interest
and the corresponding decreases in earnings and cash flow could affect the
Company's liquidity position and future securitizations. Although the Company
believes that it has made reasonable assumptions as to the future cash flows
of the various pools of receivables that have been sold in securitization
transactions, actual rates of default or prepayment may differ from those
assumed and other assumptions may be required to be revised upon future
events.



<PAGE>

Portfolio Performance; Negative Impact on Cash Flows; Right to Terminate
Normal Servicing

Generally, the form of credit enhancement agreement entered into in connection
with securitization transactions contains specified limits on the delinquency,
defaults and loss rates on the receivables included in each trust. At any
measurement date, the delinquency, defaults or loss rate with respect to any
trust were to exceed the specified limits, provisions of the credit
enhancement agreement would automatically increase the level of credit
enhancement requirements for that trust. During the period in which the
specified delinquency, default or loss rate was exceeded, excess cash flow, if
any, from the trust would be used to fund the increase credit enhancement
levels instead of being distributed to the Company, which would have an
adverse effect on the Company's cash flow.

The credit enhancement agreement entered into in connection with
securitization transactions contain additional specified limits on the
delinquency, default and loss rates on the receivables included in each trust
which are higher that the limits referred to in the preceding paragraph. If,
at any measurement date, the delinquency, default or loss rate with respect to
any trust were to exceed these additional specified limits applicable to such
trust, provisions of the credit enhancement agreements permit the trustees to
terminate the Company's servicing rights with respect to the receivables sold
to that trust. Although the Company has never exceeded such delinquency,
defaults or loss rates, there can be no assurance that the Company's servicing
rights with respect to the automobile receivables in such trusts, or any other
trust which exceeds the specified limits in future periods, will not be
terminated.

Credit-Impaired Borrowers

The Company specializes in purchasing, securitizing and servicing sub-prime
receivables. Sub-Prime borrowers are associated with higher than average
delinquency and default rates. While the Company believes that it effectively
manages such risks with its underwriting policies and collection methods, no
assurance can be given that such criteria or methods will be effective in the
future. In the event that the Company underestimates the default risk or under
prices contracts that it purchases, the Company's financial position,
liquidity and results of operations would be adversely affected, possibly to a
material degree.

Economic Conditions

Delinquencies, defaults, repossessions and losses generally increase during
periods of economic recession and such periods also may be accompanied by
decreased consumer demand for automobiles and declining values of automobiles
securing outstanding loans, thereby weakening collateral coverage and
increasing the possibility of a loss in the event of default. Significant
increases in the inventory of used automobiles during periods of economic
recession may also depress the prices at which repossessed automobiles may be
sold. Because the Company focuses on Sub-Prime borrowers, the actual rates of
delinquencies, defaults, repossessions and losses on such loans could be
higher than those experienced in the general automobile finance industry and
could be more significantly affected by a general economic downturn. In
addition, during an economic slowdown or recession, the Company's servicing
costs may increase. While the Company believes that the underwriting criteria
and collection methods it employs enable it to manage the higher risk inherent
in loans made to Sub-Prime borrowers, no assurance can be given that such
criteria or methods will provide adequate protection against such risks. Any
sustained period of increased delinquencies, defaults, repossessions or losses
or increased servicing costs could adversely affect the Company's ability to
complete future securitizations and correspondingly, its financial position,
liquidity and results of operations would be adversely effected.



<PAGE>

Interest Rates

The company may be directly affected by the level of and fluctuations in
interest rates, which affect the Company's ability to earn a gross interest
rate spread between the rate charged the consumers and the rate paid on its
indebtedness. As the interest rate on the Company's indebtedness rises, the
Company may not be able to increase the rate it charges on new Contracts
because the rates on many of the Contracts purchased by the Company are
already at or near the statutory maximums, affording the Company limited
opportunity to pass on any increased interest costs. The Company believes that
its results of operations and liquidity would be adversely affected during any
period of higher interest rates, possibly to a material degree.

Competition

Reference should be made to Item 1. "Competition" for a discussion of
competitive risk factors.

Regulation

Reference should be made to Item 1. "Regulation" for a discussion of
regulatory risk factors.

Management Information Systems

Management believes that a high degree of automation is necessary to enable
the Company to grow and successfully compete with other financing entities.
Accordingly, during the year ended September 30, 1997, the Company upgraded
its computer hardware to support the Company's origination, accounting and
collection processes. In addition, the Company has continued to enhance the
application processing and credit approval software that has increased the
efficiency of processing applications.

Due to its desire to increase productivity through automation, the Company
intends to periodically review its systems for possible upgrades and
enhancements. During the next year, the application system will be further
enhanced to accommodate the Company's growth and data processing needs.

The Company believes that the capacity of its existing data processing and
management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and the
data processing changes that will be required and has been assured that our
software will be capable of handling process dates beyond the year 2000 by the
end of 1998.

Employees

As of September 30, 1997, the Company had 42 full-time employees. The Company
is not a party to any collective bargaining agreement.

Item 2.   Property.

The Company's executive and administrative offices are located in Englewood
Cliffs, New Jersey, where the Company subleases approximately 8,300 square
feet of general office space for $8,677 per month from Asta Group,
Incorporated, an affiliate of the Company. The sublease expires on July 31,
2000. The Company believes that the sublease is on terms that are as favorable
to the Company as those terms which could be obtained from an unaffiliated
lessor of the same premises.




                                    
<PAGE>

Item 3. Legal Proceedings.

As of the date of this Form 10-KSB, the Company was not involved in any
material litigation in which it was a defendant. The Company regularly
initiates legal proceedings as a plaintiff in connection with its routine
collection activities. . Item 4. Submission of Matters to a Vote of
Security-Holders.

None.









                                    
<PAGE>



PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

                  Commencing November 13, 1995 the Company's common stock par
value $.01 per share ("Common Stock") has been quoted on the NASDAQ Small Cap
Market under the symbol "ASFI." On December 13, 1996 there were approximately
13 holders of record of the Common Stock. High and low bid prices of the
Common Stock since November 13, 1995, 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
                                                  ----             ---

November 13, 1995 to December 31, 1995            5.88            3.50
January 1, 1996 to March 31, 1996                 7.25            4.00
April 1, 1996 to June 30, 1996                    9.00            4.63
July 1, 1996 to September 30, 1996                7.38            4.50
                                                             
October 1, 1996 to December 31, 1996              6.25            3.75
January 1, 1997 to March 31, 1997                 5.00            2.00
April 1, 1997 to June 30, 1997                    3.13            1.31
July 1, 1997 to September 30, 1997                3.38            0.75
                                                               
                  The Company has never paid a cash dividend on its Common
Stock and does not expect to pay a cash dividend in the near future. Under the
Credit Facility the Company is prohibited from paying dividends on its Common
Stock without the consent of BankAmerica.

During the year ended September 30, 1997, the Company granted stock options to
an officer and an employee covering an aggregate 14,000 shares of Common
Stock. These grants were exempt from registration pursuant to Securities Act
Release No. 33-6188 (February 1, 1980). No underwriter was involved with these
grants.

















                                   
<PAGE>


Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Results of Operations

Year Ended September 30, 1997 Compared to the Year Ended September 30, 1996

Revenues. During the year ended September 30, 1997, revenues decreased $1.23
million compared to the year ended September 30, 1996. Interest income on
Contracts decreased $915,342 representing 43.3% of total revenues for the year
ended September 30, 1997. The decrease in revenues and interest income is due
to the decrease in the volume of Contracts purchased during the year ended
September 30, 1997, as compared to the same period in the prior year. During
the year ended September 30, 1997, the Company purchased $23 million in
Contracts from Dealers, compared to $28 million in the year ended September
30, 1996.

Expenses. During the year ended September 30, 1997, general and administrative
expenses increased $1.68 million from the prior year and represented 56.1% of
total operating expenses. The increase is due to the addition of employees and
increased overhead expenses necessary to accommodate the Company's purchasing
and servicing Contracts.

Interest expense decreased $278,433 during the year ended September 30, 1997,
as compared to the same period in the prior year and represented 6.6% of total
operating expenses. The decrease is due to the volume of Contracts held for
sale which reduced the interest accrued and/or paid during the year. During
the year ended September 30, 1997, interest expense consisted of interest
accrued and/or paid on the Company's Credit Facility and loans from an
affiliate.

During the year ended September 30, 1997, the provision for credit losses on
Contracts purchased increased by $1.6 million over the prior year and
represented 37.2% of total operating expenses. The increase in the provision
reflects higher than expected losses on loans previously sold and serviced by
the Company.

Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995

Revenues. During the year ended September 30, 1996, revenues increased $6.6
million compared to the year ended September 30, 1995. Interest income on
Contracts increased by $2.9 million representing 47.7% of total revenues for
the year ended September 30, 1996. The increase in revenues and interest
income is due to the increase in the volume of Contracts purchased during the
year ended September 30, 1996, and the length of time they were held by the
Company prior to their sale. During the year ended September 30, 1996 the
Company purchased $28.0 million in Contracts from dealers, compared to $5.1
million in the year ended September 30, 1995.

Expenses. During the year ended September 30, 1996, general and administrative
expenses increased $1.7 million from the prior year and represented 49.2% of
total operating expenses (excluding charge from release of Escrow Shares (as
defined below)). The increase is due to the addition of employees and
increased overhead expenses necessary to accommodate the Company's increase in
volume of purchasing and servicing Contracts.

Interest expense increased $623,000 during the year ended September 30, 1996,
and represented 19.9% of total operating expenses (excluding charge from
release of Escrow Shares). During the year ended September 30, 1996, interest
expense consisted of interest accrued and/or paid on the Company's Credit
Facility which was not in place during the year ended September 30, 1995.





                                    
<PAGE>

During the year ended September 30, 1997 provision for losses on Contracts
purchased increased by $638,000 over the prior year and represented 22.0% of
total operating expenses (excluding charge from release of Escrow Shares). The
increase in the provision reflects Contracts that have not been sold and have
been held for a longer period of time when compared to the same period in the
previous year.

         Upon consummation of the Company's initial public offering which
became effective November13, 1995, the Company's controlling shareholder and
certain officers and directors deposited an aggregate of 1,000,000 shares of
Common Stock (the "Escrow Shares") in escrow, subject to release upon
attainment of certain net income or stock price levels. As of September 30,
1996, the Company exceeded the requisite level for the release of
fifty-percent of the Escrow Shares. The release of these Escrow Shares was
deemed compensatory and resulted in a one-time, noncash charge for the year
ended September 30, 1996 of $2.94 million which was equal to the market value
of the Escrow Shares at the time of their release. This one-time, noncash
charge was offset by an identical increase in additional paid-in capital and
was not tax deductible. Consequently, there was no impact on total
shareholders' equity on the Company's financial statements as a result of the
release of the Escrow Shares and the corresponding charge. As of September 30,
1997, the Company did not attain the income level nor did the stock price meet
or exceed the per share value necessary for the release of the remaining
Escrow Shares. As a result, the remaining shares have been cancelled.

The following table illustrates the impact of this charge on the Company's
results for the year ended September 30, 1996.


<TABLE>
<CAPTION>

                                                          As Stated      Impact of Charge      Without Charge
                                                          ---------      ----------------      --------------
<S>                                                       <C>               <C>                   <C>    
Revenues:
  
Interest income                                           $3,372,857        $         --          $3,372,857
Net gain on sale of loans                                  3,450,179                  --           3,450,179
Servicing fees                                               244,720                  --             244,720
                                                          ----------        -------------         ----------
                                                           7,067,746                  --           7,067,746
                                                          ----------        -------------         ---------- 
Expenses:

Compensation charge from
release of escrow shares                                   2,937,500           (2,937,500)               --
General and administrative expenses                        2,067,263                  --           2,067,263
Provision for credit losses                                  783,767                  --             783,767
Interest expense                                             709,159                  --             709,159
                                                          ----------        -------------         ----------
                                                           6,497,689           (2,937,500)         3,560,189
                                                          ----------        -------------         ----------

Income(loss) before income taxes                             570,057            2,937,500          3,507,557

Income taxes                                               1,428,300                  --           1,428,300
                                                          ----------        -------------         ----------
Net  income (loss)                                        $ (858,243)                 --           2,079,257
                                                          ----------        -------------         ----------

Net income (loss) per share                               $    (0.25)                                $  0.63
                                                          ----------                              ----------   
                                           
Weighted average number of shares outstanding              3,307,874                               3,307,874

</TABLE>

                                
<PAGE>

Liquidity and Capital Needs

The Company's primary sources of cash from operating activities include
borrower payments on Contracts, proceeds on the sale of Contracts in excess of
its recorded investment in the Contracts and base servicing fees it earns on
Contracts it has sold. The Company's primary uses of cash include its
purchases of Contracts, ordinary operating expenses and the establishment and
buildup of Spread Accounts.

Net cash used in operating activities was $1.1 million during the year ended
September 30, 1997 compared to net cash provided of $258,000 during the year
ended September 30, 1996. Cash used for purchasing Contacts was $22.0 million
during the year ended September 30, 1997 as compared to $28.0 million in the
year ended September 30, 1996.

The Company's cash requirements have been and will continue to be significant.
The agreement with Greenwich Capital regarding securitizations requires the
Company to make a significant cash deposits into Spread Accounts, for the
purpose of credit enhancement. The Spread Accounts are pledged to support the
related ABS, and are invested in high quality liquid securities. Excess cash
flow from securitized Contracts are deposited into the Spread Accounts until
such time as the Spread Account balances reach a specified percent of the
outstanding balance of the related ABS.

The Company anticipates the funds available under its Credit Facility, funds
made available by Asta Group, Incorporated, proceeds from the sale of
Contracts, and cash from operations will be sufficient to satisfy the
Company's estimated cash requirements for at least the next 12 months,
assuming that the Company continues to have a means by which to sell its
Contacts. If for any reason the Company is unable to sell its Contracts, or if
the Company's available cash otherwise proves to be insufficient to fund
operations, the Company may be required to seek additional funding.

The Company does not anticipate any need for significant capital expenditures
in connection with the expansion of its business for at least 12 months.

This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements include, but are not limited to, the Company's opportunities to
increase revenues through, among other things, the purchase and sale
additional Contracts, and the anticipated need and availability of financing.

Forward-Looking Statements

Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements herein. Important factors that could contribute
to such differences are: increases in unemployment or other changes in
domestic economic conditions which adversely affect the sales of new and used
automobiles and which may result in increased delinquencies, foreclosures and
losses on Contracts; adverse economic conditions in geographic areas in which
the Company's business is concentrated, mainly the Northeast and Mid-Atlantic
States; changes in interest rates, adverse changes in the market for
securitized receivables pools or a substantial lengthening of the Company's
warehousing each of which could restrict the Company's ability to obtain cash
for Contract origination and purchases; increases in the amounts required to
be set aside in spread accounts or to be expended for other forms of credit
enhancement to support future securitizations; increased competition; a
reduction in the number and amount of acceptable Contracts



                                    
<PAGE>

submitted to the Company by its Dealers; changes in government regulations
effecting consumer credit; and other risk factors identified herein under the
caption "Risk Factors" and in the Company's filings with the Securities and
Exchange Commission, including under the caption "Risk Factors" in its most
recent Registration Statement on form S-1. Subsequent, written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified by the precautionary statements in this
paragraph and elsewhere in this Form 10-KSB.

Item 7.                    Financial Statements.

                  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

    Independent Auditors' Report                                         F-1

    Consolidated Balance Sheets - September 30, 1997 and 1996            F-2

    Consolidated Statements of Operations - Years ended
    September 30, 1997 and 1996                                          F-3

    Consolidated Statements of Shareholders' Equity - Years ended
    September 30, 1997 and 1996                                          F-4

    Consolidated Statements of Cash Flows - Years ended
    September 30, 1997 and 1996                                          F-5

    Notes to Consolidated Financial Statements                           F-6


Item 8. Changes in and Disagreements With Accountants on Accounting and 
        Financial Disclosure.

Not applicable















<PAGE>



PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act.

Information contained under the caption "Directors, Executive Officers,
Promoters and Control Persons" in the Company's definitive Proxy Statement to
be filed with the Commission on or before January 30, 1998 is incorporated by
reference in response to this Item 9.

Item 10. Executive Compensation.

Information contained under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be filed with the Commission on or
before January 30, 1998 is incorporated by reference in response to this Item
10.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement
to be filed with the Commission on or before January 30, 1998 is incorporated
herein by reference in response to this Item 11.

Item 12. Certain Relationships and Related Transactions

Information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement to be filed with the
Commission on or before January 30, 1998 is incorporated by reference in
response to this Item 12.

























                                   
<PAGE>

Part IV

Item 13.          Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit
Number

3.1   Certificate of Incorporation. (1)

3.2   By laws. (2)

10.1  Servicing Agreement dated July 1, 1997, between the Company and The
      Chase Manhattan Bank and CSC Logic/MSA, L.L.P. for the servicing of the
      Contracts sold.

10.2  Consulting Agreement dated November 14, 1997, by and between the Company
      and Arthur Stern.

22.   Subsidiary of the Company.

27.   Financial Data Schedule.

1. Incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).

2. Incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).

(b) Reports on Form 8-K

The Registrant did not file any Current Reports on form 8-K during the quarter
ended September 30, 1997.






<PAGE>

                               ASTA FUNDING, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1997 and 1996
<PAGE>

ASTA FUNDING, INC.

Contents

                                                                            Page
                                                                            ----

Consolidated Financial Statements

 Independent auditors' report                                                F-1

 Balance sheets as of September 30, 1997 and 1996                            F-2

 Statements of operations for the years ended
   September 30, 1997 and 1996                                               F-3
                                                              
 Statements of changes in stockholders' equity for the        
   years ended September 30, 1997 and 1996                                   F-4
                                                              
 Statements of cash flows for the years ended                 
   September 30, 1997 and 1996                                               F-5
                                                              
 Notes to financial statements                                               F-6
<PAGE>                                                        

                [Letterhead of Richard A. Eisner & Company, LLP]

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Asta Funding, Inc.
Englewood Cliffs, New Jersey

We have audited the accompanying consolidated balance sheets of Asta Funding,
Inc. as of September 30, 1997 and 1996, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years then
ended. 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 generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements enumerated above present
fairly, in all material respects, the financial position of Asta Funding, Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.


/s/ Richard A. Eisner & Company, LLP

Florham Park, New Jersey
October 30, 1997

With respect to Note F
November 3,1997


                                                                             F-1
<PAGE>

ASTA FUNDING, INC.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                        Year Ended
                                                                                       September 30,
                                                                                ---------------------------
                                                                                    1997           1996
                                                                                ------------   ------------
<S>                                                                             <C>            <C>         
ASSETS
    Cash                                                                        $    503,715   $  3,401,674
    Restricted cash and cash equivalents (net of estimated future losses of
     $703,072 in 1997) (Note D)                                                    2,546,670        358,179
    Loans receivable (less allowance for credit losses of $397,926 in 1997 and
     and $466,395 in 1996) (Note B)                                                3,247,542      3,285,130
    Servicing assets (Notes A[11] and E)                                             897,352      2,675,407
    Residual interest (Notes A[l2] and E)                                            951,857
    Due from trustee                                                                 146,910      2,079,679
    Furniture and equipment (net of accumulated depreciation of $84, 130 and
     in 1997 and $22,274 in 1996) (Notes A[5] and C)                                 154,605         97,894
    Repossessed automobiles (net of allowance for losses of $96,062 in 1997                         491,314
      1997 and $298,271 in 1996)                                                     226,248
    Deferred taxes (Note G)                                                                         365,000
    Income taxes receivable                                                          418,101
    Other assets                                                                     276,544        355,562
                                                                                ------------   ------------
                                                                                $  9,369,544   $ 13,109,839
                                                                                ============   ============
LIABILITIES
    Bank overdraft                                                                             $     54,304
    Income taxes payable                                                                          1,705,000
    Estimated future losses on loans sold (net of restricted cash and cash   
     equivalents of $1,143,494 in 1996) (Note D)                                                     76,756
    Accounts payable and accrued expenses                                       $    419,080        592,356
    Deferred taxes (Note G)                                                          275,000
    Due to parent                                                                    188,360      1,919,704
                                                                                ------------   ------------
        Total liabilities                                                            882,440      4,348,120
                                                                                ------------   ------------

Commitments (Notes I and J)

STOCKHOLDERS' EQUITY (Note J)
Common stock, $.01 par value, authorized 10,000,000 shares, issued and
 outstanding 3,945,000 shares in 1997 and 4,460,000 in 1996                           39,450         44,600
Additional paid-in capital                                                         9,602,421      9,597,271
Accumulated deficit                                                               (1,236,466)      (880,152)
Unrealized gain on residual interest (net of income taxes of $55,000)                 81,699
                                                                                ------------   ------------
        Total stockholders' equity                                                 8,487,104      8,761,719
                                                                                ------------   ------------
                                                                                $  9,369,544   $ 13,109,839
                                                                                ============   ============
</TABLE>


See notes to financial statements                                            F-2
<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                       Year Ended
                                                                      September 30,
                                                               -------------------------
                                                                   1997          1996
                                                               -----------   -----------
<S>                                                            <C>           <C>        
Interest income                                                $ 2,457,515   $ 3,372,857

Gain on sale of loans (Note L)                                   2,533,994     3,450,179

Servicing fee income                                               682,692        83,927
                                                               -----------   -----------
                                                                 5,674,201     6,906,963
                                                               -----------   -----------
General and administrative expenses (Note I)                     3,588,189     1,906,480

Compensation charge upon release of escrow shares (Note J[1])                  2,937,500

Provision for credit losses                                      2,381,700       783,767

Interest expense (Note H)                                          430,726       709,159
                                                               -----------   -----------
                                                                 6,400,615     6,336,906
                                                               -----------   -----------
Income (loss) before provision (benefit) for income taxes         (726,414)      570,057

Provision (benefit) for income taxes (Note G)                     (370,100)    1,428,300
                                                               -----------   -----------

Net loss                                                       $  (356,314)  $  (858,243)
                                                               ===========   ===========

Net loss per share                                             $      (.09)  $     (0.25)
                                                               ===========   ===========

Weighted average number of shares outstanding                    3,952,315     3,307,874
                                                               ===========   ===========
</TABLE>


See notes to financial statements                                            F-3
<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                  Additional              Unrealized Gain
                                                            Common Stock           Paid-in    Accumulated   on Residual
                                                         Shares       Amount       Capital      Deficit      Interest        Total
                                                        ---------   ---------   ----------  -----------   -----------   ----------
<S>                                                     <C>         <C>         <C>         <C>           <C>          <C>       
Balance, September 30,1995                              3,080,000   $  30,800   $  974,200  $   (21,909)               $   983,091

Issuance of common stock (Note J[1])                    1,380,000      13,800    5,685,571                               5,699,371

Release of escrow shares (Note J[1])                                             2,937,500                               2,937,500

Net loss                                                                                       (858,243)                  (858,243)
                                                        ---------   ---------   ----------  -----------

Balance, September 30,1996                              4,460,000      44,600    9,597,271     (880,152)                 8,761,719

Cancellation of escrow shares (Note J[1])                 (500000)     (5,000)       5,000

Cancellation of shares (Note J[4])                        (15,000)       (150)         150

Change in unrealized gain on residual interest, net of
  income tax effect                                                                                       $    81,699       81,699

Net loss                                                                                       (356,314)                  (356,314)
                                                        ---------   ---------   ----------  -----------   -----------   ----------

Balance, September 30, 1997                             3,945,000   $  39,450   $9,602,421  $(1,236,466)  $    81,699   $8,487,104
                                                        =========   =========   ==========  ===========   ===========   ==========
</TABLE>


See notes to financial statements                                            F-4
<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                                      --------------------------
                                                                          1997          1996
                                                                      ------------   -----------
<S>                                                                   <C>            <C>         
Cash flows from operating activities:
 Net loss                                                             $   (356,314)  $  (858,243)
 Adjustments to reconcile net loss to net cash (used in) provided by
      operating activities:
        Depreciation and amortization                                    1,801,690       181,021
        Charge from release of escrow shares                                           2,937,500
        Provisions for losses                                            2,381,700     2,004,016
        Deferred income taxes                                              585,000      (314,700)
        Expenses advanced by parent                                        104,580        88,445
        Impairment of servicing asset                                      144,573
        Changes in:
         Restricted cash and cash equivalents                           (3,818,948)   (1,501,673)
         Loans receivable                                               (1,415,605)
         Due from trustee                                                1,932,769    (2,079,679)
         Repossessed automobiles                                          (256,504)
         Income taxes receivable                                          (418,101)
         Other assets                                                       79,018      (232,508)
         Income taxes payable                                           (1,705,000)    1,693,500
         Accounts payable and accrued expenses                            (173,276)      522,675
                                                                      ------------   -----------
              Net cash (used in) provided by operating activities       (1,114,418)    2,440,354
                                                                      ------------   -----------

Cash flows from investing activities:
    Loans originated                                                                 (27,010,868)
    Loans repaid                                                                      23,912,764
    Principal payments received on residual interest                       225,254
    Capital expenditures                                                  (118,567)      (83,567)
                                                                      ------------   -----------
              Net cash provided by (used in) investing activities          106,687    (3,181,671)
                                                                      ------------   -----------

Cash flows from financing activities:
    (Repayment to) advances from parent                                 (1,835,924)    1,848,219
    Issuance of common stock                                                           5,797,002
    Repayments under line of credit                                                   (3,664,140)
    Bank overdraft                                                         (54,304)      (52,481)
                                                                      ------------   -----------
         Net cash (used in) provided by financing activities            (1,890,228)    3,928,600
                                                                      ------------   -----------
Net (decrease) increase in cash                                         (2,897,959)    3,187,283
Cash at beginning of period                                              3,401,674       214,391
                                                                      ------------   -----------
Cash at end of period                                                 $    503,715     3,401,674
                                                                      ============   ===========

Supplemental disclosure of cash flow information:
    Cash paid for:
       Interest                                                       $    555,083   $   612,170
       Income taxes                                                   $  1,167,576   $    49,500
</TABLE>


See notes to financial statements                                            F-5
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

[1]   The Company:

      Asta Funding, Inc. (the "Company") is a majority-owned subsidiary of Asta
      Group, Inc. ("Group"). The Company is engaged in the business of
      purchasing, selling and servicing retail installment sales contracts
      originated by automobile dealers financing the purchase primarily of used
      automobiles by sub-prime borrowers. During 1997, the Company shifted its
      focus from investing in loans receivable to reselling the contracts. The
      loans are generally purchased from automobile dealers in the states of New
      York, New Jersey, Connecticut, Delaware, Maryland and Pennsylvania. During
      the year ended September 30, 1996 approximately 28% of loans were
      originated through two automobile dealers under common ownership.

[2]   Principles of consolidation:

      The consolidated financial statements include the accounts of Asta
      Funding, Inc. and its wholly-owned subsidiary, Asta Auto Receivables
      Company, which is a limited purpose corporation formed to accommodate the
      structures under which the Company sells its contracts. All significant
      intercompany balances and transactions have been eliminated in
      consolidation. The 1996 financial statements have been reclassified to
      conform to the current years presentation.

[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.

[4]   Income recognition:

      Interest income from loans is recognized using the interest method.
      Accrual of interest income on loans receivable is suspended when a loan is
      contractually delinquent more than 60 days. The accrual is resumed when
      the loan becomes contractually current, and past due interest income is
      recognized at that time. In addition, a detailed review of loans will
      cause earlier suspension if collection is doubtful.

      Gain on sales of loans receivable principally represents the present value
      of the differential between the interest rates charged by the Company and
      the interest rates passed on to the purchaser of the receivables, after
      considering the effects of estimated prepayments, repurchases, normal
      servicing fees and estimated future losses. Gains on the sale of loan
      receivables are recorded on the trade date using the specific
      identification method.

      Effective January 1,1997, as required by Statement of Financial Accounting
      Standards No. 125 "Accounting for Transfers and Servicing of Financial
      Assets and Extinguishment of Liabilities" ("SFAS 125"), upon the sale of
      loans, the Company allocates the cost based upon the relative fair values,
      to the loan, the servicing asset and residual interest, if any. The impact
      of the adoption of SFAS 125 on net income in 1997 was immaterial.


                                                                             F-6
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

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

[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).

(6]   Credit losses:

      Provisions for credit losses are charged to income in amounts sufficient
      to maintain the allowance at a level considered adequate to cover the
      losses of principal in the existing portfolio. The Company's charge-off
      policy is based on an account-by-account review of loans receivable. Loans
      receivable are charged off when management deems them to be uncollectible.

      On October 1,1995, the Company adopted prospectively Statement of
      Financial Accounting Standards No. 114 "Accounting by Creditors for
      Impairment of a Loan" ("SFAS 114"). This statement defines an impaired
      loan as a loan for which it is probable, based on current information,
      that the lender will not collect all amounts due under the contractual
      terms of the loan agreement. The Company has defined the population of
      impaired loans to be all nonaccrual loans. The impaired loan portfolio is
      primarily collateral dependent, as defined by SFAS No. 114. Impaired loans
      are assessed to determine that each loan's carrying value is not in excess
      of the fair value of the related collateral or the present value of the
      expected future cash flows.

      The provision for credit losses for the loans receivable sold with
      recourse is measured based on the present value of expected future losses
      discounted at a riskless interest rate.

[7]   Loan origination fees and costs:

      Direct loan origination fees collected and costs incurred are deferred and
      amortized over the average lives of the loans using the interest method.
      Unamortized amounts are recognized at the time that loans are sold or paid
      in full.

[8]   Repossessed automobiles:

      The Company records repossessed automobiles at the lower of loan balance
      or estimated fair value.

[9]   Income taxes:

      Deferred federal and state taxes arise from temporary differences
      resulting primarily from the provision for credit losses and funds
      deposited in spread accounts for loans sold (Note D) being reported for
      financial accounting and tax purposes in different periods.

[10]  Net loss per share:

      Net loss per share was computed based on the weighted average number of
      common shares outstanding during each year presented excluding shares in
      escrow.


                                                                             F-7
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

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

[11]  Servicing assets:

      Servicing assets arise from the sale of loans. Servicing assets represent
      the estimated present value of the differential between the contractual
      servicing fee and the Company's normal servicing cost. These capitalized
      amounts are amortized over the estimated average life of the loans in each
      pool sold. The Company reviews the carrying amount of each pool for
      possible impairment. If the estimated present value of the future
      servicing income is less than the carrying amount, the Company recognizes
      an impairment loss and reduces future amortization accordingly.

[12]  Residual interest:

      In accordance with SFAS 125, effective January 1,1997, the Company, upon
      sale of loans, recognizes a residual interest. The residual interest
      represents the estimated discounted cash flow of the differential of the
      total interest to be earned on the loans sold and the sum of the interest
      to be paid to the investors and the contractual servicing fee.

[13]  Use of estimates:

      The preparation of financial statements in conformity with generally
      accepted accounting principles 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. Actual results could differ from those
      estimates.

[14]  Recently issued accounting standards:

      In February 1997, the Financial Standards Accounting Board issued
      Statement of Financial Accounting Standards No. 128, "Earnings per Share"
      ("SFAS 128") which is effective for periods ending after December 15,
      1997. Management believes that "basic earnings per share" as defined, for
      each of the periods included in these financial statements would be
      substantially the same as the earnings per share amounts included in the
      statements of income.


                                                                             F-8
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

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

[15]  Stock-based compensation:

      Statement of Financial Accounting Standards No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS 123") allows companies to either expense
      the estimated fair value of stock options or to continue to follow the
      intrinsic value method set forth in APB Opinion 25, "Accounting for Stock
      Issued to Employees" ("APB 25") but disclose the pro forma effects on net
      income had the fair value of the options been expensed. The Company has
      elected to continue to apply APB 25 in accounting for its stock option
      incentive plans.

NOTE B -  LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

All loans are at fixed rates of interest, collateralized by automobiles, and
have remaining maturities of 5 years or less. As of September 30, 1997, the
average effective interest rate of the loan portfolio approximated 32%. Each
loan provides for full amortization, equal monthly payments and can be fully
prepaid by the borrower at any time without penalty. The Company purchases the
loans from dealers at a discount from the amount financed under the contract.
Substantially all borrowers are located in the states of New York, New Jersey,
Connecticut, Delaware, Maryland and Pennsylvania.

As of September 30, 1997 and 1996, nonaccrual loans totaled $203,469 and
$254,964, respectively.

Changes in the allowance for credit losses consisted of the following:

                                                       1997              1996
                                                    ---------         ---------
Balance, beginning of period                        $ 466,395         $ 146,000
Provisions                                            357,878           485,495
Charge-offs                                          (781,690)         (199,308)
Recoveries                                            355,343            34,208
                                                    ---------         ---------
Balance, end of period                              $ 397,926         $ 466,395
                                                    =========         =========

NOTE C -  FURNITURE AND EQUIPMENT

Furniture and equipment as of September 30, 1997 and 1996 consist of the
following:

                                                          1997            1996
                                                        --------        --------
Furniture                                               $ 35,787        $ 23,182
Equipment                                                202,948          96,986
                                                        --------        --------
                                                         238,735         120,168
Less accumulated depreciation                             84,130          22,274
                                                        --------        --------
Balance, end of period                                  $154,605        $ 97,894
                                                        ========        ========

      Depreciation expense for the years ended September 30, 1997 and 1996
aggregated $61,856 and $20,276, respectively.


                                                                             F-9
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE D -  RESTRICTED CASH AND ESTIMATED FUTURE LOSSES ON LOANS SOLD

In connection with the sale of loans during 1997 and 1996, the Company was
required to deposit funds into separate cash accounts with trustees for possible
interest adjustments due to borrowers prepaying the loans and into the Spread
Account for possible losses. Additionally, the Company is required to deposit
into the Spread Accounts cash flows from residual interests in order to maintain
a specified percentage of the outstanding principal balance of the certificates.
This percentage may increase in the event of defaults and/or losses exceeding
certain specified levels. Additionally, losses are charged against the Spread
Accounts. If the Spread Accounts are in excess of the specified percentage, the
trustee will release the excess funds to the Company.

NOTE E - SERVICING ASSETS AND RESIDUAL INTEREST

Changes in servicing assets and residual interest for the two years ended
September 30, 1997 are as follows:

                                                   Servicing          Residual
                                                    Assets            Interest
                                                  -----------       -----------
Balance, September 30,1995                                 --
Assets originating from loan sales                $ 2,836,152
Amortization                                         (160,745)
                                                  -----------
Balance, September 30, 1996                         2,675,407
Assets originating from loan sales                    106,352       $ 1,040,412
Amortization                                       (1,739,834)         (225,254)
Impairment loss                                      (144,573)
Change in market value                                                  136,699
                                                  -----------       -----------
Balance, September 30, 1997                       $   897,352       $   951,857
                                                  ===========       ===========

NOTE F - LINE OF CREDIT

In November 1995, the Company entered into a two-year credit facility with a
bank under which the Company can borrow the lesser of the advance rate (between
70% and 80% of the eligible loans receivable) and $15 million. Advances accrue
interest at the prime rate plus one percent. As of September 30, 1997 and 1996,
there were no amounts outstanding. In November 1997, the bank extended the
credit facility until January 31, 1998.


                                                                            F-10
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE G - INCOME TAXES

The significant components of the Company's deferred tax assets and liabilities
as of September 30, 1997 and 1996 are as follows:

                                                           1997           1996
                                                        ---------       --------
Deferred tax assets:
 Allowance for credit losses                            $ 513,300       $326,600
 Restricted cash and cash equivalents                                     32,800
 Net operating losses                                      95,400
 Other                                                                     5,600
                                                        ---------       --------
   Total deferred tax assets                              608,700        365,000
                                                        ---------       --------

Deferred tax liabilities:
 Restricted cash and cash equivalents                     828,700
 Unrealized gain on residual interests                     55,000
                                                        ---------

   Total deferred tax liabilities                         883,700
                                                        ---------

Net deferred tax asset (liability)                      $(275,000)      $365,000
                                                        =========       ========

      The components of the provision (benefit) for income taxes for the years
ended September 30, 1997 and 1996 are as follows:

                                                       1997             1996
                                                   -----------      -----------
Current:
 Federal                                           $  (836,000)     $ 1,350,000
 State                                                (119,100)         393,000
                                                   -----------      -----------

                                                      (955,100)       1,743,000
                                                   -----------      -----------
Deferred:
 Federal                                               538,000         (249,000)
 State                                                  47,000           65,700
                                                   -----------      -----------

                                                       585,000         (314,700)
                                                   -----------      -----------

Provision (benefit) for income taxes               $  (370,100)     $ 1,428,300
                                                   ===========      ===========

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

                                                             1997         1996
                                                            ------       ------
Statutory federal income tax rate                             34.0%        34.0%
Change from release of escrow shares                                      175.2
State income tax, net of federal benefit                       6.5         37.9
Reversal of income tax accruals                                4.4
Other                                                          6.0          3.5
                                                            ------       ------

Effective income tax rate                                     50.9%       250.6%
                                                            ======       ======


                                                                            F-11
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE H - RELATED PARTY TRANSACTIONS

The Company leases its facilities through July 2000 pursuant to a sublease from
a subsidiary of Group. The terms of the sublease are substantially identical to
the terms of the underlying lease between the subsidiary of Group and the
lessor. Minimum lease payments are as follows:

           September 30,
           -------------
               1998                                 $104,124
               1999                                  104,124
               2000                                   86,770
                                                    --------

                                                    $295,018
                                                    ========

During the years ended September 30, 1997 and 1996, salaries, related payroll
taxes and other expenses allocated from Group to the Company aggregated $104,580
and $88,445, respectively. Management allocates costs monthly based upon its
estimate of the cost of services provided by Group to the Company. Additionally,
during the year ended September 30, 1996, Group paid direct expenses and
purchased equipment for the Company aggregating $16,647.

During the years ended September 30, 1997 and 1996, Group advanced funds to the
Company. Interest expense, at 8 percent per annum, aggregated $7,950 and $14,226
in the years ended September 30, 1997 and 1996, respectively.

NOTE I - COMMITMENTS

[1]   Minimum annual rental payments:

      Future minimum lease payments at September 30, 1997 on noncancelable
      operating leases with an original or remaining term of one year or more,
      other than related party leases are as follows:

                 1998                               $16,559
                 1999                                 8,107
                                                    -------

                                                    $24,666
                                                    =======

      Rent expense for the years ended September 30, 1997 and 1996 was
      approximately $134,100 and $48,500, respectively, (including $106,000 and
      $35,500 to Group and one of its subsidiaries) (see Note H).

[2]   Employment agreements:

      As of September 30, 1997, the Company has employment agreements with two
      executives which expire in September 1998. Under the terms of the
      agreements, the aggregate annual base salaries effective September 30,
      1997 are $261,250. Additionally, each executive may be granted annual
      bonuses.

      The Company has a one-year consulting agreement with a director of the
      Company, pursuant to which he will be paid an annual fee of $75,000.
      Included in the accompanying consolidated statements of operations for the
      year ended September 30, 1997 and 1996 is $75,000 and $66,058,
      respectively, of consulting expense related to this and a prior consulting
      agreement.


                                                                            F-12
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE J - STOCKHOLDERS' EQUITY

[1]   Initial public offering:

      On November 13, 1995, the Company, in its initial public offering, sold
      1,200,000 shares of its common stock. On December 1, 1995, the underwriter
      executed its option to sell an additional 180,000 shares of the Company's
      common stock. Net of related expenses, the Company raised $5,699,371 in
      the offering.

      Upon consummation of the Company's initial public offering, certain
      shareholders deposited 1,000,000 shares of common stock (the "Escrow
      Shares") into an escrow account with the Company's transfer agent,
      pursuant to an agreement by the Company, the escrow agent, and Whale
      Securities, LP. During the escrow period, the escrow Shareholders' may
      vote, but not transfer, the escrow shares. The escrow agreement provides
      for the escrow shares to be released either in their entirety or in
      increments of 500,000 depending on the Company's attainment of certain
      income levels for the fiscal years ending September 30,1996 and September
      30, 1997 or alternatively, if the Company's common stock trades above
      certain levels for a specified period of time during the fiscal years
      ending September 30, 1996 and 1997. The release of the escrow shares is
      deemed to be compensatory and results in a charge to the Company's
      operations equal to the fair market value of the escrow shares as of the
      date on which they are released. The charge related to the release of the
      shares is not deductible for income tax purposes.

      As of September 30, 1996, the Company exceeded the income level in the
      escrow agreement which provided for the release of fifty-percent of the
      escrow shares. The release of the 500,000 shares of common stock was
      deemed compensatory and resulted in a noncash expense for the year ended
      September 30, 1996 of $2,937,500, the estimated fair value of the escrow
      shares at the time of their release.

      As of September 30, 1997, the Company did not attain the income level nor
      did the stock price meet or exceed the per share value necessary for the
      release of the remaining 500,000 escrow shares. As a result, the remaining
      escrow shares have been canceled.

[2]   Stock options:

      The Company has a stock option plan under which 420,000 shares of common
      stock are reserved for issuance upon exercise of either incentive or
      nonincentive stock options which may be granted from time to time by the
      Board of Directors to employees and others. The Board of Directors
      determines the option price (not to be less than fair market value for
      incentive options) at the date of grant. The options have a maximum term
      of 10 years and outstanding options expire from October 2004 through June
      2007.

      The Company applies APB 25 in accounting for its stock option incentive
      plan and, accordingly, recognizes compensation expense for the difference
      between the fair value of the underlying common stock and the grant price
      of the option at the date of grant. Had compensation cost for the
      Company's stock option plan been determined based upon the fair value at
      the grant date for awards under the plans consistent with the methodology
      prescribed under SFAS No. 123, the Company's proforma net loss for 1997
      and 1996 would have been approximately $(372,000) and $(1,141,000),
      respectively and net loss per share would have been approximately $(0.09)
      and $(0.34), respectively. The weighted average fair value of the options
      granted during 1997 and 1996 were $1.13 and $2.90 per share, respectively,
      on the date of grant using the Black-Scholes option pricing model with the
      following assumptions: dividend yield 0% volatility 40%, expected life 10
      years, risk free interest rates from 5.75% to 6.75%.


                                                                            F-13
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE J - STOCKHOLDERS' EQUITY (CONTINUED)

      The following table summarizes stock option transactions under the plan:

<TABLE>
<CAPTION>
                                                        Year Ended September 30,
                                                        1997                1996
                                                 -------------------  -----------------
                                                            Weighted           Weighted
                                                            Average            Average
                                                            Exercise           Exercise
                                                 Shares      Price    Shares     Price
                                                 -------    --------  -------  --------
<S>                                             <C>          <C>      <C>        <C>  
Outstanding options at the beginning of year     417,500     $3.53    320,000    $3.13
Options granted                                   14,000      1.75     97,500     4.83
Options expired or canceled                     (147,000)     1.78
                                                 -------     -----    -------    -----
Outstanding options at the end of year           284,500     $4.34    417,500    $3.53
                                                 =======     =====    =======    =====
</TABLE>

      The following table summarizes information about the Plan's outstanding
options as of September 30, 1997:

                           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
--------------   -----------   ---------------  --------  -----------  --------

  $0.01             25,000          7.05         $0.01
  $1.75             14,000          9.72         $1.75       7,667      $1.75
  $4.50-$5.00      245,000          8.18         $4.93     143,664      $4.96

      As of September 30, 1997, 420,000 shares have been reserved for the
      exercise of stock options, including 135,500 shares available for future
      grant.

[4]   Common stock:

      During the year ended September 30, 1997, an officer terminated his
      employment with the Company. Pursuant to an agreement, 15,000 shares of
      common stock owned by the former officer were canceled and another 25,000
      shares are subject to cancellation should losses on certain loans exceed a
      defined amount.

NOTE K - RETIREMENT PLAN

During 1996, the company established a 401(k) Retirement Plan covering all of
its eligible employees. Matching contributions to the plan are made at the
discretion of the Board of Directors each plan year. There were no contributions
for the year ended September 30, 1997 and 1996.


                                                                            F-14
<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1997 and 1996

NOTE L - GAIN ON SALE OF LOANS

In 1997 and 1996, the Company securitized and sold loans with limited recourse.
Since the Company did not retain the future economic benefits embodied in the
loans and can reasonably estimate its obligation under the recourse provisions
(see Note D), the transactions have been accounted for as sales. Accordingly,
the Company recognized a gain of $2,533,994 in 1997 and $3,450,179 in 1996.
Additionally, the Company entered into an agreement to securitize and sell,
through the same investment banker, an additional $155,000,000 of loans through
May 2000.

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 no
market exists 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 31, 1997 and 1996 about
the fair value of the financial instruments recorded on the Company's financial
statements in accordance with SFAS 107:

                                     1997                        1996
                          --------------------------  --------------------------
                          Carrying Value  Fair Value  Carrying Value  Fair Value
                          --------------  ----------  --------------  ----------

Cash, restricted cash and
    cash equivalents,
and bank overdraft          $3,050,385    $3,050,385    $3,705,549    $3,705,549
Loans receivable             3,247,542     3,803,681     3,285,130     4,189,751
Servicing assets and
 residual interests          1,849,209     1,863,564     2,675,407     3,440,893
Estimated future losses
 on loans sold                                              76,756        76,756

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

Cash, restricted cash and cash equivalents and bank overdraft:

The carrying amount of cash approximates fair value.

Loans receivable, servicing assets and residual interests:

The Company has estimated the fair value reported based on the present value of
expected future cash flows.

Estimated future losses on loans sold:

The Company has estimated the fair value reported based on expected future
losses.


                                                                            F-15













<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 19, 1997                 By: /s/ Gary Stern
                                              --------------------------------
                                                 Gary Stern
                                                 President


                  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 and Director               December 19, 1997
---------------------------
Gary Stern

/s/ Mitchell Herman                          Chief Financial Officer,              December 19, 1997
---------------------------                  Secretary, Chief Accounting
Mitchell Herman                              Officer and Director

/s/ Arthur Stern                             Director                              December 19, 1997
---------------------------
Arthur Stern

/s/ Martin Fife                              Director                              December 19, 1997
---------------------------
Martin Fife

/s/ Herman Badillo                           Director                              December 19, 1997
---------------------------
Herman Badillo

/s/ General Buster Glosson                   Director                              December 19, 1997
---------------------------
General Buster Glosson

/s/ Edward Celano                            Director                              December 19, 1997
---------------------------
Edward Celano

</TABLE>