<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, 1998

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)

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

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

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         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, 1998 were
$4,495,015

As of December 15, 1998, 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
$1,756,550. (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, 1998, the Registrant had
3,945,000 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 27, 1999.


<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, liquidating, 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. This Annual Report on
Form 10-KSB contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 ("Forward-Looking
Statements"). Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected in such
Forward-Looking Statements. Certain factors which could materially affect such
results and the future performance of the Company are described below under
"Risk Factors".

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, 1998, the Company has entered into its standard-form dealer
agreement ("Dealer Agreement") with more than 750 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.

<PAGE>

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

Expansion and Diversification

During 1998, the Company formed three new wholly owned subsidiaries. RAC
Acceptance Co., L.L.C. (`RAC") was formed to purchase military consumer
automobile Contracts. During 1998, RAC purchased approximately $675,000 in
military Contracts. At September 30, 1998, RAC had ceased purchasing military
Contracts and is currently in the process of liquidating all remaining
receivables.

E. R. Receivables, Corp., L.L.C. ("ER") was formed to purchase non-conforming
consumer loans in bulk from financial institutions. During 1998, ER purchased a
portfolio of approximately $6.0 million of performing and non-performing
consumer receivables at a discount. It subsequently sold approximately $2.5
million of the $6.0 million that was purchased. ER will continue to liquidate
the remaining receivables and will pursue other non-conforming consumer
receivable purchases in bulk. In addition, in June 1998, ER and Palisades
Collection, L.L.C. ("Palisades") a wholly owned subsidiary of the Company,
entered into a distressed consumer receivables loan and security agreement
pursuant to which ER will help finance the purchase of distressed consumer
receivables and Palisades will act as sub-servicer for such receivables. At
September 30, 1998, ER had invested $93,638 in this venture. There can be no
assurance that the Company will be able to expand or diversify its operations.

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;

o   To increase the purchase of non-conforming consumer loans in bulk;

o   To increase its lending activities in the purchase of distressed consumer
    receivables

Purchase and Sale of Contracts

Dealer Contract Purchase Program

As of September 30, 1998, the Company was a party to Dealer Agreements with more
than 750 Dealers, all of which are located in the states of New York, New
Jersey, Connecticut, Delaware,

<PAGE>

Maryland, Pennsylvania, Virginia and Maine. Approximately 70% 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, 1998, approximately 99% of the Contracts purchased by the Company
consisted of financing for used cars and the remaining approximately 1% 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. For the year ended September 30, 1998, approximately 21%, 21%,
14%, 13% and 12% of Contracts purchased by the Company were from borrowers who
reside in the states of New Jersey, Connecticut, New York, Maryland 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 analysts will document their decision and
notify the Dealers by facsimile 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 a discount. In addition, the
Company charges an acquisition fee 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

<PAGE>

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 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


<PAGE>

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, 1998, the Company had completed two securitizations aggregating
approximately $44 million in Contracts pursuant to the agreement with Greenwich
Capital.

For the years prior to September 30, 1998, the Company purchased 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

<PAGE>

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.

In future periods, the Company may 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.

For the year ended September 30, 1998, the Company did not complete any sales of
Contracts under its securitization agreement. Although, the Company still has
its securitization facility available to sell Contracts, it is pursuing other
alternatives for its Contracts such as whole loan sales, or additional financing
to warehouse larger amounts of receivables. In the event funds obtained from a
securitization or a whole loan sale are not sufficient to retire the
corresponding debt, the securitization or whole loan sale may adversely affect
liquidity. In addition, there can be no assurance that the Company will be able
to obtain additional financing to warehouse larger amounts of receivables or
that the failure to obtain additional financing will not have a material adverse
affect on the Company's liquidity.

<PAGE>

Terms of Servicing Agreement

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

The Company currently has a servicing agreement with a trustee ( the "Servicing
Agreement") relating to a securitization with Greenwich Capital pursuant to
which the Company is obligated to service all Contracts sold to the trust in
accordance with the Company's standard procedures. The Servicing Agreement
provides that the Company will bear all costs and expenses incurred in
connection with the management, administration and collection of the Contracts
serviced. The Servicing Agreement also provides that the Company will take all
actions necessary or reasonably 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 Agreement, 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 Agreement, 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 Agreement to receive a base monthly
servicing fee of 3.0% per annum 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.)

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 Agreement,
the Company is entitled to receive such excess.

Pursuant to the Servicing Agreement, 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


<PAGE>

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 Agreement is 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 four to six weeks after the due date, the
Company typically 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 borrower does not redeem the
vehicle, 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 as of
September 30, 1997 and 1998. 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
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, 1998                September 30, 1997
                                              ------------------                ------------------
                                            Number                            Number
                                           Of Loans         Amount           Of Loans           Amount   
                                           --------         ------           --------           ------
<S>                                           <C>             <C>                <C>              <C>
Gross Servicing Portfolio                    3671         $26,363,424          3936           $32,946,674

Period of delinquency (2)
    31-60 days                                273           2,047,328           175             1,696,722
    61-90 days                                 76             494,481            48               478,540
    91- +  days                                38             256,233            36               400,084
                                               --          ----------            --            ----------

Total delinquencies                           387           2,798,042           259             2,575,346

Amount in repossession (3)                    111           1,029,398           107             1,015,380

Total delinquencies and                       498           3,827,440           366             3,590,726
amount in repossession

Delinquencies as a percent
Of Gross Servicing Portfolio                10.54%              10.61%         6.58%                 7.82%

Total delinquencies and amount in
Repossession as a percent of
Gross Servicing Portfolio                   13.57%              14.52%         9.30%                10.90%
</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)

                                         Year Ended              Year Ended
                                      September 30, 1998      September 30, 1997
                                      ------------------      ------------------

Average Servicing Portfolio
Outstanding                             $29,655,049                $30,129,928

Net charge-offs as a percent of
Average Servicing Portfolio                   15.61%                     10.69%

(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.

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.

On May 20, 1998, the Company purchased 99.0% of the Class A and Class B bond
certificates of the ASTA Grantor Trust 1996-1 at a discount from Greenwich
Capital Markets, Inc. The net purchase price for the certificates was $5,544,345
including accrued interest. Such funds were made available to the Company under
its Credit Facility with Bank America and Asta Group, Incorporated, an affiliate
of the Company.

There can be no assurance that the Company will make any additional 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
<PAGE>

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, 1998, the Company had 5
representatives, 2 of whom are employees and 3 of whom are independent sales
representatives.

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


<PAGE>
Dealers and reduced interest spreads, that would materially adversely affect the
Company's profitability.

There can be no assurances that the Company will be able to compete successfully
against current or future competitors or that competition will not have material
adverse effect on the Company's business, financial condition or results of
operations.

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

<PAGE>

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 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 Facilities

In January 1998, the Company renewed its credit facility with BankAmerica ( the
"Credit Facility") pursuant to which BankAmerica agreed to provide the Company
with a maximum of $20 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 plus .25%
per annum on the average unused amount of the Credit Facility. As of November
30, 1998, BankAmerica's reference rate was 8.00%. Under the Credit Facility, the
Company may borrow up to 83% (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 $20 million.
The advance rates are subject to decreases based on certain loan performance
criteria established by BankAmerica. At September 30, 1998 the Company's advance
rate was 78% of net eligible installment loan 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, 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.

<PAGE>

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. In April 1998, RAC entered into a demand credit facility
with Sterling Financial Services Company under which RAC can borrow at an
advance rate of 65% of eligible loans up to a maximum of $1 million. At
September 30, 1998, advances under this facility aggregated $449,235. The
advances bear interest at the prime rate plus 4%.

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 or a whole loan sale
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 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 allowance 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/Year 2000

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, 1998, the Company upgraded its
computer hardware to support the Company's origination, accounting and
collection processes. In addition, the Company has enhanced its 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.

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.

The Company recognizes the need to ensure that its operations and systems
(including information technology (IT) and non-IT systems) will not be adversely
impacted by year 2000 hardware and software issues. The Year 2000 problem is the
result of computer programs being written using two digits (rather than four) to
define the applicable years. Any of the Company's programs that have
time-sensitive software may recognize the date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations or system
failures. The Year 2000 problem affects the Company's installed computer
systems, network elements, software applications and other business systems that
have time sensitive programs.

The Company is currently conducting a review of its IT and non-IT systems to
identify those systems which could be affected by the Year 2000 problem. The
Company is using both internal and external sources to identify, correct and
test its systems for Year 2000 compliance. The Company's assessment review is
expected to be completed by January 31, 1999. Modifications to the Company's
systems as a result of the findings of such assessment are expected to be
completed and tested by April 30, 1999. The Company has contacted its Dealers to
verify that the systems the Dealers use are

<PAGE>

or will be Year 2000 compliant. If the Company's Dealers or others with whom the
Company does business experience problems relating to the Year 2000 issue, the
Company's business, financial condition or results of operations could be
materially adversely affected.

The Company estimates that the total cost of achieving Year 2000 readiness for
its internal systems is approximately $25,000. Based on its current estimates
and information currently available, the Company does not anticipate that the
costs associated with Year 2000 compliance issues will be material to the
Company's consolidated financial position or results of operations.

In the event that efforts of the Company's Year 2000 project do not address all
potential systems problems, the Company is currently developing business
interruption contingency plans. Contingency planning for possible Year 2000
disruptions will continue to be defined, improved and implemented.

The Company believes that its Year 2000 project will allow it to be Year 2000
complaint in a timely manner. There can be no assurances, however, that the
Company's information technology systems or those of a third party on which the
Company relies will be Year 2000 compliant by year 2000 or that the Company's
contingency plans will mitigate the effects of any noncompliance. An
interruption of the Company's ability to conduct its business due to a Year 2000
readiness problem could have a material adverse effect on the Company's
business, operations or financial condition. The foregoing discussion of the
implications of the Year 2000 problem for the Company contains numerous
forward-looking statements based on inherently uncertain information. There can
be no guarantee that the Company's Year 2000 goals or expense estimates will be
achieved, and actual results could differ.

Employees

As of September 30, 1998, the Company had 31 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.

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, 1997 there were approximately 13 holders of record of
the Common Stock. High and low bid prices of the Common Stock since October 1,
1996 as reported by NASDAQ are set fourth below (such quotations reflect
inter-dealer prices without retail markup, markdown, or commission, and may not
necessarily represent actual transactions):


                                             High             Low
                                             ----             ---
October 1, 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

October 1, 1997 to December 31, 1997         1.18             0.56
January 1, 1998 to March 31, 1998            0.50             0.97
April 1, 1998 to June 30, 1998               0.72             1.13
July 1, 1998 to September 30, 1998           1.02             0.50


On October 6, 1998, the Company received notification from NASDAQ that the
Company was not in compliance with the minimum $1.00 bid price requirement
necessary for continued listing of the Company's shares of common stock on The
NASDAQ Stock Market SmallCap Market. NASDAQ notified the Company that the
Company's common stock must maintain a minimum bid price of $1.00 for ten
consecutive trading days prior to January 6, 1999 to be in full compliance or
the Company's common stock would be delisted. While the Company would appeal
such delisting, the outcome of such an appeal can not be determined. Should the
Company be delisted, it would expect to be traded on the Bulletin Board.

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.

<PAGE>



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

Results of Operations

Year Ended September 30, 1998 Compared to the Year Ended September 30, 1997

Revenues. During the year ended September 30, 1998, revenues decreased $1.18
million compared to the year ended September 30, 1997. Interest income increased
$1.99 million compared to the year ended September 30, 1997, and represented
98.9% of total revenues for the year ended September 30, 1998. The increase in
interest income is due to the interest income earned on the Accounts Acquired
for Liquidation and an increase in dollar amount of Contracts outstanding during
the year ended September 30, 1998, as compared to the same period in the prior
year. During the year ended September 30, 1998, the Company purchased
approximately $18 million in Contracts from Dealers, compared to $23 million in
the year ended September 30, 1997. The decrease in the number of Contracts
purchased from Dealers resulted from the Company's recent refocusing of its
strategic business objectives by its expansion into the distressed consumer
receivables sector. Servicing fee income on Contracts sold decreased $633,000
compared to the year ended September 30, 1997. The decrease in servicing fee
income is due to the decrease in the dollar amount of Contracts serviced by the
Company during the year ended September 30, 1998 and worse than expected
performance on the Contracts serviced.

Expenses. During the year ended September 30, 1998, general and administrative
expenses decreased $352,000 compared to the year ended September 30, 1997 and
represented 37.7% of total expenses. The decrease in general and administrative
expenses is due to a decrease in expenses associated with purchasing Contracts.

Interest expense increased by $333,000 during the year ended September 30, 1998,
compared to the same period in the prior year and represented 8.9% of total
expenses. The increase is due to an increase in borrowings under the Company's
lines of credit with BankAmerica and Sterling Financial Services Company and
interest accrued and/or paid on loans from an affiliate.

During the year ended September 30, 1998, the provision for credit losses
increased by $2.19 million compared to the year ended September 30, 1997. The
increase reflects higher than expected losses on loans previously sold and
serviced by the Company.

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 from the prior year and represented 56.1% of total
operating expenses. The increase is due to

<PAGE>
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 provision for 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.

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 provided by operating activities was $1.3 million during the year ended
September 30, 1998 compared to net cash used of $1.1 million during the year
ended September 30, 1997. Cash used for purchasing Contacts was $18.0 million
during the year ended September 30, 1998 as compared to $22.0 million in the
year ended September 30, 1997.

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.

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:

<PAGE>

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 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, 1998 and 1997                  F-2

Consolidated Statements of Operations - Years ended
September 30, 1998 and 1997                                                F-3

Consolidated Statements of Shareholders' Equity - Years ended
September 30, 1998 and 1997                                                F-4

Consolidated Statements of Cash Flows - Years ended
September 30, 1998 and 1997                                                F-5

Notes to Consolidated Financial Statements                                 F-6




<PAGE>



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

Not applicable

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, 1999 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, 1999 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, 1999 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, 1999 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.

 10.1   Consulting Agreement, by and between the Company and Arthur Stern. (2)

 10.2   Employment Agreement, dated October 1, 1998, by and between the Company
        and Gary Stern.

 10.3   Employment Agreement, dated October 1, 1998, by and between the Company
        and Mitchell Herman.

 10.4   Credit Facility with BankAmerica. (3)

 21.    Subsidiaries 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 10.7 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).

3. Incorporated by reference to Exhibit 10.3 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, 1998.

<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 21, 1998                 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 21, 1998
---------------------------
Gary Stern

/s/ Mitchell Herman                    Chief Financial Officer, Secretary,   December 21, 1998
---------------------------            Chief Accounting Officer and
Mitchell Herman                        Director

/s/ Arthur Stern                       Director                              December 21, 1998
---------------------------
Arthur Stern

/s/ Martin Fife                        Director                              December 21, 1998
---------------------------
Martin Fife

/s/ Herman Badillo                     Director                              December 21, 1998
---------------------------
Herman Badillo

/s/ General Buster Glosson             Director                              December 21, 1998
---------------------------
General Buster Glosson

/s/ Edward Celano                      Director                              December 21, 1998
---------------------------
Edward Celano
</TABLE>



<PAGE>

                               ASTA FUNDING, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1998 and 1997

<PAGE>


ASTA FUNDING, INC.


Contents

                                                                            Page
                                                                            ----
Consolidated Financial Statements                                            

   Independent auditors' report                                              F-2

   Balance sheets as of September 30, 1998 and 1997                          F-3

   Statements of operations for the years ended
      September 30, 1998 and 1997                                            F-4

   Statements of changes in stockholders' equity for the
      years ended September 30, 1998 and 1997                                F-5

   Statements of cash flows for the years ended
      September 30, 1998 and 1997                                            F-6

   Notes to financial statements                                             F-7


<PAGE>

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, 1998 and 1997, 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, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.


Richard A. Eisner & Company, LLP


Florham Park, New Jersey
October 29, 1998

                                                                             F-2

<PAGE>

ASTA FUNDING, INC.

Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                                      September 30,
                                                                                               ---------------------------
                                                                                                 1998               1997
                                                                                               --------           --------
<S>                                                                                            <C>                <C>    
ASSETS
   Cash                                                                                      $   163,123        $  503,715
   Restricted cash and cash equivalents (net of estimated future losses of
      $1,065,568 in 1998 and $703,072 in 1997)(Note D)                                            62,210         2,546,670
   Loans receivable, (less allowance for credit losses of $1,209,436 in 1998
      and $397,926 in 1997) (Note B)                                                          15,903,553         3,247,542
   Servicing assets (Notes A[11] and E)                                                           36,403           897,352
   Residual interest (Notes A[12] and E)                                                          13,970           951,857
   Furniture and equipment (net of accumulated depreciation of $155,630
      in 1998 and $84,130 in 1997) (Notes A[5] and C)                                            150,015           154,605
   Repossessed automobiles (net of allowance for losses of $200,000 in
      1998 and $96,062 in 1997)                                                                  365,787           226,248
   Deferred income taxes (Note G)                                                                366,300    
   Income taxes receivable                                                                       527,463           418,101
   Other assets                                                                                  540,528           423,454
                                                                                             -----------        ----------
                                                                                             $18,129,352        $9,369,544
                                                                                             ===========        ==========
LIABILITIES
   Advances under lines of credit                                                            $11,449,735
   Accounts payable and accrued expenses                                                         385,399        $  419,080
   Deferred income taxes (Note G)                                                                                  275,000
   Due to affiliate                                                                              916,487           188,360
                                                                                             -----------        ----------
        Total liabilities                                                                     12,751,621           882,440
                                                                                             -----------        ----------
   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                                                            39,450            39,450
   Additional paid-in capital                                                                  9,602,421         9,602,421
   Accumulated deficit                                                                        (4,264,140)       (1,236,466)
   Unrealized gain on residual interest (net of income taxes of $55,000 in 1997)                                    81,699
                                                                                             -----------        ----------
        Total stockholders' equity                                                             5,377,731         8,487,104
                                                                                             -----------        ----------
                                                                                             $18,129,352        $9,369,544
                                                                                             ===========        ==========
</TABLE>
See notes to financial statements                                            F-3
 
<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                                                       Year Ended
                                                                                                      September 30,
                                                                                               ---------------------------
                                                                                                 1998               1997
                                                                                               --------           --------
<S>                                                                                            <C>                <C>    
Interest income                                                                               $ 4,445,308        $2,457,515

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

Servicing fee income                                                                               49,707           682,692
                                                                                              -----------        ----------
                                                                                                4,495,015         5,674,201
                                                                                              -----------        ----------
General and administrative expenses (Note I)                                                    3,235,733         3,588,189

Provision for credit losses                                                                     4,567,066         2,381,700

Interest expense (Note H)                                                                         763,990           430,726
                                                                                              -----------        ----------
                                                                                                8,566,789         6,400,615
                                                                                              -----------        ----------
Loss before benefit for income taxes                                                           (4,071,774)         (726,414)

Benefit for income taxes (Note G)                                                              (1,044,100)         (370,100)
                                                                                              -----------        ----------
Net loss                                                                                      $(3,027,674)       $ (356,314)
                                                                                              ===========        ==========
Basic and diluted net loss per share                                                             $(.77)             $(.09)
                                                                                                 =====              =====

Weighted average number of shares outstanding                                                   3,945,000         3,952,315
                                                                                              ===========        ==========
</TABLE>
See notes to financial statements                                            F-4

<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
                                                                             Additional                     Unrealized
                                                         Common Stock          Paid-in      Accumulated       Gain on
                                                     Shares      Amount        Capital        Deficit        Interest       Total
                                                   ---------    --------     -----------    -----------     ---------    ---------- 
<S>                                                <C>          <C>          <C>            <C>             <C>          <C>
Balance, September 30, 1996                        4,460,000    $ 44,600     $ 9,597,271    $  (880,152)                 $8,761,719
                                                   


Cancellation of escrow shares (Note J[1])           (500,000)     (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
                                                    

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

Net loss                                                                                     (3,027,674)                 (3,027,674)
                                                   ---------    --------     -----------    -----------     ---------    ---------- 

Balance, September 30, 1998                        3,945,000    $ 39,450     $ 9,602,421    $(4,264,140)    $       0    $5,377,731
                                                   =========    ========     ===========    ===========     =========    ==========
</TABLE>
See notes to financial statements                                            F-5

<PAGE>

ASTA FUNDING, INC.

Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                 Year Ended September 30,
                                                                                               ---------------------------
                                                                                                 1998               1997
                                                                                               --------           --------
<S>                                                                                            <C>                <C>    
Cash flows from operating activities:
   Net loss                                                                                  $(3,027,674)      $  (356,314)
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                                            636,059         1,801,690
        Provisions for losses                                                                  4,567,066         2,381,700
        Deferred income taxes                                                                   (586,300)          585,000
        Expenses advanced by parent                                                               73,500           104,580
        Writedown of residual interest                                                           250,000           144,573
      Changes in:
        Restricted cash and cash equivalents                                                     (81,255)       (3,818,948)
        Loans receivable                                                                                        (1,415,605)
        Repossessed automobiles                                                                 (243,477)         (256,504)
        Income taxes receivable                                                                 (109,362)         (418,101)
        Other assets                                                                            (117,074)        2,011,787
        Income taxes payable                                                                                    (1,705,000)
        Accounts payable and accrued expenses                                                    (33,681)         (173,276)
                                                                                             -----------       -----------
           Net cash provided by (used in) operating activities                                 1,327,802        (1,114,418)
                                                                                             -----------       -----------
Cash flows from investing activities:
   Loans purchased                                                                           (16,562,003)
   Loan principal payments                                                                     7,153,860
   Purchase of securitization certificates                                                    (4,600,000)
   Principal payments received on residual interest                                              551,188           225,254
   Capital expenditures                                                                          (71,527)         (118,567)
                                                                                             -----------       -----------
           Net cash (used in) provided by investing activities                               (13,528,482)          106,687
                                                                                             -----------       -----------
Cash flows from financing activities:
   Advances from (repayment to) affiliate                                                        410,353        (1,835,924)
   Advances under lines of credit                                                             11,449,735
   Payment on bank overdraft                                                                                       (54,304)
                                                                                             -----------       -----------
           Net cash provided by (used in) financing activities                                11,860,088        (1,890,228)
                                                                                             -----------       -----------
Net decrease in cash                                                                            (340,592)       (2,897,959)

Cash at beginning of year                                                                        503,715         3,401,674
                                                                                             -----------       -----------
Cash at end of year                                                                          $   163,123       $   503,715
                                                                                             ===========       ===========
Supplemental disclosure of cash flow information:
   Cash paid for:
      Interest                                                                               $   674,004       $   555,083
      Income taxes                                                                                 1,365       $ 1,167,576
</TABLE>
See notes to financial statements                                            F-6



<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

[1]    The Company:

       Asta Funding, Inc. (the "Company") is primarily engaged in the business
       of purchasing and servicing retail installment sales contracts originated
       by automobile dealers financing the purchase primarily of used
       automobiles by sub-prime borrowers. The loans are generally purchased
       from automobile dealers in the northeastern and mid-atlantic states.
       Additionally, through wholly-owned subsidiaries, the Company purchases
       and liquidates portfolios of nonconforming consumer loans.

       Effective October 1, 1997, the Company changed its policy of purchasing
       and selling loans to purchasing and liquidating the loans.

[2]    Principles of consolidation:

       The consolidated financial statements include the accounts of Asta
       Funding, Inc. and its wholly-owned subsidiaries, Asta Auto Receivables
       Company, which is a limited purpose corporation formed to accommodate the
       structures under which the Company sells its contracts, E.R. Receivables,
       Corp. L.L.C., which is engaged in the business of purchasing and
       liquidating nonconforming consumer receivables, RAC Acceptance Co.,
       L.L.C., which purchased and is liquidating automobile installment
       contracts of military personnel and Palisades Collections, L.L.C. which
       was formed to provide collection services for E. R. Receivables Corp.,
       L.L.C. All significant intercompany balances and transactions have been
       eliminated in consolidation.

[3]    Cash and cash equivalents:

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

       The Company maintains cash balances in various financial institutions.
       Management periodically evaluates the creditworthiness of such
       institutions.

[4]    Income recognition:

       Interest income from sub-prime automobile 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.

       The Company recognizes income on nonconforming loan portfolios, which are
       acquired for liquidation, using the interest method. Upon acquisition of
       a portfolio of loans, the Company's management estimates the future
       anticipated cash flows and determines the allocation of payments based
       upon this estimate.

                                                                             F-7

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


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 operations 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.

       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.

       After foreclosure, valuations are periodically performed by management
       and the automobiles are carried at the lower of loan balance or estimated
       fair value.

[9]    Income taxes:

       Deferred federal and state taxes arise from net operating losses and
       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:

       In February 1997, the Financial Accounting Standards Board issued
       Statement of Financial Accounting Standards No. 128, "Earnings per Share"
       ("FAS 128") which is effective for periods ended after December 15, 1997
       and requires that, upon adoption, all prior periods be restated.

       Basic and diluted per share data has been computed on the basis of the
       loss for the period divided by the weighted average shares outstanding
       during the period. All potentially dilutive securities have been excluded
       from the calculation since they would be anti-dilutive.

                                                                             F-8

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


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]   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

Substantially all loans are at fixed rates of interest, collateralized by
automobiles, and have remaining maturities of 5 years or less. Each automobile
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 northeastern and mid-atlantic
states.

                                                                             F-9

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


NOTE B - LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

As of September 30, 1998 and 1997, nonaccrual loans, excluding the portfolio of
nonconforming loans aggregating $919,268 as of September 30, 1998, totaled
$384,998 and $203,469, respectively.

Changes in the allowance for credit losses consisted of the following:
                                           
                                                1998              1997
                                             -----------        --------
                
     Balance, beginning of period            $   397,926        $466,395
     Provisions                                1,897,413         357,878
     Charge-offs                              (1,631,888)       (781,690)
     Recoveries                                  545,985         355,343
                                             -----------        --------
     Balance, end of period                  $ 1,209,436        $397,926
                                             ===========        ========

NOTE C - FURNITURE AND EQUIPMENT

Furniture and equipment as of September 30, 1998 and 1997 consist of the
following:

                                                1998              1997
                                             -----------        ---------
     Furniture                               $    45,599        $  35,787
     Equipment                                   260,046          202,948
                                             -----------        ---------
                                                 305,645          238,735
     Less accumulated depreciation               155,630           84,130
                                             -----------        ---------
     Balance, end of period                  $   150,015        $ 154,605
                                             ===========        ========= 

Depreciation expense for the years ended September 30, 1998 and 1997 aggregated
$76,117 and $61,856, respectively.


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

In connection with the sale of loans in 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 Accounts
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.

                                                                            F-10

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


NOTE E - SERVICING ASSETS AND RESIDUAL INTEREST

Changes in servicing assets and residual interest for the two years ended
September 30, 1998 are as follows:
                                               
                                                   Servicing        Residual
                                                    Assets          Interest
                                                  -----------     ------------
     Balance, September 30, 1996                  $ 2,675,407
     Assets originating from loan sales               106,352     $ 1,040,412
     Amortization/principal payments               (1,739,834)       (225,254)
     Impairment loss                                 (144,573)
     Change in market value                                           136,699
                                                  -----------     -----------

     Balance, September 30, 1997                  $   897,352     $   951,857
     Amortization/principal payments                 (559,942)       (551,188)
     Impairment loss                                                 (250,000)
     Transfer to loans receivable                    (301,007)
     Change in market value                                          (136,699)
                                                  -----------     -----------

     Balance, September 30, 1998                  $    36,403     $    13,970
                                                  ===========     ===========

In May 1998, the Company repurchased the outstanding Certificates on the 1996-1
Trust, which had a remaining principal balance of $5,952,999 for an aggregate
purchase price of $5,544,345. Of the purchase price, $4,600,000 was funded
directly by a line of credit and $244,274 was funded directly by an affiliate.
Accordingly, the remaining related servicing asset was reclassified to loans
receivable.


NOTE F - LINES OF CREDIT

In January 1998, the Company entered into a two year credit facility with a bank
under which the Company can borrow, at an advance rate of up to 83% of eligible
loans, up to a maximum of $20 million. As of September 30, 1998, the Company's
advance rate was 78% of eligible loans. As of September 30, 1998, advances under
this facility aggregated $11,000,500. The advances bear interest at the prime
rate plus 1%. This line of credit contains covenants requiring, among other
things, maintenance of certain financial ratios and minimum tangible net worth.

In April 1998, RAC entered into a demand credit facility with a bank under which
RAC can borrow at an advance rate of 65% of eligible loans receivable up to a
maximum of $1 million. As of September 30, 1998, advances under this facility
aggregated $449,235. The advances bear interest at the prime rate plus 4%.

As of September 30, 1998, based upon the most restrictive covenants, the company
is precluded from declaring or paying cash dividends.

                                                                            F-11

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997

NOTE G - INCOME TAXES

The significant  components of the Company's  deferred tax assets and 
liabilities as of September 30, 1998 and 1997 are as follows:
                                               

                                                    1998             1997
                                                -----------      ----------
   Deferred tax assets:
      Allowance for credit losses               $   988,500      $  513,300
      Net operating losses                          638,300          95,400
                                                -----------      ----------

         Total deferred tax assets                1,626,800         608,700
                                                -----------      ----------
   Deferred tax liabilities:
      Restricted cash and cash equivalents          180,700         828,700
      Unrealized gain on residual interests                          55,000
                                                -----------      ----------

         Total deferred tax liabilities             180,700         883,700
                                                -----------      ----------

   Valuation allowance                           (1,079,800)
                                                -----------      

   Net deferred tax assets (liability)          $   366,300      $ (275,000)
                                                ===========      ==========

The components of the benefit for income taxes for the years ended September 30,
1998 and 1997 are as follows:

                                                    1998             1997
                                                -----------      ----------
   Current:                             
      Federal                                   $  (457,800)     $ (836,000)
      State                                                        (119,100)
                                                -----------      ----------

                                                   (457,800)       (955,100)
                                                -----------      ----------
   Deferred:
      Federal                                      (488,000)        538,000
      State                                         (98,300)         47,000
                                                -----------      ----------

                                                   (586,300)        585,000
                                                -----------      ----------

   Benefit for income taxes                     $(1,044,100)     $ (370,100)
                                                ===========      ==========

As of September 30, 1998, the Company has a net operating loss carryforward
aggregating $904,000 expiring thorough 2018.

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:

                                                    1998             1997
                                                 ----------      ----------
   Statutory federal income tax rate               34.0%             34.0%
   State income tax, net of federal benefit         1.6               6.5
   Reversal of income tax accruals                 10.3               4.4
   Other                                           (2.8)              6.0
   Valuation allowance                            (17.5)     
                                                  -----              ----
      Effective income tax rate                    25.6%             50.9%
                                                  =====              ====




                                                                            F-12

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


NOTE H - RELATED PARTY TRANSACTIONS

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

           September 30,                        
           -------------
              1999                   $104,124
              2000                     86,770
                                     --------
                                     $190,894
                                     ========

Rent expense for the years ended September 30, 1998 and 1997 was approximately
$127,400 and $134,100, respectively, (including $109,200 and $106,000 to an
affiliate) (see Note H).

During the years ended September 30, 1998 and 1997, salaries, related payroll
taxes and other expenses allocated from an affiliate aggregated $73,500 and
$104,580, respectively. Management allocates costs monthly based upon its
estimate of the cost of services provided by the affiliate.

During the years ended September 30, 1998 and 1997, an affiliate advanced funds
to the Company. Interest expense, at 12 and 8 percent per annum, respectively,
aggregated $44,434 and $7,950 in the years ended September 30, 1998 and 1997,
respectively.


NOTE I - COMMITMENTS

Employment agreements:

During October 1998, the Company entered into employment agreements with two
executives which expire in September 2001. Under the terms of the agreements,
the aggregate annual base salaries effective September 30, 1998 are $276,250.
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, 1998 and 1997 is $75,000, per annum of consulting expense related to this
and a prior consulting agreement.

                                                                            F-13

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997

NOTE J - STOCKHOLDERS' EQUITY

[1]    Escrow shares:

       Upon consummation of the Company's initial public offering November 1995,
       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. 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.

       As of September 30, 1996, the Company exceeded the income level in the
       escrow agreement which provided for the release of 500,000 of the escrow
       shares. However, 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 and net
       loss per share for 1997 would have been approximately $(372,000) and
       $(0.09), respectively. The weighted average fair value of the options
       granted during 1997 were $1.13 per share 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%

The following table summarizes stock option transactions under the plan:
<TABLE>
<CAPTION>
                                                                           Year Ended September 30,
                                                             ---------------------------------------------------------- 
                                                                      1998                              1997
                                                             -----------------------------     ------------------------
                                                                            Weighted                          Weighted
                                                                             Average                           Average
                                                                            Exercise                          Exercise
                                                              Shares          Price           Shares            Price
                                                             --------       --------         --------         ---------
<S>                                                          <C>             <C>             <C>              <C>   
  Outstanding options at the beginning of year                284,500        $4.34            417,500           $3.53
  Options granted                                                                              14,000            1.75
  Options expired or canceled                                                                (147,000)           1.78
                                                             --------        -----           --------           -----
  Outstanding options at the end of year                      284,500        $4.34            284,500           $4.34
                                                             ========        =====           ========           ===== 
</TABLE>
                                                                            F-14


<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997


NOTE J - STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information about the Plan's outstanding options
as of September 30, 1998:
<TABLE>
<CAPTION>
                                        Options Outstanding                         Options Exercisable
                       -----------------------------------------------------   ---------------------------
                                         Weighted
                                          Average          Weighted                         Weighted
                                         Remaining          Average                          Average
   Range of            Number           Contractual        Exercise         Number          Exercise
Exercise Price      Outstanding       Life (in Years)        Price        Exercisable         Price
---------------     -----------       ---------------      --------       -----------       --------
<S>                 <C>               <C>                  <C>            <C>               <C>    
$0.01                  25,000              6.05              $0.01           25,000           $0.01
$1.75                  14,000              8.72              $1.75           12,000           $1.75
$4.50 - $5.00         245,500              7.18              $4.93          225,500           $4.95
</TABLE>

       As of September 30, 1998, 420,000 shares have been reserved for the
       exercise of stock options, including 135,500 shares available for
       future grant.

[3]    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, through December 31,
       1998, on certain loans exceed a defined amount.


NOTE K - RETIREMENT PLAN

The Company maintains 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, 1998 and 1997.


NOTE L - GAIN ON SALE OF LOANS

In 1997, 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. 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.

                                                                            F-15

<PAGE>

ASTA FUNDING, INC.

Notes to Financial Statements
September 30, 1998 and 1997

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 30, 1998 and 1997 about
the fair value of the financial instruments recorded on the Company's financial
statements in accordance with SFAS 107:
<TABLE>
<CAPTION>
                                                         1998                                    1997
                                        -----------------------------------     ------------------------------------
                                         Carrying Value        Fair Value        Carrying Value         Fair Value
                                        -----------------    --------------     -----------------     -------------- 
<S>                                     <C>                   <C>               <C>                    <C>    
Cash, restricted cash and
   and cash equivalents                   $   225,333         $   225,333          $3,050,385           $3,050,385
Loans receivable                           15,903,553          17,975,405           3,247,542            3,803,681
Servicing assets and
   residual interests                          50,373              50,373           1,849,209            1,863,564
Advances under lines of
   credit and due to affiliates            12,366,222          12,366,222             188,360              188,360
</TABLE>

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:

The carrying amount approximates fair value.

Loans receivable, servicing assets and residual interests:

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

Advances under lines of credit and due to affiliates:

Since these are primarily variable rate and short-term, the carrying amounts
approximate fair value.



                                                                            F-16


<PAGE>                                                                          
                                 EXHIBIT INDEX                                  
                                                                                
                                                                                
Exhibit                                                                         
Number                                                                          
-------                                                                         
 3.1    Certificate of Incorporation. (1)                                       
                                                                                
 3.2    By laws.                                                                
                                                                                
 10.1   Consulting Agreement, by and between the Company and Arthur Stern. (2)  
                                                                                
 10.2   Employment Agreement, dated October 1, 1998, by and between the Company 
        and Gary Stern.                                                         
                                                                                
 10.3   Employment Agreement, dated October 1, 1998, by and between the Company 
        and Mitchell Herman.                                                    
                                                                                
 10.4   Credit Facility with BankAmerica. (3)                                   
                                                                                
 21.    Subsidiaries 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 10.7 to the Company's Registration      
Statement on Form SB-2 (File No. 33-97212).                                     
                                                                                
3. Incorporated by reference to Exhibit 10.3 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, 1998.