<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q

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

                For the quarterly period ended December 31, 2005

                                       OR

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from ________ to ___________


                         Commission file number: 0-26906


                               ASTA FUNDING, INC.
             (Exact name of registrant as specified in its charter)



            DELAWARE                                          22-3388607
  (State or other jurisdiction                               (IRS Employer
of incorporation or organization)                         Identification No.)


210 SYLVAN AVE., ENGLEWOOD CLIFFS, NEW JERSEY                   07632
  (Address of principal executive offices)                   (Zip Code)


                  REGISTRANT'S TELEPHONE NUMBER: (201) 567-5648


         Former name, former address and former fiscal year, if changed since
last report: N/A

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

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

Large accelerated filer |_|   Accelerated filer |X|   Non-accelerated filer |_|

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

         As of February 1, 2006, the registrant had approximately 13,602,824
common shares outstanding.
================================================================================

<PAGE>


ASTA FUNDING, INC.

                               INDEX TO FORM 10-Q

Part I.  Financial Information............................................   2
Item 1.  Consolidated Financial Statements................................   2
         Consolidated Balance Sheets as of December 31, 2005
            (unaudited) and September 30, 2005............................   2
         Consolidated Statements of Operations
            for the three month periods ended
            December 31, 2005 and 2004 (unaudited)........................   3
         Consolidated Statement of Stockholders' Equity
            for the three month period ending
            December 31, 2005 (unaudited).................................   4
         Consolidated Statements of Cash Flows
            for the three month periods ended
            December 31, 2005 and 2004 (unaudited)........................   5
         Condensed Notes to Consolidated Financial
            Statements (unaudited)........................................   6
Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations.................  17
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.......  24
Item 4.  Controls and Procedures..........................................  24

Part II. Other Information................................................  25
Item 1.  Legal Proceedings................................................  25
Item 1A  Risk Factors.....................................................  25
Item 2.  Changes in Securities and Use of Proceeds........................  25
Item 3.  Defaults Upon Senior Securities..................................  25
Item 4.  Submission of Matters to a Vote of Security Holders..............  25
Item 5.  Other Information................................................  25
Item 6.  Exhibits.........................................................  25
Signatures  ..............................................................  26
Section 302 Certificate of Principal Executive Officer....................  27
Section 302 Certificate of Principal Financial Officer....................  28
Section 906 Certificate of Principal Executive Officer....................  29
Section 906 Certificate of Principal Financial Officer....................  30


                                       1
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       ASTA FUNDING, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,      SEPTEMBER 30,
                                                                                   2005             2005
                                                                               ------------      ------------
                                                                               (UNAUDITED)
<S>                                                                            <C>               <C>
                                 ASSETS
Cash ....................................................................      $  3,347,000      $  4,059,000
Consumer receivables acquired for liquidation ...........................       249,183,000       172,727,000
Due from third party collection agencies and attorneys...................         1,780,000         1,425,000
Furniture and equipment, net ............................................           983,000           989,000
Other assets ............................................................           785,000           838,000
                                                                               ------------      ------------
          Total assets ..................................................      $256,078,000      $180,038,000
                                                                               ============      ============
                    LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
   Debt .................................................................      $ 91,720,000      $ 29,285,000
   Other liabilities ....................................................         2,900,000         4,180,000
   Income taxes payable .................................................         7,221,000         1,243,000
   Deferred income taxes ................................................           153,000           153,000
                                                                               ------------      ------------
          Total liabilities .............................................       101,994,000        34,861,000
                                                                               ------------      ------------

Stockholders' Equity
   Preferred stock, $.01 par value; authorized 5,000,000;
   issued and outstanding -- none
   Common stock, $.01 par value; authorized 30,000,000 shares;
   issued and outstanding -- 13,603,000
   at December 31, 2005 and 13,595,000 at September 30, 2005 ............           136,000           136,000
   Additional paid-in capital ...........................................        60,938,000        60,798,000
   Retained earnings ....................................................        93,010,000        84,243,000
                                                                               ------------      ------------
          Total stockholders' equity ....................................       154,084,000       145,177,000
                                                                               ------------      ------------
Total liabilities and stockholders' equity ..............................      $256,078,000      $180,038,000
                                                                               ============      ============
</TABLE>



           See accompanying notes to consolidated financial statements

                                       2
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED     THREE MONTHS ENDED
                                                                        DECEMBER  31,           DECEMBER  31,
                                                                            2005                  2004
                                                                        -----------            -----------
<S>                                                                     <C>                    <C>
Revenues
   Finance income, net ...........................................      $20,260,000            $13,830,000
                                                                        -----------            -----------

Expenses
   General and administrative.....................................        3,952,000              3,044,000
   Interest ......................................................          663,000                407,000
                                                                        -----------            -----------
                                                                          4,615,000              3,451,000
                                                                        -----------            -----------
Income before income taxes .......................................       15,645,000             10,379,000
Income tax expense ...............................................        6,333,000              4,204,000
                                                                        -----------            -----------
Net income .......................................................      $ 9,312,000            $ 6,175,000
                                                                        ===========            ===========
Net income per share -- Basic ....................................      $      0.68            $      0.46
                                                                        -----------            -----------
Net income per share -- Diluted ..................................      $      0.64            $      0.43
                                                                        -----------            -----------
Weighted average number of shares outstanding:
 Basic ...........................................................       13,598,000             13,471,000
                                                                        -----------            -----------
 Diluted .........................................................       14,474,000             14,303,000
                                                                        -----------            -----------

</TABLE>



           See accompanying notes to consolidated financial statements

                                       3
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 ADDITIONAL
                                                COMMON STOCK                      PAID-IN        RETAINED
                                                    SHARES         AMOUNT         CAPITAL        EARNINGS            TOTAL
                                                -------------   -------------   -------------   -------------    -------------
<S>                                             <C>             <C>             <C>             <C>              <C>
Balance, September 30, 2005 .................      13,595,000   $     136,000   $  60,798,000   $  84,243,000    $ 145,177,000
Exercise of options..........................           8,000            --           140,000            --            140,000
Dividends ...................................            --              --              --          (545,000)        (545,000)
Net Income ..................................            --              --              --         9,312,000        9,312,000
                                                -------------   -------------   -------------   -------------    -------------
Balance, December 31, 2005 ..................      13,603,000   $     136,000   $  60,938,000   $  93,010,000    $ 154,084,000
                                                =============   =============   =============   =============    =============
</TABLE>






           See accompanying notes to consolidated financial statements

                                       4
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED  THREE MONTHS ENDED
                                                                            DECEMBER  31,       DECEMBER  31,
                                                                               2005               2004
                                                                           -------------       -------------
<S>                                                                      <C>                 <C>
Cash flows from operating activities:
 Net income .........................................................      $   9,312,000       $   6,175,000

Adjustments to reconcile net income to net cash
   provided by operating activities:
 Depreciation and amortization ......................................            132,000             118,000

Changes in:
 Other assets .......................................................             (3,000)             34,000
    Due from third party collection agencies and attorneys ..........           (355,000)             43,000

 Income taxes payable ...............................................          5,978,000           1,881,000
Other liabilities ...................................................         (1,348,000)         (2,043,000)
                                                                           -------------       -------------
    Net cash provided by operating activities .......................         13,716,000           6,208,000
Cash flows from investing activities:
 Purchase of consumer receivables acquired for liquidation ..........       (102,405,000)        (36,542,000)
 Principal collected on receivables acquired for liquidation ........         18,426,000          13,745,000
 Principal collected on receivables accounts represented by
    account sales ...................................................          7,523,000           9,186,000

    Deposit on receivable purchase ..................................               --             7,213,000

 Capital expenditures ...............................................            (71,000)            (56,000)
                                                                           -------------       -------------
    Net cash (used in) investing activities .........................        (76,527,000)         (6,454,000)

Cash flows from financing activities:
 Proceeds from exercise of options ..................................            140,000           1,223,000
 Dividends paid .....................................................           (476,000)           (470,000)
 Advances (payments) under line of credit, net ......................         62,435,000          (2,001,000)
                                                                           -------------       -------------
    Net cash provided by (used in) financing activities .............         62,099,000          (1,248,000)
                                                                           -------------       -------------
(Decrease) in cash ..................................................           (712,000)         (1,494,000)
Cash at the beginning of period .....................................          4,059,000           3,344,000
                                                                           -------------       -------------
Cash at end of period ...............................................      $   3,347,000       $   1,850,000
                                                                           =============       =============
Supplemental disclosure of cash flow information:

 Cash paid during the period
  Interest ..........................................................      $     492,000       $     324,000
  Income taxes ......................................................      $     270,000       $   2,200,000
</TABLE>

                                       5
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)


NOTE 1: BUSINESS AND BASIS OF PRESENTATION

 Business

     Asta Funding, Inc., together with its wholly owned subsidiaries, is engaged
in the business of purchasing, managing and servicing non-conforming and
distressed consumer receivables. Non-conforming consumer receivables are the
obligations of individuals that have incurred credit impairment either at the
time the obligation was originated or subsequent to origination. Distressed
consumer receivables are the unpaid debts of individuals to banks, finance
companies and other credit providers. A large portion of our distressed consumer
receivables are MasterCard(R), Visa(R), other credit card accounts and
telecommunication accounts which were charged-off by the issuers for
non-payment. We acquire these portfolios at substantial discounts from their
face values that are based on the characteristics of the underlying accounts of
each portfolio.

 Basis of Presentation

     The consolidated balance sheet as of December 31, 2005, the consolidated
statements of operations for the three month periods ended December 31, 2005 and
2004, and the consolidated statements of cash flows for the three month periods
ended December 31, 2005 and 2004, have been prepared by us without an audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of us at
December 31, 2005 and September 30, 2005, the results of operations for the
three month periods ended December 31, 2005 and 2004 and cash flows for the
three month periods ended December 31, 2005 and 2004 have been made. The results
of operations for the three month periods ended December 31, 2005 and 2004 are
not necessarily indicative of the operating results for any other interim period
or the full fiscal year.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the
Securities and Exchange Commission and therefore do not include all information
and footnote disclosures required under generally accepted accounting
principles. We suggest that these financial statements be read in conjunction
with the financial statements and notes thereto included in our Annual Report on
Form 10-K/A for the fiscal year ended September 30, 2005 filed with the
Securities and Exchange Commission on January 20, 2006.

NOTE 2: PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Asta Funding,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

NOTE 3: CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION

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


     Prior to September 30, 2005, the Company accounted for its investment in
finance receivables using the interest method under the guidance of Practice
Bulletin 6, "Amortization of Discounts on Certain Acquired Loans." Effective
October 1, 2005, the Company adopted and began to account for its investment in
finance receivables using the interest method under the guidance of American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 03-3, "Accounting for Loans or Certain Securities Acquired in a
Transfer."Practice Bulletin 6 was amended by SOP 03-3 as described further in
this note Under the guidance of SOP 03-3 (and the amended Practice Bulletin 6),
static pools of accounts are established. These pools are aggregated

                                       6
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)


NOTE 3: CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION- (CONTINUED)

based on certain common risk criteria. Each static pool is recorded at cost and
is accounted for as a single unit for the recognition of income, principal
payments and loss provision. Once a static pool is established for a quarter,
individual receivable accounts are not added to the pool (unless replaced by the
seller) or removed from the pool (unless sold or returned to the seller). SOP
03-3 (and the amended Practice Bulletin 6) requires that the excess of the
contractual cash flows over expected cash flows not be recognized as an
adjustment of revenue or expense or on the balance sheet. The SOP initially
freezes the internal rate of return, referred to as IRR, estimated when the
accounts receivable are purchased as the basis for subsequent impairment
testing. Significant increases in actual, or expected future cash flows may be
recognized prospectively through an upward adjustment of the IRR over a
portfolio's remaining life. Any increase to the IRR then becomes the new
benchmark for impairment testing. Effective for fiscal years beginning October
1, 2005 under SOP 03-3 and the amended Practice Bulletin 6, rather than lowering
the estimated IRR if the collection estimates are not received or projected to
be received, the carrying value of a pool would be written down to maintain the
then current IRR. Income on finance receivables is earned based on each static
pool's effective IRR. Under the interest method, income is recognized on the
effective yield method based on the actual cash collected during a period and
future estimated cash flows and timing of such collections and the portfolio's
cost. Revenue arising from collections in excess of anticipated amounts
attributable to timing differences is deferred. The estimated future cash flows
are reevaluated quarterly. Under the cost recovery method, no income is
recognized until the cost of the portfolio has been fully recovered. A pool can
become fully amortized (zero carrying balance on the balance sheet) while still
generating cash collections. In this case, all cash collections are recognized
as revenue when received. Additionally, the Company uses the cost recovery
method when collections on a particular pool of accounts cannot be reasonably
predicted.


                                       7
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                    (UNAUDITED)

NOTE 3: CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION -- (CONTINUED)


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


<TABLE>
<CAPTION>
                                                                        FOR THE THREE MONTHS ENDED DECEMBER 31, 2005
                                                                   --------------------------------------------------------
                                                                      ACCRUAL              CASH
                                                                       BASIS               BASIS
                                                                    PORTFOLIOS           PORTFOLIOS              TOTAL
                                                                   -------------        -------------        -------------
<S>                                                                <C>                  <C>                  <C>
Balance, beginning of period ................................      $ 172,636,000        $      91,000        $ 172,727,000
Acquisitions of receivable portfolios, net ..................        102,405,000                 --            102,405,000
Net cash collections from collection of consumer
          receivables acquired for liquidation ..............        (31,062,000)          (1,173,000)         (32,235,000)
Net cash collections represented by account sales of
          consumer receivables acquired for liquidation .....        (13,739,000)            (235,000)         (13,974,000)

Transfer to cost recovery....................................           (529,000)             529,000                 --

Finance income recognized ...................................         19,047,000            1,213,000           20,260,000
                                                                   -------------        -------------        -------------
Balance, end of period ......................................      $ 248,758,000        $     425,000        $ 249,183,000
                                                                   =============        =============        =============
Revenue as a percentage of collections ......................               42.5%                86.2%                43.8%
</TABLE>



<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS ENDED DECEMBER 31, 2004
                                                                   -------------------------------------------------------
                                                                     ACCRUAL               CASH
                                                                      BASIS                BASIS
                                                                    PORTFOLIOS           PORTFOLIOS             TOTAL
                                                                   -------------        -------------        -------------
<S>                                                                <C>                  <C>                  <C>
Balance, beginning of period ................................      $ 144,812,000        $   1,353,000        $ 146,165,000
Acquisitions of receivable portfolios, net ..................         36,542,000                 --             36,542,000
Net cash collections from collection of consumer
         receivables acquired for liquidation ...............        (20,456,000)          (1,349,000)         (21,805,000)
Net cash collections represented by account sales of
          consumer receivables acquired for liquidation .....        (13,487,000)          (1,499,000)         (14,986,000)

Finance income recognized ...................................         11,784,000            2,076,000           13,860,000
                                                                   -------------        -------------        -------------
Balance, end of period ......................................      $ 159,195,000        $     581,000        $ 159,776,000
                                                                   =============        =============        =============
Revenue as a percentage of collections ......................               34.7%                72.9%                37.7%
</TABLE>


                                       8
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

NOTE 3: CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION -- (CONTINUED)



As of December 31, 2005 the Company had $249,183,000 in Consumer Receivables
acquired for Liquidation. Based upon current projections, net cash collections,
applied to principal for accrual basis portfolios will be as follows for the
twelve months in the periods ending:


December 31, 2006                     $ 50,711,000
December 31, 2007                       71,806,000
December 31, 2008                       60,229,000
December 31, 2009                       44,760,000
December 31, 2010                       21,252,000
                                      ------------
Total                                 $248,758,000
                                      ============

Accretable yield represents the amount of income the Company can expect to
generate over the remaining life of its existing portfolios based on estimated
future net cash flows as of December 31, 2005. The Company did not have any
reclassifications from nonaccretable difference to accretable yield resulting
from any increases in any estimates of future cash flows. Changes in accretable
yield for the three months ended December 31, 2005 is as follows:

                                                           THREE MONTHS
                                                              ENDED
                                                         DECEMBER 31, 2005
                                                         -----------------
Balance at beginning of period, September 30, 2005           $94,022,000

Income recognized on finance receivables, net                (19,047,000)
Additions representing expected revenue from purchases        60,331,000
Reclassifications from nonaccretable difference                       --
                                                            ------------
Balance at end of period, December  31, 2005                $135,306,000
                                                            ============


                                       9
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                    (UNAUDITED)

NOTE 3: CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION -- (CONTINUED)

During the three months ended December 31, 2005, the Company purchased $2.1
billion of face value of charged-off consumer receivables at a cost of $102.4
million. At December 31, 2005, the estimated remaining net collections on the
receivables purchased in the three months ended September 30, 2005 is
$162.1 million.

The following table summarizes collections on a gross basis as received by our
third-party collection agencies and attorneys, less commissions and direct costs
for the three month periods ended December 31, 2005 and 2004, respectively.

                                         FOR THE THREE MONTHS ENDED DECEMBER 31,
                                         ---------------------------------------
                                                   2005              2004
                                                   ----              ----

Gross collections (1)                         $65,728,000       $53,431,000

Commissions and fees (2)                       19,519,000        16,620,000
                                               ----------        ----------

Net collections                               $46,209,000       $36,811,000
                                              ===========       ===========

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

         (2) Commissions and fees are the contractual commission earned by third
party collection agencies and attorneys, and direct costs associated with the
collection effort- generally court costs.

NOTE 4: FURNITURE AND EQUIPMENT

     Furniture and equipment consist of the following as of the dates indicated:


                                                DECEMBER 31,      SEPTEMBER  30,
                                                    2005               2005
                                               -------------     --------------
Furniture................................       $    307,000     $    307,000
Equipment................................          2,179,000        2,108,000
                                               -------------     --------------
                                                   2,486,000        2,415,000
Less accumulated depreciation............          1,503,000        1,426,000
                                               -------------     --------------
Balance, end of period...................       $    983,000     $    989,000
                                               =============     ============

                                       10
<PAGE>

                      ASTA FUNDING, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (Unaudited)
NOTE 5: DEBT

     In December 2005, the Company entered into an amended and restated loan and
security agreement that increased the line of credit with a lending institution
from $80 million to $100 million with a feature that, under certain
circumstances, provides for an increase the line of credit to $125 million. The
amended and restated loan and security agreement expiration date remains May 11,
2006. The line of credit bears interest at the lesser of LIBOR plus an
applicable margin, or the prime rate plus or minus an applicable margin based on
certain leverage ratios (the applicable rate was 6.75% at December 31, 2005,
with an average rate of 6.5% for the three month period ended December 31,
2005). The credit line is collateralized by all portfolios of consumer
receivables acquired for liquidation and contains customary financial and other
covenants (relative to tangible net worth, interest coverage, and leverage
ratio, as defined) that must be maintained in order to borrow funds. As of
December 31, 2005, $91.7 million was outstanding. In January 2006, the Company
entered into an amended and restated loan and security agreement that increased
the line of credit with a consortium of banks from $100 million to $125 million.
The Company is currently in negotiations to renew its credit facility and
anticipates renewing this arrangement in a short period of time. See Note 14-
Subsequent Events.

NOTE 6: COMMITMENTS AND CONTINGENCIES

 Employment Agreements

     We have an employment agreement with one executive and are in the process
of finalizing new employment agreements with two other executive officers. Such
agreement and anticipated agreements provide for base salary payments as well as
bonuses. The agreements also contain confidentiality and non-compete provisions.
Please refer to our definitive Proxy Statement, as filed with the Securities and
Exchange Commission, under the caption "Executive Compensation" for additional
information.

 Leases

     We are a party to two operating leases with respect to our facilities in
Englewood Cliffs, New Jersey and Bethlehem, Pennsylvania. Please refer to our
consolidated financial statements and notes thereto in our Annual Report on Form
10-K, as filed with the Securities and Exchange Commission, for additional
information.

 Litigation

     In the ordinary course of our business, we are involved in numerous legal
proceedings. We regularly initiate collection lawsuits, using our network of
third party law firms, against consumers. Also, consumers occasionally initiate
litigation against us, in which they allege that we have violated a federal or
state law in the process of collecting their account. We do not believe that
these ordinary course matters are material to our business and financial
condition. As of the date of this Form 10-Q, we were not involved in any
material litigation in which we were a defendant.

NOTE 7: INCOME RECOGNITION

     We recognize income on non-performing and performing consumer receivable
portfolios, which are acquired for liquidation, using either the interest method
or cost recovery method. Upon acquisition of a portfolio of receivables,
management estimates the future anticipated cash flows and determines the
allocation of payments based upon this estimate. If management can reasonably
estimate the expected amount to be collected on a portfolio and can reasonably
determine the timing of such payments based on historic experience and other
factors, we use the interest method. If management cannot reasonably estimate
the future cash flows, we use the cost recovery method.

     Under the interest method, we recognize income on the effective yield
method based on the actual cash collected during a period and future estimated
cash flows and timing of such estimated collections. Revenue arising from
collections in excess of anticipated amounts attributable to timing differences,
is deferred. The estimated future cash flows are reevaluated quarterly. Under
the cost recovery method, no income is recognized until we have fully collected
the cost of the portfolio.

                                       11
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                    (UNAUDITED)

NOTE 7: INCOME RECOGNITION-- (CONTINUED)

     We recognize income net of collection fees paid to third-party collection
agencies. With respect to amounts collected in-house, such finance income is
recognized at the gross amount collected.

     Income from finance receivables was recognized over the periods from the
date of purchase to the estimated collection date.

NOTE 8: INCOME TAXES

     The provision for income tax expense for the three month periods ending
December 31, 2005 and 2004, reflects income tax expense at an effective rate of
40.5%. Deferred federal and state taxes arise from temporary differences
resulting primarily from the provision for credit losses and depreciation
expense.

NOTE 9: NET INCOME PER SHARE

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

     The following table presents the computation of basic and diluted per share
data for the three months ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                   2005                                   2004
                                      ---------------------------------    -----------------------------------
                                                   WEIGHTED                               WEIGHTED
                                        NET         AVERAGE   PER SHARE        NET        AVERAGE    PER SHARE
                                      INCOME        SHARES       AMOUNT      INCOME        SHARES       AMOUNT
                                    ------------  ----------   --------    ----------    ----------  --------
<S>                                 <C>           <C>         <C>          <C>           <C>         <C>
Basic............................     $9,312,000  13,598,000     $0.68     $6,175,000    13,471,000     $0.46
                                                               =======                               ========
Effect of Dilutive Stock.........                    876,000                                832,000
                                    ------------  ----------               ----------    ----------  --------
Diluted..........................     $9,312,000  14,474,000     $0.64     $6,175,000    14,303,000     $0.43
                                    ============  ==========   =======     ==========    ==========  ========
</TABLE>


NOTE 10: STOCK BASED COMPENSATION

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


                                       12
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)


NOTE 10: STOCK BASED COMPENSATION-- (CONTINUED)



     Effective September 30, 2005, the Company accelerated the vesting of all
unvested stock options previously awarded to employees, officers and directors
under the Company's stock option plans. In order to prevent unintended personal
benefits to employees, officers and directors, the Board imposed restrictions on
any shares received through the exercise of accelerated options held by those
individuals. These restrictions prevent the sale of any stock obtained through
exercise of an accelerated option prior to the earlier of the original vesting
date or the individual's termination of employment.

     Financial Accounting Standards Board ("FASB") Financial Interpretation No.
44 would require the Company to recognize compensation expense under certain
circumstances, such as the change in the vesting schedule, that would allow an
employee to vest in an option that would have otherwise been forfeited based on
the award's original terms. The Company would be required to begin to recognize
compensation expense over the new expected vesting periods based on estimates of
the numbers of options that employees ultimately will retain that otherwise
would have been forfeited, absent the modifications. The accelerated options,
absent the acceleration, would substantially have vested over the next 9 to 21
months. Such estimates would be based on such factors such as historical and
expected employee turnover rates and similar statistics. Of the 587,000 stock
option that were affected by the acceleration of the vesting of all stock
options as of September 30, 2005, 547,000 are attributable to officers and
directors of the Company representing $9.0 million of the $9.7 million intrinsic
value of the newly vested stock options. The Company is unable to estimate the
number of options that employees will ultimately retain that otherwise would
have been forfeited, absent the modification. Based on the current
circumstances, market price above the grant price, concentration of options
awarded to officers and directors and low historical turnover rates, no
compensation expense resulting from the new measurement date has been recognized
through December 31, 2005 or, prior to the employees' termination. The Company
will recognize compensation expense in future periods, should a benefit be
realized by the holders of the aforementioned options, which they would not
otherwise have been entitled to. In the event the Company grants stock options
under the stock option plans, the Company will recognize compensation expense in
accordance with Financial Interpretation No. 44. The primary purpose of the
accelerated vesting is to eliminate the compensation expense the Company would
otherwise recognize in its income statement with respect to these accelerated
stock options based upon the adoption of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123(Revised 2005), Share-Based
Payment ("SFAS 123R").

     There were no stock option grants during the quarter ended December 31,
2005. The weighted average fair value of the options granted during the quarter
ended December 31, 2004 was $9.44 per share on the dates of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield 0.8289%, volatility 40.13%, expected life 10 years, risk free interest
rate of 4.19%. Pro-forma net income for the three months ended December 31, 2004
if the fair value based method as prescribed by disclosure only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock Based Compensation and SFAS No. 148 Accounting for Stock Based
Compensation - Transition and Disclosure" was $5.6 million, or $0.42 per basic
share outstanding and $0.39 per fully diluted share.

                                       13
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)


NOTE 11: STOCK OPTION PLANS

Equity Compensation Plan

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

         The general purpose of the Equity Compensation Plan is to provide an
incentive to our employees, directors and consultants, including executive
officers, employees and consultants of any subsidiaries, by enabling them to
share in the future growth of our business. The Board of Directors believes that
the granting of stock options and other equity awards promotes continuity of
management and increases incentive and personal interest in the welfare of the
Company by those who are primarily responsible for shaping and carrying out our
long range plans and securing our growth and financial success.

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

2002 Stock Option Plan

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

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

         The Company has 1,000,000 shares of Common Stock authorized for
issuance under the 2002 Plan and 404,667 were available as of December 31, 2005.
As of December 31, 2005, approximately 140 of the Company's employees were
eligible to participate in the 2002 Plan. Future grants under the 2002 Plan have
not yet been determined.

1995 Stock Option Plan

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

                                       14
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                    (UNAUDITED)

NOTE 11: STOCK OPTION PLANS-- (CONTINUED)

         The 1995 Stock Option Plan authorized the granting of incentive stock
options (as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) and non-qualified stock options to eligible employees of
the Company, including officers and directors of the Company (whether or not
employees) and consultants of the Company.

         The Company authorized 1,840,000 shares of Common Stock authorized for
issuance under the 1995 Stock Option Plan. All but 96,002 shares were utilized.
As of September 14, 2005, no more options could be issued under this plan. No
option will vest more than ten years from the date of grant.

     The following table summarizes stock option transactions under the plans:

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED DECEMBER 31,
                                                             --------------------------------------------------
                                                                      2005                       2004
                                                             ---------------------     ------------------------
                                                                          WEIGHTED                    WEIGHTED
                                                                           AVERAGE                     AVERAGE
                                                                          EXERCISE                    EXERCISE
                                                              SHARES        PRICE        SHARES         PRICE
                                                             --------     --------     --------       --------
<S>                                                          <C>          <C>          <C>            <C>
Outstanding options at the beginning of period..........     1,580,605     $ 9.1082     1,364,171      $ 6.2657
Options granted.........................................           -0-         0.00       402,500       18.2502
Options canceled........................................           -0-         0.00       (40,002)      11.7145

Options exercised.......................................        (7,500)     18.7600      (118,453)       9.3135
                                                             ---------     --------     ---------       --------
Outstanding options at the end of period................     1,573,105     $ 9.0622     1,608,216      $ 8.9051
                                                             =========                  =========
Exercisable options at the end of period................     1,573,105     $ 9.0622     1,011,005      $ 4.5229
                                                             =========                  =========
</TABLE>

The following table summarizes information about the Plans' outstanding options
as of December 31, 2005:

<TABLE>
<CAPTION>
                                                        OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                                              -------------------------------------------     ------------------------
                                                               WEIGHTED
                                                                AVERAGE         WEIGHTED                      WEIGHTED
                                                               REMAINING        AVERAGE                       AVERAGE
                                                NUMBER        CONTRACTUAL       EXERCISE         NUMBER       EXERCISE
RANGE OF EXERCISE PRICE                       OUTSTANDING   LIFE (IN YEARS)      PRICE        EXERCISABLE      PRICE
--------------------                          -----------   ---------------    ----------     ------------   ----------
<S>                                           <C>           <C>                <C>            <C>            <C>
$0.0000 - $2.2360.......................        200,000          3.4            $  0.8125         200,000     $  0.8125
$2.2361 - $4.4720.......................        520,000          3.8               2.5644         520,000        2.5644
$4.4721 - $6.7080.......................        143,334          6.8               4.8284         143,334        4.8284
$6.7081 - $9.9440.......................          7,000          6.6               7.2307           7,000        7.2307
$13.4161 - $15.6520.....................        245,002          7.8              14.8700         245,002       14.8700
$15.6521 - $17.8880.....................         31,944          8.7              16.5347          31,944       16.5347
$17.8881 - $20.1240.....................        405,825          8.8              18.2309         405,825       18.2309
$20.1241 - $22.3600.....................         20,000          9.2              22.3600          20,000       22.3600
                                              --------           ----           ---------       ---------     ---------
                                              1,573,105          6.1            $  9.0622       1,573,105     $  9.0622
                                              =========                                         =========
</TABLE>

                                       15
<PAGE>

                       ASTA FUNDING, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)


NOTE 12: STOCKHOLDERS EQUITY

     During August 2005 we declared a quarterly cash dividend aggregating
$476,000 ($0.035 per share) which was paid November 1, 2005. In December 2005,
the Board of Directors increased the dividend from $03.5 per share per, quarter,
to $0.04 per share, per quarter and accrued $545,000 as of December 31, 2005,
for record holders as of December 30, 2005 that was paid on February 1, 2006.



NOTE 13: USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates including management's estimates of future cash flows and the
allocation of collections between principal and interest resulting therefrom.



NOTE 14: SUBSEQUENT EVENTS

     On January 20, 2006, Asta Funding, Inc. (the "Company") entered into the
Third Amended and Restated Revolving Note with a consortium of banks. The
Company expanded its credit facility and as a result, the credit facility is now
$125 million, up from $100 million. The line of credit bears interest at the
lesser of LIBOR plus an applicable margin, or the lesser of the prime rate plus
or minus an applicable margin based on certain leverage ratios. The credit line
is collateralized by all portfolios of consumer receivables acquired for
liquidation and contains customary financial and other covenants (relative to
tangible net worth, interest coverage, and leverage ratio, as defined) that must
be maintained in order to borrow funds.


     On February 6, 2006 the Company announced it entered into a definitive
agreement to acquire VATIV Recovery Solutions LLC ("VATIV"). VATIV, located in
Sugar Land Texas, provides nationwide bankruptcy and deceased account servicing,
and specializes in the intricate procedures that support maximum recovery for
these difficult account segments. The acquisition is anticipated to close in the
second quarter of fiscal year 2006 and is considered immaterial to the financial
statements of the Company.

                                       16
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

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

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

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

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

     We acquire these consumer receivable portfolios at a significant discount
to the amount actually owed by the borrowers. We acquire these portfolios after
a qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow offers us an
adequate return on our acquisition costs and servicing expenses. After
purchasing a portfolio, we actively monitor its performance and review and
adjust our collection and servicing strategies accordingly.

     We purchase receivables from credit grantors and others through privately
negotiated direct sales and auctions in which sellers of receivables seek bids
from several pre-qualified debt purchasers. We pursue new acquisitions of
consumer receivable portfolios on an ongoing basis through:

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

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

o        other sources.

FORWARD LOOKING STATEMENTS

     This Form 10-Q contains forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "should," "plan," "expect," "believe," "anticipate," "estimate"
and similar expressions, although some forward-looking statements are expressed
differently. Forward-looking statements represent our management's judgment
regarding future events. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to be correct. All statements other than statements
of historical fact included in this report regarding our financial position,
business strategy, products, products under development and clinical trials,
markets, budgets, plans, or objectives for future operations are forward-looking
statements. We cannot guarantee the accuracy of the forward-looking statements,
and you should be aware that our actual results could differ materially from
those contained in the forward-looking statements due to a number of factors,
including the statements under "Risk Factors" and "Critical Accounting Policies"
detailed in our Annual Report on Form 10-K/A for the year ended September 30,
2005, and other reports filed with the Securities and Exchange Commission.

     Our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all other documents filed by the Company or with respect
to its securities with the Securities and Exchange Commission are available free
of charge through our website at www.astafunding.com. Information on our website
does not constitute a part of this report.

                                       17
<PAGE>

CRITICAL ACCOUNTING POLICIES

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

o        the interest method; or

o        the cost recovery method.

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

     The interest method allows us to recognize income on the effective yield of
such portfolio based on the actual cash collected during a period and future
estimated cash flows and the timing of such collections and the purchase of such
portfolios. Revenue arising from collections is excess of anticipated amounts
attributable to timing differences is deferred. Under this method, we
periodically apply a portion of the actual funds collected as a reduction in the
principal amount invested in each specific portfolio and the remainder is
recognized as finance income. Generally, these portfolios are expected to
amortize over a three to five year period based upon our estimated future cash
flows. Historically, a majority of the cash we ultimately collect on a portfolio
is received during the first 18-24 months after acquiring the portfolio,
although significant additional amounts are collected over the remaining
periods. The estimated future cash flows of the portfolios are evaluated or
reevaluated quarterly.

     Under the cost recovery method of accounting, no income is recognized until
the purchase price of a portfolio has been fully recovered by us.

     The estimated future cash flows are reevaluated quarterly. Income on
finance receivables is earned based on each static pool's effective IRR. Under
the interest method, income is recognized on the effective yield method based on
the actual cash collected during a period and future estimated cash flows and
timing of such collections and the portfolio's cost. We typically recognize
finance income net of collection fees paid to third-party collection agencies
and attorneys.

     In the following discussions, most percentages and dollar amounts have been
rounded to aid presentation. As a result, all figures are approximations.

RESULTS OF OPERATIONS

     The three-month period ended December 31, 2005, compared to the three-month
period ended December 31, 2004

     Finance income. During the three-month period ended December 31, 2005,
finance income increased $6.4 million or 46.5 % to $20.3 million from $13.8
million for the three-month period ended December 31, 2004. The increase in
finance income was primarily due to an increase in finance income earned on
consumer receivables acquired for liquidation, which resulted from an increase
in the average outstanding accounts acquired for liquidation during the
three-months ended December 31, 2005 of approximately $211.0 million, as
compared to approximately $153.0 million during the three month period ended
December 31, 2004. Finance income as a percentage of collections increased to
43.8% from 37.7% in the first quarter of fiscal year 2006 as compared to the
first fiscal quarter of 2005 due to the performance of portfolios purchased in
2004 and 2005, which we estimate will yield higher returns. These yields
increased primarily due to the Company's increased focus on utilizing its
attorney networks, which started in 2004. During the three months ended December
31, 2005, we acquired receivables at a cost of $102.4 million as compared to
$36.5 million during the three months ended December 31, 2004 and for year ended
September 30, 2005, we acquired receivables at a cost of $126.0 million as
compared to $103.7 million for the year ended September 30, 2004. During the
three-month period ended December 31, 2005, the commissions and fees associated
with gross collections from our third-party collection agencies and attorneys
increased $2.9 million or 17.4% to $19.5 million from $16.6 million for the
three-month period ended December 31, 2004. The increase is indicative of a
shift to the suit strategy implemented by the Company. As we continue to
purchase portfolios and utilize our third party collection agencies and attorney
networks, we anticipate these costs will rise.

                                       18
<PAGE>

     General and Administrative Expenses. During the three-month period ended
December 31, 2005, general and administrative expenses increased $908,000 or
29.8% to $3.9 million from $3.0 million for the three-months ended December 31,
2004, and represented 85.6% of total expenses for the three months ended
December 31, 2005. The increase in general and administrative expenses was
primarily due to an increase in receivable servicing expenses that resulted from
the substantial increase in our average outstanding accounts acquired for
liquidation during the three months ended December 31, 2005 of approximately
$211.0 million, as compared to approximately $153.0 million during the three
month period ended December 31, 2004. A majority of the increased costs were
from collection expenses including, data processing costs, salaries, payroll
taxes and benefits, professional fees, postage and telephone charges.

     Interest Expense. During the three-month period ended December 31, 2005,
interest expense increased $256,000 to $663,000 from $407,000 as compared to the
same period in the prior year and represented 14.4% of total expenses for the
three-month period ended December 31, 2005. The increase was due to an increase
in the average outstanding borrowings under our line of credit during the
three-month period ended December 31, 2005, as compared to the same period in
the prior year, and a higher rate of interest. The increase in borrowings was
due to the increase in acquisitions of consumer receivables acquired for
liquidation during the second half of our fiscal year ended September 30, 2005
and the first quarter of this fiscal year ended September 30, 2006.

LIQUIDITY AND CAPITAL RESOURCES

     Our primary sources of cash from operations include payments on the
receivable portfolios that we have acquired. Our primary uses of cash include
our purchases of consumer receivable portfolios. We rely significantly upon our
lenders to provide the funds necessary for the purchase of consumer and
commercial accounts receivable portfolios. While we maintain a $100 million line
of credit for portfolio purchases, we also may arrange financing on a
transactional basis. While we have historically been able to finance these
purchases through cash flows from operating activities and financing activities,
we do not have committed loan facilities, other than our $100 million line of
credit with a consortium of banks. As of December 31, 2005, there was $91.7
million outstanding balance under this facility. As of December 31, 2005, our
cash and cash equivalents decreased $700,000 to $3.4 million from $4.1 million
at September 30, 2005. The decrease in cash and cash equivalents during the
three month period ended December 31, 2005, was due to an increase in consumer
receivable purchases, an increase in our dividend, and increase in interest
during the three months ended December 31, 2005 as compared to the same period
in the prior year.

     Net cash provided by operating activities was $13.7 million during the
three-months ended December 31, 2005, compared to net cash provided by operating
activities of $6.2 million during the three-months ended December 31, 2004. The
increase in net cash provided by operating activities was primarily due to an
increase in net income and income taxes payable which was partially offset by a
decrease in other liabilities and the amount due from third party collection
agencies and attorneys during the three-months ended December 31, 2005, as
compared to the same prior year period. Net cash used in investing activities
was $76.5 million and $6.5 million during the three-months ended December 31,
2005, and December 31, 2004, respectively. The increase in net cash used in
investing activities was primarily due to an increase in the purchase of
accounts acquired for liquidation during the three-months ended December 31,
2005, compared to the same period in the prior year. In addition there was an
increase in cash collections as compared to the same period in the prior year.
Net cash provided by financing activities was $62.1 million during the
three-months ended December 31, 2005, compared to net cash used in financing
activities of $1.2 million during the three-months December 31, 2004. The
increase in net cash provided by financing activities was primarily due to the
utilization of the credit facility to purchase consumer receivables acquired for
liquidation.



                                       19
<PAGE>

     During the quarter we had a $100 million line of credit with a consortium
of banks with interest at the lesser of LIBOR plus an applicable margin, or the
lesser of the prime rate plus or minus an applicable margin based on certain
leverage ratios. The applicable rate was 6.75% at December 31, 2005. The
advances under this credit line are collateralized by portfolios of consumer
receivables acquired for liquidation, and the loan agreement contains customary
financial and operating covenants that must be maintained in order for us to
borrow funds. This line expires on May 11, 2006. As of December 31, 2005, there
was $91.7 million outstanding balance under this line of credit and we were in
compliance with all of the covenants under this line of credit. In January 2006,
we increased our credit line from $100 million to $125 million. The Company is
currently in negotiations to renew its credit facility and anticipates renewing
this arrangement in a short period of time. (See Note 14: Subsequent Events in
the Notes to the Consolidated Financial Statements for more information.)

     Our cash requirements have been and will continue to be significant. We
depend on external financing and cash generated from operations to acquire
consumer receivables. During the three-months ended December 31, 2005, we
acquired consumer portfolios at a cost of approximately $102.4 million. These
acquisitions were financed primarily through cash flows from operating
activities and with our credit facility.

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

     From time to time, we evaluate potential acquisitions of related
businesses. See Note 14 - Subsequent Events for recent information regarding
acquisitions.

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


<TABLE>
<CAPTION>
                                                                           FOR THE THREE MONTHS ENDED DECEMBER 31, 2005
                                                                     -------------------------------------------------------
                                                                        ACCRUAL               CASH
                                                                         BASIS               BASIS
                                                                      PORTFOLIOS           PORTFOLIOS              TOTAL
                                                                     -------------        -------------        -------------
<S>                                                                  <C>                  <C>                  <C>
Balance, beginning of period ..................................      $ 172,636,000        $      91,000        $ 172,727,000
Acquisitions of receivable portfolios, net ....................        102,405,000                 --            102,405,000
Net cash collections from collection of consumer
          receivables acquired for liquidation.................        (31,062,000)          (1,173,000)         (32,235,000)
Net cash collections represented by account sales of
          consumer receivables acquired for liquidation .......        (13,739,000)            (235,000)         (13,974,000)

Transfer to cost recovery .....................................           (529,000)             529,000                 --

Finance income recognized .....................................         19,047,000            1,213,000           20,260,000
                                                                     -------------        -------------        -------------
Balance, end of period ........................................      $ 248,758,000        $     425,000        $ 249,183,000
                                                                     =============        =============        =============
Revenue as a percentage of collections ........................               42.5%                86.2%                43.8%

</TABLE>


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                   FOR THE THREE MONTHS ENDED DECEMBER 31, 2004
                                                              -------------------------------------------------------
                                                                  ACCRUAL              CASH
                                                                   BASIS               BASIS
                                                                PORTFOLIOS          PORTFOLIOS             TOTAL
                                                              -------------        -------------        -----------
<S>                                                           <C>                  <C>                  <C>
Balance, beginning of period ...........................      $ 144,812,000        $   1,353,000        $ 146,165,000
Acquisitions of receivable portfolios, net .............         36,542,000                 --             36,542,000
Net cash collections from collection of consumer
  Receivables acquired for liquidation .................        (20,456,000)          (1,349,000)         (21,805,000)
Net cash collections represented by account sales of
  Consumer receivables acquired for liquidation ........        (13,487,000)          (1,499,000)         (14,986,000)

Finance income recognized ..............................         11,784,000            2,076,000           13,860,000
                                                              -------------        -------------        -------------
Balance, end of period .................................      $ 159,195,000        $     581,000        $ 159,776,000
                                                              =============        =============        =============
Revenue as a percentage of collections .................               34.7%                72.9%                37.7%

</TABLE>


ADDITIONAL SUPPLEMENTARY INFORMATION:



     We do not anticipate collecting the majority of the purchased principal
amounts. Accordingly, the difference between the carrying value of the
portfolios and the gross receivables is not indicative of future revenues from
these accounts acquired for liquidation. Since we purchased these accounts at
significant discounts, we anticipate collecting only a portion of the face
amounts. During the three months ended December 31, 2005, we purchased
portfolios with an aggregate purchase price of $102.4 million with a face value
of $2.1 billion.

     Prior to September 30, 2005, we accounted for its investment in finance
receivables using the interest method under the guidance of Practice Bulletin 6,
"Amortization of Discounts on Certain Acquired Loans." Effective October 1,
2005, we adopted and began to account for its investment in finance receivables
using the interest method under the guidance of American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") 03-3, "Accounting for
Loans or Certain Securities Acquired in a Transfer." Practice Bulletin 6 was
amended by SOP 03-3 as described further. Under the guidance of SOP 03-3 (and
the amended Practice Bulletin 6), static pools of accounts are established.
These pools are aggregated based on certain common risk criteria. Each static
pool is recorded at cost and is accounted for as a single unit for the
recognition of income, principal payments and loss provision. Once a static pool
is established for a quarter, individual receivable accounts are not added to
the pool (unless replaced by the seller) or removed from the pool (unless sold
or returned to the seller). SOP 03-3 (and the amended Practice Bulletin 6)
requires that the excess of the contractual cash flows over expected cash flows
not be recognized as an adjustment of revenue or expense or on the balance
sheet. The SOP initially freezes the internal rate of return, referred to as
IRR, estimated when the accounts receivable are purchased as the basis for
subsequent impairment testing. Significant increases in actual, or expected
future cash flows may be recognized prospectively through an upward adjustment
of the IRR over a portfolio's remaining life. Any increase to the IRR then
becomes the new benchmark for impairment testing. Effective for fiscal years
beginning October 1, 2005 under SOP 03-3 and the amended Practice Bulletin 6,
rather than lowering the estimated IRR if the collection estimates are not
received or projected to be received, the carrying value of a pool would be
written down to maintain the then current IRR. Income on finance receivables is
earned based on each static pool's effective IRR. Under the interest method,
income is recognized on the effective yield method based on the actual cash
collected during a period and future estimated cash flows and timing of such
collections and the portfolio's cost. Revenue arising from collections in excess
of anticipated amounts attributable to timing differences is deferred. The
estimated future cash flows are reevaluated quarterly. Income derived under this
method totaled $19 million.

                                       21
<PAGE>

         COLLECTIONS REPRESENTED BY ACCOUNT SALES


                                                   Collections
                                                   Represented           Finance
                                                    By Account            Income
     Period                                           Sales               Earned
     ------                                        -----------           -------


     Three months ended December 31, 2005          $13,974,000        $6,451,000

     Three months ended December 31, 2004          $14,987,000        $5,800,000



         PORTFOLIO PERFORMANCE (1)

<TABLE>
<CAPTION>
                                                                                                  Total estimated   # of Weighted
                                      Cash Collections     Estimated             Total           Collections as a    Average Days
                        Purchase       Including Cash      Remaining           Estimated           Percentage of   Held During First
Purchase Period         Price (2)         Sales (3)       Collections (4)    Collections (5)      Purchase Price    Year Acquired
---------------         --------      ----------------    ---------------   -----------------    ----------------  -----------------
<S>                    <C>            <C>                 <C>               <C>                  <C>               <C>
2001                   $ 65,120,000      $ 94,259,000      $          0      $ 94,259,000               145%               119

2002                     36,557,000        51,342,000            79,000        51,421,000               141%               183

2003                    115,626,000       143,813,000        31,881,000       175,694,000               152%                81

2004                    103,743,000       105,529,000        48,651,000       154,180,000               149%               170

2005                    126,023,000        58,768,000       141,321,000       200,089,000               159%               181

2006 (First Quarter)    102,405,000           604,000       162,132,000       162,736,000               159%                22

</TABLE>


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

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

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

     (4) Does not include collections from portfolios that are zero bases.

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

                                       22
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based
Payment ("SFAS No.123R"). This statement is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation. This Statement supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. This Statement requires that the cost resulting from
all share-based payment transactions be recognized in the financial statements.
This Statement supersedes the current method utilized by the Company of the
disclosure-only provisions of the original SFAS No. 123. . The effective date
for implementation of SFAS No. 123R for the Company was October 1, 2005. The
Company had been disclosing the impact on net income and earnings per share
since the adoption of the original SFAS No. 123 and its amendment, SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" in the
notes to the financial statements. As permitted by SFAS 148 and SFAS 123, we
continued to apply the accounting provisions of Accounting Principles Board
Opinion Number 25, "Accounting for Stock Issued to Employees," and related
interpretations, with regard to the measurement of compensation cost for options
granted under our Stock Option Plans through September 30, 2005. No employee
compensation expense has been recorded as all options granted had an exercise
price equal to the market value of the underlying common stock on the date of
grant. No stock options were awarded during the three month period ended
December 31, 2005.


In October 2003, the American Institute of Certified Accountants issued
Statement of Position ("SOP") 03-03, "Accounting for Loans or Certain Securities
Acquired in a Transfer." This SOP proposes guidance on accounting for
differences between contractual and expected cash flows from an investor's
initial investment in loans or debt securities acquired in a transfer if those
differences are attributable, at least in part, to credit quality. Increases in
expected cash flows should be recognized prospectively through an adjustment of
the internal rate of return while decreases in expected cash flows should be
recognized as impairment. This SOP became effective October 1, 2005. We believe
the implementation of this SOP will make it more likely that an impairment loss
may be recorded some time in the future, although to date no impairment loss has
been recorded.


SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
29" ("SFAS 153") addresses the measurement of exchanges of nonmonetary assets.
It eliminates the exception from fair value accounting for nonmonetary exchange
of similar productive assets and replaces it with an exception for exchanges
that do not have commercial substance. SFAS 153 specifies that a nonmonetary
exchange has commercial substance if the future cash flows of an entity are
expected to change significantly as a result of the exchange. This statement
became effective October 1, 2005. . This statement is not expected to have an
impact on the Company's financial results.


In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections
- a replacement of APB Opinion No. 20 and FASB Statement No. 3" (SFAS 154),
which requires a retrospective application to prior periods' financial
statements of changes in accounting principle for all periods presented. This
statement replaces APB Opinion No. 20 which required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
The provisions of SFAS 154 are effective for fiscal years beginning after
December 15, 2006, the Company's fiscal year 2008.

                                       23
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to various types of market risk in the normal course of
business, including the impact of interest rate changes and changes in corporate
tax rates. A material change in these rates could adversely affect our operating
results and cash flows. At December 31, 2005, our $100 million credit facility,
all of which is variable debt, had an outstanding balance of $91.7 million. A 25
basis-point increase in interest rates would have increased our annual interest
expense by $25,000 for each $10 million of variable debt outstanding for the
entire fiscal year. We do not invest in derivative financial or commodity
instruments.

ITEM 4. CONTROLS AND PROCEDURES

     a. Disclosure Controls and Procedures.

     As of the end of the period covered by this Quarterly Report on Form 10-Q,
we carried out an evaluation, with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by us in the reports that we file or submit under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.

     b. Changes in Internal Controls Over Financial Reporting.

     There have been no changes in our internal control over financial reporting
that occurred during our last fiscal quarter to which this Quarterly Report on
Form 10-Q relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.


                                       24
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     In the ordinary course of our business, we are involved in numerous legal
proceedings. We regularly initiate collection lawsuits, using our network of
third party law firms, against consumers. Also, consumers occasionally initiate
litigation against us, in which they allege that we have violated a federal or
state law in the process of collecting their account. We do not believe that
these ordinary course matters are material to our business and financial
condition. As of the date of this Form 10-Q, we were not involved in any
material litigation in which we were a defendant.

ITEM 1A. RISK FACTORS

     There were no material changes in any risk factors previously disclosed in
the Company's Report on Form 10-K/A filed with the Securities & Exchange
Commission on January 20, 2006

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

     (a) Exhibits

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

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

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

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

                                       25

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                                  ASTA FUNDING, INC.
                                   (Registrant)

Date: February 9, 2005            By: /s/ Gary Stern
                                  ----------------------------------------------
                                  Gary Stern, President, Chief Executive Officer
                                  (Principal Executive Officer)

Date: February 9, 2005            By: /s/ Mitchell Cohen
                                  ----------------------------------------------
                                  Mitchell Cohen, Chief Financial Officer
                                  (Principal Financial Officer and
                                  Principal Accounting Officer)





                                       26