##### Table of Contents



UNITED STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    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.
  Delaware
    
    22-3388607(State or other jurisdiction
    
    (IRS Employerof 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
  þ o
  o þ o
 o þ




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##### 



ASTA FUNDING, INC. AND SUBSIDIARIES
 INDEX TO FORM 10-Q
 Part I. Financial Information
    
    
    2Item 1. Condensed Consolidated Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of March 31, 2007 (unaudited) and September 30, 2006
    
    
    2Condensed Consolidated Statements of Operations for the six and three month periods ended March 31, 2007 and 2006 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity for the six month period ending March 31, 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six month periods ended March 31, 2007 and 2006 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33Part II. Other Information
    
    
    34Item 1. Legal Proceedings
    
    
    34Item 1A Risk Factors
    
    
    34Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit 10.1  Receivable Financing Agreement dated March 2, 2007Exhibit 10.2  Third Amendmant to Fourth Amended and Restated Loan Agreement dated March 30, 2007Exhibit 10.3  Fourth Amendment to Fourth Amended and Restated Loan Agreement dated May 10, 2007Exhibit 31.1 - Section 302 Certificate of Principal Executive OfficerExhibit 31.2 - Section 302 Certificate of Principal Financial OfficerExhibit 32.1 - Section 906 Certificate of Principal Executive OfficerExhibit 32.2 - Section 906 Certificate of Principal Financial OfficerEX-10.1: RECEIVABLES FINANCING AGREEMENTEX-10.2: THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENTEX-10.3: FOURTH AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENTEX-10.4: SERVICING AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONS
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    September 30,2007
    
    
    2006(Unaudited)AssetsCash
    
    $
    6,769,000
    
    
    $
    7,826,000Consumer receivables acquired for liquidation (at net realizable value)
    
    
    563,734,000
    
    
    
    257,275,000Due from third party collection agencies and attorneys
    
    
    3,567,000
    
    
    
    3,062,000Investment in venture
    
    
    4,015,000
    
    
    
    5,965,000Furniture and equipment, net
    
    
    1,080,000
    
    
    
    1,101,000Deferred income taxes
    
    
    12,616,000
    
    
    
    7,577,000Other assets
    
    
    10,237,000
    
    
    
    5,034,000Total assets
    
    $
    602,018,000
    
    
    $
    287,840,000Liabilities And Stockholders EquityLiabilitiesDebt
    
    $
    377,162,000
    
    
    $
    82,811,000Other liabilities
    
    
    4,268,000
    
    
    
    4,338,000Dividends payable
    
    
    556,000
    
    
    
    6,052,000Income taxes payable
    
    
    10,344,000
    
    
    
    10,377,000Total liabilities
    
    
    392,330,000
    
    
    
    103,578,000Stockholders EquityPreferred stock, $.01 par value; authorized 5,000,000; issued
and outstanding  noneCommon stock, $.01 par value; authorized 30,000,000 shares; issued
and outstanding  13,903,158 at March 31, 2007 and 13,755,157
at September 30, 2006
    
    
    138,000
    
    
    
    138,000Additional paid-in capital
    
    
    64,458,000
    
    
    
    61,803,000Retained earnings
    
    
    145,092,000
    
    
    
    122,321,000Total stockholders equity
    
    
    209,688,000
    
    
    
    184,262,000Total liabilities and stockholders equity
    
    $
    602,018,000
    
    
    $
    287,840,000
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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Revenue:Finance income, net
    
    $
    32,353,000
    
    
    $
    24,829,000
    
    
    $
    57,294,000
    
    
    $
    45,089,000Other income
    
    
    255,000
    
    
    
    
    
    
    
    459,000
    
    
    
    Equity in earnings of venture
    
    
    475,000
    
    
    
    
    
    
    
    975,000
    
    
    
    33,083,000
    
    
    
    24,829,000
    
    
    
    58,728,000
    
    
    
    45,089,000Expenses:General and administrative
    
    
    5,790,000
    
    
    
    4,848,000
    
    
    
    10,878,000
    
    
    
    8,800,000Interest
    
    
    3,779,000
    
    
    
    1,302,000
    
    
    
    5,298,000
    
    
    
    1,965,000Impairments
    
    
    2,412,000
    
    
    
    
    
    
    
    2,412,000
    
    
    
    11,981,000
    
    
    
    6,150,000
    
    
    
    18,588,000
    
    
    
    10,765,000Income before income tax expense
    
    
    21,102,000
    
    
    
    18,679,000
    
    
    
    40,140,000
    
    
    
    34,324,000Income tax expense
    
    
    8,550,000
    
    
    
    7,576,000
    
    
    
    16,262,000
    
    
    
    13,909,000Net income
    
    $
    12,552,000
    
    
    $
    11,103,000
    
    
    $
    23,878,000
    
    
    $
    20,415,000Net income per share:Basic
    
    $
    0.91
    
    
    $
    0.82
    
    
    $
    1.73
    
    
    $
    1.50Diluted
    
    $
    0.85
    
    
    $
    0.76
    
    
    $
    1.63
    
    
    $
    1.40Weighted average number
of common shares
outstanding:Basic
    
    
    13,848,194
    
    
    
    13,608,994
    
    
    
    13,772,538
    
    
    
    13,603,485Diluted
    
    
    14,744,499
    
    
    
    14,604,636
    
    
    
    14,647,556
    
    
    
    14,583,252
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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (Unaudited)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance, September 30, 2006
    
    
    13,755,157
    
    
    $
    138,000
    
    
    $
    61,803,000
    
    
    $
    122,321,000
    
    
    $
    184,262,000Exercise of
stock options
    
    
    80,001
    
    
    
    
    
    
    
    1,207,000
    
    
    
    
    
    
    
    1,207,000Restricted
stock granted
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    768,000
    
    
    
    
    
    
    
    768,000Excess tax benefit
arising from exercise of non-qualified stock options and vesting of
restricted stock
    
    
    
    
    
    
    
    
    
    
    680,000
    
    
    
    
    
    
    
    680,000Dividends
declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,107,000
    )
    
    
    (1,107,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,878,000
    
    
    
    23,878,000Balance, March 31, 2007
    
    
    13,903,158
    
    
    $
    138,000
    
    
    $
    64,458,000
    
    
    $
    145,092,000
    
    
    $
    209,688,000
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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2007
    
    
    March 31, 2006Cash flows from operating activities:Net income
    
    $
    23,878,000
    
    
    $
    20,415,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    201,000
    
    
    
    264,000Deferred income taxes
    
    
    (5,039,000
    )
    
    
    Impairments of consumer receivable acquired for liquidation
    
    
    2,412.000
    
    
    
    Equity in earnings of venture
    
    
    (975,000
    )
    
    
    Cash distribution from venture
    
    
    975,000
    
    
    
    Stock based compensation
    
    
    768,000
    
    
    
    Changes in:Due from third party collection agencies and attorneys
    
    
    (505,000
    )
    
    
    (1,405,000
    )Income taxes payable
    
    
    (33,000
    )
    
    
    6,678,000Other assets
    
    
    (2,295,000
    )
    
    
    (116,000
    )Other liabilities
    
    
    (70,000
    )
    
    
    (1,812,000
    )Net cash provided by operating activities
    
    
    19,317,000
    
    
    
    24,024,000Cash flows from investing activities:Purchase of consumer receivables acquired for liquidation
    
    
    (386,682,000
    )
    
    
    (121,188,000
    )Principal collected on receivables acquired for liquidation
    
    
    61,324,000
    
    
    
    44,649,000Principal collected on receivable accounts represented by
account sales
    
    
    16,487,000
    
    
    
    12,060,000Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (1,406,000
    )Cash distributions from venture
    
    
    1,950,000
    
    
    
    Purchase of other investments
    
    
    (5,771,000
    )
    
    
    Collections on other investments
    
    
    2,788,000
    
    
    
    Capital expenditures
    
    
    (105,000
    )
    
    
    (213,000
    )Net cash used in investing activities
    
    
    (310,009,000
    )
    
    
    (66,098,000
    )Cash flows from financing activities:Proceeds from exercise of options
    
    
    1,207,000
    
    
    
    291,000Excess tax benefit
arising from exercise of non-qualified stock options and vesting of
restricted stock
    
    
    680,000
    
    
    
    Dividends paid
    
    
    (6,603,000
    )
    
    
    (1,020,000
    )Advances under lines of credit, net
    
    
    294,351,000
    
    
    
    42,715,000Net cash provided by financing activities
    
    
    289,635,000
    
    
    
    41,986,000Decrease in cash
    
    
    (1,057,000
    )
    
    
    (88,000
    )Cash at the beginning of period
    
    
    7,826,000
    
    
    
    4,059,000Cash at end of period
    
    $
    6,769,000
    
    
    $
    3,971,000Supplemental disclosure of cash flow information:Cash paid during the periodInterest
    
    $
    3,588,000
    
    
    $
    1,820,000Income taxes
    
    $
    20,655,000
    
    
    $
    7,146,000
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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1: Business and Basis of Presentation
 Business
 ® ®
 Basis of Presentation
    Recent Accounting Pronouncements
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued  (Unaudited)
 Note 1: Business and Basis of Presentation  ( Continued )
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
   Note 2: Principles of Consolidation
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued  (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation
    
    
    the interest method; or
    
    the cost recovery method.
   8




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued  (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation  ( continued )
  
    
    Same issuer/originator
    
    Same underlying credit quality
    
    Similar geographic distribution of the accounts
    
    Similar age of the receivable and
    
    Same type of asset class (credit cards, telecom etc.)
  
    
    The number of collection agencies previously attempting to collect the receivables in the portfolio;
    
    the average balance of the receivables, as higher balances might be more difficult to collect while low balances might not be cost effective to collect;
    
    the age of the receivables, as older receivables might be more difficult to collect
or might be less cost effective. On the other hand, the passage of time, in certain circumstances, might result
in higher collections due to changing life events of some individual debtors;
    
    past history of performance of similar assets  as we purchase portfolios of similar
assets, we believe we have built significant history on how these receivables will liquidate
and cash flow;
    
    number of days since charge-off;
    
    payments made since charge-off;
    
    the credit originator and their credit guidelines;
    
    the locations of the debtors as there are better states to attempt to collect in and
ultimately we have better predictability of the liquidations and the expected cash flows.
Conversely, there are also states where the liquidation rates are not
as favorable and that is
factored into our cash flow analysis;
    
    Jobs or property of the debtors found within portfolios-with our business model,
this is of particular importance. Debtors with jobs or property are more likely to repay
their obligation and conversely, debtors without jobs or property are less likely to repay
their obligation ; and
    
    the ability to obtain customer statements from the original issuer.
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued  (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation  ( continued )
  For the Six Months Ended March 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    256,199,000
    
    
    $
    1,076,000
    
    
    $
    257,275,000Acquisitions of receivable portfolios, net
    
    
    345,798,000
    
    
    
    40,884,000
    
    
    
    386,682,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (102,015,000
    )
    
    
    (2,089,000
    )
    
    
    (104,104,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (26,754,000
    )
    
    
    (4,247,000
    )
    
    
    (31,001,000
    )Transfer to cost recovery (1)
    
    
    (4,478,000
    )
    
    
    4,478,000
    
    
    
    Impairment
    
    
    (2,412,000
    )
    
    
    
    
    
    
    (2,412,000
    )Finance income recognized
    
    
    56,007,000
    
    
    
    1,287,000
    
    
    
    57,294,000Balance, end of period
    
    $
    522,345,000
    
    
    $
    41,389,000
    
    
    $
    563,734,000Finance income as a percentage of collections
    
    
    43.5
    %
    
    
    20.3
    %
    
    
    42.4
    %
 For the Six Months Ended March 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    172,636,000
    
    
    $
    91,000
    
    
    $
    172,727,000Acquisitions of receivable portfolios, net
    
    
    121,188,000
    
    
    
    
    
    
    
    121,188,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (73,470,000
    )
    
    
    (2,022,000
    )
    
    
    (75,492,000
    )Net cash
collections represented by account sales of consumer receivables acquired for liquidation
    
    
    (26,071,000
    )
    
    
    (235,000
    )
    
    
    (26,306,000
    )Transferred to cost recovery
    
    
    (529,000
    )
    
    
    529,000
    
    
    
    Finance income recognized
    
    
    43,067,000
    
    
    
    2,022,000
    
    
    
    45,089,000Balance, end of period
    
    $
    236,821,000
    
    
    $
    385,000
    
    
    $
    237,206,000Finance income as a percentage of collections
    
    
    43.3
    %
    
    
    89.6
    %
    
    
    44.3
    %
 
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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation (continued)
 For the Three Months Ended March 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    281,852,000
    
    
    $
    3,671,000
    
    
    $
    285,523,000Acquisitions of receivable portfolios, net
    
    
    288,224,000
    
    
    
    36,191,000
    
    
    
    324,415,000Net cash collections from collections of consumer
receivables acquired for liquidation
    
    
    (60,765,000
    )
    
    
    (1,461,000
    )
    
    
    (62,226,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (11,825,000
    )
    
    
    (2,094,000
    )
    
    
    (13,919,000
    )Transfer to cost recovery (1)
    
    
    (4,478,000
    )
    
    
    4,478,000
    
    
    
    Impairment
    
    
    (2,412,000
    )
    
    
    
    
    
    
    (2,412,000
    )Finance income recognized
    
    
    31,749,000
    
    
    
    604,000
    
    
    
    32,353,000Balance, end of period
    
    $
    522,345,000
    
    
    $
    41,389,000
    
    
    $
    563,734,000Finance income as a percentage of collections
    
    
    43.7
    %
    
    
    17.0
    %
    
    
    42.5
    %
 For the Three Months Ended March 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    248,758,000
    
    
    $
    425,000
    
    
    $
    249,183,000Acquisitions of receivable portfolios, net
    
    
    18,783,000
    
    
    
    
    
    
    
    18,783,000Net cash collections from collections of consumer
receivables acquired for liquidation
    
    
    (42,408.000
    )
    
    
    (849,000
    )
    
    
    (43,257,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (12,332,000
    )
    
    
    
    
    
    
    (12,332,000
    )Finance income recognized
    
    
    24,020,000
    
    
    
    809,000
    
    
    
    24,829,000Balance, end of period
    
    $
    236,821,000
    
    
    $
    385,000
    
    
    $
    237,206,000Finance income as a percentage of collections
    
    
    43.9
    %
    
    
    95.3
    %
    
    
    44.7
    %
 
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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation (continued)
  September 30, 2007 (six months ending)
    
    $
    45,915,000September 30, 2008
    
    
    172,085,000September 30, 2009
    
    
    150,343,000September 30, 2010
    
    
    119,497,000September 30, 2011
    
    
    61,674,000September 30, 2012
    
    
    1,118,000Total
    
    
    550,632,000Deferred revenue
    
    
    (28,287,000
    )Total
    
    $
    522,345,000
  Six Months
    
    
    Six MonthsEnded
    
    
    EndedMarch 31, 2007
    
    
    March 31, 2006Balance at beginning of period
    
    $
    143,800,000
    
    
    $
    94,022,000Income recognized on finance receivables, net
    
    
    (56,007,000
    )
    
    
    (43,067,000
    )Additions representing expected revenue from purchases
    
    
    131,570,000
    
    
    
    71,670,000Impairments
    
    
    (423,000
    )Reclassifications from nonaccretable difference
    
    
    7,931,000
    
    
    
    31,234,000Balance at end of period
    
    $
    226,871,000
    
    
    $
    153,859,000
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2007
    
    
    March 31, 2006Balance at beginning of period
    
    $
    138,966,000
    
    
    $
    135,306,000Income recognized on finance receivables, net
    
    
    (31,749,000
    )
    
    
    (24,020,000
    )Additions representing expected revenue from
purchases
    
    
    112,146,000
    
    
    
    11,339,000Impairments
    
    

    (423,000
    )Reclassifications from nonaccretable difference
    
    
    7,931,000
    
    
    
    31,234,000Balance at end of period
    
    $
    226,871,000
    
    
    $
    153,859,000
 12




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation (continued)
   For the Six Months Ended March 31,2007
    
    
    2006Gross collections (1)
    
    $
    192,815,000
    
    
    $
    145,032,000Commissions and fees (2)
    
    
    57,710,000
    
    
    
    43,234,000Net collections
    
    $
    135,105,000
    
    
    $
    101,798,000
 For the Three Months Ended March 31,2007
    
    
    2006Gross collections (1)
    
    $
    106,119,000
    
    
    $
    79,304,000Commissions and fees (2)
    
    
    29,974,000
    
    
    
    23,715,000Net collections
    
    $
    76,145,000
    
    
    $
    55,589,000
 
 (1)
    
    Gross collections include: collection from third-party collection agencies and attorneys,
collections from our in-house efforts and collections represented by account sales.(2)
    
    Commissions and fees are the contractual commission earned by third party collection
agencies and attorneys, and direct costs associated with the collection effort- generally court
costs, advanced by our third party collection agencies and attorneys. Note 4: Investment in venture
  13




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 5: Furniture and Equipment
  March 31,
    
    
    September 30,2007
    
    
    2006`Furniture
    
    $
    307,000
    
    
    $
    307,000Equipment
    
    
    2,668,000
    
    
    
    2,563,0002,975,000
    
    
    
    2,870,000Less accumulated depreciation
    
    
    1,895,000
    
    
    
    1,769,000Balance, end of period
    
    $
    1,080,000
    
    
    $
    1,101,000
 Note 6: Debt
     14




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 7: Commitments and Contingencies
 Employment Agreements
  Leases
  Litigation
    Note 8: Income Recognition and Impairments
 Income Recognition
  15




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 8: Income Recognition and Impairments  ( continued)
  Impairments
   
    
    The type of receivable, the location of the debtor and the number of collection
agencies previously attempting to collect the receivables in the portfolio. We have found
that there are better states to try collect receivables and we factor in both good and bad
states when establishing our initial cash flow expectations.
    
    the average balance of the receivables influence our analysis in that lower average
balance portfolios tend to be more collectible in the short-term and higher average balance
portfolios are more suitable for our suit strategy and thus yield better results over the
longer term. As we have significant experience with both types of balances, we are able to
factor these variables into our initial expected cash flows;
    
    the age of the receivables, the number of days since charge-off, the number of days
from charge-off, the payments, if any, since charge-off, and the credit guidelines of the
credit originator also represent factors taken into consideration in our estimation process
since, for example, older receivables might be more difficult to collect in amount and/or
require more time to collect;
    
    past history and performance of similar assets acquired. As we purchase portfolios
of like assets, we have built significant history on the tendencies of debtor repayments and
factor this into our initial expected cash flows;
    
    Jobs or property of the debtors found within portfolios. With our business model,
this is of particular importance. Debtors with jobs or property are more likely to repay
their obligation through the suit strategy and conversely, debtors without jobs or property
are less likely to repay their obligation. While we believe that debtors with jobs or
property are more likely to repay, we also believe that these debtors generally might take
longer to repay and that is factored into our initial expected cash flows.
 16




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 8: Income Recognition and Impairments  ( continued)
    Note 9: Income Taxes
  17




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 10: Net Income Per Share
   Six Months Ended March 31,2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic
    
    $
    23,878,000
    
    
    
    13,772,538
    
    
    $
    1.73
    
    
    $
    20,415,000
    
    
    
    13,603,485
    
    
    $
    1.50Dilutive impact of equity-based compensation awards
    
    
    
    
    
    
    875,018
    
    
    
    
    
    
    
    
    
    
    
    979,767Diluted
    
    $
    23,878,000
    
    
    
    14,647,556
    
    
    $
    1.63
    
    
    $
    20,415,000
    
    
    
    14,583,252
    
    
    $
    1.40
 Three months Ended March 31,2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic
    
    $
    12,552,000
    
    
    
    13,848,194
    
    
    $
    0.91
    
    
    $
    11,103,000
    
    
    
    13,608,994
    
    
    $
    0.82Dilutive impact of equity-based compensation awards
    
    
    
    
    
    
    896,305
    
    
    
    
    
    
    
    
    
    
    
    995,642Diluted
    
    $
    12,552,000
    
    
    
    14,744,499
    
    
    $
    0.85
    
    
    $
    11,103,000
    
    
    
    14,604,636
    
    
    $
    0.76
 Note 11: Stock-based Compensation
   18




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 11: Stock-based Compensation  ( continued )
   Risk free interest rate
    
    
    4.94
    %Expected term (years)
    
    
    10.0Expected volatility
    
    
    36.3
    %Dividend yield
    
    
    0.47
    %
 Note 12: Stock Option Plans
 Equity Compensation Plan
   19




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
(Unaudited)
 Note 12: Stock Option Plans- ( continued )
  2002 Stock Option Plan
    1995 Stock Option Plan
    20




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 (unaudited)
 Note 12: Stock-Option Plans  (Continued)
  Six Months Ended March 31,2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding options at the beginning of period
    
    
    1,414,439
    
    
    $
    9.4511
    
    
    
    1,580,605
    
    
    $
    9.1082Options granted
    
    
    18,000
    
    
    
    28.7500
    
    
    
    -0
    -
    
    
    0.0000Options exercised
    
    
    (80,001
    )
    
    
    15.0970
    
    
    
    (25,833
    )
    
    
    11.2895Options cancelled
    
    
    -0
    -
    
    
    0.0000
    
    
    
    -0
    -
    
    
    0.0000Outstanding options at the end of period
    
    
    1,352,438
    
    
    $
    9.3739
    
    
    
    1,554,772
    
    
    $
    9.0720Exercisable options at the end of period
    
    
    1,340,438
    
    
    $
    9.2005
    
    
    
    1,554,772
    
    
    $
    9.0720
  Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Price
    
    Outstanding
    
    
    Life (in Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.8125  $2.8750
    
    
    600,000
    
    
    
    3.0
    
    
    $
    2.0208
    
    
    
    600,000
    
    
    $
    2.0208$2.8751  $5.7500
    
    
    116,667
    
    
    
    5.6
    
    
    
    4.7250
    
    
    
    116,667
    
    
    
    4.7250$5.7501  $8.6250
    
    
    12,000
    
    
    
    4.6
    
    
    
    5.9600
    
    
    
    12,000
    
    
    
    5.9600$14.3751  $17.2500
    
    
    223,611
    
    
    
    6.7
    
    
    
    15.0318
    
    
    
    223,611
    
    
    
    15.0318$17.2501  $20.1250
    
    
    382,160
    
    
    
    7.6
    
    
    
    18.2217
    
    
    
    382,160
    
    
    
    18.2217$28.7500  $28.7500
    
    
    18,000
    
    
    
    9.7
    
    
    
    28.7500
    
    
    
    6,000
    
    
    
    28.75001,352,438
    
    
    
    5.2
    
    
    $
    9.3739
    
    
    
    1,340,438
    
    
    $
    9.2004
   21




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 (unaudited)
 Note 12: Stock-Option Plans  (Continued)
  WeightedSix Months
    
    
    AverageEnded
    
    
    Grant DateMarch 31, 2007
    
    
    Fair ValueUnvested at beginning of period
    
    
    0
    
    
    $
    0.00Awards granted
    
    
    68,000
    
    
    $
    28.75Vested
    
    
    (22,667
    )
    
    $
    28.75Forfeited
    
    
    0
    
    
    $
    0.00Unvested at end of period
    
    
    45,333
    
    
    $
    28.75
  Note 13: Stockholders Equity
  Note 14: Subsequent Event
  22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  
    
    charged-off receivables accounts that have been written-off by the originators and may
have been previously serviced by collection agencies;
    
    semi-performing receivables accounts where the debtor is currently making partial or
irregular monthly payments, but the accounts may have been written-off by the originators;
and
    
    performing receivables accounts where the debtor is making regular monthly payments
that may or may not have been delinquent in the past.
   
    
    our relationships with industry participants, collection agencies, investors and our financing sources;
    
    brokers who specialize in the sale of consumer receivable portfolios; and
    
    other sources.
 Cautions With Respect to Forward Looking Statements
  www.astafunding.com.
 Critical Accounting Policies
   23




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##### Table of Contents




    
    the interest method; or
    
    the cost recovery method.
    
    
    Same issuer/originator
    
    Same underlying credit quality
    
    Similar geographic distribution of the accounts
    
    Similar age of the receivable and
    
    Same type of asset class (credit cards, telecom etc.)
  
    
    The number of collection agencies previously attempting to collect the receivables in the portfolio;
    
    the average balance of the receivables;
 
    
    the age of the receivables (as older receivables might be more difficult to collect
or might be less cost effective);
 24




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##### Table of Contents




    
    past history of performance of similar assets  as we purchase portfolios of similar
assets, we believe we have built significant history on how these receivables will liquidate
and cash flow;
    
    number of days since charge-off;
    
    payments made since charge-off;
    
    the credit originator and their credit guidelines;
    
    the locations of the debtors as there are better states to attempt to collect in and
ultimately we have better predictability of the liquidations and the expected cash flows.
Conversely, there are also states where the liquidation rates are not as good and that is
factored into our cash flow analysis;
    
    Jobs or property of the debtors found within portfolios-with our business model,
this is of particular importance. Debtors with jobs or property are more likely to repay
their obligation and conversely, debtors without jobs or property are less likely to repay
their obligation ; and
    
    the ability to obtain customer statements from the original issuer.
   Results of Operations
 The six-month period ended March 31, 2007, compared to the six-month period ended March
31, 2006
 Finance income.
 25




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##### Table of Contents



Other income .
 Equity in earnings of venture .
 General and Administrative Expenses.
 Interest Expense.
 The three-month period ended March 31, 2007, compared to the three-month period ended March 31,
2006
 Finance income.
  Other income .
 Equity in earnings of venture .
 26




---



##### Table of Contents



General and Administrative Expenses.
 Interest Expense.
 Liquidity and Capital Resources
     27




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28




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##### Table of Contents



For the Six Months Ended March 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    256,199,000
    
    
    $
    1,076,000
    
    
    $
    257,275,000Acquisitions of receivable portfolios, net
    
    
    345,798,000
    
    
    
    40,884,000
    
    
    
    386,682,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (102,015,000
    )
    
    
    (2,089,000
    )
    
    
    (104,104,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (26,754,000
    )
    
    
    (4,247,000
    )
    
    
    (31,001,000
    )Transfer to
cost recovery(1)
    
    
    (4,478,000
    )
    
    
    4,478,000
    
    
    
    Impairment
    
    
    (2,412,000
    )
    
    
    
    
    
    
    (2,412,000
    )Finance income recognized
    
    
    56,007,000
    
    
    
    1,287,000
    
    
    
    57,294,000Balance, end of period
    
    $
    522,345,000
    
    
    $
    41,389,000
    
    
    $
    563,734,000Finance income as a percentage of collections
    
    
    43.5
    %
    
    
    20.3
    %
    
    
    42.4
    %
 For the Six Months Ended March 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    172,636,000
    
    
    $
    91,000
    
    
    $
    172,727,000Acquisitions of receivable portfolios, net
    
    
    121,188,000
    
    
    
    
    
    
    
    121,188,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (73,470,000
    )
    
    
    (2,022,000
    )
    
    
    (75,492,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (26,071,000
    )
    
    
    (235,000
    )
    
    
    (26,306,000
    )Transferred to cost recovery
    
    
    (529,000
    )
    
    
    529,000
    
    
    
    Finance income recognized
    
    
    43,067,000
    
    
    
    2,022,000
    
    
    
    45,089,000Balance, end of period
    
    $
    236,821,000
    
    
    $
    385,000
    
    
    $
    237,206,000Finance income as a percentage of collections
    
    
    43.3
    %
    
    
    89.6
    %
    
    
    44.3
    %
 
 29




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##### Table of Contents



For the Three Months Ended March 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    281,852,000
    
    
    $
    3,671,000
    
    
    $
    285,523,000Acquisitions of receivable portfolios, net
    
    
    288,224,000
    
    
    
    36,191,000
    
    
    
    324,415,000Net cash collections from collections of consumer
receivables acquired for liquidation
    
    
    (60,765,000
    )
    
    
    (1,461,000
    )
    
    
    (62,226,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (11,825,000
    )
    
    
    (2,094,000
    )
    
    
    (13,919,000
    )Transfer to
cost recovery(1)
    
    
    (4,478,000
    )
    
    
    4,478,000
    
    
    
    Impairment
    
    
    (2,412,000
    )
    
    
    
    
    
    
    (2,412,000
    )Finance income recognized
    
    
    31,749,000
    
    
    
    604,000
    
    
    
    32,353,000Balance, end of period
    
    $
    522,345,000
    
    
    $
    41,389,000
    
    
    $
    563,734,000Finance income as a percentage of collections
    
    
    43.7
    %
    
    
    17.0
    %
    
    
    42.5
    %
 For the Three Months Ended March 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    248,758,000
    
    
    $
    425,000
    
    
    $
    249,183,000Acquisitions of receivable portfolios, net
    
    
    18,783,000
    
    
    
    
    

    
    
    18,783,000Net cash collections from collections of consumer
receivables acquired for liquidation
    
    
    (42,408.000
    )
    
    
    (849,000
    )
    
    
    (43,257,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (12,332,000
    )
    
    
    
    
    
    
    (12,332,000
    )Finance income recognized
    
    
    24,020,000
    
    
    
    809,000
    
    
    
    24,829,000Balance, end of period
    
    $
    236,821,000
    
    
    $
    385,000
    
    
    $
    237,206,000Finance income as a percentage of collections
    
    
    43.9
    %
    
    
    95.3
    %
    
    
    44.7
    %
 (1)
  
  Represents a portfolio acquired during the three months ended
December 31, 2006 which the Company is presently negotiating to
return to the seller. 30




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##### Table of Contents



Additional Supplementary Information:
   Collections Represented by Account Sales
 CollectionsRepresented
    
    FinanceBy Account
    
    IncomePeriod
    
    Sales
    
    EarnedSix months ended March 31, 2007
    
    $
    31,001,000
    
    
    $
    14,514,000Three months ended March 31, 2007
    
    $
    13,919,000
    
    
    $
    5,555,000Six months ended March 31, 2006
    
    $
    26,306,000
    
    
    $
    14,246,000Three months ended March 31, 2006
    
    $
    12,332,000
    
    
    $
    7,794,000
 31




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##### Table of Contents



Portfolio Performance (1)
 Total estimatedCash Collections
    
    Estimated
    
    Total
    
    Collections as aPurchase
    
    Including Cash
    
    Remaining
    
    Estimated
    
    Percentage ofPurchase Period
    
    Price (2)
    
    Sales (3)
    
    Collections (4)
    
    Collections (5)
    
    Purchase Price2001
    
    $
    65,120,000
    
    
    $
    95,091,000
    
    
    $
    0
    
    
    $
    95,091,000
    
    
    
    146
    %2002
    
    
    36,557,000
    
    
    
    52,132,000
    
    
    $
    0
    
    
    
    52,132,000
    
    
    
    143
    %2003
    
    
    115,626,000
    
    
    
    185,715,000
    
    
    
    11,474,000
    
    
    
    197,189,000
    
    
    
    171
    %2004
    
    
    103,743,000
    
    
    
    150,188,000
    
    
    
    14,098,000
    
    
    
    164,286,000
    
    
    
    158
    %2005
    
    
    126,023,000
    
    
    
    133,156,000
    
    
    
    81,563,000
    
    
    
    214,719,000
    
    
    
    170
    %2006
    
    
    200,237,000
    
    
    
    109,963,000
    
    
    
    196,367,000
    
    
    
    306,330,000
    
    
    
    153
    %2007
    
    
    341,320,000
    
    
    
    20,798,000
    
    
    
    445,714,000
    
    
    
    466,512,000
    
    
    
    137
    %
      Recent Accounting Pronouncements
  Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
  32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 a. Disclosure Controls and Procedures.
   b. Changes in Internal Controls Over Financial Reporting.
  33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  AuthorityElection of Directors
    
    For
    
    WithheldGary Stern
    
    
    12,610,499
    
    
    
    782,659Arthur Stern
    
    
    12,344,430
    
    
    
    1,048,728Herman Badillo
    
    
    12,589,777
    
    
    
    803,381David Slackman
    
    
    12,654,810
    
    
    
    738,348Edward Celano
    
    
    12,607,724
    
    
    
    785,424Harvey Leibowitz
    
    
    12,606,210
    
    
    
    786,948Alan Rivera
    
    
    13,312,237
    
    
    
    80,921Louis A. Piccolo
    
    
    13,312,737
    
    
    
    80,421
 34




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
  10.1
    
    Receivables Financing Agreement dated March 2, 200710.2
    
    Third Amendment to Fourth Amended and Restated Loan Agreement dated March 30, 200710.3
    
    Fourth Amendment to Fourth Amended and Restated Loan Agreement dated May 10, 200710.4
    
    Subservicing Agreement dated March 2, 2007*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.
  35




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##### Table of Contents



ASTA FUNDING, INC.
(Registrant)Date: May 15, 2007
    By:
    /s/ Gary SternGary Stern, President, Chief Executive Officer(Principal Executive Officer) Date: May 15, 2007
    By:
    /s/ Mitchell CohenMitchell Cohen, Chief Financial Officer(Principal Financial Officer and
Principal Accounting Officer) 36