##### Table of Contents



UNITED STATES
SECURITIES 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 December 31, 2009
 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
(State or other jurisdiction 
of incorporation or organization)
    
    22-3388607
(IRS Employer
Identification No.)210 Sylvan Ave., Englewood Cliffs, New Jersey
(Address of principal executive offices)
    
    07632
(Zip Code)
 Registrants telephone number: (201) 567-5648
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ASTA FUNDING, INC.
INDEX TO FORM 10-Q
 Part I. Financial Information
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of December 31, 2009 (unaudited) and
September 30, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three month periods ended
December 31, 2009 and 2008 (unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three month period
ending December 31, 2009 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the three month periods ended
December 31, 2009 and 2008 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34Part II. Other Information
    
    
    34Item 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ASTA FUNDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 December 31,
    
    
    September 30,2009
    
    
    2009(Unaudited)ASSETSCash and cash equivalents
    
    $
    2,337,000
    
    
    $
    2,385,000Restricted cash
    
    
    1,688,000
    
    
    
    2,130,000Consumer receivables acquired for liquidation (at net realizable value)
    
    
    192,126,000
    
    
    
    208,261,000Due from third party collection agencies and attorneys
    
    
    2,058,000
    
    
    
    2,573,000Prepaid and income taxes receivable
    
    
    47,727,000
    
    
    
    47,727,000Investment in venture
    
    
    134,000
    
    
    
    168,000Furniture and equipment, net
    
    
    475,000
    
    
    
    538,000Deferred income taxes
    
    
    24,317,000
    
    
    
    24,072,000Other assets
    
    
    2,733,000
    
    
    
    2,902,000Total assets
    
    $
    273,595,000
    
    
    $
    290,756,000LIABILITIESDebt
    
    $
    101,233,000
    
    
    $
    122,622,000Subordinated debt  related party
    
    
    8,246,000
    
    
    
    8,246,000Other liabilities
    
    
    1,779,000
    
    
    
    2,166,000Dividends payable
    
    
    286,000
    
    
    
    286,000Income taxes payable
    
    
    1,856,000
    
    
    
    Total liabilities
    
    
    113,400,000
    
    
    
    133,320,000Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, $.01 par value; authorized 5,000,000 shares;
issued and outstanding  noneCommon stock, $.01 par value; authorized 30,000,000 shares; issued
and outstanding  14,272,457 shares at December 31, 2009 and
14,272,357 at September 30, 2009
    
    
    143,000
    
    
    
    143,000Additional paid-in capital
    
    
    70,799,000
    
    
    
    70,189,000Retained earnings
    
    
    89,248,000
    
    
    
    87,058,000Accumulated other comprehensive income
    
    
    5,000
    
    
    
    46,000Total stockholders equity
    
    
    160,195,000
    
    
    
    157,436,000Total liabilities and stockholders equity
    
    $
    273,595,000
    
    
    $
    290,756,000
   3




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2009
    
    
    December 31, 2008RevenuesFinance income, net
    
    $
    10,974,000
    
    
    $
    18,416,000Other income
    
    
    33,000
    
    
    
    32,00011,007,000
    
    
    
    18,448,000ExpensesGeneral and administrative
    
    
    5,629,000
    
    
    
    7,027,000Interest expense (fiscal year 2010 - Related Party  $130,000;
fiscal year - 2009 - Related Party  $128,000)
    
    
    1,259,000
    
    
    
    3,170,000Impairments of consumer receivables acquired for liquidation
    
    
    
    
    
    
    21,415,0006,888,000
    
    
    
    31,612,000Income (loss) before equity in earnings in venture and income taxes
    
    
    4,119,000
    
    
    
    (13,164,000
    )Equity in earnings in venture
    
    
    46,000
    
    
    
    17,000Income (loss) before income taxes
    
    
    4,165,000
    
    
    
    (13,147,000
    )Income tax expense (benefit)
    
    
    1,690,000
    
    
    
    (5,310,000
    )Net income (loss)
    
    $
    2,475,000
    
    
    $
    (7,837,000
    )Net income (loss) per share  Basic
    
    $
    0.17
    
    
    $
    (0.55
    )Net income (loss) per share  Diluted
    
    $
    0.17
    
    
    $
    (0.55
    )Weighted average number of shares outstanding:Basic
    
    
    14,272,420
    
    
    
    14,271,824Diluted
    
    
    14,615,054
    
    
    
    14,271,824
   4




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Stockholders Equity
 (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, September 30, 2009
    
    
    14,272,357
    
    
    $
    143,000
    
    
    $
    70,189,000
    
    
    $
    87,058,000
    
    
    
    46,000
    
    
    $
    157,436,000Exercise of options
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
expense
    
    
    
    
    
    
    
    
    
    
    559,000
    
    
    
    
    
    
    
    
    
    
    
    559,000Tax benefit arising from
vesting of restricted
stock awards
    
    
    
    
    
    
    
    
    
    
    51,000
    
    
    
    
    
    
    
    
    
    
    
    51,000Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285,000
    )
    
    
    
    
    
    
    (285,000
    )Accumulated other
comprehensive loss, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,000
    )
    
    
    (41,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,475,000
    
    
    
    
    
    
    
    2,475,000Balance, December 31, 2009
    
    
    14,272,457
    
    
    $
    143,000
    
    
    $
    70,799,000
    
    
    $
    89,248,000
    
    
    
    5,000
    
    
    $
    160,195,000
 Comprehensive income (loss) is as follows:
 Three Months
    
    
    Three MonthsEnded
    
    
    Ended12/31/09
    
    
    12/31/08Net income (loss)
    
    $
    2,475,000
    
    
    $
    (7,837,000
    )Other comprehensive loss, net of tax  Foreign
currency translation
    
    
    (41,000
    )
    
    
    (783,000
    )Comprehensive income (loss)
    
    $
    2,434,000
    
    
    $
    (8,620,000
    )Accumulated other comprehensive income (loss)
    
    
    5,000
    
    
    
    (1,080,000
    )
   5




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2009
    
    
    December 31, 2008Cash flows from operating activities:Net income (loss)
    
    $
    2,475,000
    
    
    $
    (7,837,000
    )Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    307,000
    
    
    
    359,000Deferred income taxes
    
    
    (245,000
    )
    
    
    (6,518,000
    )Impairments of consumer receivables acquired for liquidation
    
    
    
    
    
    
    21,415,000Stock based compensation
    
    
    559,000
    
    
    
    281,000Changes in:Other assets
    
    
    (48,000
    )
    
    
    1,000Due from third party collection agencies and attorneys
    
    
    515,000
    
    
    
    1,557,000Income taxes payable and receivable
    
    
    1,856,000
    
    
    
    (4,303,000
    )Other liabilities
    
    
    (433,000
    )
    
    
    (1,462,000
    )Net cash provided by operating activities
    
    
    4,986,000
    
    
    
    3,493,000Cash flows from investing activities:Purchase of consumer receivables acquired for liquidation
    
    
    (2,300,000
    )
    
    
    (1,078,000
    )Principal collected on receivables acquired for liquidation
    
    
    16,755,000
    
    
    
    19,212,000Principal collected on receivables accounts represented by account sales
    
    
    1,701,000
    
    
    
    4,400,000Foreign exchange effect on receivables acquired for liquidation
    
    
    (21,000
    )
    
    
    1,249,000Cash distribution received from venture
    
    
    34,000
    
    
    
    171,000Capital expenditures
    
    
    (27,000
    )
    
    
    (19,000
    )Net cash provided by investing activities
    
    
    16,142,000
    
    
    
    23,935,000Cash flows from financing activities:Tax benefit arising from vesting of restricted stock awards
    
    
    51,000
    
    
    
    55,000Changes in restricted cash
    
    
    442,000
    
    
    
    800,000Dividends paid
    
    
    (285,000
    )
    
    
    (571,000
    )Repayment of debt
    
    
    (21,389,000
    )
    
    
    (29,677,000
    )Net cash used in financing activities
    
    
    (21,181,000
    )
    
    
    (29,393,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    (53,000
    )
    
    
    (1,965,000
    )Effect of foreign exchange on cash
    
    
    5,000
    
    
    
    64,000Cash and cash equivalents at beginning of period
    
    
    2,385,000
    
    
    
    3,623,000Cash and cash equivalents at end of period
    
    $
    2,337,000
    
    
    $
    1,722,000Supplemental disclosure of cash flow information:Cash paid for:Interest (Related Party : 2010  $172,0002009  $128,000)
    
    $
    1,377,000
    
    
    $
    3,405,000Income taxes
    
    $
    
    
    
    $
    4,917,000
   6




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##### Table of Contents



ASTA
FUNDING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE 1  BUSINESS AND BASIS OF PRESENTATION
 Business
  Basis of Presentation
    7




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
 Recent Accounting Pronouncements
  Subsequent Events
  NOTE 2  PRINCIPLES OF CONSOLIDATION
   8




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 3  CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION
   
    
    the interest method; or
    
    the cost recovery method.
      9




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, telecommunication, 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;
    
    time since charge-off;
    
    payments made since charge-off;
    
    the credit originator and its credit guidelines;
    
    our ability to analyze accounts and resell accounts that meet our criteria for resale;
    
    the locations of the debtors, as there are better states to attempt to
collect in and ultimately the Company has 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;
    
    financial condition of the seller
    
    jobs or property of the debtors found within portfolios. In 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 timely customer statements from the original issuer.
   10




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 3  CONSUMER RECEIVABLES ACQUIRED FOR LIQUIDATION (CONTINUED)
  For the Three Months Ended December 31, 2009CostInterest
    
    
    RecoveryMethod
    
    
    Method
    
    
    TotalBalance, beginning of period
    
    $
    70,650,000
    
    
    $
    137,611,000
    
    
    $
    208,261,000Acquisitions of receivable portfolios, net
    
    
    2,148,000
    
    
    
    152,000
    
    
    
    2,300,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (19,047,000
    )
    
    
    (7,786,000
    )
    
    
    (26,833,000
    )Net cash collections represented by account sales
of consumer receivables acquired for liquidation
    
    
    (2,593,000
    )
    
    
    (4,000
    )
    
    
    (2,597,000
    )Effect of foreign currency translation
    
    
    
    
    
    
    21,000
    
    
    
    21,000Finance income recognized (1)
    
    
    10,618,000
    
    
    
    356,000
    
    
    
    10,974,000Balance, end of period
    
    $
    61,776,000
    
    
    $
    130,350,000
    
    
    $
    192,126,000Revenue as a percentage of collections
    
    
    49.1
    %
    
    
    4.6
    %
    
    
    37.3
    %
 (1)
    
    Includes $8.1million derived from fully amortized interest method pools. For the Three Months Ended December 31, 2008CostInterest
    
    
    RecoveryMethod
    
    
    Method
    
    
    TotalBalance, beginning of period
    
    $
    203,470,000
    
    
    $
    245,542,000
    
    
    $
    449,012,000Acquisitions of receivable portfolios, net
    
    
    1,078,000
    
    
    
    
    
    
    
    1,078,000Net cash collections from collection of consumer
receivables acquired for liquidation (1)
    
    
    (26,373,000
    )
    
    
    (9,882,000
    )
    
    
    (36,255,000
    )Net cash collections represented by account sales
of consumer receivables acquired for liquidation
    
    
    (2,348,000
    )
    
    
    (3,425,000
    )
    
    
    (5,773,000
    )Transfer to Cost Recovery
    
    
    (6,149,000
    )
    
    
    6,149,000
    
    
    
    Impairments
    
    
    (21,415,000
    )
    
    
    
    
    
    
    (21,415,000
    )Effect of foreign currency translation
    
    
    
    
    
    
    (1,255,000
    )
    
    
    (1,255,000
    )Finance income recognized (1)
    
    
    18,169,000
    
    
    
    247,000
    
    
    
    18,416,000Balance, end of period
    
    $
    166,432,000
    
    
    $
    237,376,000
    
    
    $
    403,808,000Revenue as a percentage of collections
    
    
    63.3
    %
    
    
    1.9
    %
    
    
    43.8
    %
 (1)
    
    Includes $10.2 million derived from fully amortized interest method pools.  11




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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, 2010 (nine months remaining)
    
    $
    17,242,000September 30, 2011
    
    
    18,893,000September 30, 2012
    
    
    14,559,000September 30, 2013
    
    
    7,595,000September 30, 2014
    
    
    3,785,000September 30, 2015
    
    
    911,000September 30, 2016
    
    
    741,000September 30, 2017
    
    
    10,000Total
    
    $
    63,736,000Deferred revenue
    
    
    (1,960,000
    )Total
    
    $
    61,776,000
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2009
    
    
    December 31, 2008Balance at beginning of period
    
    $
    25,875,000
    
    
    $
    58,134,000Income recognized on finance receivables, net
    
    
    (10,618,000
    )
    
    
    (18,169,000
    )Additions representing expected revenue from purchases
    
    
    809,000
    
    
    
    409,000Transfers to Cost Recovery
    
    
    
    
    
    
    (2,477,000
    )Reclassifications from nonaccretable difference
    
    
    7,590,000
    
    
    
    16,055,000Balance at end of period
    
    $
    23,656,000
    
    
    $
    53,952,000
    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 Three Months Ended December 31,2009
    
    
    2008Gross collections (1)
    
    $
    43,727,000
    
    
    $
    65,823,000Commissions and fees (2)
    
    
    14,297,000
    
    
    
    23,795,000Net collections
    
    $
    29,430,000
    
    
    $
    42,028,000
 (1)
    
    Gross collections include: collections from third-party
collection agencies and attorneys, collections from our
in-house efforts, and collections represented by account
sales.(2)
    
    Commissions and fees are the contractual commission earned
by third party collection agencies and attorneys, and
direct costs associated with the collection effort,
generally court costs. Includes a 3% fee charged by a
servicer on gross collections received by the Company in
connection with its $300 million portfolio purchase in
March 2007. Such arrangement was consummated in December
2007. The fee is charged for asset location, skiptracing
and ultimately suing debtors in connection with this
portfolio purchase. NOTE 4   FURNITURE AND EQUIPMENT
  December 31,
    
    
    September 30,2009
    
    
    2009Furniture
    
    $
    310,000
    
    
    $
    310,000Equipment
    
    
    2,810,000
    
    
    
    2,783,000Software
    
    
    117,000
    
    
    
    117,000Leasehold improvements
    
    
    86,000
    
    
    
    86,0003,323,000
    
    
    
    3,296,000Less accumulated depreciation
    
    
    2,848,000
    
    
    
    2,758,000Balance, end of period
    
    $
    475,000
    
    
    $
    538,000
 NOTE 5  DEBT AND SUBORDINATED DEBT  RELATED PARTY
 Bank Leumi Credit Agreement
   13




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 5  DEBT AND SUBORDINATED DEBT  RELATED PARTY ( continued)
 IDB Credit Facility
   Receivables Financing Agreement
   14




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 5   DEBT AND SUBORDINATED DEBT  RELATED PARTY (CONTINUED)
           15




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 5 
    
    DEBT AND SUBORDINATED DEBT  RELATED PARTY (CONTINUED)
 Subordinated Debt  Related Party
    December 31, 2009Stated
    
    
    AverageDecember 31,
    
    
    September 30,
    
    
    Interest
    
    
    Interest2009
    
    
    2009
    
    
    Rate
    
    
    RateCredit Facility  IDB
    
    $
    
    
    
    $
    18,301,000
    
    
    
    
    %
    
    
    5.50
    %Credit Agreement  Bank Leumi
    
    
    1,527,000
    
    
    
    
    
    
    
    4.50
    %
    
    
    4.50
    %Receivables Financing
Agreement
    
    
    99,706,000
    
    
    
    104,321,000
    
    
    
    3.77
    %
    
    
    3.76
    %Total debt
    
    $
    101,233,000
    
    
    $
    122,622,000
    
    
    
    n/a
    
    
    
    3.90
    %Subordinated debt  related
party
    
    $
    8,246,000
    
    
    $
    8,246,000
    
    
    
    6.25
    %
    
    
    6.25
    %
 NOTE 6 
    
    COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  Leases
  Litigation
   16




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 7. 
    
    INCOME RECOGNITION, IMPAIRMENTS AND COMMISSIONS AND FEES
 Income Recognition
    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 to collect receivables
and we factor in both better and worse states when
establishing our initial cash flow expectations.
 
    
    the average balance of the receivables influences our
analysis in that lower average balance portfolios tend to
be more collectible in the short-term and higher average
balance portfolios are more appropriate for our law 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, any payments since charge-off, and the credit
guidelines of the credit originator also represent factors
taken into consideration in our estimation process. For
example, older receivables might be more difficult and/or
require more time and effort to collect;
  17




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 7. 
    
    INCOME RECOGNITION, IMPAIRMENTS AND COMMISSIONS AND FEES (CONTINUED)
 
    
    past history and performance of similar assets acquired. As we purchase portfolios of like assets, we
accumulate a significant historical data base on the tendencies of debtor repayments and factor this into our
initial expected cash flows;
    
    our ability to analyze accounts and resell accounts that meet our criteria;
    
    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 lawsuit
strategy and, conversely, debtors without jobs or property are less likely to repay their obligation. We
believe that debtors with jobs or property are more likely to repay because courts have mandated the debtor
must pay the debt. Ultimately, the debtor with property will pay to clear title or release a lien. We also
believe that these debtors generally might take longer to repay and that is factored into our initial expected
cash flows; and
    
    credit standards of the issuer.
    Commissions and fees
   18




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 8. 
    
    INCOME TAXES
    NOTE 9. 
    
    NET INCOME PER SHARE
   December 31,
2009
    
    

December 31,
2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    (Loss)
    
    
    Shares
    
    
    AmountBasic
    
    $
    2,475,000
    
    
    
    14,272,420
    
    
    $
    0.17
    
    
    $
    (7,837,000
    )
    
    
    14,271,824
    
    
    $
    (0.55
    )Effect of Dilutive
Stock
    
    
    
    
    
    
    342,634
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    2,475,000
    
    
    
    14,615,054
    
    
    $
    0.17
    
    
    $
    (7,837,000
    )
    
    
    14,271,824
    
    
    $
    (0.55
    )
   NOTE 10. 
    
    STOCK BASED COMPENSATION
   Risk-free interest rate
    
    
    0.0017
    %Expected term (years)
    
    
    10.0Expected volatility
    
    
    110.2
    %Dividend yield
    
    
    1.12
    %
   19




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 11. 
    
    STOCK OPTION PLANS
 Equity Compensation Plan
     2002 Stock Option Plan
    1995 Stock Option Plan
     20




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 11. 
    
    STOCK OPTION PLANS (CONTINUED)
   Three Months Ended December 31,2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding options at the beginning of
period
    
    
    1,157,905
    
    
    $
    10.76
    
    
    
    1,037,438
    
    
    $
    11.69Options granted
    
    
    158,900
    
    
    
    8.07
    
    
    
    0
    
    
    
    0Options exercised
    
    
    (100
    )
    
    
    2.95
    
    
    
    0
    
    
    
    0Options forfeited
    
    
    0
    
    
    
    0
    
    
    
    (1,000
    )
    
    
    28.75Outstanding options at the end of period
    
    
    1,316,705
    
    
    $
    10.44
    
    
    
    1,036,438
    
    
    $
    11.68Exercisable options at the end of period
    
    
    1,157,382
    
    
    $
    11.03
    
    
    
    1,031,438
    
    
    $
    11.59
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    AverageWeighted
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange of Exercise Price
    
    Outstanding
    
    
    Life (in Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.8125  $2.8750
    
    
    300,000
    
    
    
    0.7
    
    
    $
    2.63
    
    
    
    300,000
    
    
    $
    2.63$2.8751  $5.7500
    
    
    228,034
    
    
    
    6.3
    
    
    
    3.78
    
    
    
    168,707
    
    
    
    4.07$5.7501  $8.6250
    
    
    170,900
    
    
    
    9.4
    
    
    
    7.92
    
    
    
    70,904
    
    
    
    7.71$14.3751  $17.2500
    
    
    218,611
    
    
    
    3.9
    
    
    
    15.04
    
    
    
    218,611
    
    
    
    15.04$17.2501  $20.1250
    
    
    382,160
    
    
    
    4.8
    
    
    
    18.22
    
    
    
    382,160
    
    
    
    18.22$25.8751  $28.7500
    
    
    17,000
    
    
    
    7.0
    
    
    
    28.75
    
    
    
    17,000
    
    
    
    28.751,316,705
    
    
    
    4.6
    
    
    $
    10.44
    
    
    
    1,157,382
    
    
    $
    11.03
  21




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 11. 
    
    STOCK OPTION PLANS (CONTINUED)
    Three Months Ended December 31,2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage Grant
    
    
    
    
    
    
    Average GrantDate Fair
    
    
    
    
    
    
    Date FairShares
    
    
    Value
    
    
    Shares
    
    
    ValueUnvested at the beginning of period
    
    
    35,338
    
    
    $
    19.73
    
    
    
    80,667
    
    
    $
    22.26Awards granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    (17,669
    )
    
    
    19.73
    
    
    
    (19,328
    )
    
    
    19.73Forfeited
    
    
    
    
    
    
    
    
    
    
    (4,334
    )
    
    
    21.81Unvested at the end of period
    
    
    17,669
    
    
    $
    19.73
    
    
    
    57,005
    
    
    $
    23.75
  NOTE 12. 
    
    STOCKHOLDERS EQUITY
  NOTE 13. 
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS
     22




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 14. 
    
    SUBSEQUENT EVENTS
      23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Caution Regarding Forward Looking Statements
  www.astafunding.com. www.sec.gov
 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.
  24




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##### Table of Contents



Critical Accounting Policies
  
    
    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, telecommunications, 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);
    
    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 months 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;
    
    financial condition of the seller;
    
    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.
  25




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26




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##### Table of Contents



Results of Operations
 The Three-month Period Ended December 31, 2009, Compared to the Three-month Period Ended
December 31, 2008
 Finance income
    Other income .
 General and Administrative Expenses.
 Interest Expense.
 Impairments . Finance income,
 Income tax expense (benefit)
  27




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##### Table of Contents



Net income (loss).
 Liquidity and Capital Resources
  Leumi Credit Agreement
  IDB Credit Facility
  Receivables Financing Agreement
   28




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Subordinated Debt  Related Party
       29




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##### Table of Contents



For the Three Months Ended December 31, 2009CostInterest
    
    
    RecoveryMethod
    
    
    Method
    
    
    TotalBalance, beginning of period
    
    $
    70,650,000
    
    
    $
    137,611,000
    
    
    $
    208,261,000Acquisitions of receivable portfolios, net
    
    
    2,148,000
    
    
    
    152,000
    
    
    
    2,300,000Net cash collections from collection of
consumer receivables acquired for
liquidation
    
    
    (19,047,00
    )
    
    
    (7,786,000
    )
    
    
    (26,833,000
    )Net cash collections represented by
account sales of consumer receivables
acquired for liquidation
    
    
    (2,593,000
    )
    
    
    (4,000
    )
    
    
    (2,597,000
    )Effect of foreign currency translation
    
    
    
    
    
    
    21,000
    
    
    
    21,000Finance income recognized (1)
    
    
    10,618,000
    
    
    
    356,000
    
    
    
    10,974,000Balance, end of period
    
    $
    61,776,000
    
    
    $
    130,350,000
    
    
    $
    192,126,000Revenue as a percentage of collections
    
    
    49.1
    %
    
    
    4.6
    %
    
    
    37.3
    %
 (1)
    
    Includes $8.1 million derived from fully amortized interest method pools. For the Three Months Ended December 31, 2008CostInterest
    
    
    RecoveryMethod
    
    
    Method
    
    
    TotalBalance, beginning of period
    
    $
    203,470,000
    
    
    $
    245,542,000
    
    
    $
    449,012,000Acquisitions of receivable portfolios, net
    
    
    1,078,000
    
    
    
    
    
    
    
    1,078,000Net cash collections from collection of
consumer receivables acquired for
liquidation
    
    
    (26,373,000
    )
    
    
    (9,882,000
    )
    
    
    (36,255,000
    )Net cash collections represented by
account sales of consumer receivables
acquired for liquidation
    
    
    (2,348,000
    )
    
    
    (3,425,000
    
    
    
    (5,773,000
    )Transfer to Cost Recovery
    
    
    (6,149,000
    )
    
    
    6,149,000
    
    
    
    Impairments
    
    
    (21,415,000
    )
    
    
    
    
    
    
    (21,415,000
    )Effect of foreign currency translation
    
    
    
    
    
    
    (1,255,000
    )
    
    
    (1,255,000
    )Finance income recognized (1)
    
    
    18,169,000
    
    
    
    247,000
    
    
    
    18,416,000Balance, end of period
    
    $
    166,432,000
    
    
    $
    237,376,
    
    
    $
    403,808,000Revenue as a percentage of collections
    
    
    63.3
    %
    
    
    1.9
    %
    
    
    43.8
    %
 (1)
    
    Includes $10.2 million derived from fully amortized interest method pools.  30




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Additional Supplementary Information:
   31




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##### Table of Contents




    
    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, telecommunications, 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);
    
    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 months 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;
    
    financial condition of the seller;
    
    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.
    32




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##### Table of Contents



Collections Represented by Account Sales
 CollectionsRepresented
    
    
    FinanceBy Account
    
    
    IncomePeriod
    
    Sales
    
    
    EarnedThree months ended December 31, 2009
    
    $
    2,597,000
    
    
    $
    896,000Three months ended December 31, 2008
    
    $
    5,773,000
    
    
    $
    1,373,000
 Portfolio Performance (1)  Interest method portfolios only
 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
    
    
    $
    105,475,000
    
    
    $
    
    
    
    $
    105,475,000
    
    
    
    162
    %2002
    
    
    36,557,000
    
    
    
    48,039,000
    
    
    
    
    
    
    
    48,039,000
    
    
    
    131
    %2003
    
    
    115,626,000
    
    
    
    211,921,000
    
    
    
    1,162,000
    
    
    
    213,083,000
    
    
    
    184
    %2004
    
    
    103,743,000
    
    
    
    180,539,000
    
    
    
    541,000
    
    
    
    181,080,000
    
    
    
    175
    %2005
    
    
    126,023,000
    
    
    
    204,936,000
    
    
    
    9,283,000
    
    
    
    214,219,000
    
    
    
    170
    %2006
    
    
    163,392,000
    
    
    
    235,170,000
    
    
    
    19,503,000
    
    
    
    254,673,000
    
    
    
    156
    %2007
    
    
    109,235,000
    
    
    
    80,908,000
    
    
    
    34,501,000
    
    
    
    115,409,000
    
    
    
    106
    %2008
    
    
    26,626,000
    
    
    
    31,445,000
    
    
    
    3,385,000
    
    
    
    34,830,000
    
    
    
    131
    %2009
    
    
    19,127,000
    
    
    
    11,571,000
    
    
    
    14,550,000
    
    
    
    26,121,000
    
    
    
    137
    %2010
    
    
    2,148,000
    
    
    
    500,000
    
    
    
    2,507,000
    
    
    
    3,007,000
    
    
    
    140
    %
 (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 basis.(5)
    
    Total estimated collections refer to the actual net cash collections, including cash sales, plus
estimated remaining net collections.  33




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##### Table of Contents



Recent Accounting Pronouncements
  
 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.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   34




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. 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, Robert J. Michel, 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, Robert J. Michel, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
  35




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##### Table of Contents



SIGNATURES
  ASTA FUNDING, INC.
(Registrant)Date: February 12, 2010
    By:
    /s/ Gary SternGary Stern, President, Chief Executive Officer(Principal Executive Officer)Date: February 12, 2010
    By:
    /s/ Robert J. MichelRobert J. Michel, Chief Financial Officer(Principal Financial Officer and
Principal Accounting Officer)  36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    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, Robert
J. Michel, 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, Robert
J. Michel, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
  37