##### 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 December 31, 2006
 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.
 INDEX TO FORM 10-Q
 Part I. Financial Information
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of December 31, 2006 (unaudited) and Consolidated
Balance Sheets as of September 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three month periods ended
December 31, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three month period ending
December 31, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the three month periods ended
December 31, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33Part II. Other Information
    
    
    35Item 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38Exhibit 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 Officer




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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 30,2006
    
    
    2006(Unaudited)AssetsCash
    
    $
    7,436,000
    
    
    $
    7,826,000Consumer receivables acquired for liquidation (at net realizable value)
    
    
    285,523,000
    
    
    
    257,275,000Due from third party collection agencies and attorneys
    
    
    3,788,000
    
    
    
    3,062,000Investment in venture
    
    
    4,340,000
    
    
    
    5,965,000Furniture and equipment, net
    
    
    1,118,000
    
    
    
    1,101,000Deferred income taxes
    
    
    10,391,000
    
    
    
    7,577,000Other assets and investments
    
    
    8,264,000
    
    
    
    5,034,000Total assets
    
    $
    320,860,000
    
    
    $
    287,840,000Liabilities andStockholders EquityLiabilitiesAdvances under line of credit
    
    $
    109,330,000
    
    
    $
    82,811,000Other liabilities
    
    
    3,773,000
    
    
    
    4,338,000Dividends payable
    
    
    552,000
    
    
    
    6,052,000Income taxes payable
    
    
    11,897,000
    
    
    
    10,377,000Total liabilities
    
    
    125,552,000
    
    
    
    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  13,833,157 at December 31, 2006 and 13,755,157
at September 30, 2006
    
    
    138,000
    
    
    
    138,000Additional paid-in capital
    
    
    62,075,000
    
    
    
    61,803,000Retained earnings
    
    
    133,095,000
    
    
    
    122,321,000Total stockholders equity
    
    
    195,308,000
    
    
    
    184,262,000Total liabilities and stockholders equity
    
    $
    320,860,000
    
    
    $
    287,840,000
  3




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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005RevenuesFinance income, net
    
    $
    24,941,000
    
    
    $
    20,260,000Other income
    
    
    204,000
    
    
    
    Equity in earnings of venture
    
    
    500,000
    
    
    
    25,645,000
    
    
    
    20,260,000ExpensesGeneral and administrative
    
    
    5,088,000
    
    
    
    3,952,000Interest
    
    
    1,519,000
    
    
    
    663,0006,607,000
    
    
    
    4,615,000Income before income taxes
    
    
    19,038,000
    
    
    
    15,645,000Income tax expense
    
    
    7,712,000
    
    
    
    6,333,000Net income
    
    $
    11,326,000
    
    
    $
    9,312,000Net income per share  Basic
    
    $
    0.82
    
    
    $
    0.68Net income per share  Diluted
    
    $
    0.77
    
    
    $
    0.64Weighted average number of shares outstanding:Basic
    
    
    13,765,048
    
    
    
    13,598,096Diluted
    
    
    14,651,215
    
    
    
    14,474,105
  4




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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 options
    
    
    10,000
    
    
    
    
    
    
    
    166,000
    
    
    
    
    
    
    
    166,000Restricted common stock issuable
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    106,000
    
    
    
    
    
    
    
    106,000Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552,000
    )
    
    
    (552,000
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,326,000
    
    
    
    11,326,000Balance, December 31, 2006
    
    
    13,833,157
    
    
    $
    138,000
    
    
    $
    62,075,000
    
    
    $
    133,095,000
    
    
    $
    195,308,000
  5




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    11,326,000
    
    
    $
    9,312,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    101,000
    
    
    
    132,000Deferred income taxes
    
    
    (2,564,000
    )
    
    
    Equity in earnings of venture
    
    
    (500,000
    )
    
    
    Cash distribution from venture
    
    
    500,000
    
    
    
    Stock based compensation
    
    
    106,000
    
    
    
    Changes in:Other assets
    
    
    (21,000
    )
    
    
    (3,000
    )Due from third party collection agencies and attorneys
    
    
    (726,000
    )
    
    
    (355,000
    )Income taxes payable
    
    
    1,270,000
    
    
    
    5,978,000Other liabilities
    
    
    (565,000
    )
    
    
    (1,348,000
    )Net cash provided by operating activities
    
    
    8,927,000
    
    
    
    13,716,000Cash flows from investing activities:Purchase of consumer receivables acquired for liquidation
    
    
    (62,267,000
    )
    
    
    (102,405,000
    )Principal collected on receivables acquired for liquidation
    
    
    25,896,000
    
    
    
    18,426,000Principal collected on receivables accounts represented by
account sales
    
    
    8,123,000
    
    
    
    7,523,000Purchase of other investments
    
    
    (5,771,000
    )
    
    
    Collections of other investments
    
    
    2,524,000
    
    
    
    Cash distribution from venture
    
    
    1,625,000
    
    
    
    Capital expenditures
    
    
    (80,000
    )
    
    
    (71,000
    )Net cash used in investing activities
    
    
    (29,950,000
    )
    
    
    (76,527,000
    )Cash flows from financing activities:Proceeds from exercise of options
    
    
    166,000
    
    
    
    140,000Dividends paid
    
    
    (6,052,000
    )
    
    
    (476,000
    )Advances under line of credit, net
    
    
    26,519,000
    
    
    
    62,435,000Net cash provided by financing activities
    
    
    20,633,000
    
    
    
    62,099,000Decrease in cash
    
    
    (390,000
    )
    
    
    (712,000
    )Cash at the beginning of period
    
    
    7,826,000
    
    
    
    4,059,000Cash at end of period
    
    $
    7,436,000
    
    
    $
    3,347,000Supplemental disclosure of cash flow information:Cash paid during the periodInterest
    
    $
    1,393,000
    
    
    $
    492,000Income taxes
    
    $
    9,007,000
    
    
    $
    270,000
  6




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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1: Business and Basis of Presentation
 Business
  Basis of Presentation
   Recent Accounting Pronouncements
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 7




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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 )
     1.
    
    Requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing contract
under certain situations.2.
    
    Requires all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.3.
    
    Permits an entity to choose either the amortization method or the fair value
measurement method as subsequent measurement methods for each class of separately recognized
servicing assets and servicing liabilities.4.
    
    At its initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights, without calling
into question the treatment of other available-for-sale securities under Statement 115,
provided that the available-for-sale securities are identified in some manner as offsetting
the entitys exposure to changes in fair value of servicing assets or servicing liabilities
that a servicer elects to subsequently measure at fair value.
 8




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 (Unaudited)
 Note 1: Business and Basis of Presentation   ( Continued )
 5.
    
    Requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing liabilities.
   a.
    
    Permits fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation.b.
    
    Clarifies which interest-only strips and principal-only strips are not subject to the
requirements of Statement 133.c.
    
    Establishes a requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation.d.
    
    Clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives.e.
    
    Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument.
   Reclassifications
  Note 2: Principles of Consolidation
  9




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 (Unaudited)
 Note 3: Consumer Receivables Acquired for Liquidation
   10




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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 Three Months Ended December 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    256,199,000
    
    
    $
    1,076,000
    
    
    $
    257,275,000Acquisitions of receivable portfolios, net
    
    
    57,574,000
    
    
    
    4,693,000
    
    
    
    62,267,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (41,250,000
    )
    
    
    (628,000
    )
    
    
    (41,878,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (14,929,000
    )
    
    
    (2,153,000
    )
    
    
    (17,082,000
    )Finance income recognized
    
    
    24,258,000
    
    
    
    683,000
    
    
    
    24,941,000Balance, end of period
    
    $
    281,852,000
    
    
    $
    3,671,000
    
    
    $
    285,523,000Revenue as a percentage of collections
    
    
    43.2
    %
    
    
    24.6
    %
    
    
    42.3
    %
 For the Three Months Ended December 31, 2005Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    172,636,000
    
    
    $
    91,000
    
    
    $
    172,727,000Acquisitions of receivable portfolios, net
    
    
    102,405,000
    
    
    
    
    
    
    
    102,405,000Net 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
    
    
    
    20,260,000Balance, end of period
    
    $
    248,758,000
    
    
    $
    425,000
    
    
    $
    249,183,000Revenue as a percentage of collections
    
    
    42.5
    %
    
    
    86.2
    %
    
    
    43.8
    %
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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 )
  September 30, 2007 (nine months remaining)
    
    $
    58,320,000September 30, 2008
    
    
    101,114,000September 30, 2009
    
    
    77,754,000September 30, 2010
    
    
    51,906,000September 30, 2011
    
    
    16,416,000Total
    
    $
    305,510,000Deferred revenue
    
    
    (23,658,000
    )Total
    
    $
    281,852,000
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2006
    
    
    December 31, 2005Balance at beginning of period
    
    $
    143,800,000
    
    
    $
    94,022,000Income recognized on finance receivables, net
    
    
    (24,258,000
    )
    
    
    (19,047,000
    )Additions representing expected revenue from purchases
    
    
    19,424,000
    
    
    
    60,331,000Reclassifications from nonaccretable difference
    
    
    
    
    
    
    Balance at end of period
    
    $
    138,966,000
    
    
    $
    135,306,000
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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 Three Months Ended December 31,2006
    
    
    2005Gross collections (1)
    
    $
    86,696,000
    
    
    $
    65,728,000Commissions and fees (2)
    
    
    27,736,000
    
    
    
    19,519,000Net collections
    
    $
    58,960,000
    
    
    $
    46,209,000
 
 (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. Note 4: Investment in venture
  Note 5: Furniture and Equipment
  December31,
    
    
    September 30,2006
    
    
    2006Furniture
    
    $
    307,000
    
    
    $
    307,000Equipment
    
    
    2,644,000
    
    
    
    2,563,0002,951,000
    
    
    
    2,870,000Less accumulated depreciation
    
    
    1,833,000
    
    
    
    1,769,000Balance, end of period
    
    $
    1,118,000
    
    
    $
    1,101,000
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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 Note 6: Debt
  Note 7: Commitments and Contingencies
 Employment Agreements
  Leases
  14




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ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 Note 7:
Commitments and Contingencies  ( Continued )
 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  ( Continued )
 Note
8: Income Recognition and Impairments  ( Continued )
  Impairments
  Note 9: Income Taxes
  16




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
  Note 10: Net Income Per Share
   2006
    
    
    2005Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic
    
    $
    11,326,000
    
    
    
    13,765,048
    
    
    $
    0.82
    
    
    $
    9,312,000
    
    
    
    13,598,096
    
    
    $
    0.68Effect of Dilutive Stock
    
    
    
    
    
    
    886,167
    
    
    
    
    
    
    
    
    
    
    
    876,009Diluted
    
    $
    11,326,000
    
    
    
    14,651,215
    
    
    $
    0.77
    
    
    $
    9,312,000
    
    
    
    14,474,105
    
    
    $
    0.64
 Note 11: Stock Based Compensation
   17




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
(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
     18




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 Note 12: Stock Option Plans  ( Continued )
 2002 Stock Option Plan
    1995 Stock Option Plan
    19




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 Note 12: Stock Option Plans  ( Continued )
   Three Months Ended December 31,2006
    
    
    2005Weighted
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    Options exercised
    
    
    (10,000
    )
    
    
    16.5700
    
    
    
    (7,500
    )
    
    
    18.7600Outstanding options at the end of period
    
    
    1,422,439
    
    
    $
    9.6452
    
    
    
    1,573,105
    
    
    $
    9.0622Exercisable options at the end of period
    
    
    1,404,439
    
    
    $
    9.4004
    
    
    
    1,573,105
    
    
    $
    9.0622
  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
    
    
    
    3.3
    
    
    $
    2.0208
    
    
    
    600,000
    
    
    $
    2.0208$  2.8751  $  5.7500
    
    
    123,334
    
    
    
    5.8
    
    
    
    4.7250
    
    
    
    123,334
    
    
    
    4.7250$  5.7501  $  8.6250
    
    
    12,000
    
    
    
    4.9
    
    
    
    5.9600
    
    
    
    12,000
    
    
    
    5.9600$14.3751  $17.2500
    
    
    266,946
    
    
    
    6.9
    
    
    
    15.0055
    
    
    
    266,946
    
    
    
    15.0055$17.2501  $20.1250
    
    
    402,159
    
    
    
    7.8
    
    
    
    18.2261
    
    
    
    402,159
    
    
    
    18.2261$25.8751  $28.7500
    
    
    18,000
    
    
    
    10.0
    
    
    
    28.7500
    
    
    
    
    
    
    
    0.00001,422,439
    
    
    
    5.6
    
    
    $
    9.6452
    
    
    
    1,404,439
    
    
    $
    9.4003
 20




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
 Note 12: Stock Option Plans  ( Continued )
    WeightedThree Months
    
    AverageEnded
    
    Grant DateDecember 31, 2006
    
    Fair ValueUnvested at beginning of period
    
    
    0
    
    
    $
    0.00Awards granted
    
    
    68,000
    
    
    
    28.75Vested
    
    
    0
    
    
    
    0.00Forfeited
    
    
    0
    
    
    
    0.00Unvested at end of period
    
    
    68,000
    
    
    $
    28.75
  21




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
(Unaudited)
 Note 13: Stockholders Equity
  Note 14: Use of Estimates
  Note 15: Subsequent Events
 Employment Agreements
      22




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  ( Continued )
(Unaudited)
 Note 15: Subsequent Events  ( Continued )
   
    
    a lump sum amount in cash equal to two (2) times the sum of the Executives
base salary in effect on the date of termination and the highest annual bonus
earned by the Executive during his employment with the Company,
    
    any unpaid reimbursable expenses outstanding,
    
    compensation for any unused accrued vacation, as of the date of termination, and
 23




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##### Table of Contents




    
    continue to provide the Executive with the benefits and perquisites as
provided in the Employment Agreement for two years from the date of
termination.
   Portfolio Purchase
 
      24




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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.
 Caution Regarding Forward Looking Statements
  www.astafunding.com. www.sec.gov
 25




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##### Table of Contents



Critical Accounting Policies
  
    
    the interest method; or
    
    the cost recovery method.
      Results of Operations
  Finance income. .
 26




---



##### Table of Contents



Other income .
 Equity
in earnings of venture .
 General and Administrative Expenses.
 Interest Expense.
 Liquidity and Capital Resources
  27




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##### Table of Contents



Portfolio Purchase
 
       28




---



##### Table of Contents



For the Three Months Ended December 31, 2006Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    256,199,000
    
    
    $
    1,076,000
    
    
    $
    257,275,000Acquisitions of receivable portfolios, net
    
    
    57,574,000
    
    
    
    4,693,000
    
    
    
    62,267,000Net cash collections from collection of consumer
receivables acquired for liquidation
    
    
    (41,250,000
    )
    
    
    (628,000
    )
    
    
    (41,878,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (14,929,000
    )
    
    
    (2,153,000
    )
    
    
    (17,082,000
    )Finance income recognized
    
    
    24,258,000
    
    
    
    683,000
    
    
    
    24,941,000Balance, end of period
    
    $
    281,852,000
    
    
    $
    3,671,000
    
    
    $
    285,523,000Revenue as a percentage of collections
    
    
    43.2
    %
    
    
    24.6
    %
    
    
    42.3
    %
 For the Three Months Ended December 31, 2005Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    172,636,000
    
    
    $
    91,000
    
    
    $
    172,727,000Acquisitions of receivable portfolios, net
    
    
    102,405,000
    
    
    
    
    
    
    
    102,405,000Net 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
    
    
    
    20,260,000Balance, end of period
    
    $
    248,758,000
    
    
    $
    425,000
    
    
    $
    249,183,000Revenue as a percentage of collections
    
    
    42.5
    %
    
    
    86.2
    %
    
    
    43.8
    %
 29




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##### Table of Contents



Additional Supplementary Information:
   30




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##### Table of Contents



Collections Represented by Account Sales
 CollectionsRepresented
    
    FinanceBy Account
    
    IncomePeriod
    
    Sales
    
    EarnedThree months ended December 31, 2006
    
    $
    17,082,000
    
    
    $
    8,959,000Three months ended December 31, 2005
    
    $
    13,974,000
    
    
    $
    6,451,000
 Portfolio Performance (1)
 TotalestimatedCash 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
    
    
    $
    94,872,000
    
    
    $
    0
    
    
    $
    94,872,000
    
    
    
    146
    %2002
    
    
    36,557,000
    
    
    
    51,954,000
    
    
    
    0
    
    
    
    51,954,000
    
    
    
    142
    %2003
    
    
    115,626,000
    
    
    
    179,493,000
    
    
    
    18,031,000
    
    
    
    197,524,000
    
    
    
    171
    %2004
    
    
    103,743,000
    
    
    
    143,322,000
    
    
    
    19,845,000
    
    
    
    163,167,000
    
    
    
    157
    %2005
    
    
    126,023,000
    
    
    
    118,264,000
    
    
    
    86,836,000
    
    
    
    205,100,000
    
    
    
    163
    %2006
    
    
    200,237,000
    
    
    
    86,893,000
    
    
    
    219,306,000
    
    
    
    306,199,000
    
    
    
    153
    %2007 (First quarter)
    
    
    57,574,000
    
    
    
    198,000
    
    
    
    76,800,000
    
    
    
    76,998,000
    
    
    
    134
    %
 
      31




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##### Table of Contents



Recent Accounting Pronouncements
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
     1.
    
    Requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing
contract under certain situations.
 2.
    
    Requires all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable.
 3.
    
    Permits an entity to choose either the amortization method or the fair value measurement
method as subsequent measurement methods for each class of separately recognized servicing
assets and servicing liabilities:
 4.
    
    At its initial adoption, permits a one-time reclassification of available-for-sale securities
to trading securities by entities with recognized servicing rights, without calling into
question the treatment of other available-for-sale securities under Statement 115, provided
that the available-for-sale securities are identified in some manner as offsetting the
entitys exposure to changes in fair value of servicing assets or servicing liabilities that a
servicer elects to subsequently measure at fair value.
 32




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##### Table of Contents



5.
    
    Requires separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional disclosures for
all separately recognized servicing assets and servicing liabilities.
   a
    
    Permits fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation.
 b
    
    Clarifies which interest-only strips and principal-only strips are not subject to
the requirements of Statement 133.
 c.
    
    Establishes a requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation.
 d.
    
    Clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives.
 e.
    
    Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument.
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 a. Disclosure Controls and Procedures.
  33




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##### Table of Contents



b. Changes in Internal Controls Over Financial Reporting.
   34




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk factors
  The Company may be unable to secure satisfactory financing to consummate the Portfolio Purchase
Agreement .
    35




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##### Table of Contents



The terms of any financing may adversely affect our ability to generate profits from the new
portfolio.
  The anticipated benefits of the Portfolio may not meet our expectations.
  The terms of the Portfolio Purchase Agreement may not protect us against all risks associated with
the Portfolio.
  
 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.
  36




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##### Table of Contents



Item 5. Other Information
 Portfolio Purchase
 
      
 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, 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.
 37




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##### Table of Contents



SIGNATURES
  ASTA FUNDING, INC.(Registrant)Date: February 14, 2007
    
    By: /s/ Gary Stern

Gary Stern, President, Chief Executive Officer(Principal Executive Officer)Date: February 14, 2007
    
    By: /s/ Mitchell Cohen

Mitchell Cohen, Chief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)
 38