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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, 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
   o þ




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##### 



ASTA FUNDING, INC.
 INDEX TO FORM 10-Q
 Part I. Financial Information
    
    
    2Item 1. Condensed Consolidated Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of December 31, 2007
(unaudited) and September 30, 2007
    
    
    2Condensed Consolidated Statements of Operations for the three month periods ended
December 31, 2007 and 2006 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity for the three month period ending
December 31, 2007 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three month periods ended
December 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
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35Part II. Other Information
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 1A Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    39Exhibit 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-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  1




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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 30,2007
    
    
    2007(Unaudited)AssetsCash
    
    $
    5,449,000
    
    
    $
    4,525,000Restricted cash
    
    
    4,155,000
    
    
    
    5,694,000Consumer receivables acquired for liquidation (at net realizable value)
    
    
    559,374,000
    
    
    
    545,623,000Due from third party collection agencies and attorneys
    
    
    5,226,000
    
    
    
    4,909,000Investment in venture
    
    
    1,363,000
    
    
    
    2,040,000Furniture and equipment, net
    
    
    780,000
    
    
    
    793,000Deferred income taxes
    
    
    8,726,000
    
    
    
    12,349,000Other assets and investments
    
    
    4,822,000
    
    
    
    4,323,000Total assets
    
    $
    589,895,000
    
    
    $
    580,256,000Liabilities and Stockholders EquityLiabilitiesAdvances under line of credit
    
    $
    325,427,000
    
    
    $
    326,466,000Other liabilities
    
    
    7,984,000
    
    
    
    7,537,000Dividends payable
    
    
    557,000
    
    
    
    557,000Income taxes payable
    
    
    5,448,000
    
    
    
    8,161,000Total liabilities
    
    
    339,416,000
    
    
    
    342,721,000Stockholders 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  13,918,158 shares at December 31, 2007 and
September 30, 2007
    
    
    139,000
    
    
    
    139,000Additional paid-in capital
    
    
    65,217,000
    
    
    
    65,030,000Retained earnings
    
    
    185,123,000
    
    
    
    172,366,000Total stockholders equity
    
    
    250,479,000
    
    
    
    237,535,000Total liabilities and stockholders equity
    
    $
    589,895,000
    
    
    $
    580,256,000
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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006RevenuesFinance income, net
    
    $
    34,135,000
    
    
    $
    24,941,000Other income
    
    
    140,000
    
    
    
    204,000Equity in (loss) earnings of venture
    
    
    (77,000
    )
    
    
    500,00034,198,000
    
    
    
    25,645,000ExpensesGeneral and administrative
    
    
    5,805,000
    
    
    
    5,088,000Interest
    
    
    5,941,000
    
    
    
    1,519,00011,746,000
    
    
    
    6,607,000Income before income taxes
    
    
    22,452,000
    
    
    
    19,038,000Income tax expense
    
    
    9,138,000
    
    
    
    7,712,000Net income
    
    $
    13,314,000
    
    
    $
    11,326,000Net income per share  Basic
    
    $
    0.96
    
    
    $
    0.82Net income per share  Diluted
    
    $
    0.90
    
    
    $
    0.77Weighted average number of shares outstanding:Basic
    
    
    13,918,158
    
    
    
    13,765,048Diluted
    
    
    14,803,482
    
    
    
    14,651,215
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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (Unaudited)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance, September 30, 2007
    
    
    13,918,158
    
    
    $
    139,000
    
    
    $
    65,030,000
    
    
    $
    172,366,000
    
    
    $
    237,535,000Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    187,000
    
    
    
    
    
    
    
    187,000Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557,000
    )
    
    
    (557,000
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,314,000
    
    
    
    13,314,000Balance, December 31, 2007
    
    
    13,918,158
    
    
    $
    139,000
    
    
    $
    65,217,000
    
    
    $
    185,123,000
    
    
    $
    250,479,000
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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    13,314,000
    
    
    $
    11,326,000Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    196,000
    
    
    
    101,000Deferred income taxes
    
    
    3,623,000
    
    
    
    (2,564,000
    )Stock based compensation
    
    
    187,000
    
    
    
    106,000Changes in:Other assets and investments
    
    
    (620,000
    )
    
    
    (21,000
    )Due from third party collection agencies and attorneys
    
    
    (317,000
    )
    
    
    (726,000
    )Income taxes payable
    
    
    (2,713,000
    )
    
    
    1,270,000Other liabilities
    
    
    447,000
    
    
    
    (565,000
    )Net cash provided by operating activities
    
    
    14,117,000
    
    
    
    8,927,000Cash flows from investing activities:Purchase of consumer receivables acquired for liquidation
    
    
    (37,509,000
    )
    
    
    (62,267,000
    )Principal collected on receivables acquired for liquidation
    
    
    18,320,000
    
    
    
    25,896,000Principal collected on receivables accounts represented by
account sales
    
    
    5,438,000
    
    
    
    8,123,000Purchase of other investments
    
    
    
    
    
    
    (5,771,000
    )Collections of other investments
    
    
    
    
    
    
    2,524,000Loss (earnings) on investment in venture
    
    
    77,000
    
    
    
    (500,000
    )Cash distribution received from venture
    
    
    600,000
    
    
    
    2,125,000Capital expenditures
    
    
    (62,000
    )
    
    
    (80,000
    )Net cash used in investing activities
    
    
    (13,136,000
    )
    
    
    (29,950,000
    )Cash flows from financing activities:Proceeds from exercise of options
    
    
    
    
    
    
    166,000Changes in restricted cash
    
    
    1,539,000
    
    
    
    Dividends paid
    
    
    (557,000
    )
    
    
    (6,052,000
    )(Repayments) borrowings under line of credit, net
    
    
    (1,039,000
    )
    
    
    26,519,000Net cash (used in) provided by financing activities
    
    
    (57,000
    )
    
    
    20,633,000Increase (decrease) in cash
    
    
    924,000
    
    
    
    (390,000
    )Cash at the beginning of period
    
    
    4,525,000
    
    
    
    7,826,000Cash at end of period
    
    $
    5,449,000
    
    
    $
    7,436,000Supplemental disclosure of cash flow information:Cash paid during the periodInterest
    
    $
    5,105,000
    
    
    $
    1,393,000Income taxes
    
    $
    8,198,000
    
    
    $
    9,007,000
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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
 Business Combinations  Business Combinations
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1: Business and Basis of Presentation ( continued)
          Noncontrolling Interests in
Consolidated Financial Statements  an Amendment of ARB No. 5
 
    
    the ownership interests in subsidiaries held by parties other than the
parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but
separate from the parents equity.
    
    the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on
the face of the consolidated statement of income.
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
    
    changes in a parents ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for
consistently. A parents ownership interest in a subsidiary changes if
the parent purchases additional ownership interests in its subsidiary
or if the parent sells some of its ownership interests in its
subsidiary. It also changes if the subsidiary reacquires some of its
ownership interests or the subsidiary issues additional ownership
interests. All of those transactions are economically similar, and
this Statement requires that they be accounted for similarly, as
equity transactions.
    
    when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at
fair value. The gain or loss on the deconsolidation of the subsidiary
is measured using the fair value of any noncontrolling equity
investment rather than the carrying amount of that retained
investment.
    
    entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of
the noncontrolling owners.
    Application of Accounting Principles to Loan Commitments Accounting for Derivative
Instruments and Hedging Activities Accounting for Servicing of Financial Assets The Fair Value Option for Financial Assets and Financial
Liabilities,
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1: Business and Basis of Presentation ( continued)
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106
and 132(R)
 Fair Value Measurements
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
 Reclassifications
  Note 2: Principles of Consolidation
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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.
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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, 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;
    
    number of days 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;
    
    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 CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note
3: Consumer Receivables Acquired for Liquidation 
(Continued)
  For the Three Months Ended December 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    508,515,000
    
    
    $
    37,108,000
    
    
    $
    545,623,000Acquisitions of receivable portfolios, net
    
    
    19,916,000
    
    
    
    17,593,000
    
    
    
    37,509,000Net cash collections from collection of consumer
receivables acquired for liquidation (1)
    
    
    (44,896,000
    )
    
    
    (5,206,000
    )
    
    
    (50,102,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (7,791,000
    )
    
    
    
    
    
    
    (7,791,000
    )Finance income recognized (2)
    
    
    33,836,000
    
    
    
    299,000
    
    
    
    34,135,000Balance, end of period
    
    $
    509,580,000
    
    
    $
    49,794,000
    
    
    $
    559,374,000Revenue as a percentage of collections
    
    
    64.2
    %
    
    
    5.7
    %
    
    
    59.0
    %
 
   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 (1)
    
    
    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
    %
 
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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, 2008 (nine months remaining)
    
    $
    144,589,000September 30, 2009
    
    
    167,495,000September 30, 2010
    
    
    131,826,000September 30, 2011
    
    
    70,473,000September 30, 2012
    
    
    4,616,000September 30, 2013
    
    
    151,000Total
    
    $
    519,150,000Deferred revenue
    
    
    (9,570,000
    )Total
    
    $
    509,580,000
  Three
Months
    
    

Three
MonthsEnded
    
    
    EndedDecember 31, 2007
    
    
    December 31, 2006Balance at beginning of period
    
    $
    176,615,000
    
    
    $
    143,800,000Income recognized on finance receivables, net
    
    
    (33,836,000
    )
    
    
    (24,258,000
    )Additions representing expected revenue from purchases
    
    
    7,207,000
    
    
    
    19,424,000Reclassifications from nonaccretable difference
    
    
    22,704,000
    
    
    
    Balance at end of period
    
    $
    172,690,000
    
    
    $
    138,966,000
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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 31,2007
    
    
    2006Gross collections (1)
    
    $
    89,256,000
    
    
    $
    86,696,000Commissions and fees (2)
    
    
    31,363,000
    
    
    
    27,736,000Net collections
    
    $
    57,893,000
    
    
    $
    58,960,000
 
 (1)
    
    Gross collections include: collections from third-party collection agencies and attorneys,
collections from our in-house efforts, collections represented by account sales and the put back of
a portfolio and returned to the seller in the amount of $2.8 million in the first quarter of fiscal
2008.(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 and amounted to approximately $2.5
million. Note 4: Acquisition and investment in venture
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 5: Furniture and Equipment
  December 31,
    
    
    September 30,2007
    
    
    2007Furniture
    
    $
    307,000
    
    
    $
    307,000Equipment
    
    
    2,596,000
    
    
    
    2,534,0002,903,000
    
    
    
    2,841,000Less accumulated depreciation
    
    
    2,123,000
    
    
    
    2,048,000Balance, end of period
    
    $
    780,000
    
    
    $
    793,000
 Note 6: Debt
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6: Debt
   Note 7: Commitments and Contingencies
 Employment Agreements
  Leases
  Litigation
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 7: Commitments and Contingencies  ( Continued )
   Note 8: Income Recognition and Impairments
 Income Recognition
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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 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; our ability to analyze accounts and resell accounts that meet
our criteria;
    
    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 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.
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Note 9: Income Taxes
  Note 10: Net Income Per Share
   2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic
    
    $
    13,314,000
    
    
    
    13,918,158
    
    
    $
    0.96
    
    
    $
    11,326,000
    
    
    
    13,765,048
    
    
    $
    0.82Effect of Dilutive Stock
    
    
    
    
    
    
    885,324
    
    
    
    
    
    
    
    
    
    
    
    886,167Diluted
    
    $
    13,314,000
    
    
    
    14,803,482
    
    
    $
    0.90
    
    
    $
    11,326,000
    
    
    
    14,651,215
    
    
    $
    0.77
 19




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 11: Stock Based Compensation
     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
    20




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 12: Stock Option Plans ( continued )
  2002 Stock Option Plan
    1995 Stock Option Plan
    21




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 12: Stock Option Plans  ( Continued )
   Three Months Ended December  31,2007
    
    2006Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    PriceOutstanding options at the beginning of period
    
    
    1,337,438
    
    
    $
    9.39
    
    
    
    1,414,439
    
    
    
    9.45Options granted
    
    
    0
    
    
    
    0
    
    
    
    18,000
    
    
    
    28.75Options exercised
    
    
    0
    
    
    
    0
    
    
    
    (10,000
    )
    
    
    16.57Outstanding options at the end of period
    
    
    1,337,438
    
    
    $
    9.39
    
    
    
    1,422,439
    
    
    $
    9.65Exercisable options at the end of period
    
    
    1,325,438
    
    
    $
    9.21
    
    
    
    1,404,439
    
    
    $
    9.40
  Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    AverageWeighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Price
    
    Outstanding
    
    Life (in Years)
    
    Price
    
    Exercisable
    
    Price$0.8125  $2.8750
    
    
    600,000
    
    
    
    2.3
    
    
    $
    2.02
    
    
    
    600,000
    
    
    $
    2.02$2.8751  $5.7500
    
    
    106,667
    
    
    
    4.8
    
    
    
    4.73
    
    
    
    106,667
    
    
    
    4.73$5.7501  $8.6250
    
    
    12,000
    
    
    
    3.9
    
    
    
    5.96
    
    
    
    12,000
    
    
    
    5.96$14.3751  $17.2500
    
    
    218,611
    
    
    
    5.9
    
    
    
    15.04
    
    
    
    218,611
    
    
    
    15.04$17.2501  $20.1250
    
    
    382,160
    
    
    
    6.8
    
    
    
    18.22
    
    
    
    382,160
    
    
    
    18.22$25.8751  $28.7500
    
    
    18,000
    
    
    
    9.0
    
    
    
    28.75
    
    
    
    6,000
    
    
    
    28.751,337,438
    
    
    
    4.5
    
    
    $
    9.39
    
    
    
    1,325,438
    
    
    $
    9.21
 22




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 12: Stock Option Plans  ( Continued )
    Three Months Ended December  31,2007
    
    2006Weighted
    
    
    
    
    
    WeightedAverage Grant
    
    
    
    
    
    Average GrantDate Fair
    
    
    
    
    
    Date FairShares
    
    Value
    
    Shares
    
    ValueUnvested at the beginning of period
    
    
    45,333
    
    
    $
    28.75
    
    
    
    0
    
    
    $
    0.00Awards granted
    
    
    0
    
    
    
    0
    
    
    
    68,000
    
    
    
    28.75Vested
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Forfeited
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Unvested at the end of period
    
    
    45,333
    
    
    $
    28.75
    
    
    
    68,000
    
    
    $
    28.75
  Note 13: Stockholders Equity
  Note 14: Use of Estimates
  23




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 15: Subsequent Events
 Employment Agreements
         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.
    26




---



##### 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, 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;
    
    number of days 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;
    
    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.
    27




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##### Table of Contents



Results of Operations
 
 Finance income
   Other income .
 Equity in earnings of venture .
 General and Administrative Expenses.
 28




---



##### Table of Contents



Interest Expense.
 Liquidity and Capital Resources
    29




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30




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##### Table of Contents



For the Three Months Ended December 31, 2007Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    TotalBalance, beginning of period
    
    $
    508,515,000
    
    
    $
    37,108,000
    
    
    $
    545,623,000Acquisitions of receivable portfolios, net
    
    
    19,916,000
    
    
    
    17,593,000
    
    
    
    37,509,000Net cash collections from collection of consumer
receivables acquired for liquidation (1)
    
    
    (44,896,000
    )
    
    
    (5,206,000
    )
    
    
    (50,102,000
    )Net cash collections represented by account sales of
consumer receivables acquired for liquidation
    
    
    (7,791,000
    )
    
    
    
    
    
    
    (7,791,000
    )Finance income recognized (2)
    
    
    33,836,000
    
    
    
    299,000
    
    
    
    34,135,000Balance, end of period
    
    $
    509,580,000
    
    
    $
    49,794,000
    
    
    $
    559,374,000Revenue as a percentage of collections
    
    
    64.2
    %
    
    
    5.7
    %
    
    
    59.0
    %
 
 (1)
    
    Includes the put back of a portfolio purchased and returned to the seller in the amount of
$2.8 million in the first quarter of fiscal 2008.(2)
    
    Includes $11.0 million derived from fully amortized interest method pools. 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 (1)
    
    
    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
    %
 
 (1)
    
    Includes $5.0 million derived from fully amortized interest method pools. Additional Supplementary Information:
   31




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##### Table of Contents



Collections Represented by Account Sales
 CollectionsRepresented
    
    FinanceBy Account
    
    IncomePeriod
    
    Sales
    
    EarnedThree months ended December 31, 2007
    
    $
    7,791,000
    
    
    $
    2,353,000Three months ended December 31, 2006
    
    $
    17,082,000
    
    
    $
    8,959,000
 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
    
    
    $
    105,189,000
    
    
    $
    0
    
    
    $
    105,189,000
    
    
    
    162
    %2002
    
    
    36,557,000
    
    
    
    48,053,000
    
    
    
    0
    
    
    
    48,053,000
    
    
    
    131
    %2003
    
    
    115,626,000
    
    
    
    195,586,000
    
    
    
    7,734,000
    
    
    
    203,320,000
    
    
    
    176
    %2004
    
    
    103,743,000
    
    
    
    162,765,000
    
    
    
    8,099,000
    
    
    
    170,864,000
    
    
    
    165
    %2005
    
    
    126,023,000
    
    
    
    164,579,000
    
    
    
    56,441,000
    
    
    
    221,020,000
    
    
    
    175
    %2006
    
    
    200,237,000
    
    
    
    165,548,000
    
    
    
    145,104,000
    
    
    
    310,652,000
    
    
    
    155
    %2007
    
    
    384,850,000
    
    
    
    89,447,000
    
    
    
    438,049,000
    
    
    
    527,496,000
    
    
    
    137
    %2008
    
    
    19,916,000
    
    
    
    270,000
    
    
    
    26,843,000
    
    
    
    27,113,000
    
    
    
    136
    %
 
 (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 refers to the actual net cash collections, including cash
sales, plus estimated remaining net collections. 32




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##### Table of Contents



Recent Accounting Pronouncements
 Business Combinations  Business Combinations
           Noncontrolling Interests in
Consolidated Financial Statements  an Amendment of ARB No. 51
 
    
    the ownership interests in subsidiaries held by parties other than the
parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but
separate from the parents equity.
    
    the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on
the face of the consolidated statement of income.
 33




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##### Table of Contents




    
    changes in a parents ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for
consistently. A parents ownership interest in a subsidiary changes if
the parent purchases additional ownership interests in its subsidiary
or if the parent sells some of its ownership interests in its
subsidiary. It also changes if the subsidiary reacquires some of its
ownership interests or the subsidiary issues additional ownership
interests. All of those transactions are economically similar, and
this Statement requires that they be accounted for similarly, as
equity transactions.
    
    when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at
fair value. The gain or loss on the deconsolidation of the subsidiary
is measured using the fair value of any noncontrolling equity
investment rather than the carrying amount of that retained
investment.
    
    entities provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of
the noncontrolling owners.
    Application of Accounting Principles to Loan Commitments Accounting for Derivative
Instruments and Hedging Activities Accounting for Servicing of Financial Assets The Fair Value Option for Financial Assets and Financial
Liabilities,
 The Fair Value Option for Financial Assets and Financial Liabilities  Including an
amendment of FASB Statement No. 115
 34




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##### Table of Contents



Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106
and 132(R)
 Fair Value Measurements
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
 
 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.
  35




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##### Table of Contents



36




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk factors
  We have seen, at certain times, the environment for collections from debtors is slower and more
challenging.
   
    
    a slowdown in the economy;
    
    problems in the credit and housing markets;
    
    reductions in consumer spending;
    
    changes in the underwriting criteria by originators; and
    
    changes in laws and regulations governing consumer lending.
  
 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
  
 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.
 37




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##### Table of Contents



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.
 38




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##### Table of Contents



SIGNATURES
  ASTA FUNDING, INC.
(Registrant)Date: February 11, 2008
    By:
    /s/ Gary SternGary Stern, President, Chief Executive Officer(Principal Executive Officer)Date: February 11, 2008
    By:
    /s/ Mitchell CohenMitchell Cohen, Chief Financial Officer(Principal Financial Officer and
Principal Accounting Officer)