##### 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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    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
    
    
    2Item 1. Condensed Consolidated Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of December 31, 2008 (unaudited) and September 30, 2008
    
    
    2Condensed Consolidated Statements of Operations for the three month periods ended December 31,
2008 and 2007 (unaudited)
    
    
    3Condensed Consolidated Statement of Stockholders Equity for the three month period ending
December 31, 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three month periods ended December 31,
2008 and 2007 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34Part II. Other Information
    
    
    35Item 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 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
   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 30,2008
    
    
    2008(Unaudited)ASSETSCash and cash equivalents
    
    $
    1,722,000
    
    
    $
    3,623,000Restricted cash
    
    
    2,247,000
    
    
    
    3,047,000Consumer receivables acquired for liquidation (at net realizable value)
    
    
    403,808,000
    
    
    
    449,012,000Due from third party collection agencies and attorneys
    
    
    3,513,000
    
    
    
    5,070,000Investment in venture
    
    
    384,000
    
    
    
    555,000Furniture and equipment, net
    
    
    691,000
    
    
    
    762,000Deferred income taxes
    
    
    22,085,000
    
    
    
    15,567,000Other assets
    
    
    3,230,000
    
    
    
    3,500,000Total assets
    
    $
    437,680,000
    
    
    $
    481,136,000LIABILITIESDebt
    
    $
    183,856,000
    
    
    $
    213,485,000Subordinated debt  related party
    
    
    8,246,000
    
    
    
    8,246,000Other liabilities
    
    
    3,949,000
    
    
    
    4,618,000Dividends payable
    
    
    286,000
    
    
    
    571,000Income taxes payable
    
    
    2,012,000
    
    
    
    6,315,000Total liabilities
    
    
    198,349,000
    
    
    
    233,235,000Commitments 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  14,271,824 shares at December 31, 2008 and
14,276,158 at September 30, 2008
    
    
    143,000
    
    
    
    143,000Additional paid-in capital
    
    
    69,466,000
    
    
    
    69,130,000Retained earnings
    
    
    170,802,000
    
    
    
    178,925,000Accumulated other comprehensive loss
    
    
    (1,080,000
    )
    
    
    (297,000
    )Total stockholders equity
    
    
    239,331,000
    
    
    
    247,901,000Total liabilities and stockholders equity
    
    $
    437,680,000
    
    
    $
    481,136,000
   2




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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months 
Ended
    
    
    Three Months 
EndedDecember 31, 2008
    
    

December 31, 2007RevenuesFinance income, net
    
    $
    18,416,000
    
    
    $
    34,135,000Other income
    
    
    32,000
    
    
    
    140,00018,448,000
    
    
    
    34,275,000ExpensesGeneral and administrative
    
    
    7,027,000
    
    
    
    5,805,000Interest expense (fiscal year 2009 - Related party   $128,000)
    
    
    3,170,000
    
    
    
    5,941,000Impairments
    
    
    21,415,000
    
    
    
    31,612,000
    
    
    
    11,746,000(Loss) Income before equity in earnings in venture and income taxes
    
    
    (13,164,000
    )
    
    
    22,529,000Equity in earnings (loss) in venture
    
    
    17,000
    
    
    
    (77,000
    )(Loss) Income before income taxes
    
    
    (13,147,000
    )
    
    
    22,452,000Provision for income taxes
    
    
    (5,310,000
    )
    
    
    9,138,000Net (loss) income
    
    $
    (7,837,000
    )
    
    $
    13,314,000Net (loss) income per share  Basic
    
    $
    (0.55
    )
    
    $
    0.96Net (loss) income per share  Diluted
    
    $
    (0.55
    )
    
    $
    0.90Weighted average number of shares outstanding:Basic
    
    
    14,271,824
    
    
    
    13,918,158Diluted
    
    
    14,271,824
    
    
    
    14,803,482
   3




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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, 2008
    
    
    14,276,158
    
    
    $
    143,000
    
    
    $
    69,130,000
    
    
    $
    178,925,000
    
    
    
    (297,000
    )
    
    $
    247,901,000Stock based compensation
expense
    
    
    
    
    
    
    
    
    
    
    281,000
    
    
    
    
    
    
    
    
    
    
    
    281,000Shares forfeited
    
    
    (4,334
    )Tax benefit arising from
vesting of restricted
stock awards
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    
    
    
    
    
    
    
    
    
    55,000Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (286,000
    )
    
    
    
    
    
    
    (286,000
    )Accumulated other
comprehensive (loss), net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (783,000
    )
    
    
    (783,000
    )Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,837,000
    )
    
    
    
    
    
    
    (7,837,000
    )Balance, December 31, 2008
    
    
    14,271,824
    
    
    $
    143,000
    
    
    $
    69,466,000
    
    
    $
    170,802,000
    
    
    
    (1,080,000
    )
    
    $
    239,331,000
   Three Months 
Ended
    

    
    
    Three Months 
Ended12/31/08
    

    
    
    12/31/07Net income (loss)
    
    $
    (7,837,000
    )
    
    
    13,314,000Other comprehensive loss, net of tax  Foreign currency translation
    
    
    (783,000
    )

    
    
    Comprehensive income (loss)
    
    $
    (8,620,000
    )
    
    
    13,314,000
  4




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ASTA FUNDING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2008
    
    

December 31, 2007Cash flows from operating activities:Net (loss) income
    
    $
    (7,837,000
    )
    
    $
    13,314,000Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    359,000
    
    
    
    196,000Deferred income taxes
    
    
    (6,518,000
    )
    
    
    3,623,000Impairments of consumer receivables acquired for liquidation
    
    
    21,415,000
    
    
    
    Stock based compensation
    
    
    281,000
    
    
    
    187,000Changes in:Other assets
    
    
    1,000
    
    
    
    (620,000
    )Due from third party collection agencies and attorneys
    
    
    1,557,000
    
    
    
    (317,000
    )Income taxes payable
    
    
    (4,303,000
    )
    
    
    (2,713,000
    )Other liabilities
    
    
    (1,462,000
    )
    
    
    447,000Net cash provided by operating activities
    
    
    3,493,000
    
    
    
    14,117,000Cash flows from investing activities:Purchase of consumer receivables acquired for liquidation
    
    
    (1,078,000
    )
    
    
    (37,509,000
    )Principal collected on receivables acquired for liquidation
    
    
    19,212,000
    
    
    
    18,320,000Principal collected on receivables accounts represented by account sales
    
    
    4,400,000
    
    
    
    5,438,000Foreign exchange effect on receivables acquired for liquidation
    
    
    1,249,000
    
    
    
    Cash distribution received from venture
    
    
    171,000
    
    
    
    677,000Capital expenditures
    
    
    (19,000
    )
    
    
    (62,000
    )Net cash provided by (used in) investing activities
    
    
    23,935,000
    
    
    
    (13,136,000
    )Cash flows from financing activities:Tax benefit arising from vesting of restricted stock awards
    
    
    55,000
    
    
    
    Changes in restricted cash
    
    
    800,000
    
    
    
    1,539,000Dividends paid
    
    
    (571,000
    )
    
    
    (557,000
    )Repayment of debt
    
    
    (29,677,000
    )
    
    
    (1,039,000
    )Net cash used in financing activities
used in financing activities
    
    
    (29,393,000
    )
    
    
    (57,000
    )Increase (decrease) in cash
    
    
    (1,965,000
    )
    
    
    924,000Effect of foreign exchange on cash
    
    
    64,000
    
    
    
    Cash at the beginning of period
    
    
    3,623,000
    
    
    
    4,525,000Cash at end of period
    
    $
    1,722,000
    
    
    $
    5,449,000Supplemental disclosure of cash flow information:Cash paid during the periodInterest
(fiscal year 2009  Related party  $128,000 )
    
    $
    3,405,000
    
    
    $
    5,105,000Income taxes
    
    $
    4,917,000
    
    
    $
    8,198,000
   5




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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
 Share-Based Payment
 The Fair Value Option for Financial Assets
and Financial Liabilities
  6




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Fair Value Measurements
 Reclassifications
  Note 2: Principles of Consolidation
   7




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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.
      8




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
   
    
    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;
    
    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.
   9




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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, 2008Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    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
    
    
    $
    237,376,000
    
    
    $
    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. 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.  10




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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, 2009 (nine months remaining)
    
    $
    50,082,000September 30, 2010
    
    
    63,998,000September 30, 2011
    
    
    32,749,000September 30, 2012
    
    
    15,151,000September 30, 2013
    
    
    5,979,000September 30, 2014 (and thereafter)
    
    
    687,000Total
    
    $
    168,646,000Deferred revenue
    
    
    (2,214,000
    )Total
    
    $
    166,432,000
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2008
    
    
    December 31, 2007Balance at beginning of period
    
    $
    58,134,000
    
    
    $
    176,615,000Income recognized on finance receivables, net
    
    
    (18,169,000
    )
    
    
    (33,836,000
    )Additions representing expected revenue from purchases
    
    
    409,000
    
    
    
    7,207,000Transfers to Cost Recovery
    
    
    (2,477,000
    )
    
    
    Reclassifications from nonaccretable difference
    
    
    16,055,000
    
    
    
    22,704,000Balance at end of period
    
    $
    53,952,000
    
    
    $
    172,690,000
     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 )
  For the Three Months Ended December 31,2008
    
    
    2007Gross collections (1)
    
    $
    65,823,000
    
    
    $
    89,256,000Commissions and fees (2)
    
    
    23,795,000
    
    
    
    31,363,000Net collections
    
    $
    42,028,000
    
    
    $
    57,893,000
 (1)
    
    Gross collections include: collections from third-party collection
agencies and attorneys, collections from our in-house efforts,
collections represented by account sales and, for the three month
period ended December 31, 2007, 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. Note 4: Acquisition
   12




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 5: Furniture and Equipment
  December 31,
    
    
    September 30,2008
    
    
    2008Furniture
    
    $
    310,000
    
    
    $
    310,000Equipment
    
    
    2,733,000
    
    
    
    2,714,000Leasehold improvements
    
    
    105,000
    
    
    
    105,0003,148,000
    
    
    
    3,129,000Less accumulated depreciation
    
    
    2,457,000
    
    
    
    2,367,000Balance, end of period
    
    $
    691,000
    
    
    $
    762,000
 Note
6: Debt and Subordinated Debt  Related Party
    ,
    13




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
          14




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
  December 31, 2008Stated
    
    
    AverageDecember 31,
    
    
    September 30,
    
    
    Interest
    
    
    Interest2008
    
    
    2008
    
    
    Rate
    
    
    RateCredit Facility
    
    $
    64,052,000
    
    
    $
    84,934,000
    
    
    
    3.25
    %
    
    
    4.24
    %Receivables Financing Agreement
    
    
    119,804,000
    
    
    
    128,551,000
    
    
    
    6.08
    %
    
    
    7.01
    %Total debt
    
    $
    183,856,000
    
    
    $
    213,485,000
    
    
    
    n/a
    
    
    
    5.98
    %Subordinated
debt  related party
    
    $
    8,246,000
    
    
    $
    8,246,000
    
    
    
    6.25
    %
    
    
    6.25
    %
 Note 7: Commitments and Contingencies
 Employment Agreements
  Leases
  Litigation
   15




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 8: 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 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 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, 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 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 suit 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 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 issuer.
  16




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ASTA FUNDING, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
    Commissions and fees
  Note 9: Income Taxes
  Note 10: Net Income Per Share
   2008
    
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    
    Average
    
    
    Per Share
    
    
    Net
    
    
    Average
    
    
    Per Share(Loss)
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic
    
    $
    (7,837,000
    )
    
    
    14,271,824
    
    
    $
    (0.55
    )
    
    $
    13,314,000
    
    
    
    13,918,158
    
    
    $
    0.96Effect of Dilutive
Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    885,324Diluted
    
    $
    (7,837,000
    )
    
    
    14,271,824
    
    
    $
    (0.55
    )
    
    $
    13,314,000
    
    
    
    14,803,482
    
    
    $
    0.90
   17




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##### Table of Contents



ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 11: Stock Based Compensation
   Note 12: Stock Option Plans
 Equity Compensation Plan
     18




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 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
(Unaudited)
 Note
12: Stock Option Plans  ( Continued )
   Three Months Ended December 31,2008
    
    
    2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding options at the beginning of period
    
    
    1,037,438
    
    
    $
    11.69
    
    
    
    1,337,438
    
    
    $
    9.39Options granted
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Options exercised
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Options forfeited
    
    
    (1,000
    )
    
    
    28.75
    
    
    
    0
    
    
    
    0Outstanding options at the end of period
    
    
    1,036,438
    
    
    $
    11.68
    
    
    
    1,337,438
    
    
    $
    9.39Exercisable options at the end of period
    
    
    1,031,438
    
    
    $
    11.59
    
    
    
    1,325,438
    
    
    $
    9.21
  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
    
    
    300,000
    
    
    
    1.7
    
    
    $
    2.63
    
    
    
    300,000
    
    
    $
    2.63$2.8751  $5.7500
    
    
    106,667
    
    
    
    3.8
    
    
    
    4.73
    
    
    
    106,667
    
    
    
    4.73$5.7501  $8.6250
    
    
    12,000
    
    
    
    2.9
    
    
    
    5.96
    
    
    
    12,000
    
    
    
    5.96$14.3751  $17.2500
    
    
    218,611
    
    
    
    4.9
    
    
    
    15.04
    
    
    
    218,611
    
    
    
    15.04$17.2501  $20.1250
    
    
    382,160
    
    
    
    5.8
    
    
    
    18.22
    
    
    
    382,160
    
    
    
    18.22$25.8751  $28.7500
    
    
    17,000
    
    
    
    8.0
    
    
    
    28.75
    
    
    
    12,000
    
    
    
    28.751,036,438
    
    
    
    4.5
    
    
    $
    11.68
    
    
    
    1,031,438
    
    
    $
    11.59
  20




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note
12: Stock Option Plans  ( Continued )
    Three Months Ended December 31,2008
    
    
    2007Weighted
    
    
    
    
    
    
    WeightedAverage Grant
    
    
    
    
    
    
    Average GrantDate Fair
    
    
    
    
    
    
    Date FairShares
    
    
    Value
    
    
    Shares
    
    
    ValueUnvested at the beginning of period
    
    
    61,339
    
    
    $
    23.06
    
    
    
    45,333
    
    
    $
    28.75Awards granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (4,334
    )
    
    
    21.81
    
    
    
    
    
    
    
    Unvested at the end of period
    
    
    57,005
    
    
    $
    23.75
    
    
    
    45,333
    
    
    $
    28.75
  Note 13: Stockholders Equity
  Note 14: Use of Estimates
   21




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ASTA FUNDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 15: Subsequent Events
       22




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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.
  23




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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 wherewithal 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.
  24




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25




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Results of Operations
  Finance income
    Other income .
 General and Administrative Expenses.
 Interest Expense.
 Impairments . Finance income,
  26




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Liquidity and Capital Resources
        27




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28




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29




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30




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For the Three Months Ended December 31, 2008Accrual
    
    
    CashBasis
    
    
    BasisPortfolios
    
    
    Portfolios
    
    
    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
    
    
    $
    237,376,000
    
    
    $
    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. 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. Additional Supplementary Information:
   31




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Collections Represented by Account Sales
 CollectionsRepresented
    
    
    FinanceBy Account
    
    
    IncomePeriod
    
    Sales
    
    
    EarnedThree months ended December 31, 2008
    
    $
    5,773,000
    
    
    $
    1,373,000Three months ended December 31, 2007
    
    $
    7,791,000
    
    
    $
    2,353,000
 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
    
    
    $
    105,349,000
    
    
    $
    0
    
    
    $
    105,349,000
    
    
    
    162
    %2002
    
    
    36,557,000
    
    
    
    47,889,000
    
    
    
    0
    
    
    
    47,889,000
    
    
    
    131
    %2003
    
    
    115,626,000
    
    
    
    206,023,000
    
    
    
    2,325,000
    
    
    
    208,348,000
    
    
    
    180
    %2004
    
    
    103,743,000
    
    
    
    173,872,000
    
    
    
    2,400,000
    
    
    
    176,272,000
    
    
    
    170
    %2005
    
    
    126,023,000
    
    
    
    189,962,000
    
    
    
    33,072,000
    
    
    
    223,034,000
    
    
    
    177
    %2006
    
    
    177,165,000
    
    
    
    211,894,000
    
    
    
    74,614,000
    
    
    
    286,508,000
    
    
    
    162
    %2007
    
    
    109,235,000
    
    
    
    64,235,000
    
    
    
    88,653,000
    
    
    
    152,888,000
    
    
    
    140
    %2008
    
    
    25,622,000
    
    
    
    17,686,000
    
    
    
    18,000,000
    
    
    
    35,686,000
    
    
    
    139
    %2009
    
    
    1,078,000
    
    
    
    187,000
    
    
    
    1,320,000
    
    
    
    1,507,000
    
    
    
    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.  32




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Recent Accounting Pronouncements
 Share-Based Payment
 The Fair Value Option for Financial Assets
and Financial Liabilities
    Fair Value Measurements
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   33




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Item 4. Controls and Procedures
 a. Disclosure Controls and Procedures
  b. Changes in Internal Controls Over Financial Reporting.
   34




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 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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SIGNATURES
  ASTA FUNDING, INC.
(Registrant)Date: February 26, 2009
    By:
    /s/ Gary SternGary Stern, President, Chief Executive Officer(Principal Executive Officer)Date: February 26, 2009
    By:
    /s/ Robert J. MichelRobert J. Michel, Chief Financial Officer(Principal Financial Officer and

Principal Accounting Officer)  36




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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.