Edgar Filing: ASTA FUNDING INC

As filed with the Securities and Exchange Commission on June 12, 2003

Registration No. 333-105755

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ASTA FUNDING, INC.
(Exact name of registrant issuer in its charter)

Delaware 6141 22-3388607
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification no.)
organization)

210 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
(201) 567-5648
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------

Mitchell Herman
Chief Financial Officer
Asta Funding, Inc.
210 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
(201) 567-5648
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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with copies to

Alan Wovsaniker, Esq. Ronald H. Janis. Esq.
Steven M. Skolnick, Esq. Pitney, Hardin, Kipp & Szuch LLP
Lowenstein Sandler PC 200 Campus Drive
65 Livingston Avenue Florham Park, New Jersey 07932
Roseland, New Jersey 07068 (973) 966-6300
(973) 597-2500

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. |_|

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

----------------

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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Subject to Completion, dated June 12, 2003

PROSPECTUS

2,500,000 Shares

[ASTA FUNDING, INC. LOGO]

Common Stock

Of the 2,500,000 shares of common stock being sold in this offering, we are
selling 2,100,000 shares and the selling stockholders listed on page 43 are
selling 400,000 shares. We will not receive any of the proceeds from the sale
of our common stock by the selling stockholders.

Our common stock is listed on The Nasdaq National Market under the symbol
"ASFI." The last reported sales price for our common stock on The Nasdaq
National Market on June 10, 2003, was $25.42 per share.

Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 6.

Per share Total
--------- -----
Public offering price .............................. $ $
Underwriting discount .............................. $ $
Proceeds to us, before expenses .................... $ $
Proceeds to the selling stockholders ............... $ $

We have granted the underwriters a 30-day option to purchase up to an
aggregate of 375,000 additional shares of our common stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.

The underwriters are offering the shares of our common stock, on a firm
commitment basis, as described in "Underwriting." Delivery of the shares of
our common stock will be made on or about _________ ____, 2003.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Joint Lead Managers

RYAN BECK & CO. BREAN MURRAY & CO., INC.

The date of this prospectus is _________________, 2003.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale is not permitted.

TABLE OF CONTENTS

Page
----
Prospectus Summary ...................................................... 1
Risk Factors ............................................................ 6
Special Note Regarding Forward-Looking Statements ....................... 13
Use of Proceeds ......................................................... 14
Price Range of our Common Stock ......................................... 14
Dividend Policy ......................................................... 14
Capitalization .......................................................... 15
Selected Consolidated Financial Data .................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 18
Our Business ............................................................ 26
Our Management .......................................................... 36
Certain Relationships and Related Party Transactions .................... 42
Principal and Selling Stockholders ...................................... 43
Description of Capital Stock ............................................ 46
Shares Eligible for Future Sale ......................................... 49
Underwriting ............................................................ 50
Legal Matters ........................................................... 51
Experts ................................................................. 52
Where You Can Find More Information ..................................... 52
Index to Consolidated Financial Statements .............................. F-1

PROSPECTUS SUMMARY

This summary highlights selected information about us. It may not contain
all of the information that you find important. You should carefully read this
entire document, including the "Risk Factors" and our financial statements and
the related notes to the financial statements. Unless otherwise indicated, the
information in this prospectus assumes that the underwriters will not exercise
their over-allotment option.

Our Company

Overview

Asta Funding, Inc. acquires, manages, collects and services portfolios of
consumer receivables. These portfolios generally consist of one or more of the
following types of consumer receivables:

o charged-off receivables -- accounts that have been written-off by the
originators and may have been previously serviced by collection agencies;

o 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

o performing receivables -- accounts where the debtor is making regular
monthly payments that may or may not have been delinquent in the past.

We acquire these consumer receivable portfolios at a significant discount to
the amount actually owed by the debtors. We acquire these portfolios after a
qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow offers us an
adequate return on our acquisition costs and servicing expenses. After
purchasing a portfolio, we actively monitor its performance and review and
adjust our collection and servicing strategies accordingly. From July 1, 1998
through March 31, 2003, we have acquired portfolios with a face value of $3.9
billion for $163.1 million, or 4.2% of the face value of such portfolios.

We purchase receivables from creditors and others through privately
negotiated direct sales and auctions in which sellers of receivables seek bids
from several pre-qualified debt purchasers. These receivables consist
primarily of MasterCard(R), Visa(R), retail installment contracts, secured
asset portfolios and private label credit card accounts, among other types of
receivables. We pursue new acquisitions of consumer receivable portfolios on
an ongoing basis through:

o our relationships with industry participants, collection agencies,
investors and our financing sources;

o brokers who specialize in the sale of consumer receivable portfolios; and

o other sources.

Our objective is to maximize our return on investment on acquired consumer
receivable portfolios. As a result, before acquiring a portfolio, we analyze
the portfolio to determine how to best maximize collections in a cost
efficient manner and decide whether to use our internal servicing and
collection department or third-party servicers and collection agencies.

If we elect to outsource the servicing of receivables, our senior management
typically determines the appropriate servicer based on the type of receivables
purchased. Once a group of receivables is sent to a third-party servicer our
management actively monitors and reviews the servicer's performance on an
ongoing basis. Based on portfolio performance guidelines, our management
either will move certain receivables from one third-party servicer to another
or to our internal servicing department if it anticipates that this will
result in an increase in collections or it will sell the portfolio. In
December 2002, we acquired a collection center which expanded our internal
collection and servicing capabilities. The collection center currently employs
approximately 40 persons, including senior management with an average tenure
of nine years at the collection center, and has the capacity for more than 100
employees. We believe that the retention of these employees, as well as the
increased capacity available at the collection center, will better assist us
in monitoring our third-party servicers, while giving us greater flexibility
in the future for servicing in-house a larger percentage of our consumer
receivable portfolios.

We acquire portfolios through a combination of internally generated cash
flow and bank debt. In the past, on certain large portfolio acquisitions we
have partnered with a large financial institution in which we shared in the
revenues generated from the collections on the portfolios. With the proceeds
from this offering, we may have the ability to acquire new portfolios without
the assistance of these institutions, which would enhance our return on those
portfolios.

During the years ended September 30, 2000, 2001 and 2002, and the six months
ended March 31, 2002 and 2003, our revenues were approximately $18.1 million,
$24.1 million and $36.0 million, respectively, and $18.8 million and
$14.5 million, respectively, and our net income was approximately $5.8 million,
$8.6 million and $10.4 million, respectively, and $4.9 million and
$4.7 million, respectively. In the year ended September 30, 2002, and the six
months ended March 31, 2003, cash collections totaled $78.6 million and
$28.2 million, respectively.

We were formed in 1994 as an affiliate of Asta Group, Incorporated, an
entity owned by Arthur Stern, our Chairman of the Board and an Executive Vice
President, Gary Stern, our President and Chief Executive Officer, and other
members of the Stern family, to purchase, at face value, retail installment
sales contracts secured by motor vehicles. We became a public company in
November 1995. In 1999, we decided to capitalize on our management's more than
40 years of experience and expertise in acquiring and managing consumer
receivable portfolios for Asta Group. As a result, we ceased purchasing
automobile contracts and, with the assistance and financial support of Asta
Group, purchased our first significant consumer receivable portfolio. Since
then, Asta Group ceased acquiring consumer receivable portfolios and,
accordingly, does not compete with us.

Industry Overview

The purchasing, servicing and collection of charged-off, semi-performing and
performing consumer receivables is a growing industry that is driven by:

o increasing levels of consumer debt;

o increasing defaults of the underlying receivables; and

o increasing utilization of third-party providers to collect such
receivables.

According to the U.S. Federal Reserve Board, at March 31, 2003, consumer
credit, which consists of non-real estate related short- and intermediate-term
credit extended to individuals, has grown approximately 37% to $1.7 trillion
from $1.2 trillion at December 31, 1997. According to the Consumer Bankers
Association, the delinquency rate on non-mortgage consumer obligations reached
its highest level in a decade at December 31, 2001, 1.86%, an approximately
33% increase from its level at December 31, 2000 of 1.40%. According to the
Nilson Report, a credit card industry newsletter, credit originators
outsourced an estimated $135 billion in defaulted consumer receivables for
collection in 2000, nearly double the $73 billion outsourced for collection in
1990.

We believe that as a result of the difficulty in collecting these
receivables and the desire of originating institutions to focus on their core
businesses and to generate revenue from these receivables, originating
institutions are increasingly electing to sell these portfolios.

Strategy

Our primary objective is to utilize our management's experience and
expertise to effectively grow our business by identifying, evaluating, pricing
and acquiring consumer receivable portfolios and maximizing collections of
such receivables in a cost efficient manner. Our strategy includes:

o managing the collection and servicing of our consumer receivable
portfolios, including outsourcing a majority of those activities to
maintain low fixed overhead;

o expanding financial flexibility through increased capital and lines of
credit;

o capitalizing on our strategic relationships to identify and acquire
consumer receivable portfolios; and

o expanding our business through the purchase of consumer receivables from
new and existing sources.

We believe that as a result of our management's experience and expertise, and
the fragmented market in which we operate, we are well-positioned to
successfully implement our strategy.

Principal Executive Offices

We are a Delaware corporation whose principal executive offices are located
at 210 Sylvan Avenue, Englewood Cliffs, New Jersey 07632 and our telephone
number is (201) 567-5648. Unless the context otherwise requires, the terms
"we," "our" or "us" as used herein refer to Asta Funding, Inc. and its
subsidiaries.

The Offering

Common stock being offered by us. . . . . . . . . . . . 2,100,000

Common stock being offered by the selling
stockholders . . . . . . . . . . . . . . . . . . . . . 400,000

Total common stock outstanding after this
offering (1) . . . . . . . . . . . . . . . . . . . . . 6,214,130

Use of proceeds to us . . . . . . . . . . . . . . . . . To purchase receivable
portfolios and for
working capital and
general corporate
purposes. Although we
have no present plans
or intentions, we may
use a portion of the
proceeds to acquire or
invest in
complementary
businesses.

The Nasdaq National Market symbol . . . . . . . . . . . ASFI
---------------

(1) Based on share information as of June 6, 2003. Excludes 620,833 shares of
our common stock issuable upon the exercise of other outstanding options
to purchase shares of our common stock with an average exercise price of
$6.50 per share

Recent Developments

Since March 31, 2003, we have purchased six portfolios of distressed
consumer credit card receivables having an aggregate outstanding balance
totaling approximately $706 million for an aggregate purchase price of
approximately $21.9 million, or 3.1% of the face value of such portfolios. The
portfolios consist of VISA(R) and Mastercard(R) accounts.

Summary Consolidated Financial Data

Set forth below is summary consolidated financial data as of and for the
five fiscal years ended September 30, 2002, and for the six-month periods
ended March 31, 2002 and 2003. The following summary consolidated financial
data for the five fiscal years ended September 30, 2002, are derived from our
consolidated financial data that have been audited by Eisner LLP. The summary
consolidated financial data for the six-month periods ended March 31, 2002 and
2003, are derived from our unaudited interim consolidated financial statements
and include all adjustments, consisting of only normal recurring accruals,
which our management considers necessary for the fair presentation of our
financial position and results of operations for these periods. You should
read the information that we have presented below in conjunction with our
consolidated financial statements, related notes and other financial
information included elsewhere in this prospectus. See "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Six Months
Year Ended September 30, Ended March 31,
------------------------------------------------- -----------------
1998(1) 1999 2000 2001 2002 2002 2003
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)

Operations Statement Data:
Finance income........................................... $ 4,933 $11,363 $18,040 $24,100 $35,793 $18,688 $14,471
Servicing fee income..................................... 50 240 70 14 219 96 --
------- ------- ------- ------- ------- ------- -------
Total revenue......................................... 4,983 11,603 18,110 24,114 36,012 18,784 14,471
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
General and administrative.............................. 3,236 3,094 4,091 5,653 6,698 3,330 3,362
Third-party servicing................................... -- -- -- 2,757 7,433 4,722 3,176
Interest expense........................................ 764 3,634 410 920 3,643 2,095 13
Provision for credit losses............................. 4,567 1,688 3,954 450 950 400 --
------- ------- ------- ------- ------- ------- -------
Total expenses........................................ 8,567 8,416 8,455 9,780 18,724 10,547 6,551
------- ------- ------- ------- ------- ------- -------
Income (loss) before provisions for income taxes......... (3,584) 3,187 9,655 14,334 17,288 8,237 7,920
Provision (benefit) for income taxes..................... (1,044) 454 3,825 5,743 6,905 3,307 3,179
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................................... $(2,540) $ 2,733 $ 5,830 $ 8,591 $10,383 $ 4,930 $ 4,741
======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per share........................ $ (0.64) $ 0.69 $ 1.48 $ 2.16 $ 2.57 $ 1.23 $ 1.16
======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per share...................... $ (0.64) $ 0.69 $ 1.43 $ 2.06 $ 2.38 $ 1.12 $ 1.08
======= ======= ======= ======= ======= ======= =======

As of March 31, 2003
------------------------
Actual As Adjusted(2)
------- --------------
(in thousands)

Balance Sheet Data:
Cash and cash equivalents .......................... $14,927 64,022
Consumer receivables ............................... 26,668 26,668
Total assets ....................................... 42,976 92,071
Total debt(3) ...................................... 1,790 1,790
Total stockholders' equity ......................... 38,363 87,458

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(1) During fiscal 1998, our primary business was purchasing, at face value,
retail installment sales contracts secured by motor vehicles. During fiscal
1999, we ceased this business and began acquiring and managing consumer
receivable portfolios.
(2) Adjusted to give effect to estimated net proceeds from the sale of the
2,100,000 shares of common stock offered by us at an assumed public
offering price of $25.42 per share, the closing price of our common stock
on The Nasdaq National Market on June 10, 2003. See "Use of Proceeds."

(3) As of March 31, 2003, approximately $1.8 million was outstanding under our
$25 million line of credit; such amount has been paid in full as of the
date of this prospectus.

Six Months
Year Ended September 30, Ended March 31,
------------------------------------------- -------------------
1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- --------
(in millions)

Other Financial Data:
Cash collections ............................................ $ 46.6 $ 29.8 $ 47.5 $ 78.6 $ 41.0 $ 28.1
Portfolio purchases, at cost ................................ 55.4 1.4 65.1 36.6 17.0 4.4
Portfolio purchases, at face ................................ 1,375.7 208.5 689.5 1,495.7 386.1 88.1
Cumulative aggregate managed portfolios ..................... 1,379.0 1,587.5 2,277.0 3,772.7 2,663.0 3,860.8
Return on average assets (1)(2) ............................. 12.0% 23.9% 22.6% 21.6% 19.3% 22.5%
Return on average stockholders' equity (1)(2) ............... 40.5% 52.8% 46.9% 36.9% 39.0% 26.4%

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(1) The information for the six months ended March 31, 2002 and 2003 has been
annualized.
(2) The return on average assets is computed by dividing net income by average
total assets for the period. The return on average stockholders' equity is
computed by dividing net income by the average stockholders' equity for the
period. Both ratios have been computed using beginning and period-end
balances.

RISK FACTORS

You should carefully consider these risk factors in addition to our
financial statements. In addition to the following risks, there may also be
risks that we do not yet know of or that we currently think are immaterial
that may also impair our business operations. If any of the following risks
occur, our business, results of operation or financial condition could be
adversely affected, the trading price of our common stock could decline and
you might lose all or part of your investment.

We may not be able to purchase consumer receivable portfolios at favorable
prices or on sufficiently favorable terms or at all.

Our success depends upon the continued availability of consumer receivable
portfolios that meet our purchasing criteria and our ability to identify and
finance the purchases of such portfolios. The availability of consumer
receivable portfolios at favorable prices and on terms acceptable to us
depends on a number of factors outside of our control, including:

o the continuation of the current growth trend in consumer debt;

o the continued volume of consumer receivable portfolios available for
sale; and

o competitive factors affecting potential purchasers and sellers of
consumer receivable portfolios.

During the past year, we have seen evidence that the market for acquiring
consumer receivable portfolios is becoming more competitive, thereby possibly
diminishing our ability to acquire such receivables at attractive prices in
future periods.

The growth in consumer debt may also be affected by:

o a slowdown in the economy;

o reductions in consumer spending;

o changes in the underwriting criteria by originators; and

o changes in laws and regulations governing consumer lending.

Any slowing of the consumer debt growth trend could result in a decrease in
the availability of consumer receivable portfolios for purchase that could
affect the purchase prices of such portfolios. Any increase in the prices we
are required to pay for such portfolios in turn will reduce the profit, if
any, we generate from such portfolios.

Our quarterly operating results may fluctuate and cause our stock price to
decline.

Because of the nature of our business, our quarterly operating results may
fluctuate, which may adversely affect the market price of our common stock.
Our results may fluctuate as a result of any of the following:

o the timing and amount of collections on our consumer receivable
portfolios;

o our inability to identify and acquire additional consumer receivable
portfolios;

o a decline in the estimated value of our consumer receivable portfolio
recoveries;

o increases in operating expenses associated with the growth of our
operations; and

o general and economic market conditions.

For example, our earnings declined in each of the quarters ended December 31,
2002 and March 31, 2003, as compared to the prior quarter, primarily as a
result of a decrease in portfolio purchases.

We may not be able to recover sufficient amounts on our consumer receivable
portfolios to recover the costs associated with the purchase of those
portfolios and to fund our operations.

We acquire and collect on consumer receivable portfolios that contain
charged-off, semi-performing and performing receivables. In order to operate
profitably over the long term, we must continually purchase and collect on a
sufficient volume of receivables to generate revenue that exceeds our costs.
For accounts that are charged-off or semi-performing, the originators or
interim owners of the receivables generally have:

o made numerous attempts to collect on these obligations, often using both
their in-house collection staff and third-party collection agencies;

o subsequently deemed these obligations as uncollectable; and

o charged-off these obligations.

These receivable portfolios are purchased at significant discounts to the
amount the consumers owe. These receivables are difficult to collect and
actual recoveries may vary and be less than the amount expected. In addition,
our collections may worsen in a weak economic cycle. We may not recover
amounts in excess of our acquisition and servicing costs.

Our ability to recover on our portfolios and produce sufficient returns can
be negatively impacted by the quality of the purchased receivables. In the
normal course of our portfolio acquisitions, some receivables may be included
in the portfolios that fail to conform with certain terms of the purchase
agreements and we may seek to return these receivables to the seller for
payment or replacement receivables. However, we cannot guarantee that any of
such sellers will be able to meet their payment obligations to us. Accounts
that we are unable to return to sellers may yield no return. If cash flows
from operations are less than anticipated as a result of our inability to
collect sufficient amounts on our receivables, our ability to satisfy our debt
obligations, purchase new portfolios and our future growth and profitability
may be materially adversely affected.

We are subject to intense competition for the purchase of consumer receivable
portfolios.

We compete with other purchasers of consumer receivable portfolios, with
third-party collection agencies and with financial services companies that
manage their own consumer receivable portfolios. We compete on the basis of
reputation, industry experience and performance. Some of our competitors have
greater capital, personnel and other resources than we have. The possible
entry of new competitors, including competitors that historically have focused
on the acquisition of different asset types, and the expected increase in
competition from current market participants may reduce our access to consumer
receivable portfolios. Aggressive pricing by our competitors could raise the
price of consumer receivable portfolios above levels that we are willing to
pay, which could reduce the number of consumer receivable portfolios suitable
for us to purchase or if purchased by us, reduce the profits, if any,
generated by such portfolios. If we are unable to purchase receivable
portfolios at favorable prices or at all, the revenues generated by us and our
earnings could be materially reduced.

We are dependent upon third parties to service a majority of our consumer
receivable portfolios.

Although we utilize our in-house collection staff to collect some of our
receivables, we outsource a majority of our receivable servicing. As a result,
we are dependent upon the efforts of our third party servicers, particularly
OSI Collection Services, Inc. and its affiliates, to service and collect our
consumer receivables. We have been informed that OSI and certain of its
affiliates, which service a substantial amount of our consumer receivables,
filed for a Chapter 11 reorganization on or about May 12, 2003. Based on
information we have received to date, we believe that OSI and its affiliates
will continue to operate in the ordinary course in servicing receivables
through its Chapter 11 proceeding. However, although we do not believe that
the filing by OSI and its affiliates will have a material adverse effect on
our operations, any failure by our third party servicers, especially OSI and
its affiliates, to adequately perform collection services for us or remit such
collections to us could materially reduce our revenues and our profitability.
In addition, our revenues and profitability could be materially adversely
affected if we are not able to secure replacement servicers and redirect
payments from the debtors to our new servicer promptly in the event our
agreements

with our third-party servicers are terminated, our third-party servicers fail
to adequately perform their obligations or if our relationships with such
servicers adversely change.

Our collections may decrease if bankruptcy filings increase.

During times of economic recession, the amount of defaulted consumer
receivables generally increases, which contributes to an increase in the
amount of personal bankruptcy filings. Under certain bankruptcy filings a
debtor's assets are sold to repay credit originators, but since the defaulted
consumer receivables we purchase are generally unsecured we often would not be
able to collect on those receivables. We cannot assure you that our collection
experience would not decline with an increase in bankruptcy filings. If our
actual collection experience with respect to a defaulted consumer receivables
portfolio is significantly lower than we projected when we purchased the
portfolio, our earnings could be negatively affected.

If we are unable to access external sources of financing, we may not be able
to fund and grow our operations.

We depend on loans from our credit facility and other external sources,
including loans from Asta Group, one of our affiliates, from time to time, to
fund and expand our operations. Our ability to grow our business is dependent
on our access to additional financing and capital resources. The failure to
obtain financing and capital as needed would limit our ability to:

o purchase consumer receivable portfolios; and

o achieve our growth plans.

In addition, some of our financing sources impose certain restrictive
covenants, including financial covenants. Failure to satisfy any of these
covenants could:

o cause our indebtedness to become immediately payable;

o preclude us from further borrowings from these existing sources; and

o prevent us from securing alternative sources of financing necessary to
purchase consumer receivable portfolios and to operate our business.

Our $25 million credit line expires on January 31, 2004, and we may not be
able to renew or replace such facility on terms favorable to us or at all. If
we are unable to renew or replace such facility, we may be unable to purchase
additional consumer receivable portfolios, and our ability to generate
revenues would be adversely affected.

We use estimates for recognizing revenue on a majority of our consumer
receivable portfolio investments and our earnings would be reduced if actual
results are less than estimated.

We recognize finance income on a majority of our consumer receivable
portfolios using the interest method. We only use this method if we can
reasonably estimate the expected amount and timing of cash to be collected on
a specific portfolio based on historic experience and other factors. Under the
interest method, we recognize finance income on the effective yield method
based on the actual cash collected during a period, future estimated cash
flows and the portfolio's carrying value prior to the application of the
current quarter's cash collections. The estimated future cash flows are
reevaluated quarterly. If future cash collections on these portfolios were
less than what was estimated, we would recognize less than anticipated finance
income or possibly an expense that would reduce our earnings during such
periods. Any reduction in our earnings could materially adversely affect our
stock price.

We may rely on third parties to locate, identify and evaluate consumer
receivable portfolios available for purchase.

We may rely on third parties, including brokers and some of our servicers,
to identify consumer receivable portfolios and, in some instances, to assist
us in our evaluation and purchase of these portfolios. As a result, if such
third parties fail to identify receivable portfolios or if our relationships
with such third parties are not maintained, our ability to identify and
purchase additional receivable portfolios could be materially adversely
affected. In addition, if we or such parties fail to correctly or adequately
evaluate the value or

collectibility of these consumer receivable portfolios, we may pay too much
for such portfolios and our earnings could be negatively affected.

We may not be successful at acquiring receivables of new asset types or in
implementing a new pricing structure.

We may pursue the acquisition of receivable portfolios of asset types in
which we have little current experience. We may not be successful in
completing any acquisitions of receivables of these asset types and our
limited experience in these asset types may impair our ability to collect on
these receivables. This may cause us to pay too much for these receivables,
and consequently, we may not generate a profit from these receivable portfolio
acquisitions.

The loss of any of our executive officers may adversely affect our operations
and our ability to successfully acquire receivable portfolios.

Arthur Stern, our Chairman and an Executive Vice President, Gary Stern, our
President and Chief Executive Officer, and Mitchell Herman, our Chief
Financial Officer, are responsible for making substantially all management
decisions, including determining which portfolios to purchase, the purchase
price and other material terms of such portfolio acquisitions. These decisions
are instrumental to the success of our business. The loss of the services of
Arthur Stern, Gary Stern or Mitchell Herman could disrupt our operations and
adversely affect our ability to successfully acquire receivable portfolios.

The Stern family effectively controls Asta, substantially reducing the
influence of our other stockholders.

Immediately following the consummation of this offering, including the sale
of shares of our common stock by limited liability companies in which Arthur
Stern, our Chairman and an Executive Vice President, and Gary Stern, our
President and Chief Executive Officer, have an economic interest, and certain
members of the Stern family and entities for the benefit of members of the
Stern family, including Arthur Stern, Gary Stern, Barbara Marburger, daughter
of Arthur Stern and sister of Gary Stern, trusts or custodial accounts for the
benefit of minor children of Barbara Marburger and of Gary Stern, Asta Group
Incorporated, and limited liability companies controlled by Judith R. Feder,
niece of Arthur Stern and cousin of Gary Stern, in which Arthur Stern, Alice
Stern (wife of Arthur Stern and mother of Gary Stern), Gary Stern and trusts
for the benefit of the issue of Arthur Stern and the issue of Gary Stern hold
all the economic interests, will beneficially own in the aggregate
approximately 36.9% of our outstanding shares of common stock. In addition,
other members of the Stern family, such as adult children of Gary Stern and
Barbara Marburger, own additional shares. As a result, the Stern family will
be able to influence significantly the actions that require stockholder
approval, including:

o the election of a majority of our directors; and

o the approval of mergers, sales of assets or other corporate transactions
or matters submitted for stockholder approval.

As a result, our other stockholders may have little or no influence over
matters submitted for stockholder approval. In addition, the Stern family's
influence could preclude any unsolicited acquisition of us and consequently
materially adversely affect the price of our common stock.

We have experienced rapid growth over the past several years, which has placed
significant demands on our administrative, operational and financial resources
and could result in an increase in our expenses.

We plan to continue our growth, which could place additional demands on our
resources and cause our expenses to increase. Future internal growth will
depend on a number of factors, including:

o the effective and timely initiation and development of relationships with
sellers of consumer receivable portfolios and strategic partners;

o our ability to maintain the collection of consumer receivables
efficiently; and

o the recruitment, motivation and retention of qualified personnel.

Sustaining growth will also require the implementation of enhancements to
our operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that we will be
able to manage our expanding operations effectively or that we will be able to
maintain or accelerate our growth, and any failure to do so could adversely
affect our ability to generate revenues and control our expenses.

Government regulations may limit our ability to recover and enforce the
collection of our receivables.

Federal, state and municipal laws, rules, regulations and ordinances may
limit our ability to recover and enforce our rights with respect to the
receivables acquired by us. These laws include, but are not limited to, the
following federal statutes and regulations promulgated thereunder and
comparable statutes in states where consumers reside and/or where creditors
are located:

o the Fair Debt Collection Practices Act;

o the Federal Trade Commission Act;

o the Truth-In-Lending Act;

o the Fair Credit Billing Act;

o the Equal Credit Opportunity Act; and

o the Fair Credit Reporting Act.

We may be precluded from collecting receivables we purchase where the
creditor or other previous owner or servicer failed to comply with applicable
law in originating or servicing such acquired receivables. Laws relating to
the collection of consumer debt also directly apply to our business. Our
failure to comply with any laws applicable to us, including state licensing
laws, could limit our ability to recover on receivables and could subject us
to fines and penalties, which could reduce our earnings and result in a
default under our loan arrangements. In addition, our third-party servicers
may be subject to these and other laws and their failure to comply with such
laws could also materially adversely affect our revenues and earnings.

Additional laws may be enacted that could impose additional restrictions on
the servicing and collection of receivables. Such new laws may adversely
affect the ability to collect on our receivables which could also adversely
affect our revenues and earnings.

Because our receivables are generally originated and serviced pursuant to a
variety of federal and/or state laws by a variety of entities and may involve
consumers in all 50 states, the District of Columbia and Puerto Rico, there
can be no assurance that all original servicing entities have at all times
been in substantial compliance with applicable law. Additionally, there can be
no assurance that we or our servicers have been or will continue to be at all
times in substantial compliance with applicable law. The failure to comply
with applicable law could materially adversely affect our ability to collect
our receivables and could subject us to increased costs, fines and penalties.

We may incur substantial debt from time to time in connection with our
purchase of consumer receivable portfolios which could affect our ability to
obtain additional funds and may increase our vulnerability to economic or
business downturns.

We may incur substantial indebtedness from time to time in connection with
the purchase of consumer receivable portfolios and would be subject to the
risks associated with incurring such indebtedness, including:

o we would be required to dedicate a portion of our cash flows from
operations to pay debt service costs and, as a result, we would have less
funds available for operations, future acquisitions of consumer
receivable portfolios, and other purposes;

o it may be more difficult and expensive to obtain additional funds through
financings, if available at all;

o we would be more vulnerable to economic downturns and fluctuations in
interest rates, less able to withstand competitive pressures and less
flexible in reacting to changes in our industry and general economic
conditions; and

o if we defaulted under any of our existing credit facilities or if our
creditors demanded payment of a portion or all of our indebtedness, we
may not have sufficient funds to make such payments.

We have pledged substantially all of our assets to secure our borrowings and
are subject to covenants that may restrict our ability to operate our
business.

Any indebtedness that we incur under our existing line of credit will be
secured by substantially all of our assets. If we default under the
indebtedness secured by our assets, those assets would be available to the
secured creditor to satisfy our obligations to the secured creditor. In
addition, our credit facilities impose certain restrictive covenants,
including financial covenants. Failure to satisfy any of these covenants could
result in all or any of the following:

o acceleration of the payment of our outstanding indebtedness;

o cross defaults to and acceleration of the payment under other financing
arrangements;

o our inability to borrow additional amounts under our existing financing
arrangements; and

o our inability to secure financing on favorable terms or at all from
alternative sources.

Any of these consequences could adversely affect our ability to acquire
consumer receivable portfolios and operate our business.

Class action suits and other litigation in our industry could divert our
management's attention from operating our business and increase our expenses.

Certain originators and servicers in the consumer credit industry have been
subject to class actions and other litigation. Claims include failure to
comply with applicable laws and regulations and improper or deceptive
origination and servicing practices. If we become a party to such class action
suits or other litigation, our results of operations and financial condition
could be materially adversely affected.

We may seek to make acquisitions that prove unsuccessful or strain or divert
our resources.

We may seek to grow Asta through acquisitions of related businesses. Such
acquisitions present risks that could materially adversely affect our business
and financial performance, including:

o the diversion of our management's attention from our everyday business
activities;

o the assimilation of the operations and personnel of the acquired
business;

o the contingent and latent risks associated with the past operations of,
and other unanticipated problems arising in, the acquired business; and

o the need to expand management, administration and operational systems.

If we make such acquisitions we cannot predict whether:

o we will be able to successfully integrate the operations of any new
businesses into our business;

o we will realize any anticipated benefits of completed acquisitions; or

o there will be substantial unanticipated costs associated with
acquisitions.

In addition, future acquisitions by us may result in:

o potentially dilutive issuances of our equity securities;

o the incurrence of additional debt; and

o the recognition of significant charges for depreciation and amortization
related to goodwill and other intangible assets.

Although we have no present plans or intentions, we continuously evaluate
potential acquisitions of related businesses. However, we have not reached any
agreement or arrangement with respect to any particular acquisition and we may
not be able to complete any acquisitions on favorable terms or at all.

Our investments in other businesses and entry into new business ventures may
adversely affect our operations.

We have and may continue to make investments in companies or commence
operations in businesses and industries that are not identical to those with
which we have historically been successful. If these investments or
arrangements are not successful, our earnings could be materially adversely
affected by increased expenses and decreased revenues.

If our technology and phone systems are not operational, our operations could
be disrupted and our ability to successfully acquire receivable portfolios
could be adversely affected.

Our success depends in part on sophisticated telecommunications and computer
systems. The temporary loss of our computer and telecommunications systems,
through casualty, operating malfunction or service provider failure, could
disrupt our operations. In addition, we must record and process significant
amounts of data quickly and accurately to properly bid on prospective
acquisitions of receivable portfolios and to access, maintain and expand the
databases we use for our collection or monitoring activities. Any failure of
our information systems and their backup systems would interrupt our
operations. We may not have adequate backup arrangements for all of our
operations and we may incur significant losses if an outage occurs. In
addition, we rely on third-party servicers who also may be adversely affected
in the event of an outage in which the third-party servicer does not have
adequate backup arrangements. Any interruption in our operations or our third-
party servicers' operations could have an adverse effect on our results of
operations and financial condition.

Our organizational documents and Delaware law may make it harder for us to be
acquired without the consent and cooperation of our board of directors and
management.

Several provisions of our organizational documents and Delaware law may
deter or prevent a takeover attempt, including a takeover attempt in which the
potential purchaser offers to pay a per share price greater than the current
market price of our common stock. Under the terms of our certificate of
incorporation, our board of directors has the authority, without further
action by the stockholders, to issue shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof. The ability to issue shares of preferred stock could tend to
discourage takeover or acquisition proposals not supported by our current
board of directors. In addition, we are subject to Section 203 of the Delaware
General Corporation Law, which restricts business combinations with some
stockholders once the stockholder acquires 15% or more of our common stock.

Future sales of our common stock may depress our stock price.

Sales of a substantial number of shares of our common stock in the public
market could cause a decrease in the market price of our common stock. We had
approximately 4,114,130 shares of common stock issued and outstanding as of
June 6, 2003. Of these shares, 2,655,014 are held by our affiliates and are
saleable under Rule 144 of the Securities Act of 1933, as amended. The
remainder of our outstanding shares were freely tradeable as of June 6, 2003.
In addition, options to purchase approximately 620,833 shares of our common
stock were outstanding as of June 6, 2003. As of June 6, 2003, 410,667 of
those stock options were vested and the exercise prices of such options were
substantially lower than the current market price of our common stock. The
remainder of such options will vest over the next three years. We may also
issue additional shares in connection with our business and may grant
additional stock options to our employees, officers, directors and consultants
under our stock option plans or warrants to third parties. If a significant
portion of these shares were sold in the public market, the market value of
our common stock could be adversely affected.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements typically are identified by use of terms such
as "may," "will," "should," "plan," "expect," "believe," "anticipate,"
"estimate" and similar expressions, although some forward-looking statements
are expressed differently. Forward-looking statements represent our
management's judgment regarding future events. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
can give no assurance that such expectations will prove to be correct. All
statements other than statements of historical fact included in this
prospectus regarding our financial position, business strategy, markets,
plans, or objectives for future operations are forward-looking statements. We
cannot guarantee the accuracy of the forward-looking statements, and you
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including the statements under "Risk Factors" set forth above.

USE OF PROCEEDS

The net proceeds to us from the sale of the shares of common stock offered
by us under this prospectus after deducting the underwriting discount and
estimated offering expense are estimated to be approximately $49.1 million, or
approximately $58.0 million if the underwriters' over-allotment option is
exercised in full, assuming a public offering price of $25.42 per share, the
closing price of our common stock on The Nasdaq National Market on June 10,
2003. We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders.

We intend to use the net proceeds for the acquisition of consumer receivable
portfolios, working capital and general corporate purposes. Although we have
no present plans or intentions, we may use a portion of the net proceeds to
acquire or invest in complementary businesses.

Pending such uses, we plan to invest the net proceeds of this offering in
short term, investment grade, interest-bearing securities.

PRICE RANGE OF OUR COMMON STOCK

Our common stock is quoted on The Nasdaq National Market under the symbol
"ASFI." On June 10, 2003, the last reported closing sale price of our common
stock as reported on The Nasdaq National Market was $25.42 per share. On May
28, 2003, there were approximately 27 holders of record of our common stock.
High and low closing sales prices of our common stock since October 1, 2000,
as reported on The Nasdaq National Market are set forth below (such quotations
reflect inter-dealer prices without retail markup, markdown, or commission,
and may not necessarily represent actual transactions):

High Low
---- ---
Fiscal Year Ended September 30, 2001:
-------------------------------------
October 1, 2000 to December 31, 2000 ....................... $ 6.75 $ 4.06
January 1, 2001 to March 31, 2001 .......................... 6.94 4.00
April 1, 2001 to June 30, 2001 ............................. 10.49 4.62
July 1, 2001 to September 30, 2001 ......................... 12.30 7.35

Fiscal Year Ended September 30, 2002:
-------------------------------------
October 1, 2001 to December 31, 2001 ....................... $15.25 $ 9.00
January 1, 2002 to March 31, 2002 .......................... 19.82 12.94
April 1, 2002 to June 30, 2002 ............................. 18.32 12.17
July 1, 2002 to September 30, 2002 ......................... 13.44 9.00

Fiscal Year Ending September 30, 2003:
--------------------------------------
October 1, 2002 to December 31, 2002 ....................... $12.37 $ 8.99
January 1, 2003 to March 31, 2003 .......................... 17.21 10.58
April 1, 2003 to June 10, 2003 ............................. 25.42 17.00

DIVIDEND POLICY

We have never paid a cash dividend on our common stock and do not expect to
pay a cash dividend in the near future. We currently intend to retain future
earnings, if any, to finance our operations and expand our business. Any
future determination to pay cash dividends will be at the discretion of the
board of directors and will depend upon our financial condition, operating
results, capital requirements and any other factors the board of directors
deems relevant. In addition, our agreements with our lenders may, from time to
time, restrict our ability to pay dividends.

CAPITALIZATION

The table below sets forth as of March 31, 2003:

o our actual capitalization; and

o our capitalization, as adjusted to reflect our receipt of the estimated
net proceeds from the sale of 2,100,000 shares of our common stock
offered in this offering by us at an assumed public offering price of
$25.42 per share, the closing price of our common stock on The Nasdaq
National Market on June 10, 2003, and after deducting the estimated
underwriting discounts and offering expenses. See "Use of Proceeds."

Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes to our
consolidated financial statements included in this prospectus.

March 31, 2003
----------------------------
Actual (l) As Adjusted (2)
---------- ---------------
(in thousands)

Cash and cash equivalents ...................... $14,927 $64,022
======= =======
Debt(3) ........................................ 1,790 1,790
------- -------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized, none issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 4,088,000 shares issued and
outstanding, actual and 6,214,130 shares
issued and outstanding, as adjusted........... 41 62
Additional paid-in capital .................... 10,308 59,382
Retained earnings ............................. 28,014 28,014
------- -------
Total stockholders' equity ..................... 38,363 87,458
------- -------
Total capitalization ........................... $40,153 $89,248
======= =======

---------------
(1) Excludes 620,833 shares of our common stock issuable upon exercise of
outstanding options to purchase shares of our common stock with an
average exercise price of $6.50 per share.
(2) Includes 2,100,000 shares of our common stock to be sold by us in this
offering.
Excludes 620,833 shares of our common stock issuable upon exercise of
outstanding options to purchase shares of our common stock with an
average exercise price of $6.50 per share.
(3) As of March 31, 2003, approximately $1.8 million was outstanding under
our $25 million line of credit; such amount has been paid in full as of
the date of this prospectus.

SELECTED CONSOLIDATED FINANCIAL DATA

Set forth below is selected consolidated financial data as of and for the
five fiscal years ended September 30, 2002, and for the six-month periods
ended March 31, 2002 and 2003. The following selected consolidated financial
data for the five fiscal years ended September 30, 2002, are derived from our
consolidated financial data that have been audited by Eisner LLP. The selected
consolidated financial data for the six-month periods ended March 31, 2002 and
2003, are derived from our unaudited interim consolidated financial statements
and include all adjustments, consisting of only normal recurring accruals,
which our management considers necessary for the fair presentation of our
financial position and results of operations for these periods. You should
read the information that we have presented below in conjunction with our
consolidated financial statements, related notes and other financial
information included elsewhere in this prospectus. See "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Six Months
Year Ended September 30, Ended March 31,
------------------------------------------------- -----------------
1998(1) 1999 2000 2001 2002 2002 2003
(in thousands, except per share data)

Operations Statement Data:
Finance income........................................... $ 4,933 $11,363 $18,040 $24,100 $35,793 $18,688 $14,471
Servicing fee income..................................... 50 240 70 14 219 96 --
------- ------- ------- ------- ------- ------- -------
Total revenue......................................... 4,983 11,603 18,110 24,114 36,012 18,784 14,471
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
General and administrative.............................. 3,236 3,094 4,091 5,653 6,698 3,330 3,362
Third-party servicing................................... -- -- -- 2,757 7,433 4,722 3,176
Interest expense........................................ 764 3,634 410 920 3,643 2,095 13
Provision for credit losses............................. 4,567 1,688 3,954 450 950 400 --
------- ------- ------- ------- ------- ------- -------
Total Expenses........................................ 8,567 8,416 8,455 9,780 18,724 10,547 6,551
------- ------- ------- ------- ------- ------- -------
Income (loss) before provisions for income taxes......... (3,584) 3,187 9,655 14,334 17,288 8,237 7,920
Provision (benefit) for income taxes..................... (1,044) 454 3,825 5,743 6,905 3,307 3,179
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................................... $(2,540) $ 2,733 $ 5,830 $ 8,591 $10,383 $ 4,930 $ 4,741
======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per share........................ $ (0.64) $ 0.69 $ 1.48 $ 2.16 $ 2.57 $ 1.23 $ 1.16
======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per share...................... $ (0.64) $ 0.69 $ 1.43 $ 2.06 $ 2.38 $ 1.12 $ 1.08
======= ======= ======= ======= ======= ======= =======

As of March 31, 2003
------------------------
Actual As Adjusted(2)
------- --------------

---------------

(3) As of March 31, 2003, approximately $1.8 million was outstanding under our
$25 million line of credit; such amount has been paid in full as of the
date of this prospectus.

Six Months
Year Ended September 30, Ended March 31,
------------------------------------------ -------------------
1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- --------
(in millions)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of our operations and financial condition should be
read in conjunction with our financial statements and notes thereto included
elsewhere in this prospectus. In these discussions, most percentages and
dollar amounts have been rounded to aid presentation. As a result, all such
figures are approximations.

Overview

We acquire, manage, collect and service portfolios of consumer receivables.
These portfolios generally consist of one or more of the following types of
consumer receivables:

o charged-off receivables -- accounts that have been written-off by the
originators and may have been previously serviced by collection agencies;

o semi-performing receivables -- accounts where the debtor is making
partial or irregular monthly payments, but the accounts may have been
written-off by the originators; and

o performing receivables -- accounts where the debtor is making regular
monthly payments that may or may not have been delinquent in the past.

We acquire these consumer receivable portfolios at a significant discount to
the amount actually owed by the borrowers. We acquire these portfolios after a
qualitative and quantitative analysis of the underlying receivables and
calculate the purchase price so that our estimated cash flow offers us an
adequate return on our acquisition costs and servicing expenses. After
purchasing a portfolio, we actively monitor its performance and review and
adjust our collection and servicing strategies accordingly.

Critical Accounting Policy

We account for our investments in consumer receivable portfolios, using
either the interest method or the cost recovery method.

Generally, each purchase is considered a separate portfolio of receivables
and is considered a financial investment. Based upon the expected performance
characteristics of the receivables in the portfolio, we determine whether the
portfolio should be accounted for using the interest method or the cost
recovery method. If we can reasonably estimate the amount to be collected on a
portfolio and can reasonably determine the timing of such payments based on
historic experience and other factors, we use the interest method. If we
cannot reasonably estimate the future cash flows, we use the cost recovery
method.

If the interest method is used in recognizing income on a portfolio, it is
done so in accordance with the AICPA's Practice Bulletin 6, "Amortization of
Discounts on Certain Acquired Loans." Practice Bulletin 6 requires that the
accrual basis of accounting be used at the time the amount and timing of cash
flows from an acquired portfolio can be reasonably estimated and collection is
probable. The interest method allows us to recognize income on the effective
yield of such portfolio based on the actual cash collected during a period and
future estimated cash flows and the timing of such collections and the
purchase of such portfolios. Under this method, we periodically apply a
portion of the actual funds collected as a reduction in the principal amount
invested in each specific portfolio and the remainder is recognized as finance
income. Generally, these portfolios are expected to amortize over a three to
five year period based upon our estimated future cash flows. Historically, a
majority of the cash we ultimately collect on a portfolio is received during
the first 18 months after acquiring the portfolio, although additional amounts
are collected over the remaining period. The estimated future cash flows of
the portfolios are reevaluated quarterly.

Under the cost recovery method of accounting, no income is recognized until
the purchase price of a portfolio has been fully recovered by us.

We periodically review our receivable portfolios for impairment based on the
estimated future cash flows. Provisions for losses are charged to operations
when it is determined that the remaining investment in

the receivable portfolio is greater than the estimated future collections. We
have not recorded any impairment charges on our consumer receivable
portfolios.

Based on increases in actual cash flows for the six months ended March 31,
2003, and projected future cash flows through September 30, 2005, on one of
our portfolios as compared to what we estimated at September 30, 2002, we
revised our estimate of future collections. Such change in accounting estimate
has resulted in approximately a $1.4 million increase in finance income
recognized for the six months ended March 31, 2003 for this portfolio.

We typically recognize finance income net of collection fees paid to third-
party collection agencies. With respect to several recent purchases of
consumer receivable portfolios containing a significant amount of performing
and semi-performing accounts, we recognize finance income on accounts that
were being serviced by third-party servicers at the gross amounts received by
the servicers. The servicing costs for these portfolios are reported as an
expense on our income statement. In addition, with respect to specific
consumer receivable portfolios we acquired, we agreed to a fifty percent
profit sharing arrangement with our lender. However, the interest in this
profit sharing arrangement held by our lender was sold to us and a third-party
in equal amounts in December 2001. The third-party profit allocation is
recorded as interest expense over the estimated term of the related note
payable.

Results of Operations

Six Months Ended March 31, 2003 Compared to the Six Months Ended March 31,
2002

Revenues. During the six-month period ended March 31, 2003, finance income
decreased $4.2 million, or 22.5%, to $14.5 million from $18.7 million for the
six-month period ended March 31, 2002. The decrease in finance income was
primarily due to a decrease in finance income earned on consumer receivables
acquired for liquidation, which resulted from a decrease in the average
outstanding accounts acquired for liquidation during the six months ended
March 31, 2003, as compared to the same prior year period. In addition, the
sale of most of the factored receivables on November 25, 2002, resulted in a
decrease in finance income earned on these receivables during the six months
ended March 31, 2003, as compared to the six months ended March 31, 2002.
Based on increases in actual cash flows for the six months ended March 31,
2003, and projected future cash flows through September 30, 2005, on one of
our portfolios as compared to what we estimated at September 30, 2002, we
revised our estimate of future collections. Such change in accounting estimate
has resulted in approximately a $1.4 million increase in finance income
recognized for the six months ended March 31, 2003, for this portfolio.

General and Administrative Expenses. During the six-month period ended
March 31, 2003, general and administrative expenses increased nominally, or
less than 1.0%, to $3.4 million from $3.3 million for the six months ended
March 31, 2002, and represented 51.3% of total expenses for the six months
ended March 31, 2003. The increase in general and administrative expenses was
primarily due to an increase in servicing expenses which was partially offset
by a decrease in factoring expenses during the six-month period ended March 31,
2003, as compared to the same prior year period. The increase in servicing
expenses resulted from the operating costs of our call center that was
acquired in December 2002. The decrease in factoring expenses resulted from
the sale of most of the factored receivables on November 25, 2002, and a
reduction of some factoring receivable employees prior to the sale date.

Third-Party Servicing Expenses. During the six-month period ended March 31,
2003, third-party servicing expenses decreased $1.5 million, or 31.9%, to
$3.2 million from $4.7 million for the six months ended March 31, 2002, and
represented 48.5% of total expenses for the six months ended March 31, 2003.
The decrease in third-party servicing expenses was primarily due to a
reduction in the number of accounts being serviced on a portfolio that was
purchased in August 2001 and the elimination of recording of third-

party servicing expenses on a specific portfolio during the six months ended
March 31, 2003, as compared to the same prior year period.

Interest Expense. During the six-month period ended March 31, 2003,
interest expense decreased $2.1 million, or 100.0%, to almost no interest
expense from $2.1 million compared to the same period in the prior year and
represented 0.2% of total expenses for the six-month period ended March 31,
2003. The decrease was due to a decrease in the outstanding borrowings by us
under our lines of credit and notes payable and the discontinued accrual of
interest expense that was due to a profit participation on a specific
portfolio during the six-month period ended March 31, 2003, as compared to the
same period in the prior year. The decrease in borrowings was due to the
decrease in acquisitions of consumer receivables acquired for liquidation
during the fourth quarter of the fiscal year ended September 30, 2002, and the
six-month period ended March 31, 2003, as compared to the same prior year
periods.

Provision for Credit Losses. During the six-month period ended March 31,
2003, the provision for credit losses decreased $0.4 million, or 100.0%, to
zero from $0.4 million for the six months ended March 31, 2002, and
represented 0.0% of total expenses. The decrease was due to a decrease in the
provision for credit losses on our finance receivables during the six months
ended March 31, 2003, as compared to the same prior year period.

Year Ended September 30, 2002 Compared to the Year Ended September 30, 2001

Revenues. During the year ended September 30, 2002, finance income
increased $11.7 million, or 48.5%, to $35.8 million from $24.1 million for the
year ended September 30, 2001. The increase in finance income was primarily
due to an increase in collections on consumer receivables acquired for
liquidation, which resulted from an increase in the average outstanding
accounts acquired for liquidation during the year ended September 30, 2002, as
compared to September 30, 2001. The increase in other income resulted from a
fee earned on the sale of certain receivables and the receipt of a break-up
fee on an unsuccessful purchase of consumer receivables during the year ended
September 30, 2002, which was offset by a decrease in servicing fee income
which was due to a decrease in the dollar amount of contracts being serviced
as a result of the continuing decline in automobile contracts being serviced
for others.

General and Administrative Expenses. During the year ended September 30,
2002, general and administrative expenses increased $1.0 million, or 17.5%, to
$6.7 million from $5.7 million for the year ended September 30, 2001, and
represented 35.8% of total expenses for the year ended September 30, 2002. The
increase in general and administrative expenses was primarily due to an
increase in salaries and other costs associated with an increase in consumer
receivables that were purchased during the fiscal year ended September 30,
2001, and were being serviced internally by us during the entire year ended
September 30, 2002, as compared to the same prior year period and a $252,000
consulting fee expense during the year ended September 30, 2002, that was not
incurred during the same prior year period. This increase in servicing costs
on consumer receivables acquired for liquidation was partially offset by a
decrease in servicing costs related to servicing automobile contracts for the
year ended September 30, 2002, as compared to the same prior year period.

Third-Party Servicing Expenses. During the year ended September 30, 2002,
third-party servicing expenses increased $4.6 million, or 164.3%, to
$7.4 million from $2.8 million for the year ended September 30, 2002, and
represented 39.6% of total expenses for the year ended September 30, 2002. The
increase in third-party servicing expenses was primarily due to servicing
costs on consumer receivables that were serviced by others during the entire
year ended September 30, 2002, and that were not being serviced during the
same prior year period.

Interest Expense. During the year ended September 30, 2002, interest
expense increased $2.7 million, or 300.0%, to $3.6 million from $0.9 million
for the year ended September 30, 2002, and represented 19.3% of total expenses
for the year ended September 30, 2002. The increase was partially due to an
increase in the outstanding borrowings under our lines of credit and notes
payable during the year ended September 30, 2002, as compared to the prior
year. The increase in borrowings was partially due to the increase in
acquisitions of consumer receivables acquired for liquidation during the
fiscal year ended September 30, 2001. In addition, a substantial portion of
the increase was due to a lender profit participation that was

accrued on a certain portfolio during the entire year ended September 30,
2002, that was only outstanding for one month in the prior fiscal year and was
included in interest expense.

Provision for Credit Losses. During the year ended September 30, 2002, the
provision for credit losses increased $500,000, or 111.1%, to $950,000 from
$450,000 for the year ended September 30, 2002, and represented 5.3% of total
expenses for the year ended September 30, 2002. The increase was due to an
increase in the provision for financed receivables during the year ended
September 30, 2002, as compared to the prior year.

Net income. During the year ended September 30, 2002, net income increased
$1.8 million, or 20.9%, to $10.4 million from $8.6 million for the year ended
September 30, 2001. During the year ended September 30, 2002, net income per
share increased $0.32 per share (diluted) or 15.5% to $2.38 per share
(diluted) from $2.06 per share (diluted) for the year ended September 30,
2001. The increase in earnings per share was less than the increase in net
income as a result of a higher weighted average number of shares outstanding
(diluted) compared to the prior period.

Year Ended September 30, 2001 Compared to the Year Ended September 30, 2000

Revenues. During the year ended September 30, 2001, revenues, which
consisted almost entirely of finance income, increased $6.0 million, or 33.1%,
to $24.1 million from $18.1 million for the year ended September 30, 2000. The
increase in finance income was primarily due to an increase in collections on
consumer receivables acquired for liquidation that were purchased in January
2001, partially offset by a reduction of $873,000 in interest income due to
lower balances of automobile loan receivables. During the year ended
September 30, 2001, we paid $65.1 million for our acquisition of portfolios
acquired for liquidation, compared to $1.4 million in the year ended
September 30, 2000. Servicing fee income on contracts from automobile loans
receivables sold decreased $56,000, or 80.0%, during the year ended
September 30, 2001, to $14,000 from $70,000 for the year ended September 30,
2000, due to the continuing decline in automobile loans serviced for others.
The decrease in servicing fee income was due to the substantial decrease of
previously sold automobile loans serviced by us during the year ended
September 30, 2001, as compared to the prior year.

General and Administrative Expenses. During the year ended September 30,
2001, general and administrative expenses increased $1.6 million, or 39.0%, to
$5.7 million from $4.1 million for the year ended September 30, 2000, and
represented 57.8% of total expenses. The increase in general and
administrative expenses was primarily attributable to an increase in our
internal servicing expenses associated with the increase in portfolios
acquired during the year ended September 30, 2001, being serviced by our staff
as compared to the prior year, partially offset by decreased expenses
associated with servicing automobile loan receivables.

Third-Party Servicing Expenses. During the year ended September 30, 2001,
third-party servicing expenses increased to $2.8 million and represented 28.2%
of total expenses for the year ended September 30, 2001. We did not incur any
third-party servicing expenses during the year ended September 30, 2000. The
increase in third-party servicing expenses was due to servicing costs on
consumer receivables that were purchased during the fiscal year ended
September 30, 2001, and were not being serviced during the prior year.

Interest Expense. During the year ended September 30, 2001, interest
expense increased by $510,000, or 124.4%, to $920,000 from $410,000 for the
year ended September 30, 2000, and represented 9.4% of total expenses. The
increase resulted from an increase in borrowings by us that were used for
portfolio acquisitions during the year ended September 30, 2001, as compared
to the year ended September 30, 2000. At September 30, 2001, we had
$29.7 million in borrowings outstanding as compared to no borrowings
outstanding at September 30, 2000. In addition, the increase was due to a
profit participation that was accrued on a portfolio during the year ended
September 30, 2001, that was not being serviced during the prior year and is
included in interest expense.

Provision for Credit Losses. During the year ended September 30, 2001, the
provision for credit and other losses decreased by $3.5 million, or 87.5%, to
$450,000 from $4.0 million for the year ended

September 30, 2000, and represented 4.6% of total expenses. The decrease was
primarily due to our reserving $2.3 million against our investment in Small
Business Resources, Inc., a company in the business of marketing small
business products over the internet, and $1.0 million for potential
obligations of consumer receivables that have been previously sold during the
year ended September 30, 2000, as compared to our reserving $250,000 for the
investment in SBR and not adding any additional reserves on previously sold
receivables during the year ended September 30, 2001. We have no intention of
making any additional investment in SBR.

Net income. During the year ended September 30, 2001, net income increased
$2.8 million, or 48.3%, to $8.6 million from $5.8 million for the year ended
September 30, 2000. During the year ended September 30, 2001, net income per
share increased $0.63 per share (diluted) or 44.1% to $2.06 per share
(diluted) from $1.43 per share (diluted) for the year ended September 30,
2000. The income in earnings per share was less than the increase in net
income as a result of a higher weighted average number of shares outstanding
(diluted) compared to the prior period.

Liquidity and Capital Resources

As of March 31, 2003, we had cash and cash equivalents of $14.9 million
compared to $2.2 million at September 30, 2002. The increase in cash and cash
equivalents during the six-month period ended March 31, 2003, was primarily
due to a decrease in the repayment of debt, a reduction in consumer receivable
purchases and the sale of most of our factoring receivables in November 2002.
Our primary sources of cash from operations include payments on the receivable
portfolios that we have acquired. Our primary uses of cash include our
purchases of consumer receivable portfolios. We rely significantly upon our
lenders and others, including our affiliates, to provide the funds necessary
for the purchase of consumer and commercial accounts receivable portfolios.
While we maintain a $25 million line of credit for portfolio purchases, we
also may arrange financing on a transactional basis. While we have
historically been able to finance these purchases, we do not have committed
loan facilities, other than our $25 million line of credit with a financial
institution. As of March 31, 2003, we had outstanding borrowing of $1.8 million
under this facility, all of which has been repaid since March 31, 2003.

The following table shows the changes in finance receivables, including
amounts paid to acquire new portfolios:

Six Months
Year Ended September 30, Ended March 31,
----------------------------------------- ---------------
1999 2000 2001 2002 2002 2003
------ ------ ------------- ------ ------ ------
(in millions)

Balance at beginning of period ...................... $ 0.9 $ 16.5 $ 4.4 $ 43.8 $ 43.8 $ 36.1
Acquisitions of finance receivables,
net of buybacks.................................... 55.5 1.5 65.1 36.6 17.0 4.4
Cash collections, including
sales, applied to principal (1).................... (39.6) (13.3) (25.7) (44.3) (23.0) (13.8)
Portfolio writedown ................................. (0.3) (0.3) -- -- -- --
------ ------ ------ ------ ------ ------
Balance at end of period ............................ $ 16.5 $ 4.4 $ 43.8 $ 36.1 $ 37.8 $ 26.7
====== ====== ====== ====== ====== ======

---------------
(1) Cash collections applied to principal consists of cash collections less
income recognized on finance receivables plus amounts received by us from
the sale of consumer receivable portfolios to third parties.

Net cash provided by operating activities was $14.9 million during the year
ended September 30, 2002, compared to $6.1 million during the year ended
September 30, 2001. The increase was primarily due to an increase in income
taxes payable, other liabilities and net income at September 30, 2002,
compared to the same period in the prior year. Net cash provided by operating
activities was $2.6 million during the six months ended March 31, 2003,
compared to net cash provided by operating activities of $5.8 million during
the six months ended March 31, 2002. The decrease in net cash provided by
operating activities was primarily due to a decrease in other liabilities and
income taxes payable during the six months ended March 31, 2003, as compared
to the same period in the prior year.

Net cash provided by investing activities was $8.9 million during the year
ended September 30, 2002, compared to net cash used in investing activities of
$39.9 million during the year ended September 30, 2001. The increase in cash
from investing activities was primarily due to a decrease in purchases of
consumer receivables acquired for liquidation which was offset by an increase
in collections during the year ended September 30, 2002, compared to the prior
year. Net cash provided by investing activities was $10.4 million during the
six months ended March 31, 2003, compared to net cash provided by investing
activities of $6.3 million during the six months ended March 31, 2002. The
increase in net cash provided by investing activities was primarily due to a
decrease in the purchase of accounts acquired for liquidation and the sale of
most of the factoring receivables which was offset by a decrease in
collections of consumer receivables acquired for liquidation during the six
months ended March 31, 2003, compared to the same period in the prior year.

Net cash used in financing activities was $27.3 million during the year
ended September 30, 2002, compared to net cash provided by financing
activities of $29.0 million for the prior year. The increase in net cash used
in financing was primarily due to a substantial increase in debt payments
during the year ended September 30, 2002, as compared to the prior year. The
increase in debt payments was due to an increase in principal collections that
was used to repay debt on accounts acquired for liquidation during the year
ended September 30, 2002, as compared to the year ended September 30, 2001.
Net cash used in financing activities was $0.3 million during the six months
ended March 31, 2003, compared to net cash used of $12.9 million during the
six months ended March 31, 2002. The decrease in net cash used in financing
activities was primarily due to an overall decrease in debt payments which was
partially offset by a decrease in borrowings during the six months ended
March 31, 2003, compared to the same prior year period. The decrease in debt
payments was due to an increase in principal collections that was used to
repay debt on accounts acquired for liquidation during the six months ended
March 31, 2003, as compared to the six months ended March 31, 2002. The
decrease in borrowings was due to a decrease in purchases of accounts acquired
for liquidation during the six months ended March 31, 2003, as compared to the
same prior year period.

We have a $25 million line of credit with a bank with interest at the prime
rate that was 4.25% at March 31, 2003. The advances under this credit line are
collateralized by portfolios of consumer receivables acquired for liquidation,
and the loan agreement contains customary financial and operating covenants
that must be maintained in order for us to borrow funds. This line expires on
January 31, 2004. As of March 31, 2003, there was approximately $1.8 million
outstanding under this line of credit and we were in compliance with all of
the covenants under this line of credit.

In August 2001, an investment banking firm provided approximately
$29.9 million of financing in exchange for a note with interest at LIBOR plus
2% and the right to receive 50% of subsequent collections, net of expenses,
from the portfolio collateralizing the obligation, once the note and advances
by one of our subsidiaries have been repaid. In December 2001, we purchased
one-half of this right to receive subsequent collections for $1.5 million and
a third party purchased the other one-half for $1.5 million. The 25%
participation due a third party has been accrued and is included in other
liabilities. As of December 31, 2002, this note was paid in full.

In January 2002, we purchased a 35% interest in a consumer receivable
portfolio and financed the entire purchase price of $1.6 million through a
note to the seller. The note bears interest at 15%. The outstanding balance
was payable from the cash flows of a specific portfolio. This note was paid in
full in September 2002.

Our cash requirements have been and will continue to be significant. We
depend on external financing to acquire consumer receivables. During the six
months ended March 31, 2003, we acquired consumer portfolios at a cost of
approximately $4.4 million. These acquisitions were financed with our cash on
hand and borrowings under our existing line of credit.

We anticipate that the net proceeds to us from this offering, funds
available under our current credit facility as well as funds that may be made
available by Asta Group, Incorporated, an affiliate of ours, and cash from
operations will be sufficient to satisfy our estimated cash requirements for
at least the next 12 months. If for any reason our available cash otherwise
proves to be insufficient to fund operations (because of

future changes in the industry, general economic conditions, unanticipated
increases in expenses, or other factors, including acquisitions), we may be
required to seek additional funding.

Although we have no present plans or intentions, we may consider possible
acquisitions of, or investments in, complementary businesses. Any such
possible acquisitions or investments may be material and may require us to
incur a significant amount of debt or issue a significant amount of equity
securities. Further, any business that we acquire or invest in will likely
have its own capital needs, which may be significant, and which we may be
called upon to satisfy.

Supplementary Information on Consumer Receivables Portfolios

Portfolio Purchases

Six Months
Year Ended Ended
September 30, March 31,
----------------- --------------
2001 2002 2002 2003
------ -------- ------ -----
(in millions)

Aggregate Purchase Price .......................... $ 65.1 $ 36.6 $ 17.0 $ 4.4
Aggregate Portfolio Value ......................... 687.4 1,495.7 384.0 88.1

Schedule of Portfolios by Income Recognition Category

September 30, 2001 September 30, 2002 March 31, 2002 March 31, 2003
----------------------- ----------------------- ----------------------- -----------------------
Cost Interest Cost Interest Cost Interest Cost Interest
Recovery Method Recovery Method Recovery Method Recovery Method
Portfolios Portfolios Portfolios Portfolios Portfolios Portfolios Portfolios Portfolios
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in millions)

Original Purchase
Price (at period end) $ 44.1 $ 78.4 $ 46.6 $ 112.1 $ 45.0 $ 95.0 $ 46.8 $ 116.3
Cumulative Aggregate
Managed Portfolios
(at period end)...... 1,645.8 631.2 1,964.2 1,808.5 1,863.2 799.8 1,997.0 1,863.8
Receivable Carrying
Value (at period end) 3.5 40.3 3.3 32.8 3.0 35.0 2.6 24.1
Finance Income Earned
(for the respective
period).............. 6.1 15.8 6.2 28.1 2.7 15.1 3.4 10.9
Total Cash Flows (for
the respective
period).............. 7.0 40.5 9.0 69.6 4.1 36.9 4.4 23.7

The original purchase price reflects what we paid for the receivables from
1998 through the end of the respective period. The cumulative aggregate
managed portfolio balance is the original aggregate amount owed by the
borrowers at the end of the respective period. We purchase consumer
receivables at substantial discounts from the face amount. We record interest
income on our receivables under either the cost recovery or interest method.
The receivable carrying value represents the current basis in the receivables
after collections and amortization of the original price.

We do not anticipate collecting the majority of the purchased principal
amounts. Accordingly, the difference between the carrying value of the
portfolios and the gross receivables is not indicative of future revenues from
these accounts acquired for liquidation. Since we purchased these accounts at
significant discounts, we anticipate collecting only a portion of the face
amounts.

For the six months ended March 31, 2003, we earned interest income of
$3.4 million under the cost recovery method because we collected $3.4 million
in excess of our purchase price on certain receivable portfolios. In addition,
we earned $10.9 million of interest income under the interest method based on
actuarial computations on certain portfolios based on actual collections
during the period based on what we project to collect in future periods.

The sum of total cash flows of $28.2 million less the sum of total finance
income earned on consumer receivables acquired for liquidation of $14.3
million, is $13.8 million or the principal amortized on

receivables acquired for liquidation as per the statement of cash flows for
the six months ended March 31, 2003.

New Accounting Pronouncements

In April 2002, the FASB issued SFAS Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." SFAS No. 145 rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion No. 30 will now be used to classify those
gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary
because SFAS No. 4 has been rescinded. SFAS No. 145 amends SFAS Statement No.
13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. SFAS No. 145 also makes technical corrections to
existing pronouncements. While those corrections are not substantive in
nature, in some instances, they may change accounting practice. SFAS No. 145
is required to be applied for fiscal years after May 15, 2002. The adoption of
this Statement is not expected to have a material effect on our financial
statements.

In June 2002, the FASB issued SFAS Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. This Statement also established
that fair value is the objective for initial measurement of the liability. The
provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of this Statement is
not expected to have a material effect on our financial statements.

We have adopted the disclosure requirements of SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure" effective December
2002. SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
compensation and also amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the methods of accounting for stock-based employee compensation and the
effect of the method used on reported results. As permitted by SFAS 148 and
SFAS 123, we continue to apply the accounting provisions of Accounting
Principles Board Opinion Number 25, "Accounting for Stock Issued to
Employees," and related interpretations, with regard to the measurement of
compensation cost for options granted under our Stock Option Plans. No
employee compensation expense has been recorded as all options granted had an
exercise price equal to the market value of the underlying common stock on the
date of grant.

OUR BUSINESS

General

We acquire, manage, collect and service portfolios of consumer receivables.
These portfolios generally consist of one or more of the following types of
consumer receivables:

o charged-off receivables -- accounts that have been written-off by the
originators and may have been previously serviced by collection agencies;

o semi-performing receivables -- accounts where the debtor is making
partial or irregular monthly payments, but the accounts may have been
written-off by the originators; and

o performing receivables -- accounts where the debtor is making regular
monthly payments that may or may not have been delinquent in the past.

We purchase receivables from creditors and others through privately
negotiated direct sales and auctions in which sellers of receivables seek bids
from several pre-qualified debt purchasers. These receivables consist
primarily of MasterCard(R), Visa(R), retail installment contracts, secured
asset portfolios and private label credit card accounts. We pursue new
acquisitions of consumer receivable portfolios on an ongoing basis through

o our relationships with industry participants, collection agencies,
investors and our financing sources;

o brokers who specialize in the sale of consumer receivable portfolios; and

o other sources.

If we elect to outsource the servicing of receivables, our senior management
typically determines the appropriate servicer based on the type of receivables
purchased. Once a group of receivables is sent to a third-party servicer our
management actively monitors and reviews the servicer's performance on an
ongoing basis. Based on portfolio performance guidelines, our management
either will move certain receivables from one third-party servicer to another
or to our internal servicing department if it anticipates that this will
result in an increase in collections or it will sell the portfolio. In
December 2002, we acquired a collection center which expanded our internal
collection and servicing capabilities. The collection center currently employs
approximately 40 persons, including senior management who have an average
tenure of nine years at the collection center and has the capacity for more
than 100 employees. We believe that the retention of these employees, as well
as the increased capacity available at the collection center, will better
assist us in monitoring our third-party servicers, while giving us greater
flexibility in the future for servicing in-house a larger percentage of our
consumer receivable portfolios.

We were formed in 1994 as an affiliate of Asta Group, Incorporated, an
entity owned by Arthur Stern, our Chairman of the Board and an Executive Vice
President, Gary Stern, our President and Chief Executive Officer, and other
members of the Stern family, to purchase, at face value, retail installment
sales contracts secured by motor vehicles. We became a public company in
November 1995. In 1999, we decided to capitalize on our management's more than
40 years of experience and expertise in acquiring and managing consumer
receivable portfolios for Asta Group. As a result, we ceased purchasing these
automobile contracts and, with the assistance and financial support of Asta
Group, purchased our first significant consumer receivable portfolio. Since
then, Asta Group ceased acquiring consumer receivable portfolios and,
accordingly, does not compete with us.

Market Overview

The purchasing, servicing and collecting of consumer receivables is a
growing market that is driven by increasing levels of consumer debt,
increasing charge-offs of the underlying receivables by credit originators and
increasing utilization of third-party providers to execute the recovery of
defaulted receivables. According to the U.S. Federal Reserve Board, consumer
credit, which consists of non-real estate related short- and intermediate-term
credit extended to individuals, had grown approximately 37% to $1.7 trillion
on March 31, 2003, from $1.2 trillion on December 31, 1997. According to the
Consumer Bankers Association, the delinquency rate on non-mortgage consumer
obligations reached its highest level in a decade at December 31, 2001, 1.86%,
an approximately 33% increase from its level at December 31, 2000 of 1.40%.
Collections & Credit Risk, an industry publication, estimates that consumer
credit charge-offs during 2001 totaled $60 billion. Meanwhile, according to
the Nilson Report, a credit card industry newsletter, credit originators
outsourced an estimated $135 billion in defaulted consumer receivables for
collection in 2000, nearly double the $73 billion outsourced for collection in
1990.

The accounts receivable management industry services consumer credit
originators including banks, healthcare providers, utilities,
telecommunications providers, consumer finance companies, retail businesses
and auto lenders, among others. We believe that the dollar amount of defaulted
receivables being sold or placed for collection by creditors typically
increases with the level of consumer obligations during periods of relative
economic strength. However, we also believe that although consumer obligations
tend to decline during periods of relative economic weakness, consumer
receivable portfolios continue to remain available for purchase as a result of
an increase in default rates during such periods.

Originators have sought to limit losses on consumer debt accounts by:

o performing recovery through an internal collections staff;

o outsourcing recovery activities to third-party collection agencies; and

o selling their charged-off receivables for cash.

We believe the market for buying consumer receivable portfolios has expanded
due to a steadily increasing volume of delinquent and charged-off consumer
debt coupled with a shift by originators or credit grantors toward selling
those portfolios.

Historically, originators relied on an internal collection staff and, after
a period of time, transferred any delinquent accounts to outside collection
agencies. After attempting to collect these delinquent accounts, originators
typically write-off these receivables as uncollectible. Furthermore, many
originators have realized that by selling these consumer receivables through
bulk sales, they can redirect their personnel and assets to service their
performing receivables and recoup a portion of the receivables that have been
deemed uncollectible and written-off. From the originators' perspective,
selling consumer receivable portfolios prior to or after write-off yields
immediate cash proceeds and represents a substantial reduction in the time
period and expense typically required for traditional collection and recovery
efforts.

These consumer receivable portfolios are sold at substantial discounts to
the balances owed on the receivables, with the purchase price varying
depending on the amount that both the purchaser and seller anticipate
recovering and the costs associated with recovering these receivables. Some
originators pursue an

auction type approach to selling receivables portfolios and seek bids from
competing industry parties. Other originators sell receivable portfolios in
privately negotiated, direct sales or through private brokered sales.

Strategy

Our primary objective is to utilize our management's experience and
expertise to grow our business by identifying, evaluating, pricing and
acquiring consumer receivable portfolios and maximizing collections of such
receivables in a cost efficient manner. Our strategy includes:

Managing the collection and servicing of our consumer receivable
portfolios. We seek to maximize collection of our receivables while
minimizing the costs associated with such collections. As a result, we have
developed strategic relationships with third-party servicers and will
continue to outsource a majority of our collections and servicing. This has
enabled us, and we believe will continue to enable us, to successfully
maintain relatively low fixed overhead costs. In addition, we will continue
to utilize our internal staff to oversee the collection and servicing
activities of our third-party servicers as well as collect and service
selected portfolios ourselves if we believe that such servicing by us would
achieve our goals. In order to facilitate those functions, we acquired a
collection center in December 2002 that currently employs approximately 40
employees with capacity for more than 100 employees. This facility expands
our internal collection and servicing activities on selected portfolios. We
believe this will allow us to better monitor our third-party servicers while
giving us greater flexibility in the future for servicing our portfolios.

Expanding financial flexibility through increased capital and lines of
credit. Historically, we have depended on external sources, including our
credit facilities, in addition to internally generated cash flows, to
finance our acquisitions of consumer receivable portfolios. In the past, in
order for us to purchase larger portfolios, we obtained additional sources
of funding and have been required to share a portion of the revenues we
received from the collection of receivables with our funding sources. We
believe that the proceeds of this offering will permit us to obtain
increased lines of credit and, coupled with our current cash position and
internally generated cash flows, will allow us to reduce or eliminate the
need to share profits with our lenders and will enable us to acquire larger
portfolios of higher quality receivables.

Capitalizing on our strategic relationships to identify and acquire
consumer receivable portfolios. We have fostered and intend to continue to
foster new relationships with third parties, including our servicers and
financing sources, to assist us in identifying and acquiring additional
consumer receivable portfolios. We believe that these relationships have
given us and will continue to give us a competitive advantage in identifying
and acquiring consumer receivable portfolios that meet our purchase
criteria.

Expanding our business through the purchase of consumer receivables from
new and existing sources. We opportunistically purchase consumer receivable
portfolios that consist of Mastercard(R), Visa(R) and other credit card
accounts. We have capitalized, and will continue to capitalize, on our
experience and expertise to expand the types and sources of receivable
portfolios that we acquire, including retail installment contracts, private
label credit card accounts, secured asset portfolios and other consumer
credit receivables. We acquire consumer receivable portfolios whose face
values range from a few million dollars to over a billion dollars. We
believe that the diversity in the types of consumer receivables that we
pursue provides us with a variety of opportunities for growth.

We believe that as a result of our management's experience and expertise, and
the fragmented market in which we operate, we are well-positioned to
successfully implement our strategy.

Consumer Receivables Business

Receivables Purchase Program

We purchase bulk receivable portfolios that include charged-off receivables,
semi-performing receivables and performing receivables. These receivables
consist primarily of MasterCard(R), Visa(R), retail installment contracts,
secured asset portfolios and private label credit card accounts, among other
types of receivables.

From time to time, we may acquire directly, and indirectly through the
consumer receivable portfolios that we acquire, secured consumer asset
portfolios.

We identify potential portfolio acquisitions on an ongoing basis through:

o our relationships with industry participants, collection agencies,
investors and our financing sources;

o brokers who specialize in the sale of consumer receivable portfolios; and

o other sources.

Historically, the purchase prices of the consumer receivable portfolios that
we have acquired have ranged from $500,000 to more than $50 million. As a part
of our strategy to acquire consumer receivable portfolios, we have from time
to time entered into, and may continue to enter into, joint ventures and
participation and profit sharing agreements with our sources of financing and
our servicers. These arrangements may take the form of a joint bid, shared
ownership of an entity specially formed for a specific portfolio purchase or a
profit-sharing arrangement with a servicer or financing source who assists in
the acquisition of a portfolio and may waive its right to receive a commission
and provide us with more favorable non-recourse financing terms or a
discounted servicing commission.

We utilize our relationships with brokers, servicers and sellers of
portfolios to locate portfolios for purchase. Our senior management is
responsible for:

o coordinating due diligence, including in some cases on-site visits to the
seller's office;

o stratifying and analyzing the portfolio characteristics;

o valuing the portfolio;

o preparing bid proposals;

o negotiating pricing and terms;

o closing the purchase; and

o coordinating the receipt of account documentation for the acquired
portfolios.

The seller or broker typically supplies us with either a sample listing or
the actual portfolio being sold on compact disk, a diskette or other form of
media. We analyze each consumer receivable portfolio to determine if it meets
our purchasing criteria. We may then prepare a bid or negotiate a purchase
price. If a purchase is completed, senior management monitors the portfolio's
performance and uses this information in determining future buying criteria
and pricing.

We purchase receivables at substantial discounts from the balance actually
owed by the consumer. We determine how much to bid on a portfolio and a
purchase price by evaluating many different variables, such as:

o the number of collection agencies previously attempting to collect the
receivables in the portfolio;

o the average balance of the receivables;

o the age of the receivables;

o number of days since charge-off;

o payments made since charge-off; and

o the locations of the debtors.

Once a receivable portfolio has been identified for potential purchase, we
prepare quantitative analyses based on extracting customer level data from
external sources, other than the issuer, to analyze the potential
collectibility of the portfolio. We also analyze the portfolio by comparing it
to similar portfolios previously acquired by us. In addition, we perform
qualitative analyses of other matters affecting the value of portfolios,
including a review of the delinquency, charge off, placement and recovery
policies of the originator as well

as the collection authority granted by the originator to any third party
collection agencies, and, if possible, by reviewing their recovery efforts on
the particular portfolio. After these evaluations are completed, members of
our senior management discuss the findings, decide whether to make the
purchase and finalize the price at which we are willing to purchase the
portfolio.

We purchase most of our consumer receivable portfolios directly from
originators and other sellers including, from time to time, our servicers
through privately negotiated direct sales and through auction type sales in
which sellers of receivables seek bids from several pre-qualified debt
purchasers. In order for us to consider a potential seller as a source of
receivables, a variety of factors are considered. Sellers must demonstrate
that they have:

o adequate internal controls to detect fraud;

o the ability to provide post sale support; and

o the capacity to honor buy-back and return warranty requests.

Generally, our portfolio purchase agreements provide that we can return
certain accounts to the seller. However, in some transactions, we may acquire
a portfolio with few, if any, rights to return accounts to the seller. After
acquiring a portfolio, we conduct a detailed analysis to determine which
accounts in the portfolio should be returned to the seller. Although the terms
of each portfolio purchase agreement differ, examples of accounts that may be
returned to the seller include:

o debts paid prior to the cutoff date;

o debts in which the consumer filed bankruptcy prior to the cutoff date;
and

o debts in which the consumer was deceased prior to cutoff date.

We generally use third-parties to determine bankrupt and deceased accounts,
which allows us to focus our resources on portfolio collections. Under a
typical portfolio purchase agreement, the seller refunds the portion of the
purchase price attributable to the returned accounts or delivers replacement
receivables to us. Occasionally, we will acquire a well seasoned portfolio at
a reduced price from a seller that is unable to meet all of our purchasing
criteria. When we acquire such portfolios, the purchase price is discounted
beyond the typical discounts we receive on the portfolios we purchase that
meet our purchasing criteria.

Receivable Servicing

Therefore, if we are successful in acquiring the portfolios, we can promptly
process the receivables that were purchased and commence the collection
process. Unlike collection agencies that typically have only a specified
period of time to recover a receivable, as the portfolio owners we have
significantly more flexibility in establishing payment programs.

Once a portfolio has been acquired, we or our servicer generally download
all receivable information provided by the seller into an account management
system and reconcile certain information with the information provided by the
seller in the purchase contract. We or our servicers send notification letters
to obligors of each acquired account explaining, among other matters, our new
ownership and asking that the obligor contact us. In addition, we notify
credit bureaus of our new ownership of the receivables.

Our senior management typically determines the appropriate servicer based on
the type of receivables purchased. Once a group of receivables is sent to a
third-party servicer our management actively monitors and reviews the
servicer's performance on an ongoing basis. Our management receives detailed
analyses, including collection activity and portfolio performance, from our
internal servicing departments to assist it in evaluating the results of the
efforts of the third-party servicers. Based on portfolio performance
guidelines,

our management will move certain receivables from one third-party servicer to
another or to our internal servicing department if it anticipates that this
will result in an increase in collections.

We presently outsource the majority of our receivable servicing to third-
party servicers, including OSI and its affiliates. We have entered into
various agreements with OSI under which we have retained OSI to service and
collect a significant portion of our consumer receivables. We have been
informed that OSI and certain of its affiliates filed for a Chapter 11
reorganization on or about May 12, 2003. Based on information we have received
to date, we believe that OSI and its affiliates will continue to operate in
the ordinary course in servicing receivables through its Chapter 11 proceeding
and that the filing by OSI and its affiliates will not have a material adverse
effect on our operations.

In December 2002, we acquired a collection center that currently employs
approximately 40 experienced persons with the capacity for over 100 employees.
This facility expands our internal collection and servicing capabilities,
gives us greater flexibility and control over the servicing of our consumer
receivables portfolios and assists us in monitoring our third-party servicers.

We have four main internal servicing departments:

o collection/skiptrace;

o legal;

o customer service; and

o accounting.

Collection/Skiptrace. The collection/skiptrace department is responsible
for making contact with the obligors and collecting on our consumer receivable
portfolios that are not being serviced by a third-party servicer. This
department uses a friendly, customer service approach to collect on
receivables. Through the use of our collection software and telephone system,
each collector is responsible for:

o contacting customers;

o explaining the benefits of making payment on the obligations; and

o working with the customers to develop acceptable means to satisfy their
obligations.

We and our third-party servicers have the flexibility to structure repayment
plans that accommodate the needs of obligors by:

o offering obligors a discount on the overall obligation; and

o tailoring repayment plans that provide for the payment of these
obligations as a component of the obligor's monthly budget.

We also use a series of collection letters, late payment reminders, and
settlement offers that are sent out at specific intervals or at the request of
a member of our collection department. When the collection department cannot
contact the customer by either telephone or mail, the account is referred to
the skiptrace department.

The skiptrace department is responsible for locating and contacting
customers who could not be contacted by either the collection or legal
departments. The skiptrace employees use a variety of public and private
third-party databases to locate customers. Once a customer is located and
contact is made by a skiptracer, the account is then referred back to the
collection or legal department for follow-up. The skiptrace department is also
responsible for finding current employers and locating assets of obligors when
this information is deemed necessary.

Legal. If the collection department determines that the customer has the
ability to satisfy his obligation but our normal collection activities have
not resulted in any resolution of the customer's obligations, the account is
referred to the legal department, which consists of non-lawyer administrative
staff experienced in collection work. The legal department refers legal case
proceedings to outside counsel. The legal department also refers accounts to
the skiptrace department to obtain a current phone number, address, the
location of

assets of the obligor or the identity of the obligor's employer. In addition,
the legal department communicates with the collection attorneys that we
utilize throughout the country.

Customer Service. The customer service department is responsible for:

o handling incoming calls from debtors and collection agencies that are
responsible for collecting on our consumer receivable portfolios;

o coordinating customer inquiries and assisting the collection agencies in
the collection process;

o handling buy-back and information requests from companies who have
purchased receivables from us;

o working with the buyers during the transition period and post sale
process; and

o handling any issues that may arise once a receivable portfolio has been
sold.

Accounting. The accounting department is responsible for:

o making daily deposits of customer payments;

o posting these payments to the customer's account;

o mailing monthly statements to customers; and

o in conjunction with the customer service department, providing senior
management with weekly and monthly receivable activity and performance
reports.

Accounting employees also assist collection department employees in handling
customer disputes with regard to payment and balance information. The
accounting department also assists the customer service department in the
handling of buy-back requests from companies who have purchased receivables
from us. In addition, the accounting department reviews the results of the
collection of consumer receivable portfolios that are being serviced by third-
party collection agencies.

Portfolio Sales

We may, from time to time, sell certain receivables to other debt buyers to
increase revenue and cash flows. There are many factors that contribute to the
decision of which receivables to sell and which to service, including:

o the age of the receivables;

o the status of the receivables -- whether paying or non-paying; and

o the selling price.

Factoring Business

In March 2000, we formed Asta Commercial, LLC, a wholly owned subsidiary, to
factor commercial invoices. Asta Commercial specialized in providing working
capital to small, growing companies with unique financing needs primarily
secured by accounts receivable.

In order to focus on our core business, acquiring, managing, servicing and
recovering on portfolios of consumer receivables, Asta Commercial sold a
majority of its factored receivables and discontinued factoring new
receivables in November 2002.

Other Activities

In February 2000, we entered into a stock purchase and financing agreement
with Small Business Resources, Inc., ("SBR"), which is in the business of
marketing a variety of products to small businesses over the internet. We
invested a total of $2.5 million in SBR, consisting of a loan of $1.75 million
and an equity investment of $750,000, for a one-third ownership interest
including warrants to purchase shares of common stock of SBR. The investment
was funded from cash provided by operations. As of September 30, 2001, we had
written-off our entire $2.5 million investment.

In April 2002, we entered into a forbearance agreement with SBR in
connection with the loans we provided to SBR. Under the terms of the
forbearance agreement and a warrant agreement, we are entitled to purchase an
additional 5% equity interest in SBR. We have no intention of making any
additional investment in SBR.

Competition

Our businesses of purchasing distressed consumer receivables is highly
competitive and fragmented, and we expect that competition from new and
existing companies will increase. We compete with:

o other purchasers of consumer receivables, including third-party
collection companies; and

o other financial services companies who purchase consumer receivables.

Some of our competitors are larger and more established and may have
substantially greater financial, technological, personnel and other resources
than we have, including access to capital markets. We believe that no
individual competitor or group of competitors has a dominant presence in the
market.

We compete with our competitors for consumer receivable portfolios based on
many factors, including:

o purchase price;

o representations, warranties and indemnities requested;

o speed in making purchase decisions; and

o reputation of the purchaser.

Our strategy is designed to capitalize on the market's lack of a dominant
industry player. We believe that our management's experience and expertise in
identifying, evaluating, pricing and acquiring consumer receivable portfolios
and managing collections coupled with our strategic alliances with third-party
servicers and our sources of financing give us a competitive advantage.
However, we cannot assure that we will be able to compete successfully against
current or future competitors or that competition will not increase in the
future.

Management Information Systems

We believe that a high degree of automation is necessary to enable us to
grow and successfully compete with other finance companies. Accordingly, we
continually upgrade our computer hardware and, when necessary, our software to
support the servicing and recovery of consumer receivables acquired for our
liquidation and factoring businesses. Our telecommunications and computer
systems allow us to quickly and accurately process large amounts of data
necessary to purchase and service consumer receivable portfolios. In addition,
we rely on the information technology of our third-party servicers and
periodically review their systems to ensure that they can adequately service
our consumer receivable portfolios.

Due to our desire to increase productivity through automation, we intend to
periodically review our systems for possible upgrades and enhancements.

Government Regulation

The relationship of a consumer and a creditor is extensively regulated by
federal, state and municipal laws, rules, regulations and ordinances. These
laws include, but are not limited to, the following statutes and regulations
promulgated thereunder: the Federal Truth-In-Lending Act, the Fair Credit
Billing Act, the Equal Opportunity Act and the Fair Credit Reporting Act, as
well as comparable statutes in states where consumers reside and/or where
creditors are located. Among other things, the laws and regulations applicable
to various creditors impose disclosure requirements regarding the
advertisement, application, establishment and operation of credit card
accounts or other types of credit programs. Federal law requires a creditor to
disclose to consumers, among other things, the interest rates, fees, grace
periods and balance calculations methods associated with their accounts. In
addition, consumers are entitled to have payments and credits applied to their
accounts promptly, to receive prescribed notices and to require billing errors
to be resolved promptly. In

addition, some laws prohibit certain discriminatory practices in connection
with the extension of credit. Further, state laws may limit the interest rate
and the fees that a creditor may impose on consumers. Failure by the creditors
to have complied with applicable laws could create claims and rights to offset
by consumers that would reduce or eliminate their obligations, which could
have a material adverse effect on our operations. Pursuant to agreements under
which we purchase receivables, we are typically indemnified against losses
resulting from the failure of the creditor to have complied with applicable
laws relating to the receivables prior to our purchase of such receivables.

Certain laws, including the laws described above, may limit our ability to
collect amounts owing with respect to the receivables regardless of any act or
omission on our part. For example, under the federal Fair Credit Billing Act,
a credit card issuer may be subject to certain claims and defenses arising out
of certain transactions in which a credit card is used if the consumer has
made a good faith attempt to obtain satisfactory resolution of a problem
relative to the transaction and, except in cases where there is a specified
relationship between the person honoring the card and the credit card issuer,
the amount of the initial transaction exceeds $50 and the place where the
initial transaction occurred was in the same state as the consumer's billing
address or within 100 miles of that address. Accordingly, as a purchaser of
defaulted receivables, we may purchase receivables subject to valid defenses
on the part of the consumer. Other laws provide that, in certain instances,
consumers cannot be held liable for, or their liability is limited to $50 with
respect to, charges to the credit card credit account that were a result of an
unauthorized use of the credit card account. No assurances can be given that
certain of the receivables were not established as a result of unauthorized
use of a credit card account, and, accordingly, the amount of such receivables
may not be collectible by us.

Several federal, state and municipal laws, rules, regulations and
ordinances, including, but not limited to, the Federal Fair Debt Collection
Practices Act and the Federal Trade Commission Act and comparable state
statutes regulate consumer debt collection activity. Although, for a variety
of reasons, we may not be specifically subject to the FDCPA and certain state
statutes specifically addressing third-party debt collectors, it is our policy
to comply with applicable laws in our collection activities. Additionally, our
third-party servicers may be subject to these other laws. To the extent that
some or all of these laws apply to our collection activities or our servicers'
collection activities, failure to comply with such laws could have a
materially adverse effect on us.

Additional laws may be enacted that could impose additional restrictions on
the servicing and collection of receivables. Such new laws may adversely
affect the ability to collect the receivables.

Because the receivables were originated and serviced pursuant to a variety
of federal and/or state laws by a variety of entities and involved consumers
in all 50 states, the District of Columbia and Puerto Rico, there can be no
assurance that all original servicing entities have at all times been in
substantial compliance with applicable law. Additionally, there can be no
assurance that we or our servicers have been or will continue to be at all
times in substantial compliance with applicable law. The failure to comply
with applicable law could materially adversely effect our ability to collect
our receivables and could subject us to increased costs and fines and
penalties.

We currently hold a number of licenses issued under applicable consumer
credit laws. Certain of our current licenses and any licenses that we may be
required to obtain in the future may be subject to periodic renewal provisions
and/or other requirements. Our inability to renew licenses or to take any
other required action with respect to such licenses could have a material
adverse effect upon our results of operation and financial condition.

Employees

As of June 6, 2003, we had 89 full-time employees. We are not a party to any
collective bargaining agreement, and we believe our relationship with our
employees is good.

Properties

Our executive and administrative offices are located in Englewood Cliffs,
New Jersey, where we lease approximately 9,200 square feet of general office
space for approximately $15,000 per month. The lease expires on July 31, 2005.

In addition, our call center is located in Bethlehem, Pennsylvania, where we
lease approximately 9,070 square feet of general office space for
approximately $10,000 per month. The lease expires on December 31, 2004.

We believe that our existing facilities are adequate for our current and
anticipated needs.

Legal Proceedings

We are not involved in any material litigation. We regularly initiate legal
proceedings as a plaintiff in connection with our routine collection
activities.

OUR MANAGEMENT

Executive Officers and Directors

The following table sets forth the names, ages and positions of our
executive officers and directors:

Name Age Position
---- --- --------

Arthur Stern.................... 81 Chairman of the Board and Executive Vice President
Gary Stern...................... 50 Director, President and Chief Executive Officer
Mitchell Herman................. 44 Director, Chief Financial Officer and Secretary
Herman Badillo (2).............. 73 Director
Harvey Leibowitz (1)(2)......... 69 Director
Edward Celano (1)............... 63 Director
David S. Slackman (1)(2)........ 55 Director

---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee

Arthur Stern has been a director and has served as our Chairman of the Board
of Directors since our inception in July 1994. From 1963 until December 1995,
Mr. Stern was President of Asta Group, Incorporated, a consumer finance
company, and since 1996 has served as Vice President of Asta Group. In such
capacities, he has obtained substantial experience in distressed consumer
credit analysis and receivables collections.

Gary Stern has been a director and our President and Chief Executive Officer
since our inception in July 1994. Mr. Stern also currently serves as President
of Asta Group and has served in the capacities of Vice President, Secretary,
Treasurer and a director of Asta Group since 1980 and held other positions
with Asta Group from 1973 through 1980. In such capacities, he has obtained
substantial experience in distressed consumer credit analysis and receivables
collections.

Mitchell Herman has been a director since September 1995. He has been our
Chief Financial Officer since our inception in July 1994 and the Chief
Financial Officer of Asta Group since May 1994. From September 1993 to May
1994 he was a manager with Paul Abrams & Co., a certified public accounting
firm. From September 1990 to September 1993, Mr. Herman was a senior
accountant with Shapiro & Lieberman, a certified public accounting firm.
Mr. Herman is a certified public accountant.

Herman Badillo has been a director since September 1995. He has been a
member of Fischbein, Badillo, Wagner & Harding, a law firm located in New York
City, for more than five years. He formerly served as Special Counsel to the
Mayor of New York City for Fiscal Oversight of Education and as a member of
the Mayor's Advisory Committee on the Judiciary. Mr. Badillo also serves as a
director of K-12, Inc., a company formed to provide an education for students
in kindergarten through twelfth grade. Mr. Badillo served as a United States
Congressman from 1971 to 1978 and Deputy Mayor of New York City from 1978 to
1979.

Harvey Leibowitz has been a director since March 2000. Mr. Leibowitz served
as a Senior Vice President of Sterling National Bank from June 1994 until 2000
and he continues to provide consulting services to the bank. Prior to June
1994, Mr. Leibowitz was employed as a Senior Vice President and Vice President
of several banks and financial institutions since 1963.

Edward Celano has been a director since September 1995. Mr. Celano has
served as a Managing Director of Weiser Corporate Finance Group LLC since
March 2001. He was formally an Executive Vice President of Atlantic Bank from
May 1996 to February 2001. Prior to May 1996, Mr. Celano was a Senior Vice
President of NatWest Bank after having held different positions at the bank
for over 20 years. Mr. Celano also serves as a director of Life Medical
Sciences, Inc. and Entrade, Inc., both publicly traded companies.

David Slackman has been a director since May 2002. Mr. Slackman has been the
Manhattan Market President of Commerce Bank, N.A. since March 2001. Prior to
joining Commerce Bank, Mr. Slackman

served as an Executive Vice President of Atlantic Bank of New York from May
1994 until March 2001 and Senior Vice President of the Dime Savings Bank of
New York from July 1986 until May 1994.

Arthur Stern is the father of Gary Stern. There are no other family
relationships among our directors or officers.

All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualified; vacancies and any additional
positions created by board action are filled by action of the existing board
of directors. All officers serve at the discretion of the board of directors.

Committees of the Board of Directors

Audit Committee. The Audit Committee consists of Harvey Leibowitz (the
Chairman), David Slackman and Edward Celano. The Audit Committee is empowered
by the Board of Directors to, among other things: serve as an independent and
objective party to monitor the Company's financial reporting process, internal
control system and disclosure control system; review and appraise the audit
efforts of the Company's independent accountants; assume direct responsibility
for the appointment, compensation, retention and oversight of the work of the
outside auditors and for the resolution of disputes between the outside
auditors and the Company's management regarding financial reporting issues;
and provide an open avenue of communication among the independent accountants,
financial and senior management and the Board.

Compensation Committee. The Compensation Committee consists of Herman
Badillo (the Chairman), Harvey Leibowitz and David Slackman. The Compensation
Committee is empowered by the board of directors to review the executive
compensation of our officers and directors and to recommend any changes in
compensation to the full board of directors.

Director Compensation

Directors who are our employees do not receive additional compensation for
serving as directors. Each director who is not an employee of Asta received a
fee of $10,000 for fiscal 2002 and will receive a fee of $15,000 for fiscal
2003 for serving as a director. In addition, each director who is not an
employee of Asta receives an additional fee of $1,000 for attendance at each
committee meeting not held on the date of a regular meeting of the board of
directors. We reimburse each director for the expenses incurred in connection
with attendance at such meetings.

On May 16, 2002, we granted non-qualified stock options covering 5,000
shares of common stock to each of Herman Badillo, Edward Celano, Harvey
Leibowitz, Michael Feinsod (a former director) and David Slackman, at an
exercise price of $14.05 per share. The options became exercisable on May 16,
2002. On November 1, 2002, we granted non-qualified stock options covering
10,000 shares of common stock to: Herman Badillo, Edward Celano, Harvey
Leibowitz, Michael Feinsod and David Slackman at an exercise price of $9.45
per share. One-third of such options become exercisable on November 1, 2003,
2004 and 2005.

Executive Compensation

The following table summarizes certain information relating to the
compensation paid or accrued by us for services rendered during the fiscal
years ended September 30, 2002, 2001 and 2000, with respect to our Chief
Executive Officer and each other executive officer whose total annual salary
and bonus are $100,000 or more:

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
Awards (1)
---------------------------
Annual Compensation Securities
------------------------- Underlying All Other
Salary Bonus Options/SARs Compensation
Name and Principal Position Year ($) ($) (2) ($) (3)
--------------------------- ---- --- --- --- -------

Gary Stern..................................... 2002 325,000 200,000 3,000 1,722
President and Chief 2001 300,000 200,000 -- 1,604
Executive Officer 2000 175,000 100,000 150,000 1,591
Mitchell Herman................................ 2002 200,000 100,000 23,000 718
Chief Financial Officer 2001 175,000 100,000 -- 694
2000 145,000 87,500 -- 686
Arthur Stern................................... 2002 225,000 50,000 3,000 --
Chairman of the Board and 2001 225,000 50,000 -- --
Executive Vice President 2000 112,500 -- 50,000 --

---------------
(1) We did not grant any stock appreciation rights, restricted stock awards or
make any long-term incentive plan payout during the fiscal years ended
September 30, 2002, 2001 or 2000.
(2) Comprised solely of incentive stock options and non-qualified stock options
granted under our 1995 Stock Option Plan. See "1995 Stock Option Plan."
(3) Includes insurance premium amounts paid by us.

Employment Agreements

Gary Stern and Mitchell Herman have each entered into an employment
agreement that commenced on October 1, 2001, and will continue until
September 30, 2004. In addition, Arthur Stern has entered into an employment
agreement that commenced on May 21, 2002, and will continue until May 21,
2005.

The employment agreements provide for base annual salaries of $375,000,
$250,000 and $225,000 for Gary Stern, Arthur Stern and Mitchell Herman,
respectively. Gary Stern, Arthur Stern and Mitchell Herman each may be granted
annual bonuses at the discretion of the board of directors. If Gary Stern's or
Mitchell Herman's employment with Asta is terminated for "disability" or
"cause," as such terms are defined in the employment agreements, or upon
death, we will pay either Gary Stern or Mitchell Herman or each of their
respective estates, the base annual salary and other benefits under the
employment agreement through the date of termination of employment. If Gary
Stern's or Mitchell Herman's employment with Asta is terminated "without
cause," as such term is defined in the employment agreements, we will pay
either Gary Stern or Mitchell Herman or each of their respective estates, the
base annual salary and other benefits under the employment agreement for the
earlier of 18 months after the date of termination of employment or until such
time each of Gary Stern and Mitchell Herman becomes a full-time employee of
another employer.

If Arthur Stern's employment with Asta is terminated for "cause," as such
term is defined in his employment agreement, we will pay Arthur Stern the base
annual salary and other benefits under the employment agreement through the
date of termination of employment. If Arthur Stern's employment with Asta is
terminated for "disability" or "without cause," as such terms are defined in
the employment agreement, or upon death, we will pay Arthur Stern or his
estate, the base annual salary and other benefits under the employment
agreement for the remainder of the three year term.

Each of the employment agreements contains certain non-competition covenants
and confidentiality provisions. During the term of the employment agreements
and for a period of 12 months after the date of termination of the employment
agreements, or for such period as we will continue to pay Gary Stern, Arthur
Stern or Mitchell Herman their base salary and insurance benefits if we
terminate their employment "without cause," they will not, in any geographic
area in which we do business as of the date of termination of each of their
employment agreements, directly or indirectly compete with or be engaged in
the same business as us.

Stock Option Plans

1995 Stock Option Plan

Our 1995 Stock Option Plan was adopted by our board of directors on
September 14, 1995, and by our stockholders on September 15, 1995. The plan
authorizes the granting of incentive stock options and non-qualified stock
options to our eligible employees, officers, directors and consultants. We
have 920,000 shares of common stock authorized for issuance under the 1995
Stock Option Plan and 152,500 shares were available for grant as of March 31,
2003.

The exercise price of an incentive stock option will be not less than the
fair market value of a share of common stock on the date of grant, except that
it will be not less than 110% of the fair market value on the date of grant
with respect to incentive stock option grants to a 10% stockholder of Asta.
The maximum term of each option, the times at which each option will be
exercisable, and the vesting schedule, if any, associated with a stock option
grant generally are fixed by the board of directors or plan committee; except
that no option may have a term exceeding ten years, or, in the case of an
incentive stock option granted to a 10% stockholder of Asta, five years. In
the discretion of the board of directors or plan committee, upon exercise of
an option, payment may be made in cash or shares of common stock, or through
cashless exercise procedures approved by the board of directors or plan
committee.

Subject to certain limitations, the vesting of options or awards may be
accelerated under the 1995 Stock Option Plan upon the occurrence of a merger,
reorganization or other similar transaction.

Options granted under the 1995 Stock Option Plan are nontransferable, except
by will or by the laws of descent and distribution. During the participant's
lifetime, an option may be exercised only by the participant. In the event
that a participant's employment terminates as a result of death, the
participant's estate will have the right to exercise vested options for a
period ending on the earlier of the expiration dates of such options or one
year from the date of death. If the participant's employment terminates as a
result of a disability, the participant will have the right to exercise vested
options for a period ending on the earlier of the expiration dates of such
options or one year from the date of termination. If the participant's
employment terminates for cause, all options will automatically expire upon
termination. If the participant's employment terminates other than as a result
of death, disability or termination for cause, the participant will have the
right to exercise the participant's vested options for a period ending on the
earlier of the expiration dates of such options or thirty days from the date
of termination. In all cases, any unvested options will terminate as of the
date of termination of employment. In the event that an option granted under
the plan expires or is terminated prior to exercise or vesting, the number of
shares of common stock covered thereby will again become eligible for grant
under the plan.

Our board of directors may suspend or terminate the plan at any time. In
addition, the board of directors may amend or revise the terms of the plan
from time to time; however no such amendment or revision may alter or impair
an outstanding option or award without the consent of the applicable option
holder. The plan will terminate on September 14, 2005, unless earlier
terminated by the administrator of the plan. No options may be granted under
the plan after its termination; however, termination of the plan will not
affect the status of any option outstanding on the date of termination.

In general, neither Asta nor the participant will recognize taxable income
or loss upon the grant of nonqualified stock options under the plan. In
general, the participant will recognize ordinary income upon exercise of a
non-qualified stock option. The amount of income recognized generally will
equal the difference between the fair market value of the underlying shares of
common stock on the date of the exercise and the

exercise price. We generally will receive a corresponding tax deduction equal
to the amount includable in the participant's income.

In general, neither Asta nor the participant will recognize taxable income
or loss upon the grant or exercise of incentive stock options, although there
may be alternative minimum tax consequences to the participant upon exercise.
Upon subsequent disposition of the shares of common stock covered by incentive
stock options, the participant generally will recognize either capital gain or
loss or ordinary income, depending on whether certain holding period
requirements are satisfied. We generally will be entitled to a tax deduction
if the participant recognizes ordinary income.

2002 Stock Option Plan

Our 2002 Stock Option Plan was adopted by our board of directors on March 5,
2002, and by our stockholders on May 1, 2002. The plan authorizes the granting
of incentive stock options and non-qualified stock options to our eligible
employees, officers, directors and consultants. We have 500,000 shares of
common stock authorized for issuance under the 2002 Stock Option Plan and have
not granted any options under this plan as of May 1, 2003.

The board of directors or plan committee may, in its discretion, accelerate
the exercisability or the expiration of deferral or vesting periods of any
award or grant. Vesting will occur automatically in the case of a change in
control of Asta, as defined in the plan, with respect to all options
outstanding on the date of a change in control. If, following a change in
control, the service of an employee terminates, each option that was
exercisable on the date of termination will remain exercisable until the
expiration of the option's term or the first anniversary of termination,
whichever comes first.

Grants of stock options and other awards are generally not transferable
except by will or by the laws of descent and distribution, or to a designated
beneficiary upon the participant's death, except that the board of directors
or plan committee may, in its discretion, permit inter vivos transfers for
estate planning or other purposes, subject to any applicable restrictions
imposed by federal securities laws.

During the participant's lifetime, an option may be exercised only by the
participant. In the event that a participant's employment terminates as a
result of death, the participant's estate will have the right to exercise
vested options for a period ending on the earlier of the expiration dates of
such options or one year from the date of death. If the participant's
employment terminates as a result of a disability, the participant will have
the right to exercise vested options for a period ending on the earlier of the
expiration dates of such options or one year from the date of termination. If
the participant's employment terminates for cause, all options will
automatically expire upon termination. If the participant's employment
terminates other than as a result of death, disability or termination for
cause, the participant will have the right to exercise the participant's
vested options for a period ending on the earlier of the expiration dates of
such options or ninety days from the date of termination. In all cases, any
unvested options will terminate as of the date of termination of employment.
In the event that an option granted under the plan expires or is terminated
prior to exercise or vesting, the number of shares of common stock covered
thereby will again become eligible for grant under the plan.

Our board of directors may suspend or terminate the 2002 Stock Option Plan
at any time. In addition, the board of directors may amend or revise the terms
of the plan from time to time; however no such amendment or revision may alter
or impair an outstanding option or award without the consent of the

applicable option holder. The 2002 Stock Option Plan will terminate on March 4,
2012, unless earlier terminated by the board of directors. No options may be
granted under the plan after its termination; however, termination of the plan
will not affect the status of any option outstanding on the date of
termination.

In general, neither Asta nor the participant will recognize taxable income
or loss upon the grant of non-qualified stock options under the plan. In
general, the participant will recognize ordinary income upon exercise of a
non-qualified stock option. The amount of income recognized generally will
equal the difference between the fair market value of the underlying shares of
common stock on the date of the exercise and the exercise price. We generally
will receive a corresponding tax deduction equal to the amount includable in
the participant's income.

The following tables summarize certain information relating to the grant of
options to purchase common stock to the executive officers named in the
Summary Compensation Table.

Option/SAR Grants In Last Fiscal Year (1)

Potential
Realizable Value
at Assumed Annual
Rates of
Percent of Stock Price
Total Appreciation
Number of Options for Option
Securities Granted to Term($)(2)
Underlying Employees Exercise -----------------
Options In Fiscal Price per Expiration
Name Granted Year (%) Share ($) Date 5% 10%
---- ---------- ---------- --------- ---------- ------- -------

Gary Stern ......................... 3,000(3) 11.1 11.92 11/14/11 22,500 57,000
Mitchell Herman(3) ................. 20,000(4) 33.1 14.05 05/16/12 176,800 447,800
3,000(3) 11.1 11.92 11/14/11 22,500 57,000
Arthur Stern ....................... 3,000(3) 11.1 11.92 11/14/11 22,500 57,000

---------------
(1) We did not grant any stock appreciation rights to our executive officers in
fiscal 2002.
(2) The SEC requires disclosure of the potential realizable value or present
value of each grant. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the SEC and do not
represent our estimate or projection of our future common stock prices. The
disclosure assumes the options will be held for the full ten-year term
prior to exercise. Such options may be exercised prior to the end of such
ten-year term. The actual value, if any, an executive officer may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised. There can be no assurance that the stock
price will appreciate at the rates shown in the table.
(3) These options vest in three equal annual installments commencing
November 14, 2002.
(4) These options vest in three equal annual installments commencing May 16,
2002.

Aggregated Option/SAR Exercise In Last Fiscal Year
and Fiscal Year-End Option/SAR Values (1)

Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at FY-End In-The Money Options/SARs
Shares (#)(1) at FY-End ($)(2)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------

Gary Stern ................ -- -- 231,000 82,000 $1,668,700 $325,200
Mitchell Herman ........... 23,000(3) 161,000 29,667 35,333 $ 146,455 $ 28,800
Arthur Stern .............. -- -- 99,833 33,667 $ 588,793 $115,602

---------------
(1) We did not grant any stock appreciation rights.
(2) In accordance with SEC rules, values are calculated by subtracting the
exercise price from the fair market value of the underlying common stock.
For purposes of this table, fair market value is deemed to be $10.89, the
fair market value of a share of common stock on September 30, 2002
(presumed to equal the last reported sale price of the common stock as
reported on the Nasdaq National Market on such date).
(3) Mitchell Herman exercised 23,000 options in 2002 at an exercise price of
$5.00 per share.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

From time to time Asta Group, one of our affiliates, makes advances to us
that we use in the acquisition of consumer receivable portfolios. Such
advances are unsecured and generally bear interest at rates of between 10% and
13% per annum and are payable on demand. Asta Group is owned by Gary Stern,
Arthur Stern, and certain other members of the Stern family. During the years
ended September 30, 2002 and 2000, Asta Group did not make any advances to us
or to our subsidiaries. During the year ended September 30, 2001, Asta Group
advanced approximately $958,000 to us. During the fiscal years ended
September 30, 2002, 2001 and 2000, Asta Group charged us approximately $0,
$57,000 and $91,000, respectively for interest expense on advances made to us.
As of April 30, 2003, there were no outstanding amounts owed to Asta Group.

We currently sublease a portion of our offices located in Englewood Cliffs,
New Jersey to Asta Group for $2,733 per month. During the years ended
September 30, 2002 and 2001, we were paid $32,800 and $32,800, respectively,
by Asta Group pursuant to the sublease. During the year ended September 30,
2000, we subleased our offices from Asta Group and paid annual rent of
$104,000.

We reimbursed Asta Group approximately $15,000 during the fiscal year ended
September 30, 2000, for insurance.

We have entered into employment agreements with our executive officers and
from time to time grant options to our executive officers and directors. See
"Our Management -- Director Compensation" and
--Employment Agreements."

In the future, transactions with our officers, directors and affiliates are
anticipated to be minimal and will be approved by a majority of the members of
our audit committee, and will be made on terms no less favorable to us than
could be obtained from unaffiliated third parties.

We believe that each of these transactions was completed on terms no less
favorable to us then we would have obtained from unrelated third parties.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of our common stock, as of June 6, 2003, by, and as adjusted to
reflect the sale of the common stock in this offering:

o each director and named executive officer;

o each person known by us to own beneficially more than five percent of our
outstanding common stock;

o each stockholder who is selling stock in this offering; and

o all directors and named executive officers as a group.

Unless otherwise indicated, the address of each such person is c/o Asta
Funding, Inc., 210 Sylvan Avenue, Englewood Cliffs, New Jersey 07632. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.

Shares Beneficially
Owned Shares Beneficially
Before the Offering Number of Owned
(1) Shares to be After the Offering
---------------------- Sold in the ----------------------
Name and Address of Beneficial Owner Number Percentage Offering Number Percentage
------------------------------------ --------- ---------- ------------ --------- ----------

Arthur Stern........................................ 303,074(2) 7.2% -- 303,074 4.8%
Gary Stern.......................................... 607,279(3) 14.0% -- 607,279 9.4%
Mitchell Herman..................................... 111,107(4) 2.7% 50,000 61,107 1.0%
Herman Badillo
909 Third Avenue
New York, New York 10022............................ 18,166(5) * -- 18,166 *
Edward Celano
1133 Avenue of the Americas
New York, New York 10036............................ 6,000(6) * -- 6,000 *
Harvey Leibowitz
c/o Sterling National Bank
500 Seventh Avenue
New York, New York 10018............................ 71,000(7) * -- 71,000 *
David Slackman
c/o 1350 Avenue of the Americas
New York, New York 10019............................ 5,000(8) * -- 5,000 *
Asta Group, Incorporated............................ 421,000(9) 10.2% -- 421,000 6.8%
Barbara Marburger
9 Locust Hollow Road
Monsey, New York 10952.............................. 220,220(10) 5.4% -- 220,220 3.5%
Judith R. Feder
928 East 10th Street
Brooklyn, New York 11230............................ 1,285,000(11) 31.2% 935,000 15.0%
Stern Family Investors LLC.......................... 396,000(12) 9.6% 50,000 346,000 5.6%
GMS Family Investors LLC............................ 881,000(13) 21.4% 300,000 581,000 9.3%
All executive officers and directors
as a group (7 persons)............................ 1,121,626(14) 24.9% 1,071,626 16.2%

---------------
* Less than 1%

(1) Any shares of common stock that any person named above has the right to
acquire within 60 days of
June 6, 2003, is deemed to be outstanding for purposes of calculating the
ownership percentage of such person, but is not deemed to be outstanding
for purposes of calculating the beneficial ownership percentage of any
other person.
(2) Includes 99,833 shares of common stock issuable upon exercise of options
that are exercisable within 60 days of June 6, 2003, and 107,271 shares
of common stock owned by Asta Group, Incorporated which shares are
attributable to Arthur Stern based on his percentage ownership of Asta
Group. Excludes 200,000 shares owned by Stern Family Investors LLC which
shares are attributable to Arthur Stern based on his percentage ownership
of such LLC and 1,000 shares owned by GMS Family Investors LLC which
shares are attributable to Arthur Stern based on his percentage ownership
of such LLC. Arthur Stern does not have voting or investment power with
respect to any of the shares held by either LLC and disclaims beneficial
ownership of the shares owned by the LLCs. Also excludes 33,667 shares of
common stock issuable upon exercise of options that are not exercisable
within 60 days of June 6, 2003.
(3) Includes 231,000 shares of common stock issuable upon exercise of options
that are exercisable within 60 days of June 6, 2003, 98,328 shares of
common stock owned by Gary Stern as custodian for his minor children and
142,761 shares of common stock owned by Asta Group, which shares are
attributable to Gary Stern based on his percentage ownership of Asta
Group. Excludes 700,000 shares owned by GMS Family Investors LLC which
shares are attributable to Gary Stern based on his percentage ownership
of such LLC. Gary Stern does not have voting or investment power with
respect to any of the shares held by the LLC and disclaims beneficial
ownership of the shares owned by the LLC. Also excludes 82,000 shares of
common stock issuable upon exercise of options that are not exercisable
within 60 days of June 6, 2003, and 98,328 shares of common stock held by
one of his children who is no longer a minor and for which he disclaims
beneficial ownership. Gary Stern is not the trustee of such trusts and
also disclaims beneficial ownership of the shares held by such trusts.
(4) Includes 14,333 shares of common stock issuable upon exercise of options
that are exercisable within 60 days of June 6, 2003, and 8,500 shares of
common stock owned by Mitchell Herman as custodian for his minor child.
Excludes 28,667 shares of common stock issuable upon exercise of options
that are not exercisable within 60 days of June 6, 2003.
(5) Represents 18,166 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of June 6, 2003. Excludes
15,334 shares of common stock issuable upon exercise of options that are
not exercisable within 60 days of June 6, 2003.
(6) Represents 6,000 shares of common stock issuable upon exercise of options
that are exercisable within 60 days of June 6, 2003. Excludes 12,000
shares of common stock issuable upon exercise of options that are not
exercisable within 60 days of June 6, 2003.
(7) Includes 18,500 shares of common stock issuable upon exercise of options
exercisable within 60 days of
June 6, 2003. Excludes 12,000 shares of common stock issuable upon
exercise of options that are not exercisable within 60 days of June 6,
2003.
(8) Represents 5,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of June 6, 2003. Excludes 10,000 shares of
common stock issuable upon exercise of options that are not exercisable
within 60 days of June 6, 2003.

(9) Asta Group, Incorporated is owned by Arthur Stern, our Chairman of the
Board and an Executive Vice President, Gary Stern, our President and
Chief Executive Officer, and other members of the Stern family, including
Barbara Marburger.

(10) Includes 45,338 shares of common stock owned by Barbara Marburger as
custodian for her minor child and 35,448 shares of common stock owned by
Asta Group, which shares are attributable to Barbara Marburger based on
her percentage ownership of Asta Group. Excludes shares of common stock
held by her children who are no longer minors and for which she disclaims
beneficial ownership. Barbara Marburger is the daughter of Arthur Stern
and the sister of Gary Stern.

(11) Includes 8,000 shares owned directly, 396,000 shares owned by Stern
Family Investors LLC and
881,000 shares owned by GMS Family Investors LLC. Ms. Feder is the
manager of each LLC and as such has sole voting and investment power as
to such shares.

(12) A limited liability company of which Judith R. Feder has sole voting and
investment power. Arthur Stern has a 49.5% beneficial interest in the
LLC, his wife, Alice Stern, has a 1% beneficial interest, and a trust for
the benefit of the descendants of Arthur Stern, of which Judith R. Feder
is trustee, has a 49.5% beneficial interest in the LLC.

(13) A limited liability company of which Judith R. Feder has sole voting and
investment power. Gary Stern has a 79.46% beneficial interest in the LLC,
trusts for the benefit of the children of Gary Stern of which Judith R.
Feder is the trustee have a combined 20.43% beneficial interest (10.215%
each), and Arthur Stern has a .11% beneficial interest in the LLC.
(14) Includes 392,832 shares of common stock issuable upon exercise of options
that are exercisable within 60 days of June 6, 2003. Excludes 193,668
shares of common stock issuable upon exercise of options that are not
exercisable within 60 days of June 6, 2003 and the shares owned in the
aggregate by Stern Family Investors LLC and GMS Family Investors LLC.

DESCRIPTION OF CAPITAL STOCK

Set forth below is a summary of the terms of our capital stock. Such summary
is qualified in its entirety by reference to our certificate of incorporation
and by-laws and to the applicable provisions of the General Corporation Law of
the State of Delaware.

Our authorized capital stock currently consists of 30,000,000 shares of
common stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share.

Common Stock

Each shareholder is entitled to cast one vote for each share of our common
stock held. Dividends may be declared by the board of directors at any regular
or special meeting. Before payment of any dividend, there may be set aside out
of any of our funds available for dividends such sum as the board of
directors, in its absolute discretion, deems proper as a reserve to meet
contingencies or for any other corporate purpose. We have not paid any cash
dividends on our common stock and do not expect to do so in the foreseeable
future. Upon the liquidation, dissolution or winding up of Asta, the holders
of shares of common stock would be entitled to share pro rata in the
distribution of all of our assets remaining available for distribution after
satisfaction of all of our liabilities and the payment of the liquidation
preference of any outstanding preferred stock. The holders of our common stock
have no preemptive or other subscription rights to purchase shares of our
capital stock. All of the outstanding shares of our common stock are, and the
shares issuable upon exercise of outstanding options and warrants will be,
when issued, fully paid and nonassessable.

As of June 6, 2003, 4,114,130 shares of our common stock were outstanding,
exclusive of existing options and warrants and the shares to be issued in this
offering.

Preferred Stock

None of the 5,000,000 shares of preferred stock authorized by our
certificate of incorporation will be issued or outstanding upon completion of
the offering. Our board of directors has the authority to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series of the
designation of such series, without further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Asta without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of common stock, including the loss of voting control to others.

Limitation of Liability and Indemnification of Directors and Officers

Our certificate of incorporation provides that no director shall be
personally liable to us or any of our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability:

o for any breach of the director's duty of loyalty to us or our
stockholders;

o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

o for unlawful payment of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the General Corporation Law of
the State of Delaware; or

o for any transaction from which the director derived improper personal
benefit.

While our certificate of incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does
not eliminate such duty. Accordingly, our certificate of incorporation will
have no effect on the availability of equitable remedies such as an injunction
or rescission based on a director's or officer's breach of his duty of care.

Our by-laws provide that we shall indemnify any person who was or is a party
or threatened to be made a party to any threatened pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Asta) by reason of
the fact that such person is or was a director or officer of Asta or serving
at the request of Asta, as an officer, director or employee against expenses,
judgment, fines and settlements reasonably incurred if:

o such person acted in good faith;

o such person acted in a manner he reasonably believed to be in or not
opposed to the best interests of Asta; and

o with respect to a criminal action or proceeding, such person had no
reasonable cause to believe his conduct was unlawful.

No indemnification shall be made in respect of any claim as to which such
person shall have been adjudged to be liable to us unless and only to the
extent that the Court of Chancery or other court shall determine upon
application that, despite the adjudication of liability but in view of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. We are only
permitted to indemnify such person upon the determination by the board of
directors or stockholders that such person has met the applicable standards of
conduct for indemnification as described above.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

Indemnification Agreements

We have entered into indemnification agreements with each of our directors
and executive officers. Each such indemnification agreement provides that we
will indemnify the indemnitee against expenses, including reasonable
attorney's fees, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any civil or
criminal action or administrative proceeding arising out of the performance of
his duties as an officer, director, employee or agent of Asta. Such
indemnification will be available if the acts of the indemnitee were in good
faith, if the indemnitee acted in a manner he reasonably believed to be in or
not opposed to the best interests of Asta and, with respect to any criminal
proceeding, the indemnitee had no reasonable cause to believe his conduct was
unlawful.

Certain Change of Control Provisions

We are a Delaware corporation and are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in certain
business combinations with a 15% stockholder for a period of three years
following the date the person became a 15% stockholder, unless, with certain
exceptions, the business combination or the transaction in which the person
became a 15% stockholder is approved in a prescribed manner. Generally, the
business combinations covered by this statute include:

o a merger;

o an asset or stock sale; and

o other transaction resulting in a financial benefit to the 15% stockholder

In determining whether a stockholder is a 15% stockholder, the Delaware
statute generally includes the voting shares owned by the stockholder and the
stockholder's affiliates and associates. The authorization of undesignated
preferred stock makes it possible for our board of directors to issue
preferred stock with voting or other rights or preferences that could impede
the success of any attempt to change control of Asta.

The above-mentioned provisions of Delaware law and of our certificate of
incorporation and by-laws may have the effect of delaying, deterring or
preventing a change in control of Asta, may discourage bids for our common
stock at a premium over the prevailing market price, and may adversely affect
the market price and the voting and other rights of the holders of our common
stock.

Transfer Agent

The transfer agent for our common stock and preferred stock is American
Stock Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Assuming the sale of all of the shares to be sold by us in this offering, we
will have 6,214,130 shares of common stock issued and outstanding, based on
share information as of June 6, 2003. Substantially all of such shares are
freely tradable without restrictions or further registration under the
Securities Act, except for shares owned by our affiliates, as the term
affiliate is defined in Rule 144 under the Securities Act, which shares are
subject to the resale limitations of Rule 144. Our affiliates will own in the
aggregate approximately 36.6% of our outstanding shares of common stock
following this offering.

In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares of common stock for at least one year, including
affiliates, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of:

o one percent of the total number of outstanding shares of the class of
stock sold; or

o the average weekly reported trading volume of the class of stock being
sold during the four calendar weeks preceding such sale.

A person who is not deemed an affiliate of Asta for Rule 144 purposes at any
time during the three months preceding a sale and who has beneficially owned
shares for at least two years is entitled to sell such shares under Rule 144
without regard to the volume limitations as described above; however,
affiliates of Asta are subject to such volume limitations. As defined in Rule
144, an affiliate of an issuer is a person that directly or indirectly through
the use of one or more intermediaries controls, is controlled by, or is under
common control with, such issuer. The foregoing summary of Rule 144 is not
intended to be a complete description of that Rule.

Our executive officers and directors and certain of our principal
stockholders in this offering have signed lock-up agreements. Subject to
certain exceptions, those persons have agreed that for a period of 180 days
after the date of this prospectus, they will not offer, sell, contract to sell
or otherwise dispose of any shares of common stock or securities exercisable
or exchangeable for common stock or enter into any derivative transaction with
similar effect as a sale of common stock, unless they receive the prior
written consent of Ryan Beck & Co., Inc.

Except as indicated above, we are unable to estimate the amount, timing and
nature of future sales of outstanding common stock. No prediction can be made
as to the effect, if any, that market sales of shares of common stock or the
availability of shares for sale will have on the market price of the common
stock prevailing at any given time. Nevertheless, sales of significant numbers
of shares of common stock in the public market could adversely affect the
market price of our common stock and could impair our ability to raise capital
through an offering of our equity securities.

UNDERWRITING

The underwriters named below have severally agreed, subject to the terms and
conditions of the underwriting agreement, to purchase from us and the selling
stockholders, and we and the selling stockholders have agreed to sell to the
underwriters, the number of shares of common stock set forth opposite the name
of each underwriter.

Underwriter Number of Shares
----------- ----------------
Ryan Beck & Co., Inc....................................
Brean Murray & Co., Inc.................................
---------
Total.................................................. 2,500,000

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock included in this offering
are subject to approval of legal matters by counsel as well as to other
conditions. The underwriters are obligated to purchase all of the shares,
other than those covered by the over-allotment option described below, if they
purchase any of the shares of common stock.

The underwriters propose to offer some of the shares of common stock
directly to the public at the public offering price set forth on the cover
page of this prospectus and some of the shares of common stock to certain
dealers at the public offering price less a concession not in excess of
$______ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $_____ per share on sales to certain other
dealers. If all of the shares of common stock are not sold at the public
offering price, the underwriters may change the public offering price and the
other selling terms.

We have granted to the underwriters an option, exercisable within 30 days of
the date of this prospectus, to purchase up to an aggregate of 375,000
additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise the option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent the option is exercised, in whole or in part, each underwriter
will be obligated, subject to various conditions, to purchase a number of
additional shares approximately proportionate to its initial purchase
commitment.

The following table summarizes the per share and total underwriting
discounts and commissions:

o we and the selling stockholders will pay to the underwriters assuming no
exercise of the underwriters' over-allotment option; and

o we and the selling stockholders will pay to the underwriters assuming the
full exercise of the underwriters' over-allotment option.

Paid by Selling Paid by Selling
Paid by Us, No Paid by Us, Stockholders, No Stockholders,
Exercise of Full Exercise of Exercise of Full Exercise of
Over-Allotment Over-Allotment Over-Allotment Over-Allotment
Option Option Option Option
-------------- ---------------- ---------------- ----------------

Per Share ............................
Total ................................

We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $
______________. The underwriters will also receive an expense allowance of up
to $150,000 payable by us. The underwriters have not received and will not
receive from us any other item of compensation or expense in connection with
this offering considered by the National Association of Securities Dealers,
Inc. to be underwriting compensation under its rules of fair practice.

We and certain of our executive officers and directors and certain of our
principal stockholders have agreed, with exceptions, not to sell publicly or
transfer any shares of common stock for a period of 180 days after the date of
this prospectus without first obtaining the written consent of Ryan Beck, on
behalf of the underwriters. Specifically, we and these other individuals and
entities have agreed not to directly or indirectly offer to sell, contract to
sell or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any:

o shares of common stock;

o options or warrants to purchase any shares of common stock; or

o securities convertible into or exchangeable for shares of common stock.

This lockup provision applies to shares of common stock owned now or
acquired later by the person executing the agreement or for which the person
executing the agreement later acquires the power of disposition.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
An over-allotment involves syndicate sales of shares of common stock in excess
of the number of shares to be purchased by the underwriters in the offering,
which creates a syndicate short position. Syndicate covering transactions
involve purchases of shares of common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.

Stabilizing transactions consist of certain bids or purchases of common
stock made for the purpose of preventing or slowing a decline in the market
price of the common stock while the offering is in progress.

Similar to other purchase transactions, these activities may have the effect
of raising or maintaining the market price of the common stock or preventing
or slowing a decline in the market price of the common stock. As a result, the
price of the common stock may be higher than the price that might otherwise
exist in the open market.

Neither we nor the underwriters make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the common stock. In addition, neither we nor the
underwriters make any representation that the underwriters will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.

We and the selling stockholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act of 1933,
or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.

In connection with this offering, the underwriters may engage in passive
market making transactions in the common stock on The Nasdaq National Market
in accordance with Rule 103 of Regulation M under the Exchange Act during a
period before the commencement of offers or sales of the common stock and
extending through the completion of distribution. A passive market maker must
display its bid at a price not in excess of the highest independent bid of
that security. However, if all independent bids are lowered below the passive
market maker's bid, that bid must then be lowered when specified purchase
limits are exceeded.

LEGAL MATTERS

Certain legal matters relating to this offering will be passed upon for us
by Lowenstein Sandler PC, Roseland, New Jersey. The statements in this
prospectus under "Risk Factors -- Government regulations may limit our ability
to recover and enforce the collection of our receivables" and "Our Business --
Government Regulation" will be passed upon by Dreher Langer & Tomkies L.L.P.,
Columbus, Ohio, regulatory counsel to Asta. Certain legal matters relating to
our common stock will be passed on for the underwriters by Pitney, Hardin,
Kipp & Szuch, LLP, Florham Park, New Jersey.

EXPERTS

The audited consolidated financial statements included in this prospectus
and elsewhere in the registration statement, to the extent and for the periods
indicated in their report, have been audited by Eisner LLP, independent
auditors, and those financial statements are incorporated herein in reliance
on the report of such firm given upon the authority of said firm as experts in
accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the
registration statement, certain portions of which are omitted as permitted by
the rules and regulations of the SEC. For further information pertaining to us
and the common stock to be sold in the offering, reference is made to the
registration statement, including the exhibits thereto and the financial
statements and notes filed as a part thereof. This prospectus summarizes
material provisions of contracts and other documents to which we refer you.
Since this prospectus may not contain all of the information that you may find
important, you may desire to review the full text of these documents. We have
included or incorporated by reference copies of these documents as exhibits to
our registration statement.

You should only rely on the information contained in this prospectus and the
registration statement. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We and the
selling stockholders are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this prospectus or
of any sale of our common stock.

We are subject to the informational requirements of the Securities Exchange
Act of 1934 and file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information, as well as the
registration statement and the exhibits thereto, may be inspected, without
charge, at the public reference facility maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for information regarding the public reference rooms.
Copies of such material may also be obtained from the Public Reference
Section of the SEC at the same address at prescribed rates. Such materials can
also be inspected on the SEC's web site at http:www.sec.gov or at our website
www.astafunding.com. Information on our website does not constitute part of
this prospectus.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
Condensed Consolidated Balance Sheet -- March 31, 2003 (Unaudited) ...... F-2
Condensed Consolidated Statements of Operations -- Six Months ended
March 31, 2003 and 2002 (Unaudited).................................... F-3
Condensed Consolidated Statement of Stockholders' Equity -- Six Months
ended March 31, 2003 (Unaudited)....................................... F-4
Condensed Consolidated Statements of Cash Flows -- Six Months ended
March 31, 2003 and 2002 (Unaudited).................................... F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) ........ F-6
Independent Auditors' Report ............................................ F-8
Consolidated Balance Sheets -- September 30, 2002 and 2001 .............. F-9
Consolidated Statements of Operations -- Years ended September 30, 2002,
2001 and 2000.......................................................... F-10
Consolidated Statements of Stockholders' Equity -- Years ended
September 30, 2002, 2001 and 2000...................................... F-11
Consolidated Statements of Cash Flows -- Years ended September 30, 2002,
2001 and 2000.......................................................... F-12
Notes to Consolidated Financial Statements .............................. F-13

F-1

ASTA FUNDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

March 31,
2003
-----------
Assets
Cash ............................................................ $14,927,000
Restricted cash, net ............................................ 54,000
Consumer receivables acquired for liquidation ................... 26,668,000
Furniture and equipment, net .................................... 719,000
Repossessed automobiles, net .................................... 5,000
Deferred income taxes ........................................... 218,000
Other assets .................................................... 385,000
-----------
Total assets ................................................ $42,976,000
===========
Liabilities and Stockholders' Equity
Liabilities:
Debt ............................................................ $ 1,790,000
Other liabilities ............................................... 2,798,000
Income taxes payable ............................................ 25,000
-----------
Total liabilities ........................................... 4,613,000
-----------
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 5,000,000;
issued and outstanding - none
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding - 4,088,000 at March 31, 2003 and
4,075,000 at September 30, 2002 .............................. 41,000
Additional paid-in capital ..................................... 10,308,000
Retained earnings .............................................. 28,014,000
-----------
Total stockholders' equity .................................. 38,363,000
-----------
Total liabilities and stockholders' equity .................. $42,976,000
===========

See accompanying notes to condensed consolidated financial statements

F-2

ASTA FUNDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Six Months Six Months
Ended Ended
March 31, March 31,
2003 2002
----------- -----------
Revenues:
Finance income .................................... $14,471,000 $18,688,000
Other ............................................. 96,000
----------- -----------
14,471,000 18,784,000
----------- -----------
Expenses:
General and administrative ........................ 3,362,000 3,330,000
Third-party servicing ............................. 3,176,000 4,722,000
Provision for losses .............................. 400,000
Interest .......................................... 13,000 2,095,000
----------- -----------
6,551,000 10,547,000
----------- -----------
Income before income taxes ........................ 7,920,000 8,237,000
Income tax expense ................................ 3,179,000 3,307,000
----------- -----------
Net income ........................................ $ 4,741,000 $ 4,930,000
=========== ===========
Net income per share - Basic ...................... $ 1.16 $ 1.23
=========== ===========
- Diluted ............................ $ 1.08 $ 1.12
=========== ===========
Weighted average number of shares outstanding
- Basic .............................. 4,080,000 4,021,000
----------- -----------
- Diluted ............................ 4,401,000 4,392,000
----------- -----------

See accompanying notes to condensed consolidated financial statements

F-3

ASTA FUNDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)

Common Stock Additional
------------------- Paid-In Retained
Shares Amount Capital Earnings Total
--------- ------- ----------- ----------- -----------

Balance, September 30, 2002..................................... 4,075,000 $41,000 $10,247,000 $23,273,000 $33,561,000
Exercise of options............................................. 13,000 61,000 61,000
Net income...................................................... 4,741,000 4,741,000
--------- ------- ----------- ----------- -----------
Balance, March 31, 2003 (unaudited)............................. 4,088,000 $41,000 $10,308,000 $28,014,000 $38,363,000
========= ======= =========== =========== ===========

See accompanying notes to condensed consolidated financial statements

F-4

ASTA FUNDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Six Months Ended Six Months Ended
March 31, March 31,
2003 2002
---------------- ----------------
Cash flows from operating activities:
Net income ............................. $ 4,741,000 $ 4,930,000
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation ........................ 66,000 60,000
Provision for losses ................ 400,000
Deferred income taxes ............... 47,000 (116,000)
Changes in:
Restricted cash ........................ (1,000)
Repossessed automobiles held for sale .. 62,000 87,000
Prepaid income taxes ................... 596,000
Other assets ........................... 355,000 (865,000)
Income taxes payable ................... (1,468,000) 220,000
Other liabilities ...................... (1,211,000) 513,000
----------- ------------
Net cash provided by operating
activities............................. 2,592,000 5,824,000

Cash flows from investing activities:
Auto loan principal payments ........... 29,000 489,000
Purchase of consumer receivables
acquired for liquidation............... (4,428,000) (17,032,000)
Principal collected on receivables
acquired for liquidation............... 13,839,000 23,039,000
Finance receivables .................... 1,443,000 (38,000)
Capital expenditures ................... (440,000) (156,000)
----------- ------------
Net cash provided by investing
activities............................. 10,443,000 6,302,000

Cash flows from financing activities:
Advances from affiliate ................ (10,000)
Proceeds from exercise of options ...... 61,000 228,000
(Repayments) Advances under lines of
credit, net............................ (382,000) 2,682,000
Repayments of notes payable, net ....... (15,782,000)
----------- ------------
Net cash (used in) financing
activities............................. (321,000) (12,882,000)
----------- ------------
Increase (Decrease) in cash ............. 12,714,000 (756,000)
Cash at the beginning of period ......... 2,213,000 5,689,000
----------- ------------
Cash at end of period ................... $14,927,000 $ 4,933,000
=========== ============
Supplemental disclosure of cash flow
information:
Cash paid during the period:
Interest ............................... $ 7,000 $ 576,000
Income taxes ........................... $ 2,804,000 $ 2,607,000

See accompanying notes to condensed consolidated financial statements

F-5

ASTA FUNDING, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

Asta Funding, Inc., together with its wholly owned subsidiaries, is a
diversified consumer finance company that is engaged in the business of
purchasing, managing and servicing non-conforming and distressed consumer
receivables. Non-conforming consumer receivables are the obligations of
individuals that have incurred credit impairment either at the time the
obligation was originated or subsequent to origination. Distressed consumer
receivables are the unpaid debts of individuals to banks, finance companies
and other credit providers. A large portion of our distressed consumer
receivables are MasterCard(R), Visa(R) and other credit card accounts which
were charged-off by the issuing banks for non-payment. We also, to a lesser
extent, factored commercial invoices to small companies with unique financing
needs. On November 25, 2002, we sold a majority of our factored receivables
and discontinued factoring new receivables.

The consolidated balance sheet as of March 31, 2003, the consolidated
statements of operations for the six month periods ended March 31, 2003 and
2002, and the consolidated statements of cash flows for the six month periods
ended March 31, 2003 and 2002, have been prepared by us without an audit. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
us at March 31, 2003, the results of operations for the six month periods
ended March 31, 2003 and 2002 and cash flows for the six month periods ended
March 31, 2003 and 2002 have been made. The results of operations for the six
month periods ended March 31, 2003 and 2002 are not necessarily indicative of
the operating results for any other interim period or the full fiscal year.

Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain information and footnote disclosures required under
generally accepted accounting principles have been condensed or omitted from
the presented financial statements. We suggest that these financial statements
be read in conjunction with the annual financial statements and notes thereto
included elsewhere herein.

Note 2: Principles of Consolidation

The consolidated financial statements include the accounts of Asta Funding,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

Note 3: Consumer Receivables Acquired for Liquidation

Accounts acquired for liquidation are stated at their net realizable value
and consist of consumer loans to individuals throughout the country.

Note 4: Finance Receivables

Finance receivables were factored accounts receivable primarily with full
recourse.

Note 5: Debt

We have a $25 million line of credit with a bank with interest at the prime
rate which was 4.25% at March 31, 2003. The advances under the credit line are
collateralized by portfolios of consumer receivables acquired for liquidation
and the loan agreement contains customary financial and operating covenants
that must be maintained in order for us to borrow funds. This line expires on
January 31, 2004. As of March 31, 2003, there was approximately $1.8 million
outstanding under this line of credit and we were in compliance with all of
the covenants under this line of credit.

In August 2001, an investment banking firm provided approximately $29.9
million of financing in exchange for a note with interest at LIBOR plus 2% and
the right to receive 50% of subsequent collections, net of expenses, from the
portfolio collateralizing the obligation, once the note and advances by one of
our subsidiaries have been repaid. In December 2001, we purchased one-half of
this right to receive subsequent collections for $1.5 million and a third
party purchased the other one-half for $1.5 million. The 25%

F-6

ASTA FUNDING, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

participation due a third party has been accrued and is included in other
liabilities. This note was paid in full in September 2002.

In January 2002, we purchased a thirty-five percent interest in a consumer
receivable portfolio and financed the entire purchase price of $1.6 million
through a note to the seller. The note bears interest at 15%. This note was
paid in full in September 2002.

Note 6: Income Recognition

We recognize income on non-performing and performing consumer receivable
portfolios, which are acquired for liquidation, using either the interest
method or cost recovery method. Upon acquisition of a portfolio of
receivables, management estimates the future anticipated cash flows and
determines the allocation of payments based upon this estimate. If management
can reasonably estimate the expected amount to be collected on a portfolio and
can reasonably determine the timing of such payments based on historic
experience and other factors, we use the interest method. If management cannot
reasonably estimate the future cash flows, we use the cost recovery method.

Under the interest method, we recognize income on the effective yield method
based on the actual cash collected during a period and future estimated cash
flows and timing of such collections and the portfolio's purchase. The
estimated future cash flows are reevaluated quarterly. Under the cost recovery
method, no income is recognized until we have fully collected the cost of the
portfolio.

Based on an increase in actual cash flows for the six months ended March 31,
2003, and projected future cash flows through September 30, 2005, on one of
our portfolios as compared to what we estimated at September 30, 2002, we
revised our estimate of future collections. Such change in accounting estimate
has resulted in approximately a $1.4 million increase in finance income
recognized for the six months ended March 31, 2003 for this portfolio.

F-7

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Asta Funding, Inc.
Englewood Cliffs, New Jersey

We have audited the accompanying consolidated balance sheets of Asta
Funding, Inc. and subsidiaries as of September 30, 2002 and 2001, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended
September 30, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of Asta Funding,
Inc. and subsidiaries as of September 30, 2002 and 2001, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three year period ended September 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.

Eisner LLP

Florham Park, New Jersey
November 6, 2002
(except as to Note P for which
the date is November 25, 2002)

F-8

ASTA FUNDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30,
-------------------------
2002 2001
----------- -----------

Assets
Cash and cash equivalents ................................. $ 2,213,000 $ 5,689,000
Restricted cash and cash equivalents ...................... 54,000 53,000
Consumer receivables acquired for liquidation ............. 36,079,000 43,784,000
Auto loans receivable (less allowance for credit
losses of $78,000 in 2002 and 226,000 in 2001)........... 29,000 786,000
Finance receivables (less allowance for credit
losses of $58,000 in 2002 and $150,000 in 2001).......... 1,443,000 3,086,000
Furniture and equipment (net of accumulated
depreciation of $579,000 in 2002 and 485,000 in 2001).... 345,000 150,000
Repossessed automobiles held for sale (net of
allowance for losses of $25,000 in 2002 and 2001)........ 67,000 171,000
Deferred income taxes ..................................... 265,000 350,000
Prepaid income taxes ...................................... 596,000
Other assets .............................................. 740,000 162,000
----------- -----------
$41,235,000 $54,827,000
=========== ===========
LIABILITIES
Debt ..................................................... $ 2,172,000 $29,666,000
Other liabilities ........................................ 4,009,000 2,470,000
Income taxes payable ..................................... 1,493,000
Due to affiliate ......................................... 10,000
----------- -----------
Total liabilities....................................... 7,674,000 32,146,000
----------- -----------
Commitments
Stockholders' Equity
Preferred stock, $.01 par value; authorized
5,000,000; issued - none
Common stock, $.01 par value, authorized
30,000,000 shares, issued and outstanding
4,075,000 shares in 2002 and 3,996,000 in 2001........... 41,000 40,000
Additional paid-in capital ............................... 10,247,000 9,751,000
Retained earnings ........................................ 23,273,000 12,890,000
----------- -----------
Total stockholders' equity.............................. 33,561,000 22,681,000
----------- -----------
$41,235,000 $54,827,000
=========== ===========

See notes to consolidated financial statements

F-9

ASTA FUNDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended
September 30,
----------------------------------------
2002 2001 2000
----------- ----------- -----------

Finance income................................................... $35,793,000 $24,100,000 $18,040,000
Other income..................................................... 219,000 14,000 70,000
----------- ----------- -----------
36,012,000 24,114,000 18,110,000
----------- ----------- -----------
General and administrative expenses.............................. 6,698,000 5,653,000 4,091,000
Third-party servicing............................................ 7,433,000 2,757,000
Provisions for credit and other losses........................... 950,000 450,000 3,954,000
Interest expense................................................. 3,643,000 920,000 410,000
----------- ----------- -----------
18,724,000 9,780,000 8,455,000
----------- ----------- -----------
Income before provision for income taxes......................... 17,288,000 14,334,000 9,655,000
Provision for income taxes....................................... 6,905,000 5,743,000 3,825,000
----------- ----------- -----------
Net income....................................................... $10,383,000 $ 8,591,000 $ 5,830,000
=========== =========== ===========
Basic net income per share....................................... $ 2.57 $ 2.16 $ 1.48
=========== =========== ===========
Diluted net income per share..................................... $ 2.38 $ 2.06 $ 1.43
=========== =========== ===========

See notes to consolidated financial statements

F-10

ASTA FUNDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Common Stock Additional
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------- ----------- ----------- -----------

Balance, September 30, 1999............................. 3,945,000 $39,000 $ 9,602,000 $(1,531,000) $ 8,110,000
Exercise of options and warrants........................ 13,000 1,000 17,000 18,000
Net income.............................................. 5,830,000 5,830,000
--------- ------- ----------- ----------- -----------
Balance, September 30, 2000............................. 3,958,000 40,000 9,619,000 4,299,000 13,958,000
Exercise of options..................................... 38,000 132,000 132,000
Net income.............................................. 8,591,000 8,591,000
--------- ------- ----------- ----------- -----------
Balance, September 30, 2001............................. 3,996,000 40,000 9,751,000 12,890,000 22,681,000
Exercise of options..................................... 51,000 1,000 245,000 246,000
Issuance of common stock for services performed......... 28,000 251,000 251,000
Net income.............................................. 10,383,000 10,383,000
--------- ------- ----------- ----------- -----------
Balance, September 30, 2002............................. 4,075,000 $41,000 $10,247,000 $23,273,000 $33,561,000
========= ======= =========== =========== ===========

See notes to consolidated financial statements

F-11

ASTA FUNDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended September 30,
-------------------------------------------
2002 2001 2000
------------ ------------ ------------

Cash flows from operating activities:
Net income..................................................................... $ 10,383,000 $ 8,591,000 $ 5,830,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................................. 94,000 105,000 133,000
Provisions for losses........................................................ 950,000 450,000 3,954,000
Deferred income taxes........................................................ 85,000 1,270,000 (1,010,000)
Expenses advanced by affiliate............................................... 15,000
Issuance of common stock for services rendered............................... 251,000
Changes in:
Restricted cash and cash equivalents........................................ (2,000) (2,000)
Repossessed automobiles held for sale....................................... 104,000 84,000 379,000
Income taxes receivable..................................................... 596,000 (596,000)
Other assets................................................................ (577,000) 107,000 374,000
Income taxes payable........................................................ 1,493,000 (4,277,000) 3,614,000
Other liabilities........................................................... 1,538,000 337,000 477,000
------------ ------------ ------------
Net cash provided by operating activities.................................. 14,917,000 6,069,000 13,764,000
------------ ------------ ------------
Cash flows from investing activities:
Auto loan principal payments collected......................................... 758,000 2,205,000 4,689,000
Finance receivables principal payments collected............................... 693,000
Purchase of consumer receivables acquired for liquidation...................... (36,557,000) (65,120,000) (1,442,000)
Principal payments received from sale or collection of consumer receivables
acquired for liquidation...................................................... 44,262,000 25,703,000 13,325,000
Capital expenditures........................................................... (289,000) (99,000) (115,000)
Payments on notes receivable................................................... (2,114,000)
Purchase of finance receivables................................................ (2,549,000) (687,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities........................ 8,867,000 (39,860,000) 13,656,000
------------ ------------ ------------
Cash flows from financing activities:
Repayments of advances to affiliate............................................ (10,000) (806,000) (1,672,000)
Repayments under lines of credit............................................... (5,422,000)
Proceeds from notes payable.................................................... 33,443,000 50,678,000
Repayments of notes payable.................................................... (60,939,000) (21,012,000) (10,636,000)
Proceeds from exercise of options and warrants................................. 246,000 132,000 18,000
------------ ------------ ------------
Net cash (used in) provided by financing activities........................ (27,260,000) 28,992,000 (17,712,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents............................ (3,476,000) (4,799,000) 9,708,000
Cash and cash equivalents at beginning of year.................................. 5,689,000 10,488,000 780,000
------------ ------------ ------------
Cash and cash equivalents at end of year........................................ $ 2,213,000 $ 5,689,000 $ 10,488,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest.................................................................... $ 2,010,000 $ 715,000 $ 365,000
Income taxes................................................................ $ 4,771,000 $ 4,525,000 $ 344,000

See notes to consolidated financial statements

F-12

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002, 2001 and 2000

Note A - The Company and its Significant Accounting Policies

1. The Company

Asta Funding, Inc. and its wholly-owned subsidiaries (the "Company") is
primarily in the business of purchasing and liquidating performing and
nonperforming consumer loans and purchasing and collecting factored
receivables. Additionally, the Company is liquidating previously purchased
automobile loans receivables.

2. Principles of Consolidation

3. Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

The Company maintains cash balances in various financial institutions.
Management periodically evaluates the creditworthiness of such institutions.

4. Income Recognition

The Company recognizes income on performing and nonperforming consumer
receivable portfolios, which are acquired for liquidation, using either the
interest method or cost recovery method. Upon acquisition of a portfolio of
receivables, management estimates the future anticipated cash flows and
determines the allocation of payments based upon this estimate. If management
can reasonably estimate the expected amount to be collected on a portfolio and
can reasonably determine the timing of such payments based on historic
experience and other factors, the interest method is used. If management
cannot reasonably estimate the future cash flows, the cost recovery method is
used.

Under the interest method, income is recognized on the effective yield
method based on the actual cash collected during a period and future estimated
cash flows and timing of such collections and the portfolio's cost. The
estimated future cash flows are reevaluated quarterly. Under the cost recovery
method, no income is recognized until the cost of the portfolio has been fully
recovered.

Interest income from sub-prime automobile loans is recognized using the
interest method. Accrual of interest income on loans receivable is suspended
when a loan is contractually delinquent more than 60 days. The accrual is
resumed when the loan becomes contractually current, and past due interest is
recognized at that time. In addition, a detailed review of loans will cause
earlier suspension if collection is doubtful.

5. Finance Receivables

Finance receivables are factored accounts receivable primarily with full
recourse.

6. Auto Loans Receivable

Substantially all loans are at fixed rates of interest, collateralized by
automobiles, and have remaining maturities of 1 year or less. Each automobile
loan provides for full amortization; equal monthly payments and can be fully
prepaid by the borrower at any time without penalty. The Company purchased the
loans from dealers at a discount from the amount financed under the contract.
Substantially all borrowers are located in the northeastern and mid-atlantic
states.

F-13

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000
Note A - The Company and its Significant Accounting Policies -- (Continued)

7. Furniture and Equipment

Furniture and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets (5 to 7
years).

8. Credit Losses

Provisions for credit losses are charged to operations in amounts sufficient
to maintain the allowance at a level considered adequate to cover the losses
of principal in the existing portfolio. The Company's charge-off policy is
based on an account-by-account review of finance receivables and loans
receivable. Such receivables are charged-off when management deems them to be
uncollectible.

9. Repossessed Automobiles Held for Sale

Upon foreclosure of the loan, the Company records repossessed automobiles at
the lower of the loan balance or estimated fair value of the automobile.

After foreclosure, valuations are periodically performed by management and
the carrying value of the automobiles are adjusted to the lower of cost
recorded upon repossession or estimated fair value.

10. Income Taxes

Deferred federal and state taxes arise from temporary differences resulting
primarily from the provision for credit losses and funds deposited in accounts
for loans sold being reported for financial accounting and tax purposes in
different periods.

11. Net Income Per Share

Basic per share data is determined by dividing net income by the weighted
average shares outstanding during the period. Diluted per share data is
computed by dividing net income by the weighted average shares outstanding,
assuming all dilutive potential common shares were issued. With respect to the
assumed proceeds from the exercise of dilutive options, the treasury stock
method is calculated using the average market price for the period.

The following table presents the computation of basic and diluted per share
data for the years ended September 30, 2002, 2001 and 2000:

2002 2001 2000
------------------------------------ ----------------------------------- -----------------------------------
Weighted Weighted Weighted
Average Per Share Average Per Share Average Per Share
Net Income Shares Amount Net Income Shares Amount Net Income Shares Amount
----------- --------- --------- ---------- --------- --------- ---------- --------- ---------

Basic......... $10,383,000 4,039,000 $2.57 $8,591,000 3,971,000 $2.16 5,830,000 3,946,000 $1.48
===== ===== =====
Effect of
dilutive
stock
options..... 316,000 205,000 126,000
----------- --------- ----- ---------- --------- ----- ---------- --------- -----
Diluted....... $10,383,000 4,355,000 $2.38 $8,591,000 4,176,000 $2.06 $5,830,000 4,072,000 $1.43
=========== ========= ===== ========== ========= ===== ========== ========= =====

During the year ended September 30, 2002, options to purchase 84,500 shares
were outstanding but not included in the EPS calculation because they were
antidilutive. All outstanding options were included in the EPS calculation for
the year ended September 30, 2001.

F-14

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note A - The Company and its Significant Accounting Policies -- (Continued)

During the year ended September 30, 2000, options to purchase 196,630 shares
were outstanding but not included in the EPS calculation because they were
antidilutive.

12. Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

13. Stock-based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") allows companies to either expense the
estimated fair value of stock options or to follow the intrinsic value method
set forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25") but disclose the pro forma effects on net income had the fair value of
the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans.

Note B - Consumer Receivables Acquired for Liquidation

During the year ended September 30, 2002, the Company applied the interest
method on portfolios with carrying values aggregating $32,797,000 and the cost
recovery method on portfolios with carrying values aggregating $3,282,000.

Note C - Allowances for Credit Losses

Changes in the allowances for credit losses relating to the auto loans
receivable and finance receivables consisted of the following:

2002 2001
------------------------- -------------------------
Auto Loans Finance Auto Loans Finance
Receivable* Receivables Receivable* Receivables
----------- ----------- ----------- -----------

Balance, beginning of year................................. $ 226,000 $ 150,000 $ 611,000 $ 75,000
Provisions................................................. 950,000 100,000 75,000
Charge-offs................................................ (161,000) (1,042,000) (519,000)
Recoveries................................................. 38,000 34,000
--------- ----------- --------- --------
Balance, end of year....................................... $ 103,000 $ 58,000 $ 226,000 $150,000
========= =========== ========= ========

---------------
* Includes repossessed automobiles

F-15

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note D - Furniture and Equipment

Furniture and equipment as of September 30, 2002 and 2001 consist of the
following:

2002 2001
-------- --------

Furniture............................................. $293,000 $108,000
Equipment............................................. 631,000 527,000
-------- --------
924,000 635,000
Less accumulated depreciation......................... 579,000 485,000
-------- --------
Balance, end of period................................ $345,000 $150,000
======== ========

Depreciation expense for the years ended September 30, 2002, 2001 and 2000
aggregated $94,000, $105,000 and $133,000, respectively.

Note E - Restricted Cash

In connection with the sale of loans in 1997, the Company was required to
deposit funds into separate cash accounts with trustees for possible interest
adjustments due to borrowers prepaying the loans.

Note F - Debt

In January 2001, a bank advanced $10,000,000 under a line of credit with
interest at the prime rate (4.75% at September 30, 2002). The credit line is
collateralized by portfolios of consumer receivables acquired for liquidation
and contains customary financial and other covenants that must be maintained
in order to borrow funds. On November 15, 2001, the line of credit, which
expires November 30, 2002, was increased to $20,000,000. As of September 30,
2002, $2,172,000 was outstanding and the Company was in compliance with all of
the covenants under this line of credit.

In August 2001, an investment banking firm provided $29,905,000 in exchange
for a note payable with interest at LIBOR plus 2% and the right to receive 50%
of subsequent collections, net of expenses, from the portfolio collateralizing
the obligation, once the note and advances by another of the Company's
subsidiaries have been repaid. As of September 30, 2002, the outstanding
balance of the note was paid in full. In December 2001, the Company purchased
one-half of the right to receive subsequent collections for $1,500,000 and a
third party purchased the other one-half for $1,500,000.

Note G - Other Liabilities

Other liabilities as of September 30, 2002 and 2001 are as follows:

2002 2001
---------- ----------

Reserve for consumer receivables sold............. $ 498,000 $ 895,000
Accounts payable.................................. 1,191,000 696,000
Accrued interest.................................. 1,928,000 295,000
Other............................................. 392,000 584,000
---------- ----------
Total other liabilities $4,009,000 $2,470,000
========== ==========

Note H - Income Taxes

The significant component of the Company's deferred tax assets as of
September 30, 2002 and 2001 is the allowance for credit losses.

F-16

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note H - Income Taxes -- (Continued)

The components of the provision for income taxes for the years ended
September 30, 2002, 2001 and 2000 are as follows:

2002 2001 2000
---------- ---------- ----------

Current:
Federal.................................. $5,277,000 $3,463,000 $3,854,000
State.................................... 1,543,000 1,010,000 981,000
---------- ---------- ----------
6,820,000 4,473,000 4,835,000
---------- ---------- ----------

2002 2001 2000
---------- ---------- -----------

Deferred:
Federal................................. 65,000 985,000 (850,000)
State................................... 20,000 285,000 (160,000)
---------- ---------- -----------
85,000 1,270,000 (1,010,000)
---------- ---------- -----------
Provision for income taxes............... $6,905,000 $5,743,000 $ 3,825,000
========== ========== ===========

The difference between the statutory federal income tax rate on the
Company's pre-tax income and the Company's effective income tax rate is
summarized as follows:

2002 2001 2000
---- ---- ----

Statutory federal income tax rate .......................... 35.0% 35.0% 34.0%
State income tax, net of federal benefit ................... 5.8 6.0 5.6
Other ...................................................... (0.9) (0.9)
---- ---- ----
Effective income tax rate .................................. 39.9% 40.1% 39.6%
==== ==== ====

Note I - Operating Leases

The Company leases its facilities under an operating lease through July
2005. Effective February 2003, the annual operating lease payment increases
are adjusted based on the lesser of the change in the Consumer Price Index or
3% fixed. The future minimum lease payments are as follows:

Twelve Months
Ending September 30,
--------------------

2003 ................................................. 135,000
2004 ................................................. 140,000
2005 ................................................. 120,000
--------
$395,000
========

Rent expense for the years ended September 30, 2002, 2001 and 2000 was
approximately $161,000 $159,000 and $119,000, respectively.

Note J - Related Party Transactions

During the year ended September 30, 2001, an affiliate, owned by officers of
the Company, advanced funds to the Company with interest at 12 percent per
annum, aggregating $57,000.

F-17

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note K - Stock Option Plans

1995 Stock Option Plan

The Company has a stock option plan under which 885,000 shares of common
stock are reserved for issuance upon exercise of either incentive or
nonincentive stock options, which may be granted from time to time by the
Board of Directors to employees and others. The Board of Directors determines
the option price (not to be less than fair market value for incentive options)
at the date of grant. The options have a maximum term of 10 years and
outstanding options expire from November 2005 through May 2012. As of
September 30, 2002, 785,500 shares of common stock are reserved for the
issuance under the stock option plan.

2002 Stock Option Plan

During May 2002, the Company approved a new stock option plan under which
500,000 shares of common stock are reserved for issuance upon the exercise of
either incentive or nonincentive stock options, which may be granted from time
to time by the Board of Directors to employees and others. The Board of
Directors determines the option price (not to be less than fair market value
for incentive options) at the date of grant. The options have a maximum term
of 10 years. No options were granted under the new plan during 2002.

The Company applies APB 25 and related interpretations in accounting for its
employee stock option incentive plans and, accordingly, recognizes
compensation expense for the difference between the fair value of the
underlying common stock and the exercise price of the option at the date of
grant. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's proforma net income, net income per share and diluted net income per
share for 2002 would have been approximately $9,568,000, $2.45 and $2.27,
respectively, 2001 would have been approximately $8,351,000, $2.10 and $2.00,
respectively and 2000 would have been $5,781,000, $2.16 and $2.06,
respectively. This is not necessarily indicative of future results of
operations, due to among other reasons, vesting provisions and future stock
option grants. The weighted average fair value of the options granted during
2002, 2001 and 2000 were $10.99, $5.90 and $5.01 per share on the dates of
grant, respectively, using the Black-Scholes option pricing model with the
following assumptions: dividend yield 0%, volatility 78% (2002), 105% (2001),
and 119% (2000), expected life 10 years, risk free interest rate of 5.0% in
2002, 4.9% in 2001, and 5.9% in 2000.

The following table summarizes stock option transactions under the plans:

Year Ended September 30,
--------------------------------------------------------------
2002 2001 2000
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- --------

Outstanding options at the beginning of year .......... 578,833 $ 4.44 584,500 $4.27 391,500 $3.70
Options granted ....................................... 87,500 12.98 32,500 6.38 206,000 5.19
Options cancelled ..................................... (60,500) 5.30 (3,000) 1.63
Options exercised ..................................... (51,333) 4.75 (38,167) 3.44 (10,000) 1.75
------- ------ ------- ----- ------- -----
Outstanding options at the end of year ................ 554,500 $ 5.73 578,833 $4.44 584,500 $4.27
======= ====== ======= ===== ======= =====
Exercisable options at the end of year ................ 420,838 $ 4.96 410,499 $4.03 340,166 $4.01
======= ====== ======= ===== ======= =====

F-18

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note K - Stock Option Plans -- (Continued)

The following table summarizes information about the Plans outstanding
options as of September 30, 2002:

Options Outstanding Options Exercisable
----------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Price Number Contractual Exercise Number Exercise
----------------------- Outstanding Life (in Years) Price Exercisable Price
----------- --------------- -------- ----------- --------

$1.625 - $1.75............................. 111,833 6.67 $ 1.63 111,833 $ 1.63
$4.50 - $6.375............................. 358,167 6.37 5.19 272,169 5.10
$11.92 - $14.05............................ 84,500 9.49 13.45 36,836 14.05
------- -------
554,500 6.90 $ 5.73 420,838 $ 4.96
======= =======

Note L - Stockholders' Equity

In May 2002, in conjunction with the approval of the 2002 Stock Option Plan,
the Board of Directors approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock from
10,000,000 shares to 30,000,000 shares and to create a new class of preferred
stock, $.01 par value per share, consisting of 5,000,000 shares.

In July 2002, the Company issued 28,000 shares of common stock with a market
value of $9.00 per share for consulting services rendered during the course of
the year.

Note M - Retirement Plan

The Company maintains a 401(k) Retirement Plan covering all of its eligible
employees. Matching contributions to the plan are made at the discretion of
the Board of Directors each plan year. Contributions for the year ended
September 30, 2002 and 2001 were $27,000 and $15,000, respectively.

Note N - Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("SFAS 107") requires disclosure of fair
value information about financial instruments, whether or not recognized on
the balance sheet, for which it is practicable to estimate that value. Because
no market exists for certain of the Company's assets and liabilities, fair
value estimates are based upon judgments regarding credit risk, investor
expectation of economic conditions, normal cost of administration and other
risk characteristics, including interest rate and prepayment risk. These
estimates are subjective in nature and involve uncertainties and matters of
judgment, which significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on the fair value
estimates and have not been considered in the estimates.

F-19

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note N - Fair Value of Financial Instruments -- (Continued)

The following summarizes the information as of September 30, 2002 and 2001
about the fair value of the financial instruments recorded on the Company's
financial statements in accordance with SFAS 107:

2002 2001
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- -----------

Cash, restricted cash and and cash equivalents .......................... $ 2,267,000 $ 2,267,000 $ 5,742,000 $ 5,742,000
Consumer receivables acquired for liquidation ........................... 36,079,000 45,099,000 43,784,000 65,676,000
Auto Loans receivable ................................................... 29,000 29,000 786,000 1,050,000
Finance receivable ...................................................... 1,443,000 1,443,000 3,086,000 3,839,000
Advances under lines of credit, notes payable and due to affiliates ..... 2,172,000 2,172,000 29,676,000 29,676,000

The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:

-- Cash, restricted cash and cash equivalents:

-- The carrying amount approximates fair value.

-- Consumer receivables acquired for liquidation:

-- The Company has estimated the fair value based on the present value
of expected future cash flows.

-- Auto loans receivable and finance receivables:

-- The Company has estimated the fair value based on the present value
of expected future cash flows.

-- Advances under lines of credit, notes payable and due to affiliates:

-- Since these are primarily variable rate and short-term, the carrying
amounts approximate fair value.

Note O - Summarized Quarterly Data (unaudited)

First Second Third Fourth Full
2002 Quarter Quarter Quarter Quarter Year
---------- ----------- ---------- ---------- -----------

Total revenue.................................. $8,402,000 $10,382,000 $8,800,000 $8,428,000 $36,012,000
Income before provision for income taxes....... 3,825,000 4,412,000 4,538,000 4,513,000 17,288,000
Net income..................................... 2,296,000 2,634,000 2,716,000 2,737,000 10,383,000
Basic net income per share..................... $0.57 $0.65 $0.67 $0.68 $2.57
Diluted net income per share................... $0.53 $0.59 $0.61 $0.63 $2.38

First Second Third Fourth Full
2001 Quarter Quarter Quarter Quarter Year
---------- ----------- ---------- ---------- -----------

Total revenue.................................. $4,134,000 $ 6,116,000 $6,720,000 $7,144,000 $24,114,000
Income before provision for income taxes....... 2,934,000 3,691,000 4,570,000 3,139,000 14,334,000
Net income..................................... 1,754,000 2,221,000 2,435,000 2,191,000 8,591,000
Basic net income per share..................... $0.44 $0.56 $0.61 $0.55 $2.16
Diluted net income per share................... $0.43 $0.54 $0.58 $0.52 $2.06

F-20

ASTA FUNDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

SEPTEMBER 30, 2002, 2001 and 2000

Note P - Subsequent Events

[1] On November 25, 2002, the Company obtained an extension of the expiration
date of its line of credit to December 31, 2003 while it negotiates a new
credit facility. There are no borrowings currently outstanding under the
line of credit.

[2] On November 25, 2002, the Company sold substantially all of its finance
receivables for their carrying value.

F-21

===============================================================================

2,500,000 Shares

[ASTA FUNDING, INC. LOGO]

Common Stock

------------------------

PROSPECTUS

------------------------

____ _____, 2003

RYAN BECK & CO.

BREAN MURRAY & CO., INC.

===============================================================================

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered (other than underwriting discounts and commissions and the
underwriters accountable expense allowance):

Item Amount
---- ------
SEC Registration Fee ........................................ $ 5,006
NASD Filing Fee ............................................. 5,942
Nasdaq Listing Fee .......................................... 22,500
Printing .................................................... 50,000
Legal fees and expenses ..................................... 200,000
Accounting fees and expenses ................................ 100,000
Blue Sky Fees and Expenses (including legal fees) ........... 10,000
Miscellaneous ............................................... 6,552
--------
Total ....................................................... $400,000

Item 14. Indemnification of Directors and Officers

Under Section 145 of the Delaware Corporation Law, we may, subject to
various exceptions and limitations, indemnify our directors and officers if
any such director or officer is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including an action by or in our
right by reason of fact that he is or was our director or officer), or is or
was serving at our request of as a director or officer of another corporation,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful, except in the case of any action by or in
our right to procure a judgment in our favor, as to any matter which such
person shall have been adjudicated to be liable for negligence or misconduct
in the performance of his duty. We shall indemnify each of our directors or
officers to the extent that they have been successful on the merits or
otherwise in the defense of any such action, suit or proceeding, or in defense
of any claim, issue or matter therein, against expenses (including attorneys'
fees) actually and reasonably incurred by them in connection with such action,
suit, proceeding, claim, issue or matter. In addition, Delaware law permits a
corporation to limit or eliminate the liability of a director to the
corporation and its shareholders for negligent breaches of such director's
fiduciary duties in certain circumstances. The foregoing statement is
qualified in its entirety by the detailed provisions of Section 45 and 102 of
the Delaware Corporation Law.

Our Certificate of Incorporation and By-Laws contain provisions with respect
to the indemnification of directors and officers which provide for
indemnification to the full extent provided by Delaware law as described
above, including a provision which eliminates the liability of directors for
negligent breaches of their fiduciary duties to us in certain circumstances.

We have also entered into indemnification agreements with each of our
executive officers and directors, the form of which is referenced as Exhibit
10.13 hereto.

Item 15. Recent Sales of Unregistered Securities

In July 2002, we issued 28,000 shares of our common stock to a consultant
who provided consultant services to us during 2002. The shares of common stock
were valued at $9.00 per share. Under the terms of the issuance of the shares
to the consultant, the consultant has agreed not to sell any of the shares
until July 25, 2005, without our prior consent.

II-1

The above transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of the
securities was without the use of an underwriter, and the shares of common
stock bear a restrictive legend permitting transfer thereof only upon
registration or an exemption under the Act.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Exhibit
Number
------
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation (1)
3.1(c) Amendment to Certificate of Incorporation (7)
3.2 By-laws (2)
5.1 Opinion of Lowenstein Sandler PC
10.1 1995 Stock Option Plan, as amended (1)
10.2 Employment Agreement dated October 1, 2001, by and between the Company
and Gary Stern (4)
10.3 Employment Agreement dated October 1, 2001, by and between the Company
and Mitchell Herman (4)
10.4 Common Stock Purchase Warrant dated October 12, 2000, issued by Small
Business Worldwide to AstaFunding.Com, LLC. (3)
10.5 Purchase Agreement dated January 18, 2001, between Asta Funding, Inc.
and Heilig Meyers Furniture (5)
10.6 Purchase Agreement of a $191 million loan portfolio dated August 31,
2001, between Computer Finance, LLC, a subsidiary of the Company and a
major computer manufacturer/retailer (6)
10.8 Loan and Security Agreement, dated as of August 30, 2001, by and
between Computer Finance, LLC, the Company and Greenwich Capital
Financial Products, Inc. (6)
10.9 Servicing Agreement dated August 30, 2001, between Computer Finance,
LLC, Greenwich Capital Financial Products, Inc., Gulf State Credit,
L.L.C. and OSI Portfolio Services, Inc. (7)
10.10 Second Amended and Restated Loan and Security Agreement dated as of
January 28, 2003, by and among the Company, Asta Funding Acquisition
II, LLC, Palisades Collection, L.L.C. and Israel Discount Bank of New
York (8)
10.11 2002 Stock Option Plan (7)
10.12 Employment Agreement dated as of May 21, 2002, by and between the
Company and Arthur Stern (9)
10.13 Form of Indemnification Agreement
21.1 Subsidiaries of the Company(4)
23.1 Consent of Independent Auditors
23.2 Consent of Lowenstein Sandler PC (included in Exhibit 5.1)
23.3 Consent of Dreher Langer & Tomkies L.L.P.+
24.1 Power of Attorney+

---------------
+ Previously Filed

(1) Incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212)
(2) Incorporated by reference to the Company's Current Annual Report on Form
10-KSB for the year ended September 30, 1999
(3) Incorporated by reference to the Company's Report filed on Form 8-K/A on
November 2, 2000
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 2001
(5) Incorporated by reference to the Company's Quarterly Report filed on Form
10-QSB on February 9, 2001
(6) Incorporated by reference to the Company's Current Report filed on Form 8-K
on October 4, 2001
(7) Incorporated by reference to the Company's Quarterly Report filed on Form
10-QSB on May 15, 2002

II-2

(8) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 2003
(9) Incorporated by reference from the Company's Quarterly Report on Form 10-
QSB for the quarter ended June 30, 2002

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement or amendment thereto to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Englewood Cliffs, State of New Jersey, on June 12, 2003.

ASTA FUNDING, INC.

Dated: June 12, 2003 By:
----------------------------
Gary Stern, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Gary Stern President, Chief Executive Officer and Director June 12, 2003
------------------------------------ (principal executive officer)
Gary Stern

* Chief Financial Officer, Secretary, Chief Accounting June 12, 2003
------------------------------------ Officer and Director (principal financial and
Mitchell Herman accounting officer)

* Chairman of the Board and Executive Vice President June 12, 2003
------------------------------------
Arthur Stern

* Director June 12, 2003
------------------------------------
Herman Badillo

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Signature Title Date
--------- ----- ----

* Director June 12, 2003
------------------------------------
Edward Celano

* Director June 12, 2003
------------------------------------
Harvey Leibowitz

* Director June 12, 2003
------------------------------------
David S. Slackman

* /s/ Gary Stern
------------------------------------
By: Gary Stern
Attorney-in-Fact

II-5