UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**Form
      10-KSB**





x ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





For
      the
      fiscal year ended December
      31, 2006





 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





Commission
      file number 000-49679





**LITFUNDING
      CORP.**


(Name
      of
      small business issuer in its charter)





**Nevada**
            
            **93-1221399**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





**6375
                S. Pecos Road****Las
                Vegas, Nevada**
            
            **89120**(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer's
      Telephone Number  **(702)
      898-8388**





*Copies
      of Communications to:*


Dennis
      H.
      Johnston, a Professional Law Corporation


9422
      Canfield


La
      Habra,
      CA 90631


Tel:
      (310) 666-2133


Fax:
      (818) 827-0900





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $0.001 par value


(Title
      if
      Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No  ̈











Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB.  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x





The
      issuer’s revenues for its most recent fiscal year ended December 31, 2006. $644,040





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the average bid and ask price, as of
      March 31, 2007, was $6149434, based on a share value of $0.078.





Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
      securities under a plan confirmed by a court. Yes x No  ̈





The
      number of shares of Common Stock, $0.001 par value, outstanding on March 31,
      2007, was 78,838,902 shares.





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No x








**LITFUNDING
      CORP.**


**FOR
      THE FISCAL YEAR ENDED**


**DECEMBER
      31, 2006**





**Index
      to Report**


**on
      Form 10-KSB**





**PART
                I**
            
            PageItem
                1.
            Description
                of Business
            2Item
                2.
            Description
                of Property
            12Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            13**PART
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            13Item
                6.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            19Item
                7.
            Financial
                Statements
            28Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            30Item
                8A.
            Controls
                and Procedures
            31Item
                8B.
            Other
                Information
            31**PART
                III**Item
                9.
            Directors
                and Executive Officers, Promoters, and Control Persons; Compliance
                with
                Section 16(a) of the Exchange Act.
            31Item
                10.
            Executive
                Compensation
            36Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            39Item
                12.
            Certain
                Relationships and Related Transactions
            41Item
                13.
            Exhibits
            42Item
                14
            Principal
                Accountant Fees and Services
            43Signatures
            
            45




i





**FORWARD-LOOKING
      STATEMENTS**








This
      document contains “forward-looking statements” within the meaning of the Private
      Securities Litigation Reform Act of 1995. All statements other than statements
      of historical fact are “forward-looking statements” for purposes of federal and
      state securities laws, including, but not limited to, any projections of
      earnings, revenue or other financial items; any statements of the plans,
      strategies and objections of management for future operations; any statements
      concerning proposed new services or developments; any statements regarding
      future economic conditions or performance; any statements or belief; and any
      statements of assumptions underlying any of the foregoing.





Forward-looking
      statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar words. These
      forward-looking statements present our estimates and assumptions only as of
      the
      date of this report. Except for our ongoing securities laws, we do not intend,
      and undertake no obligation, to update any forward-looking
      statement.





Although
      we believe that the expectations reflected in any of our forward-looking
      statements are reasonable, actual results could differ materially from those
      projected or assumed in any or our forward-looking statements. Our future
      financial condition and results of operations, as well as any forward-looking
      statements, are subject to change and inherent risks and uncertainties. The
      factors impacting these risks and uncertainties include, but are not limited
      to:





o
            increased
                competitive pressures from existing competitors and new
                entrants;




o
            increases
                in interest rates or our cost of borrowing or a default under any
                material
                debt agreements;




o
            deterioration
                in general or regional economic
                conditions;




o
            adverse
                state or federal legislation or regulation that increases the costs
                of
                compliance, or adverse findings by a regulator with respect to existing
                operations;




o
            loss
                of customers or sales weakness;




o
            inability
                to achieve future sales levels or other operating
                results;




o
            the
                unavailability of funds for capital expenditures and/or general working
                capital; and




o
            operational
                inefficiencies in distribution or other
                systems.




For
      a
      detailed description of these and other factors that could cause actual results
      to differ materially from those expressed in any forward-looking statement,
      please see “Factors That May Affect Our Plan of Operation” in this
      document.





Throughout
      this Annual Report references to “we”, “our”, “us”, “LitFunding”, “the Company”,
      and similar terms refer to LitFunding Corp.





1




**PART
      I**





**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**





**(a)
      General Business Development**





LitFunding
      Corp. was incorporated in the State of Nevada on July 11, 1996 as RP
      Entertainment, Inc., but changed its name to LitFunding Corp. in February 2003
      as the result of a reverse merger. On February 21, 2003, we completed a reverse
      triangular merger among our wholly-owned subsidiary RP Acquisition Corp. (“RP
      Acquisition”), a Nevada corporation, and California LitFunding, formerly
      LitFunding Corp., (“California LitFunding”), a California corporation. Pursuant
      to the terms of the merger, California LitFunding merged with RP Acquisition
      wherein RP Acquisition ceased to exist and California LitFunding became our
      wholly-owned subsidiary.





On
      April
      2, 2003, certain individuals and entities filed an involuntary bankruptcy
      petition under Chapter 7 of the United States Bankruptcy Code against the
      Company in the United States Bankruptcy Court, Central District California.
      After numerous legal proceedings, in November 2003, we filed a voluntary Chapter
      11 bankruptcy petition. In January 2004, California LitFunding filed a voluntary
      Chapter 11 bankruptcy petition. On June 17, 2004, we received confirmation
      of
      our joint plans of reorganization from the United States Bankruptcy Court on
      June 17, 2004. On March 22, 2006, we filed our motion seeking final decree.
      See
      Item 3 Legal Proceedings for further description.





Business
      is conducted through our subsidiary, LitFunding USA and its wholly owned limited
      liability companies. LitFunding USA was incorporated in the State of Nevada
      on
      March 22, 2004. LitFunding USA resumed the business of California LitFunding
      (our subsidiary who has been in business since 2000) subsequent to June 17,
      2004, after the United States Bankruptcy Court entered an order confirming
      us
      and California LitFunding’s joint plans of reorganization .





For
      the
      years ended December 31, 2006 and December 31, 2005, we incurred net losses
      before extraordinary gain, of $1,027,947 and $3,972,043, respectively. Our
      accumulated deficit at the end of December 31, 2006 was $11,225,266. As a result
      of our losses, our audited financial statements for the year ended December
      31,
      2006, indicated that there was substantial doubt about our ability to continue
      as a going concern.





**(b)
      OUR BUSINESS**





We
      are in
      the business of investing in litigation recoveries. We provide funding to
      qualifying plaintiffs and plaintiffs’ attorneys for the payment of costs and
      expenses of litigation, principally in the areas of personal injury, medical
      malpractice, product liability, toxic torts and employment. These costs
      generally include costs such as court filing fees, expert witnesses, private
      investigators (i.e. if the litigant is injured or otherwise incapacitated and
      unable to work) and other expenses of a law office in filing and maintaining
      a
      civil lawsuit. We do not provide funding for criminal or administrative
      proceedings. We generate revenues by raising capital and advancing this capital
      to various law firms pursuant to various settlement agreements. These settlement
      agreements provide that the funds advanced shall be repaid to us, along with
      a
      fee, when the lawsuits referenced in the agreement ultimately
      settle. The exact amount of the fee payable on the funds advanced depends upon
      the length of time the funds are outstanding, up to a fixed limit. Pursuant
      to
      the terms of these settlement agreements, our contractual right to payment
      is
      limited to the funds ultimately paid to the law firm from the specified lawsuit,
      or lawsuits, in which the funds are invested or expended.





2




We
      believe that litigants may need our services for many reasons including:





·
            Many
                litigants simply do not have the financial means required to present
                and
                maintain their cases effectively through all the necessary stages
                of
                litigation;


·
            The
                defendant or entity is often a corporation, represented by an insurance
                company with experienced counsel and greater financial and other
                resources
                to defend against a claim;


·
            Plaintiffs’
                attorneys frequently do not have the financial means, or simply do
                not
                want to advance the money, necessary to pay the costs and expenses
                of
                litigating certain types of civil
                actions.


·
            Personal
                injury cases seek monetary recovery for medical costs, loss of life
                or use
                of limbs, and emotional damages, all of which necessitate "expert"
                testimony to establish and enhance the amount of the recovery; such
                expert
                testimony is often prohibitively expensive to many plaintiffs or
                their
                counsel;


·
            Depending
                on the circumstances of the particular case, expert witnesses may
                be
                involved in a “typical” case in terms of complexities of the issues to be
                proven; and even more if the case involves multiple parties, more
                complex
                issues and/or larger damage claims. For example, in a construction
                defect
                case, expert witnesses are engaged to provide opinion testimony on
                a range
                of issues from the nature of the alleged defect, whether the damage
                was
                caused by defective materials, design or construction (or a combination
                thereof), the effect it has on the value of the construction project
                as a
                whole and the losses sustained by the plaintiff as a result of the
                delays,
                costs and other factors related to the problems created by the
                construction defect.





Our
      management believes that the market for litigation assistance funding is
      substantial, especially in larger states such as California where cases
      regularly overload crowded county court dockets. However, we often turn down
      cases not only because they are not meritorious, but also because we lack the
      resources to fund all of them. In management’s judgment, additional funding will
      allow us to grow at a more desirable rate.





**Underwriting
      Services**





We
      find
      cases to “invest in” through law firms and attorneys. We currently have
      contracts with clients in California (with an emphasis in Los Angeles, Orange,
      Ventura and San Diego counties), Georgia, Illinois, Minnesota, Mississippi,
      New
      York and South Carolina. We have in the past and are available to write
      contracts for attorneys in Arizona, California, Florida, Georgia, Hawaii,
      Illinois, Indiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri,
      Nevada,
      New Hampshire, New Jersey, New York, Oregon, Rhode Island, South Carolina,
      Tennessee, Texas, Vermont, Washington, West Virginia, Wisconsin and the Virgin
      Islands.





3





We
      have
      an internal director of sales and marketing to develop advertising and sales
      programs to our target market. We also obtain case referrals from independent
      brokers who refer a potential funding to us for evaluation. We retain sole
      discretion in the selection criteria and procedure. Brokers are paid between
      5%
      and 6% of the funds that we place.





Our
      internal guidelines limit non-recourse investment in any given case can be
      no
      more than 7% of what our retained legal experts estimate to be the value of
      the
      case to us. We enter into contracts with the attorney or law firm representing
      the litigant and, upon request of the attorney, directly with the litigant.
      In
      exchange for our financial support, we receive a contingent contractual interest
      secured by a security interest in the monetary settlement or judgment in the
      lawsuit. If a case is lost or abandoned, we receive nothing in exchange for
      our
      investment. We are not a law firm and take no role in the filing or handling
      of
      the litigation. However, if the case is settled or a judgment is obtained
      against the defendant, we are paid according to the formula in the contract.
      Generally, we receive a return of our investment, plus a 45% return on the
      funds
      we provide for every 90 days the principal is outstanding. This return is
“capped” at 270% of the amount advanced. Excluding cases that are lost and do
      not pay any return, our statistics show that we receive a return of our
      investments and fees on cases we invest within an average of 12 to 36 months
      from the date of our investment. We intend to shorten this cycle by advancing
      on
      cases that are much closer to resolution.





When
      our
      management judges the business climate to be appropriate, we anticipate that
      we
      may apply for the necessary permits and licenses that will allow us to become
      a
      full-recourse lender. Loans made under this program will be fully collateralized
      by the attorney firm’s portfolio of cases and real and personal property of the
      firm’s partners. These loans will be unlike our current non-recourse programs
      which are advances and not loans, proposed interest rates may range between
      30%
      and 38% per annum and the loan is fully repayable whether the underlying case
      is
      lost or won. Interest payments may be made either monthly or
      quarterly.





For
      the
      year ended December 31,  2006,
      we
      have $414 thousand in funds on approximately 60 cases. We have collected
      $890,000 in principle and fees, lost $30,000 of principle, and have open and
      unresolved cases totaling approximately $810,000. We estimate that the principle
      and fees expected on the open and unresolved cases is approximately $1.2
      million.





**Case
      Selection and Administration**





We
      believe that selection of cases is the essential ingredient of our business.
      We
      contract only with attorneys and law firms that, in our assessment, have the
      experience and acumen to represent their clients zealously and competently.
      Ninety to ninety-five percent of the cases in which we have invested to date
      are
      being handled by attorneys with whom we have previously contracted business,
      or
      who are referrals from existing attorney clients.





In
      2006
      we invested in the following types of cases with the number of cases funded
      following the category:





4




Personal
                injury
            7Product
                liability
            24Medical
                malpractice
            12Discrimination
            1Wrongful
                death
            6Civil
                rights
            4Auto
                collision
            3Premises
                liability
            1Sexual
                abuse
            1Burn
                injury
            2








**SIGNIFICANT
      DEVELOPMENTS**





**Agreements
      with Imperial Capital Holdings**





On
      January 16, 2006, we entered into an Equity Investment Agreement (“Investment
      Agreement”), which is an equity line of credit ("ELoC"), with Imperial Capital
      Holdings ("Imperial"). On that same date, we entered into a Registration Rights
      Agreement (“Registration Agreement”) with Imperial, which called for us to file
      a registration statement relating to the ELoC within sixty days. Further, we
      were in default of our promise to register the common stock underlying the
      shares of our Series A convertible preferred stock, which Imperial acquired
      in
      August, 2005, and, in July, 2006, we were also in default on the payment of
      a
      $30,000 promissory note due Imperial on July 12, 2006. On July 28, 2006, we
      reached an understanding with Imperial to cure our defaults in exchange for
      the
      issuance of 800,000 shares of common stock, which is being registered hereunder.
      Concurrently, we entered into a new Investment Agreement and a new Registration
      Rights Agreement with Imperial with substantially similar terms as the original
      agreements dated January 16, 2006.





The
      ELoC
      terminates 24 months after the registration statement has been declared
      effective. The maximum amount of money that the ELoC may provide to us over
      the
      24-month period of time is $3,000,000. During these 24 months, commencing at
      such time as the registration statement becomes effective, we may periodically
      deliver newly issued, registered shares of our common stock to Imperial who
      will
      then deliver to us the purchase price, in cash, in amounts based on a
      fluctuating price per share of our common stock. We are not obligated to request
      any portion of, or the entire $3,000,000. The actual aggregate number of shares
      that we may issue pursuant to the Investment Agreement is not determinable
      as it
      is based on the market price of our common stock from time to time and how
      much
      funding we desire from time to time. We have reserved 9 million shares for
      issuance under the ELoC, which we are registered in this registration statement
      pursuant to the terms of our agreements with Imperial.





We
      can
      commence drawing down on the ELoC at such time as this registration statement
      becomes effective. Since only the Commission can order a registration statement
      effective, we do not know when or if the registration statement will become
      effective. For an equal amount of dollars of funding from time to time pursuant
      to the ELoC, the number of shares we would issue to
      Imperial would be greater during times of our stock price being low, as it
      currently is, and conversely so during times when our stock price is high.
      Pursuant to the ELoC, we are subject to penalties if we fail to deliver stock
      to
      Imperial after we request a draw down from the ELoC.





5




Upon
      the
      effectiveness of the registration statement, and pursuant to the ELoC, we may
      issue and sell to Imperial, and Imperial will purchase from us, up to that
      number of shares of common stock having an aggregate value not exceeding
      $3,000,000. However, Imperial is not obligated to purchase such amount of shares
      that would cause it to own more than 9.9% of our total number of outstanding
      shares at any given time. From time to time, we may, in our sole discretion,
      deliver a put notice to Imperial which states the dollar amount which we intend
      to sell to Imperial which will be, at our choice, either: (A) 200% of the
      average daily volume (as quoted on the U.S. markets only) of our common stock
      for the 10 trading days prior to the applicable put notice date, multiplied
      by
      the average of the 3 lowest daily closing bid prices immediately preceding
      the
      put date, or, (B) a minimum put amount of $10,000. The maximum amount of any
      put
      notice cannot exceed $250,000. The purchase price for the common stock
      identified in the put notice will be equal to 93% of the lowest closing bid
      price of the common stock during the pricing period. The pricing period is
      the
      period beginning on a put notice date and ending on and including the date
      that
      is five (5) trading days after the put notice date. Imperial is required to
      purchase from us during the related pricing period that number of shares having
      an aggregate purchase price equal to the Put Amount set forth in the Put Notice.
      Imperial is deemed to be an “underwriter” within the meaning of the Securities
      Act of 1933, as amended, in connection with the resale of our common stock
      under
      the Investment Agreement.





As
      we
      draw down on the ELoC, more shares will be sold into the market by Imperial.
      This new supply of shares may cause our stock price to drop. In turn, as the
      stock price drops and as we make more draw downs on the ELoC, even more stock
      will come into the market which may cause yet a further drop in stock price.
      You
      should be aware that there is an inverse relationship between our stock price
      and the number of shares to be issued pursuant to the ELoC. If our stock price
      declines, we will be required to issue a greater number of shares under the
      ELoC. We are not required to draw down or use the full amount available of
      the
      ELoC.






**Merger
      With Global Universal Film Group**





Effective
      March 7, 2006, we completed a reverse tri-party merger by an among the Company,
      Silver Dollar Production, a Nevada corporation and wholly owned subsidiary
      of
      the Company, and Global Universal Film Group, Inc., a Nevada corporation,
      whereby we issued 1,500,000 shares of Series B Convertible Preferred Stock
      to
      Global in exchange for 100% of the issued and outstanding securities of Global.
      Pursuant to the terms of the merger, Global merged into Silver Dollar wherein
      Silver Dollar ceased to exist and Global became a wholly owned subsidiary of
      the
      Company.


6
  Our
        merger agreement with Global Universal gives their former shareholders, as
        holders of our Series B convertible preferred stock, the right to spin-off
        from
        LitFunding and become a separately traded corporation. After electing to
        spin-off, their preferred stock will automatically convert into an equal
        amount
        of shares of our common stock at the closing of the spin-off transaction.
        On October 16, 2006, Global Universal shareholders gave notice to the Company
        of
        their election to spin-off from us. Upon completing the spin-off transaction,
        we
        will earn a management fee of $200,000, of which $26,000 has already been
        paid
        by Global Universal, and we will retain 10% of Global Universal’s shares that
        are issued and outstanding immediately after the spin-off transaction. The
        Company plans to file a registration statement to effect the spin-off
        transaction and register the shares of Global Universal that will be distributed
        to all LitFunding shareholders on a pro-rata basis.





On
      August
      29, 2006, we announced that Global Universal, our wholly owned subsidiary,
      had
      commenced filming the pilot of “You’ve Got the Part!”, which is a new reality
      show using the latest advancement in cell phone and Internet technologies to
      find Hollywood’s new generation of aspiring actors. Global Universal is
      presently seeking a network affiliate or other entertainment company that will
      fund the further development of and the televised airing of the show.








**Acquisition
      of Easy Money Express**





On
      March
      31, 2006, we entered into a Share Exchange Agreement with Easy Money Express,
      Inc., a Nevada Corporation, whereby we issued 20,000 shares of our common stock
      to the 2 stockholders of Easy Money in exchange for 100% of the issued and
      outstanding shares of common stock of Easy Money held by the 2 stockholders.
      Pursuant to the terms of the share exchange agreement, Easy Money will continue
      as a wholly-owned subsidiary of the Company.








**Letter
      of Intent between Easy Money and Interactive Brand Development,
      Inc.**





On
      April
      7, 2006, our wholly-owned subsidiary Easy Money entered into a letter of intent
      with Interactive Brand Development, Inc. (“IBD”), a Delaware corporation,
      wherein they wish to engage in a joint venture project for an Internet based
      payday loan operation under the trade name “Easy Money Express”. We are working
      with IBD to perform the necessary due diligence that will allow both parties
      to
      sign a definitive agreement, which will provide the specific details regarding
      the terms and conditions of the joint venture. Upon completion of a definitive
      agreement we will file a Form 8-K.





On
      June
      16, 2006, our wholly owned subsidiary, Easy Money Express, entered into a
      service agreement with M3 Internet Services, Inc. d/b/a CashZip, a South Dakota
      Corporation, wherein M3 agreed to promote and market the Easy Money
      Internet-based loan business through its developed online marketing using
      various online search engines and Pay-per-Click marketing services, including,
      but not limited to www.Google.com, as well as mutually agreed upon promotional
      and advertising material. Compensation shall be paid only on loan transactions
      made and repaid. Easy Money shall pay to M3 50% of the gross revenue generated
      from loan transactions based upon referrals made by M3 and loan transactions
      based upon referrals made by any source outside of M3’s marketing efforts. Easy
      Money shall also pay M3 a $12 client acquisition fee for each new client who
      submits an online loan application. The term of the agreement is for twelve
      (12)
      months commencing on June 16, 2006 and will automatically renew for
      succeeding 12-month periods unless either party notifies the other, in writing,
      at least thirty (30) days prior to the end of the term that it does not intend
      to renew.





7





**Agreement
      with CardMart Plus USA**





On
      November 17, 2006, we entered into a binding Letter of Intent with CardMart
      Plus
      USA, Inc., a Nevada Corporation, whereby we would agree to issue approximately
      44 million shares of our unregistered common stock to the stockholders of
      CardMart Plus USA in exchange for 100% of their issued and outstanding shares
      of
      capital stock. This transaction, if completed, would constitute a change in
      control of the Company. The Letter of Intent also provides that CardMart Plus
      USA will agree to invest the sum of $300,000 into our subsidiary, Easy Money
      Express, in addition to merging in their core business operations. The Letter
      of
      Intent provided us with a $25,000 non-refundable deposit and called for final
      agreements to be completed on or before December 1, 2006. On February 20, 2007,
      we mutually agreed to terminate the Letter of Intent with CardMart Plus USA
      due
      to business problems experienced by CardMart Plus USA that could not be resolved
      in a definitive period of time. W e
      filed a
      Form 8-K on February 23, 2007, regarding our termination of the Letter Agreement
      with CardMart Plus USA.








**Intellectual
      Property**





We
      use
      the trade names of LitFunding, California LitFunding, LitFunding USA and CA
      Funding. Other that an expertise in assessing underwriting risks, our
      proprietary database and experience of success with various lawyers and law
      firms, our business is not dependent upon proprietary information.





**Our
      Industry**





Our
      goal
      is to provide funding for plaintiffs and the law firms representing increasing
      their chances of bringing a case to a favorable outcome. In return for a
      percentage of the settlement or eventual judgment, we arrange for such
      plaintiffs’ attorneys to fund the conduct of such litigation. Unlike attorneys
      who bill hourly for their legal services, plaintiffs’ attorneys in personal
      injury litigation and in similar types of cases work on a contingency basis
      and
      routinely fund the cost of litigation themselves. For example, expert witnesses
      are essential to the successful litigation of a personal injury case, and can
      cost several thousand dollars per expert per case. Accordingly, a plaintiff
      attorney's ability to maximize the value of a case is based in part on their
      ability to fund the case. In addition, plaintiff attorneys are often obligated
      to provide funds to their clients for living and other expenses while awaiting
      settlement. In order to satisfy their clients' needs, they may be forced to
      settle a client's claim at a lesser amount, advance their own funds to clients
      without the lawful ability to charge interest, or risk losing clients to other
      attorneys who will advance funds.


8




**Competition**





We
      compete with numerous companies located throughout the United States that
      provide litigation funding. Other than an expertise in assessing underwriting
      risks, our proprietary database and experience of success with various lawyers
      and law firms, we do not maintain any proprietary competitive advantage.
      Accordingly, we believe that there are no substantial barriers to competitors
      entering the market. While we acknowledge that we may not be able to compete
      successfully against future competitors with greater financial resources or
      access to potential business. Additionally, it is possible that competition
      may
      drive down the return on our advances to plaintiffs, which may negatively impact
      the viability of our business model.





We
      have
      identified a significant number of entities nationwide operating within our
      current and potential marketplace. These companies, include, but certainly
      are
      not limited to:




·
              Resolution
                  Settlement Corporation, located in Las Vegas, Nevada (website
                  www.resolutionsettlement.com).
 ·
              The
                  Attorney Store.com (www.attorneystore.com) has a list of at least
                  10
                  companies in the United States providing litigation funding.
 ·
              Plaintiff
                  Support Services, located in Getzville, New York, has a website
                  at
                  www.plaintiffsupport.com and takes requests for litigation funding.
                  The
                  application is contained on their website, which we believe is
                  typical of
                  many litigation funding company websites.
 ·
              Advocate
                  Capital, Inc. is located in Dallas, Texas, Nashville, Tennessee
                  and
                  Cleveland, Ohio (according to their website www.advocatecapital.com).
 ·
              Interim
                  Settlement Funding Corp, based in Hudson, Ohio, describes itself
                  as a
                  funding company-making contingent advances to individuals with
                  pending
                  personal injury cases. See www.interimsettlement.com. ·
              HSAC Funding, in Reno, Nevada, has a website at
                www.hsacfunding.com. ·
              Case Funding Network says on its website that
                it provides
                individuals and businesses non-recourse, advances for litigants
                (www.casefunding.com). ·
              National
                Lawsuit Funding, located in Elkins Park, Pennsylvania, says it provides
                advances for commercial lawsuits. See www.nationallawsuitfunding.com. ·
              Lawsuit Funding, LLC, has a website at
                www.lawsuitfinancial.com. In addition, Law Finances, Inc., located
                in San
                Francisco, California, to the best of our knowledge, is a California
                company that has provided funds to
                litigants.


To
      our
      knowledge, only one of our competitors, Case Financial Inc., of Encino,
      California, is publicly reporting on the Edgar system with the Securities and
      Exchange Commission.





Given
      the
      lack of discoverable information about our competitors, we do not know how
      our
      method of operations and results compare to others in the industry. However,
      given the nature of the business opportunity presented within our industry,
      and
      management’s belief that the market, though unquantifiable, is very large, there
      is always the possibility that new competitors with greater resources will
      commence operations and compete directly with us in such a manner as to harm
      our
      operational results and future prospects and reduce our ability to generate
      revenues.


9




**Marketing
      Strategy**





We
      have a
      full time dedicated sales staff that is responsible for developing and
      maintaining relationships with our personal injury attorneys and law firm
      clients. The sales team directly markets our products to attorneys representing
      plaintiffs in the types of cases that fit our underwriting criteria. At this
      time, we have several relationships with plaintiff attorneys which serve as
      a
      referral base for new and increasing repeat business.





**Growth
      Strategy**





Since
      relocating to Nevada, our objective is to become the pre-eminent institutional
      source of non-recourse pre-settlement litigation funds across the country.
      To
      achieve this objective, the key elements of our strategy are as
      follows:





·  Build
      awareness of our services in the nationwide personal injury litigation
      market.


·  Develop
      new products and services.


·  Improve
      risk and portfolio management tools and guidelines.


·  Improve
      our information technology infrastructure.


·  Find
      new
      non-recourse lending opportunities within the litigation market in segments
      other than personal injury litigation.


·  Find
      new
      short term recourse lending opportunities within national litigation
      market.


·  Find
      new
      opportunities for our lending business in personal injury and other litigation
      markets outside of California.





In
      order
      to be successful we must continue to build awareness in the nationwide legal
      marketplace about our products and services, as well as increase both the number
      of clients we service and the amounts we fund or guaranty.





The
      development of new products and services is a critical element of the plan
      to
      grow our business. Our focus is to deliver new products which better meet our
      customers' needs for reduced pricing. At the same time, our product development
      efforts are directed towards reducing the overall investment risk in our
      business, and thereby increasing our portfolio returns on investment and profit
      margins.





**Government
      Regulation**





We
      intend
      to conduct our business in compliance with any applicable regulations, and
      are
      subject to general state and federal laws governing the conduct of businesses
      in
      general. In regard to our specific line of business, we are unaware of any
      state
      or federal regulations concerning non-recourse advances in any of the states
      in
      which we currently do business, or intend to do business in the foreseeable
      future. In the event that our activities are deemed to be loans, or in the
      event
      that we decide to extend loans as defined by state law, we intend to comply
      with
      any and all applicable finance and lending regulations. Each state has laws
      and
      regulations governing the business of lending money that differ from state
      to
      state. Therefore, prior to offering or expanding our lending services into
      a new
      jurisdiction we must conduct an extensive review of that state's regulatory
      framework to ensure compliance with the applicable regulations.





10





**Research
      and Development**





We
      are
      not currently conducting any research or development activities. We do not
      anticipate conducting such activities in the near future.




**Personnel**





We
      currently employ 3 full time employees. Because of the legal proceedings
      previously discussed in prior filings, we have undertaken measures to reduce
      staff and overhead to minimum levels. In the event that we generate significant
      revenues and expand our operations, then we may need to hire additional
      employees or independent contractors.





**Consultants**





*Andrew
      Baum.* On
      December 1, 2005, we entered into a consulting agreement with Andrew Baum,
      wherein Mr. Baum agreed to provide us with services related to market analysis,
      financial planning, contacts with the realization of value for the Company’s
      stock and strategic transactions and relationships. The term of the agreement
      was for three months expiring on March 1, 2006. We agreed to compensate Mr.
      Baum
      a fixed, one-time fee in the amount of $18,000. In lieu of said cash fee, Mr.
      Baum agreed to accept 300,000 shares of our common stock. The 300,000 shares
      were issued on March 2, 2006. The shares were unrestricted pursuant to the
      S-8
      Registration filed with the SEC on February 28, 2006.





*Gary
      A. Rasmussen.* On
      December 13, 2005, we entered into a consulting agreement with Mr. Rasmussen,
      wherein Mr. Rasmussen agreed to provide us with advice and general consultation
      in the areas of management, marketing and financing, and for such other
      consulting services as we may mutually agree upon. We agreed to compensate
      Mr.
      Rasmussen a fixed, monthly retainer fee in the amount of $4,000, of which the
      first payment shall be due and owing upon the execution of the agreement, and
      subsequent payments shall be due on each monthly anniversary date thereafter.
      Additionally, we agreed to pay Mr. Rasmussen a fee equal to 1% of the gross
      dollar amount of any equity line of credit commitment received from Mr.
      Rasmssen’s sources. The term of the agreement is for 36 months from the date of
      execution and will continue on a month-to-month basis until either party elects
      to terminate the agreement. Mr. Rasmussen was introduced to us by Queststar,
      which has a fee agreement in force with us dated September 21, 2004. Mr.
      Rasmussen and Queststar have agreed to share equally in any fees received by
      Queststar from us.





*IR
      Partners, LLC.* On
      January 10, 2006, we entered into an agreement with IR Partners, LLC, wherein
      IR
      Partners agreed to provide us with investor relations services during the period
      February 1, 2006 through May 31, 2006. As consideration for the performance
      of
      the services we agreed to pay IR Partners $5,000 and issue 250,000 shares of
      our
      restricted common stock (issued on February 1, 2006).








11





*CLX
        & Associates, Inc.* On March
        1, 2006, we entered into a consulting agreement with CLX & Associates, Inc.,
        wherein CLX agreed to provide us with consulting services in





*Navin
      Enterprises, Inc.* On March
      1, 2006, we entered into a consulting agreement with Navin Enterprises, Inc.,
      wherein we agreed to retain the services of Navin to advise and consult with
      us
      regarding the Company’s establishment of a branch office in Canada to advance
      nonrecourse funds to Canadian attorneys in Canada. The term of the agreement
      is
      for 6 months from March 1, 2006. We agreed to issue 150,000 shares of our freely
      traded common stock to Navin as full and complete compensation. The said shares
      shall be issued 25,000 shares per month over the term of the agreement. On
      March
      6, 2006, we issued 25,000 shares of our common stock to Navin. The shares were
      unrestricted pursuant to the S-8 Registration filed with the SEC on February
      28,
      2006. On April 20, 2006, we issued 25,000 shares of our restricted common stock
      to Navin.




*Julian
      Goldberg.* On
      August 2, 2006, our wholly-owned subsidiary Global Universal Film Group entered
      into a consulting agreement with Julian Goldberg, wherein Mr. Goldberg agreed
      to
      assist Global in connection with Global’s efforts to raise capital through the
      sale and offering of Global’s interest bearing, ten-year corporate notes in the
      principal amount of $50,000,000, with principal secured or guaranteed by a
      package of Insurance Instruments (the “Corporate Notes”). The term of the
      agreement is for three (3) months from the date of August 2, 2006. Global agreed
      to compensate Mr. Goldberg with an initial retainer in the amount of $4,000.
      In
      the event that Global is successful in realizing financing from the sale of
      Global’s Corporate Notes, then Mr. Goldberg shall be entitled to receive an
      incentive fee in an amount equal to 6.5% of the cash proceeds actually received
      by Global. In the event Global is successful in obtaining financing from the
      sale of the Corporate Notes from any source located or introduced to Global
      by
      Mr. Goldberg, Global shall pay Mr. Goldberg a one-time performance fee in an
      amount equal to 3% of the gross proceeds from the Corporate Notes. Mr. Goldberg
      will also be entitled to a stock performance fee in the event of the sale of
      the
      Corporate Notes and paid in the form of a common stock warrant entitling Mr.
      Goldberg to purchase up to 500,000 shares of Global’s common stock. The warrant
      shall effective for one year from the date of August 2, 2006 and the stock
      price
      shall be equal to 50% of the average closing prices for the initial 20 trading
      days after trading, immediately after the “spin off” from the
      Company.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**





12





We
      currently maintain an executive office at 6375 S. Pecos Road, Suite 217, Las
      Vegas, Nevada 89120. The space consists of approximately 1800 square feet.
      The
      monthly rental for the space is $1,300 per month.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**





We
      are a
      defendant in several matters in litigation, many of which are in the normal
      course of business, including litigation for refunds of funds invested. We
      believe these suits are without merit and intends to defend these litigations
      in
      courts of law.





We
      are
      involved in suits for breach of contract, fraud, conspiracy and defamation
      with
      the same claimants in the United States Bankruptcy Court and California State
      Court. The claimants allege that there was a finder's fee agreement between
      them
      and the founding officers / shareholders of the Company. The Company's position
      is that there was a negotiated agreement with the claimants, which was complied
      with. The claimants allege damages of $16 million.





In
      May
      2004, the United States Bankruptcy Court upheld the Company's objections to
      all
      monetary claims. The claimants appealed this decision. Additionally, they filed
      an adversary proceeding raising most of the issues already raised in the first
      claims. In February 2005, the United States Bankruptcy Court partially dismissed
      the claimant's adversary complaint and told the claimants to amend the complaint
      to give them the opportunity to clarify their claims. The claimants filed that
      amended complaint. In March 2005, we filed a motion to dismiss with prejudice
      the entire amended complaint on the grounds that the claims therein were
      previously denied by the court in the bankruptcy proceeding.





The
      State
      Court action has been stayed pending resolution of the issues in the United
      States Bankruptcy Court. The Federal Court's decisions in the Company's favor
      will preclude proceedings against the Company in the state court
      action.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




No
      matters were submitted to the vote of security holders during the fourth quarter
      of the fiscal year ended December 31, 2005.





**PART
      II**





**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





**(a)
      Market Information**





Our
      common stock is quoted under the symbol “LFDG.OB” on the OTC Bulletin Board
      which is sponsored by the National Association of Securities Dealers (NASD).
      The
      OTC Bulletin Board is a network of security dealers who buy and sell stock.
      The
      dealers are connected by a computer network which provides information on
      current “bids” and “asks” as well as volume information. The OTC Bulletin Board
      is not considered a “national exchange.” Our common shares commenced trading on
      the OTC Bulletin Board on July 11, 2002. The





13





following
      table sets forth the quarterly high and low bid prices for our common stock
      during our last two fiscal years as reported by the National Quotations Bureau.
      The quotations reflect inter-dealer prices, without retail mark-up, markdown
      or
      commission, and may not necessarily represent actual transactions.





**2006**
            **2005**
            **2004**High
            Low
            High
            Low
            High
            Low1stQuarter
            0.38
            0.12
            1.50
            0.35
            0.75
            02ndQuarter
            0.275
            0.06
            0.82
            0.35
            0.51
            03rdQuarter
            0.14
            0.04
            1.23
            0.31
            0.75
            0.164thQuarter
            0.07
            0.03
            0.60
            0.095
            0.80
            0.20








**(b)
      Holders of Common Stock**





As
      of
      December 31, 2006, we had approximately 216 stockholders of record of the
      30,738,902 shares outstanding.





**(c)
      Dividends**





The
      Board
      of Directors have not declared any dividends due to the following
      reasons:





1.
            The
                Company has not yet adopted a policy regarding payment of
                dividends;


2.
            The
                Company does not have any money to pay dividends at this
                time;


3.
            The
                declaration of a cash dividend would result in an impairment of future
                working capital; and


4.
            The
                Board of Directors will not approve the issuance of a stock
                dividend.





**(d)
      Securities Authorized for Issuance under Equity Compensation
      Plans**





**2002
      Employee Stock Compensation Plan**





Effective
      August 15, 2002, we adopted a 2002 Employee Stock Compensation Plan, as amended,
      with a maximum number of 1,500,000 shares that may be issued. As of December
      31,
      2005, 537,500 options and 960,000 warrants have been issued under this plan,
      which leaves 2,500 shares available for issuance. No Plan shares may be issued
      after July 14, 2008.





**2004
      Stock Option Plan**





Effective
      March 9, 2004, we adopted a 2004 Stock Option Plan. The total number of shares
      of our common stock which may be purchased pursuant to the exercise of options
      shall not exceed, in the aggregate, 30% of the issued and outstanding shares
      of
      the Company’s common stock. As of December 31, 2005, 2,320,000 options have been
      granted under this plan.





**2006
      Non-Qualified Stock Compensation Plan**





14





Effective
      February 21, 2006, we adopted a 2006 Non-Qualified Stock Compensation Plan.
      The
      maximum number of shares that may be issued pursuant to the plan is 6,000,000
      shares. As of May 16, 2006, 4,000,000 shares gave been issued under this
      plan.





Officers
      (including officers who are members of the board of directors), directors (other
      than members of the stock option committee to be established to administer
      the
      stock option plans) and other employees and consultants and its subsidiaries
      (if
      established) will be eligible to receive options under the stock option plans.
      The committee will administer the stock option plans and will determine those
      persons to whom options will be granted, the number of options to be granted,
      the provisions applicable to each grant and the time periods during which the
      options may be exercised. No options may be granted more than ten years after
      the date of the adoption of the stock option plans.





Non-qualified
      stock options will be granted by the committee with an option price equal to
      the
      fair market value of the shares of common stock to which the non-qualified
      stock
      option relates on the date of grant. The committee may, in its discretion,
      determine to price the non-qualified option at a different price. In no event
      may the option price with respect to an incentive stock option granted under
      the
      stock option plans be less than the fair market value of such common stock
      to
      which the incentive stock option relates on the date the incentive stock option
      is granted.





Each
      option granted under the stock option plans will be exercisable for a term
      of
      not more than ten years after the date of grant. Certain other restrictions
      will
      apply in connection with the plans when some awards may be exercised. In the
      event of a change of control (as defined in the stock option plans), the date
      on
      which all options outstanding under the stock option plans may first be
      exercised will be accelerated. Generally, all options terminate 90 days after
      a
      change of control.





The
      following table sets forth information as of December 31, 2005 regarding
      outstanding options granted under the plans, warrants issued to consultants
      and
      options reserved for future grant under the plan.





Plan
                Category
            
            **Number**
              **of
                shares to be issued upon exercise of outstanding options, warrants
                and
                rights**
              **(a)**
            ****
            **Weighted-average
                exercise price of outstanding options, warrants and rights**
              **(b)**
            ****
            **Number
                of shares remaining available for future issuance under equity
                compensation plans (excluding shares reflected in column (a))**
              **(c)**Equity
                compensation plans approved by stockholders
            
            
            -
            
            $
            -
            
            
            -Equity
                compensation plans not approved by stockholders
            
            
            4,727,500
            
            $
            0.284
            
            
            2,500
                (1
            )Total
            
            
            4,727,500
            
            $
            0.284
            
            
            2,500
                (1
            )


1)
        2,500
        shares available for issuance under our 2002 Employee Stock Compensation
        Plan.
        Under the 2004 Stock Option Plan we are allowed to issue a total number of
        shares of our common stock which may be purchased pursuant to the exercise
        of
        options and shall not exceed, in the aggregate, 30% of the issued and
        outstanding shares of the Company’s common stock.





15




These
      plans are intended to encourage directors, officers, employees and consultants
      to acquire ownership of common stock. The opportunity so provided is intended
      to
      foster in participants a strong incentive to put forth maximum effort for its
      continued success and growth, to aid in retaining individuals who put forth
      such
      effort, and to assist in attracting the best available individuals to the
      Company in the future. As of December 31, 2005, 2,500 shares remained available
      for issuance under the 2002 employee stock compensation plan. As of May 16,
      2006, 2,000,000 shares remained available under the 2006 non-qualified stock
      compensation plan.








**Recent
      Sales of Unregistered Securities**





We
      sold
      and issued the following securities during the past fiscal year that were not
      registered under the Securities Act of 1933, as amended:





Issuances
      to Officers and Directors


On
      March
      21, 2006, we issued 9,000 shares of our commons stock to Stanley Weiner, a
      Director of the Company, for services rendered to the Company. The shares issued
      were unrestricted pursuant to the S-8 Registration filed on February 28,
      2006.





On
      April
      18, 2006, we issued 831,481 shares of our common stock to Morton Reed, CEO
      of
      the Company, in exchange for accrued compensation valued at $130,000. The shares
      issued were unrestricted pursuant to the S-8 Registration filed on February
      28,
      2006.





Other
      than the shares issued above pursuant to a registration on Form S-8, we believe
      that the issuance and sale of the above mentioned restricted shares were exempt
      from the registration and prospectus delivery requirements of the Securities
      Act
      of 1933 by virtue of Section 4(2) and Regulation D promulgated thereunder.
      The
      shares issued were directly from us and did not involve a public offering or
      general solicitation. The recipients of the shares were afforded an opportunity
      for effective access to files and records of the Company that contained the
      relevant information needed to make their investment decision, including the
      financial statements and 1934 Exchange Act reports. We reasonably believed
      that
      the recipients, immediately prior to issuing the shares, had such knowledge
      and
      experience in our financial and business matters that they were capable of
      evaluating the merits and risks of their investment. The recipients had the
      opportunity to speak with our management on several occasions prior to their
      investment decision.





Issuances
      to Consultants and Employees





On
      February 1, 2006, we issued 250,000 shares of our restricted common stock to
      IR
      Partners, LLC pursuant to its agreement dated January 10, 2006.




On
      April
      18, 2006, we issued 50,000 shares of our common stock to Anthony Longo as a
      sign-on bonus pursuant to the sales consultant agreement with Alliance
      Marketing.


On
      April
      20, 2006, we issued 25,000 shares of our restricted common stock to Baldev
      Singh
      Grewal of Navin Enterprises, Inc. pursuant to its consulting agreement dated
      March 1, 2006.





16








On
      June
      23, 2006, we issued 1,000,000 shares of our restricted common stock to CLX
&
Associates, Inc. pursuant to its consulting agreement dated March 1, 2006.
      On
      August 7, 2006, the 1,000,000 shares were cancelled due to failure to perform.
      On August 24, 2006, the parties entered into a new agreement and the 1,000,000
      shares were reissued on August 28, 2006.





We
      believe that the issuance and sale of the above mentioned restricted shares
      were
      exempt from the registration and prospectus delivery requirements of the
      Securities Act of 1933 by virtue of Section 4(2) and Regulation D promulgated
      thereunder. The shares issued were directly from us and did not involve a public
      offering or general solicitation. The recipients of the shares were afforded
      an
      opportunity for effective access to files and records of the Company that
      contained the relevant information needed to make their investment decision,
      including the financial statements and 1934 Exchange Act reports. We reasonably
      believed that the recipients, immediately prior to issuing the shares, had
      such
      knowledge and experience in our financial and business matters that they were
      capable of evaluating the merits and risks of their investment. The recipients
      had the opportunity to speak with our management on several occasions prior
      to
      their investment decision. There were no commissions paid on the issuance and
      sale of the shares.





Other
      Issuances and Sales




On
      March
      8, 2006, Andrew Green exercised 400,000 warrants at a price of $0.01 per share.
      The 400,000 shares of our restricted common stock were issued on March 13,
      2006.


On
      March
      15, 2006, we sold 250,000 shares to two accredited investors for a total
      purchase price of $50,000, all of which was paid in cash. The 250,000 shares
      were issued on March 21, 2006.





On
      April
      18, 2006, we issued 15,000 shares of our common stock to Rochester Capital
      Partners, LP (of which Gary Rasmussen serves as its General Partner) and 5,000
      shares of our common stock to Joseph Weaver in exchange for 100% of the issued
      and outstanding shares of Easy Money Express, Inc. (200,000 shares).





Apex
      Investment Fund Ltd. converted 400,000 shares of Series A 12% Convertible
      Preferred Stock into 800,000 shares of our restricted common stock. The 800,000
      shares of common stock were issued on June 2, 2006. The 800,000 shares of common
      stock are being registered in this SB-2 Registration Statement.





On
      August
      28, 2006, we issued Imperial Capital Holdings a total of 800,000 shares of
      our
      restricted common stock. Of the 800,000 shares, 96,000 were issued as a dividend
      on the 400,000 shares of Series A 12% Convertible Preferred stock held by
      Imperial, 504,000 were issued as an inducement fee for the equity line of
      $3,000,000 and the 200,000 were issued to extend the $30,000 promissory note
      held by Imperial. In addition, we have promised to issue and register hereunder
      an additional 500,000 shares at the time our registration statement becomes
      effective. The total of 1,300,000 shares of common stock are being registered
      in
      this SB-2 Registration Statement.





Davric
      Corporation purchased 678,049 shares of our common stock at $0.41 per shares
      in
      December of 2004. The stock was never issued until August 28, 2006 and due
      to
      the drop in our stock price we issued an additional 2,101,951 shares of our
      common stock. The 2,780,000 shares of common stock were valued at $0.10 per
      share and the 2,780,000 shares are being registered in this SB-2 Registration
      Statement.





In
      August, 2006, we agreed to issue 500,000 shares of our restricted common stock
      to Rochester Capital Partners, LP., as consideration under a consulting
      agreement in connection with the Imperial Investment
      Agreement. Rochester Capital Partners, LP., is controlled by Gary Rasmussen
      as
      its General Partner.





17




We
      believe that the issuance and sale of the restricted shares was exempt from
      the
      registration and prospectus delivery requirements of the Securities Act of
      1933
      by virtue of Section 4(2) and Regulation D promulgated thereunder. The shares
      issued were directly from us and did not involve a public offering or general
      solicitation. The recipients of the shares were afforded an opportunity for
      effective access to files and records of the Company that contained the relevant
      information needed to make their investment decision, including the financial
      statements and 34 Act reports. We reasonably believed that the recipients,
      immediately prior to issuing the shares, had such knowledge and experience
      in
      our financial and business matters that they were capable of evaluating the
      merits and risks of their investment. The recipients had the opportunity to
      speak with our management on several occasions prior to their investment
      decision.





Issuances
      of Stock Options and Warrants





On
      January 5, 2006, we granted 300,000 options to purchase shares of our common
      stock at $0.15 per share to Baldev Singh Grewal for services rendered to the
      Company. The options are exercisable for one year.





On
      March
      15, 2006, we issued a two (2) year warrant to purchase 10,000 shares of our
      common stock at $0.25 per share to David Ciolino for services rendered to the
      Company.





We
      believe that the issuance and grant of the warrants and options was exempt
      from
      the registration and prospectus delivery requirements of the Securities Act
      of
      1933 by virtue of Section 4(2) and Regulation D Rule 506. The shares issued
      were
      directly from us and did not involve a public offering or general solicitation.
      The recipients of the shares were afforded an opportunity for effective access
      to files and records of the Company that contained the relevant information
      needed to make their investment decision, including the financial statements
      and
      34 Act reports. We reasonably believed that the recipients, immediately prior
      to
      issuing the shares, had such knowledge and experience in our financial and
      business matters that they were capable of evaluating the merits and risks
      of
      their investment. The recipients had the opportunity to speak with our
      management on several occasions prior to their investment decision.





Subsequent
      Issuances





On
      February 22, 2007, our board of directors voted to accept an agreement with
      Rochester Capital Partners, LP., a Nevada limited partnership (RCP), where
      by
      the Company would issue 40 million of our restricted common stock in exchange
      for consideration of $250,000, an a best efforts commitment to fund an
      additional $180,000. Additionally, RCP agreed to acquire an additional 11
      million shares of common stock directly from Morton Reed, our CEO, in exchange
      for consideration of $65,000. Mr. Gary Rasmussen is the General Partner of
      RCP
      and has served as a consultant to our Company for the past 2 years.





On
      March
      5, 2007, the Company entered into an agreement with RCP and, on March 7, 2007,
      we issued 40 million shares to Rochester Capital Partners, pursuant to the
      above
      mentioned agreement. Of the 40 million shares, 21 million shares was assigned
      by
      RCP and issued directly to Lehars Handels Ges., M.b.H., an Austrian corporation
      located in Graz, Austria (“Lehars”),
      pursuant to a separate agreement between RCP and Lehars. The balance of 19
      million shares were issued directly to RCP.





18




The
      foregoing description of the transaction between the Company and RCP is
      qualified in its entirety by reference to the Company’s current report on Form
      8-K filed on March 7, 2007.





We
      believe that the issuance of the above shares was exempt from the registration
      and prospectus delivery requirements of the Securities Act of 1933 by virtue
      of
      Section 4(2) *.*








**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





This
      report contains forward-looking statements. Actual results and events could
      differ materially from those projected, anticipated, or implicit, in the
      forward-looking statements as a result of the risk factors set forth below
      and
      elsewhere in this report.





With
      the
      exception of historical matters, the matters discussed herein are
      forward-looking statements that involve risks and uncertainties. Forward-looking
      statements include, but are not limited to, statements concerning anticipated
      trends in revenues and net income, the date of introduction or completion of
      our
      products, projections concerning operations and available cash flow. Our actual
      results could differ materially from the results discussed in such
      forward-looking statements. The following discussion of our financial condition
      and results of operations should be read in conjunction with our financial
      statements and the related notes thereto appearing elsewhere herein.





**OVERVIEW
      AND OUTLOOK**





We
      are in
      the business of investing in litigation recoveries. Business is conducted
      through our subsidiary, LitFunding USA and its wholly owned limited liability
      companies. LitFunding USA resumed the business of California LitFunding (our
      subsidiary who has been in the business since 2000) subsequent to June 17,
      2004,
      after the United States Bankruptcy Court entered an order confirming us and
      California LitFunding joint plans of reorganization. We raise and advance
      capital to various law firms pursuant to “Settlement Agreements”. These
      Settlement Agreements provide that the funds advanced shall be repaid to us,
      plus a fee, when the lawsuits referenced in the agreement ultimately settle.
      The
      amount of the fee payable on the funds advanced depends upon the length of
      the
      time the funds are outstanding, up to a fixed limit. Pursuant to the terms
      of
      the Settlement Agreements, the Company’s contractual right to payment is limited
      to the funds ultimately paid to the law firm from the specified lawsuit, or
      lawsuits, in which the funds are invested or expended.





In
      June,
      2006, we announced the receipt of an order of final decree closing our
      bankruptcy proceedings on the grounds that the bankruptcy case has been fully
      administered.





During
      the fiscal year ended December 31, 2006, we had placed approximately $414
      thousand in funding to law firms, which as of December 31, 2006 we have
      collected $890,000 in principal
      and fees, lost $30,000 of principle, and have open and unresolved cases totaling
      approximately $810,000. We estimate that the principle and fee expected on
      the
      open and unresolved cases is approximately $1.2 Million.





19








**Results
      of Operations**





The
      following overview provides a summary of key information concerning our
      financial results for the years ended December 31, 2006 and 2005.





***Revenues***





**Year
                Ended December 31,**
            
            **Increase
                (Decrease)****2006**
            
            **2005**
            
            **$**
            ****
            **%**Net
                Revenue
            
            $
            644,040
            
            $
            355,262
            
            $
            (1,523,421
            )
            
            (81
            %)





*Revenue* :
      Total
      revenue was $355,264 and $1,878,685 for the fiscal years ended December 31,
      2005
      and 2004, respectively. Our decrease in revenue of $1,523,421 is due to the
      startup nature of the business after the reorganization. Our operating cycle
      is
      typically longer than one year for funded cases to generate revenue. We cannot
      guarantee with certainty when we will generate revenue sufficient to fund
      ongoing operations. Our future revenues will be reliant on the ability to fund
      future cases which require shorter periods of funding and strong collection
      efforts on funded cases as they are resolved.


***Operating
      expenses***





**Year
                Ended December 31,**
            
            **Increase
                (Decrease)****2006**
            
            **2005**
            
            **$**
            ****
            **%**Reserve
                for unsuccessful resolution of lawsuits
            
            
            
            
            
            76,950
            
            $
            35,200
            
            
            84
            %General
                and administrative expenses
            
            
            1,598,450
            
            
            2,986,487
            
            
            560,239
            
            
            23
            %Consulting
                fees - related party
            
            
            
            
            
            8301-
            
            
            8,301
            
            
            -Financing
                expense
            
            
            45,906
            
            
            67,288
            
            
            67,288
            
            
            -Depreciation
                and amortization
            
            
            23,558
            
            
            28,467
            
            
            2,359
            
            
            9
            %Preferred
                stock dividend
            
            
            19,993
            
            
            1,245
            
            
            1,245
            
            
            -Total
                operating expenses
            
            
            1,749,302
            
            $
            2,494,106
            
            $
            674,632
            
            
            27
            %






Total
      operating expenses for the year ended December 31, 2006 increased by $674,632
      over the year ended December 31, 2005 because of the startup costs associated
      with the Company’s relocation to Las Vegas, Nevada and the expenditures required
      to reestablish a marketing and capital acquisition program.




20





***Other
      income (expense)***


**Year
                Ended December 31,**
            
            **Increase
                (Decrease)****2006**
            
            **2005**
            
            **$**
            
            **%**Other
                income
            
            $
            10,000
            
            $
            73,953
            
            $
            32,515
            
            
            78
            %Interest
                (expense)
            
            
            (62,685
            )
            
            (57,039
            )
            
            32,187
            
            
            130
            %Rental
                income
            
            
            -
            
            
            0
            
            
            1,500
            
            
            -Amortization
                of debtdiscount
            
            
            130,000
            
            
            (678,484
            )
            
            677,484
            
            
            -Total
                other income(expense)
            
            
            77,315
            
            $
            (660,570
            )
            
            642,484
            
            
            3,552
            %





Our
      interest expense was $32,187 higher in 2006 than 2005 because we used short
      term
      financing to cover operating costs.





***Net
      (loss)***





**Year
                Ended December 31,**
            
            **Increase
                (Decrease)****2006**
            
            **2005**
            
            **$**
            ****
            **%**Net
                (loss) beforeextraordinary
                gain
            
            $
            (1,027,947
            )
            $
            (3,972,043
            )
            $
            3,046,688
            
            
            329
            %





Our
      net
      loss before extraordinary gain was approximately 329% higher in the year ended
      December 31, 2006 as compared to the year ended December 31, 2005 because we
      had
      sales in 2005 and there were non-cash professional fees incurred in 2005. Until
      we can increase sales we will continue to have net losses.





**Operation
      Plan**





During
      the next twelve months we plan to effectuate our business plan and have
      restarted the marketing of our products and increased our product offerings.
      Demand for financing continues to remain strong and we have a backlog of
      requests for advances that we look forward to begin satisfying as soon as we
      have secured new capital or financing. Additionally, we still intend to start
      marketing of a new full recourse loan product during 2006. We believe that
      full
      recourse loans, which we anticipate will eventually become approximately 10%
      of
      our core business, will limit our exposure to losses, allow for earlier
      recognition of revenue and at the same time answer the demand in the legal
      community for more traditional borrowing facilities that carry a lower interest
      rate compared to the fees we currently charge for our non recourse advance
      product. We intend to expand our geographic market penetration and will explore
      opportunities to acquire assets or other companies in this
      industry.





We
      have
      cash of approximately $7,121 as of December 31, 2006. In the opinion of
      management, available funds will not satisfy our working capital requirements
      for the next twelve months. Nevertheless, our reorganization plan does provide
      for sufficient revenue to sustain operations.





21





We
      will
      also need to raise funds to continue to implement our business plan. We plan
      to
      raise these funds through private and institution or other equity offerings
      including interest bearing debentures. We may attempt to secure other loans
      from
      lending institutions or other sources. We will also consider establishing
      relationships with selected business partners whose contributions include
      necessary cash. There is no guarantee that we will be able to raise additional
      funds through offerings or other sources. If we are unable to raise funds,
      our
      ability to continue with operations will be materially hindered.





**Liquidity
      and Capital Resources**





Liquidity
      is a measure of a company’s ability to meet potential cash requirements. We have
      historically met our capital requirements through the issuance of stock and
      by
      borrowings. In the future we believe we will be able to provide the necessary
      liquidity we need by the revenues generated from our operations.





Promissory
      Notes





On
      November 9, 2005, we entered into a Promissory Note with Imperial Capital
      Holdings, LLC. for the principal amount of $10,000. Pursuant to the note we
      promised to pay to the order of Imperial Capital Holdings the sum of $10,000
      together with accrued interest thereon at 12% per annum on any unpaid balance
      and a one-time processing fee of $500, all due and payable on the maturity
      date
      of December 9, 2005. The note plus processing fee was paid on February 16,
      2006.





On
      December 21, 2005, we entered into a Promissory Note with Global Universal
      Film
      Group Ent., Inc. for the principal amount of $50,000. Pursuant to the note
      Global promised to pay us the sum of $50,000 together with interest at the
      rate
      of 6% per annum on any unpaid balance. The $50,000 is to pay for the costs
      and
      expenses incurred in connection with the merger and was due upon completion
      of
      the merger. The note is due on June 30, 2006.





On
      December 31, 2005, we entered into a Promissory Note with Herbert Stein for
      the
      principal amount of $25,000. Pursuant to the note we promised to pay to the
      order of Herbert Stein $25,000 together with accrued interest thereon at 10%
      in
      sixty (60) days. The note was verbally extended and on May 5, 2006, we paid
      the
      principal amount plus interest to Herbert Stein.





On
      February 1, 2006, we entered into a Promissory Note with Davric Corp. for the
      principal amount of $25,000. Pursuant to the note we promised to pay to the
      order of Davric Corp. the sum of $25,000 together with accrued interest thereon
      at 12% in sixty (60) days. The note was verbally extended and on May 9, 2006,
      we
      paid the principal amount plus interest to Davric Corp.


22


Pursuant
        to our outstanding indebtedness to the law firm of Callahan & Blaine for
        legal services in connection with our Bankruptcy proceedings, our subsidiary
        California LitFunding and Michael A. Marcelli entered into a Promissory Note
        with Daniel J. Callahan for the principal amount of $36,881 on March 1, 2006.
        Pursuant to the note California LitFunding and Michael





On
      May
      10, 2006, Easy Money, our wholly owned subsidiary, entered into a Promissory
      Note with Davric Corp. for the principal amount of $100,000. Pursuant to the
      note Easy Money promised to pay to the order of Davric Corp. the sum of $100,000
      together with accrued interest thereon at 24% per annum. The principal amount
      of
      the note or any part thereof, along with all interest accrued and unpaid
      thereon, shall be payable to Davric Corp. on or before one year from the date
      of
      May 10, 2006.





Investment
      Agreement with Imperial Capital Holdings





On
      January 16, 2006, we entered into an Investment Agreement with Imperial Capital
      Holdings (“Imperial”). Under the terms of the agreement, we agreed to issue and
      sell to Imperial, and Imperial agreed to purchase from us up to that number
      of
      shares of common stock having an aggregate purchase price of $3,000,000. We
      will
      be able to require Imperial to purchase up to the $3,000,000 of its common
      stock
      over a two-year period commencing on the date a registration statement is
      declared effective by the SEC covering shares of our common stock underlying
      the
      Investment Agreement. These funds will be able to be drawn at our discretion
      by
      delivering a written notice (“Put Notice”) stating the amount of funds we wish
      to draw (“Put Amount”). The Put Amount shall be equal to 93% of the market price
      of our common stock, as calculated in accordance with the terms of the
      Investment Agreement, provided that in no event will the Put Amount be greater
      than $250,000. We shall not be entitled to submit a Put Notice until after
      the
      previous closing has been completed. If any closing best bid price during the
      applicable Pricing Period (the period beginning on the Put Notice date and
      ending on and including the date that is 5 trading days after such Put Notice
      date) with respect to any particular Put Notice is less than 75% of any closing
      best bid price of the common stock for the 10 trading days prior to the Put
      Notice date, the Put Notice will terminate at our request. On July 28, 2006,
      we
      reached a new understanding with Imperial to cure our default in the previous
      agreement caused by delays in filing a registration statement in exchange for
      the issuance of 800,000 shares of common stock, which is being registered on
      Form SB-2. Concurrently, we entered into a new Investment Agreement and a new
      Registration Rights Agreement with Imperial with substantially similar terms
      as
      the original agreements dated January 16, 2006.




***Registration
      Rights.*** Pursuant
      to the terms of the Registration Rights Agreement with Imperial, we are
      obligated to file a registration statement registering 8,000,000 shares of
      our
      common stock issuable on the date proceeding the filing of the Registration
      Statement based on the closing bid price of our common stock on such date and
      the amount reasonably calculated that
      represents common stock issuable to other parties as set forth in the Investment
      Agreement except to the extent that the SEC requires the share amount to be
      reduced as a condition of effectiveness. We shall use commercially reasonable
      efforts to have the Registration Statement declared effective by the SEC within
      180 calendar days after the filing of the Registration
      Statement.





23




***Placement
      Agent.*** In
      connection with the Investment Agreement, we entered into a Placement Agent
      Agreement with Brewer Financial Services, LLC., a NASD registered broker-dealer.
      The Placement Agent will render consulting services to us with respect to the
      Investment Agreement and will be available for consultation in connection with
      the advances to be requested by us pursuant to the Investment Agreement. We
      agreed to pay to the Placement Agent 1% of the gross proceeds from each draw
      for
      all services in connection with the Placement Agent Agreement.





***Satisfaction
      of our cash obligations for the next 12 months.***





As
      of
      December 31, 2006, our cash balance was $1,618. Over the next twelve months
      we
      believe that existing capital and anticipated funds from operations will not
      be
      sufficient to sustain operations and planned expansion. Our plan for satisfying
      our cash requirements for the next twelve months is through additional equity,
      third party financing, and/or traditional bank financing. We intend to make
      appropriate plans to insure sources of additional capital in the future to
      fund
      growth and expansion through additional equity or debt financing or credit
      facilities. No assurance can be made that such financing would be available,
      and
      if available it may take either the form of debt or equity. In either case,
      the
      financing could have a negative impact on our financial condition and our
      Stockholders.





We
      anticipate incurring operating losses over the next twelve months. Our lack
      of
      operating history makes predictions of future operating results difficult to
      ascertain. Our prospects must be considered in light of the risks, expenses
      and
      difficulties frequently encountered by companies in their early stage of
      development, particularly companies in new and rapidly evolving technology
      markets. Such risks include, but are not limited to, an evolving and
      unpredictable business model and the management of growth. To address these
      risks we must, among other things, implement and successfully execute our
      business and marketing strategy, continue to develop and upgrade technology
      and
      products, respond to competitive developments, and continue to attract, retain
      and motivate qualified personnel. There can be no assurance that we will be
      successful in addressing such risks, and the failure to do so can have a
      material adverse effect on our business prospects, financial condition and
      results of operations.





***Going
      Concern***





The
      ability of the Company to continue as a going concern remains dependent upon
      successful operation under the bankruptcy plan, obtaining additional capital
      and
      financing, and generating positive cash flow from operations. The Company
      intends to seek additional capital either through debt or equity offerings
      and
      believes that increased volume and reduction in its lead time to finance and
      collect on funded cases will ultimately lead to profitability and positive
      cash
      flows. The financial statements do not include any adjustments relating to
      the
      recoverability and
      classification of asset carrying amounts or the amount and classification of
      liabilities that might result should the Company be unable to continue as a
      going concern.





24




***Summary
      of product and research and development that we will perform for the term of
      our
      plan.***





We
      do not
      anticipate performing any significant product research and development under
      our
      plan of operation until such time as we complete a merger or
      acquisition.





***Expected
      Purchase or sale of plant and significant equipment.*** ****





We
      do not
      anticipate the purchase or sale of any plant or significant equipment, as such
      items are not required by us at this time or anticipated to be needed in the
      next twelve months.





***Significant
      changes in the number of employees.***





We
      currently employ 8 full time employees. Because of the legal proceedings
      previously discussed in prior filings, we experienced a deleterious and damaging
      loss of key personnel that will have to be replaced. In the event that we
      generate significant revenues and expand our operations, then we may need to
      hire additional employees or independent contractors.





***Off-Balance
      Sheet Arrangements***





We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results or operations, liquidity, capital
      expenditures or capital resources that is material to investors.





**Critical
      Accounting Policies and Estimates**





Our
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations section discusses our financial statements, which have been prepared
      in accordance with accounting principles generally accepted in the United States
      of America. The preparation of these financial statements requires management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. On an on-going basis,
      management evaluates its estimates and judgments, including those related to
      revenue recognition, accrued expenses, financing operations, and contingencies
      and litigation. Management bases its estimates and judgments on historical
      experience and on various other factors that are believed to be reasonable
      under
      the circumstances, the results of which form the basis for making judgments
      about the carrying value of assets and liabilities that are not readily apparent
      from other sources. Actual results may differ from these estimates under
      different assumptions or conditions. The most significant accounting estimates
      inherent in the preparation of our financial statements include estimates as
      to
      the appropriate carrying value of certain assets and liabilities which are
      not
      readily apparent from other sources, primarily allowance for doubtful accounts
      receivables, accruals for other costs, and the classification of net operating
      loss and
      tax
      credit carry forwards between current and long-term assets. These accounting
      policies are described at relevant sections in this discussion and analysis
      and
      in the notes to the financial statements included in this
      report.





25





**FACTORS
      THAT MAY AFFECT OUR RESULTS OF OPERATION**





***Our
      cash flow depends on a lengthy collection cycle and factors beyond our control
      that may require us to obtain interim financing.***





Our
      procedures and underwriting process have been changed to try and lessen our
      risk
      and to shorten our collection cycle. Nevertheless, our collection cycle on
      advances made will remain lengthy compared to other similar industries. We
      believe that cases we advance funds to attorneys on may take between 18 months
      and 36 months to reach resolution. Larger cases may take longer to reach
      resolution. Once we advance the money, the collection cycle is out of our
      control and this may force us to seek other sources of capital to fund our
      overhead expenses. There can be no assurance that in such an event we could
      find
      such financing or that, if we could, the financing would be available on
      satisfactory terms.





***We
      have a limited operating history and lack of
      profitability.***





We
      still
      have limited operating history having begun business in 2000 and spent almost
      a
      full year in litigation defending ourselves from a petition for involuntary
      bankruptcy. During that time, we have incurred losses in every quarter since
      inception except for the extraordinary gain realized in December 2004 and we
      remain subject to the risks and uncertainties usually encountered by early
      stage
      companies.





In
      the
      past, we attracted large well known firms of attorneys as clients. We believe
      that it will be possible to once again attract large firms of this caliber
      even
      after the enormously negative and unwarranted reputation achieved during the
      bankruptcy litigation. We have met with some successes in this regard. We have
      not yet experienced an intolerable inability to attract the talent that we
      need.
      However risks remain that we will not attract, train or integrate into the
      business organization qualified personnel. Additionally, it is fair to expect
      that fluctuations in operating results may be significant as we develop and
      test
      new business practices. There is also the risk that we will fail to properly
      manage growth and expansion, if and when it occurs.





***Our
      business of funding plaintiffs and plaintiff attorneys may be in potential
      conflict with champerty laws.***





Champerty,
      as defined by Black’s Law Dictionary, “is a bargain to divide the proceeds of
      litigation between the owner of the liquidated claim and a party supporting
      or
      enforcing the litigation.”  Different states impose rules on the champerty
      process.  We research state champerty laws prior to advancing capital to
      plaintiffs and plaintiff attorneys, however, if we were to be found in violation
      of states champerty laws it could have a material adverse effect on us and
      our
      results of operations.





26





***We
      have historically had losses from operations and losses may continue in the
      future, which may cause us to curtail operations.***





Since
      our
      inception we have not been profitable and have lost money on both a cash and
      non-cash basis. For the year ended December 31, 2006, we incurred net losses
      of
      $3,972,043. Our accumulated deficit at the end of December 31, 2006 was
      $10,197,319. Future losses are likely to occur, as we are dependent on spending
      money to pay for our operations. No assurances can be given that we will be
      successful in reaching or maintaining profitable operations. Accordingly, we
      may
      experience liquidity and cash flow problems. If our losses continue, our ability
      to operate may be severely impacted or alternatively we may be forced to
      terminate our operations.





***We
      are subject to a working capital deficit, which means that our current assets
      on
      December 31, 2006 were not sufficient to satisfy our current liabilities and,
      therefore, our ability to continue operations is at
      risk.***





We
      had a
      working capital deficit for the year ended December 31, 2006 which means that
      our current liabilities exceeded our current assets on December 31, 2006 by
      $1,271,808. Current assets are assets that are expected to be converted to
      cash
      within one year and, therefore, may be used to pay current liabilities as they
      become due. Our working capital deficit means that our current assets on
      December 31, 2006, were not sufficient to satisfy all of our current liabilities
      on December 31, 2006. If our ongoing operations do not begin to provide
      sufficient profitability to offset the working capital deficit, we may have
      to
      raise capital or debt to fund the deficit or curtail future
      operations.





***Our
      common stock is listed on the Over-the-Counter (OTC) Bulletin Board which may
      make it more difficult for stockholders to sell their shares and may cause
      the
      market price of our common stock to decrease.***





Our
      common stock is listed on the OTC Bulletin Board. Factors that may affect
      potential liquidity include limited coverage by security analysts and the news
      media. This may negatively affect the prices for our shares of common stock.
      The
      filings of the involuntary bankruptcy petition against us on April 2, 2003
      and
      subsequent litigation and filings of voluntary chapter 11’s for both ourselves
      and our then operating subsidiary, California LitFunding did have a materially
      negative effect on the price of our stock and for all intents and purposes
      that
      stock had no value for all of 2003 and most of 2004. We believe that the
      successful resolution of the litigation has given us an opportunity to rebuild
      value in the stock.





***Our
      stock price may be volatile and an investment in such common stock could suffer
      a decline in value.***





The
      market price of our common stock may fluctuate significantly and violently
      in
      response to a number of factors, some of which are beyond our control. These
      factors include:





·
            Government
                regulatory action affecting our services or competitor’s
                services;


·
            Actual
                or anticipated fluctuations in operating
                results;





27





·
            The
                loss of key management or other
                personnel;


·
            The
                loss of major customers;


·
            The
                outcome of any future litigation;


·
            Broad
                market fluctuations; and economic conditions in the United States
                or
                abroad.





***We
      could fail to attract or retain key personnel, which could be detrimental to
      our
      operations.***





Our
      success largely depends on the efforts and abilities of our Officers and
      Directors. The loss of their services could materially harm our business because
      of the cost and time necessary to find successors. Such a loss would also divert
      management attention away from operational issues. We do not have other key
      employees who manage our operations. To the extent that we are smaller than
      our
      competitors and have fewer resources, we may not be able to attract a sufficient
      number and quality of staff, when required.





***Because
      our common stock is deemed a low-priced “Penny” stock, an investment in our
      common stock should be considered high risk and subject to marketability
      restrictions.***





Since
      our
      common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
      Exchange Act, it will be more difficult for investors to liquidate their
      investment even if and when a market develops for the common stock. Until the
      trading price of the common stock rises above $5.00 per share, if ever, trading
      in the common stock is subject to the penny stock rules of the Securities
      Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
      broker-dealers, before effecting transactions in any penny stock,
      to:





·
            Deliver
                to the customer, and obtain a written receipt for, a disclosure
                document;


·
            Disclose
                certain price information about the
                stock;


·
            Disclose
                the amount of compensation received by the broker-dealer or any associated
                person of the broker-dealer;


·
            Send
                monthly statements to customers with market and price information
                about
                the penny stock; and ·
            In some circumstances, approve the purchaser’s account
              under certain standards and deliver written statements to the customer
              with information specified in the rules.




Consequently,
      the penny stock rules may restrict the ability or willingness of broker-dealers
      to sell the common stock and may affect the ability of holders to sell their
      common stock in the secondary market and the price at which such holders can
      sell any such securities. These
      additional procedures could also limit our ability to raise additional capital
      in the future.





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**





See
      Index
      to Financial Statements and Financial Statement Schedules appearing on page
      F-1
      through F-24 of this Form 10-KSB.




28





**TABLE
      OF CONTENTS**





**PAGES**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            F-1
                - F-2CONSOLIDATED
                BALANCE SHEET
            F-3CONSOLIDATED
                STATEMENT OF OPERATIONS
            F-4CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY
            F-5CONSOLIDATED
                STATEMENT OF CASH FLOWS
            F-6NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-7
                - F-24




29





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Stockholders and Board of Directors of LitFunding Corp.:




We
      have
      audited the accompanying consolidated statements of operations, stockholders’
equity and cash flows of Litfunding Corp. and subsidiaries for the year ended
      December 31, 2004. These financial statements are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Standards Board (United States). Those standards require that we
      plan
      and perform the audits 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 our audit
      provides a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated results of its operations and cash flows
      of
      Litfunding Corp. and subsidiaries for the year ended December 31, 2004, in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company incurred material net losses
      for
      the year ended December 31, 2004 and liabilities exceeded assets by $1,602,745
      at December 31, 2004. The Company has entered into a Chapter 11 Plan of
      Reorganization under the United States Bankruptcy Code. The uncertainty of
      the
      Company’s ability to raise future funding and the lack of cash flow from
      operations raise substantial doubt about the Company’s ability to continue as a
      going concern. Management’s plans with regard to these matters are discussed in
      Note 1. The financial statements do not include any adjustments relating to
      the
      recoverability and classification of asset carrying amounts or the amount and
      classification of liabilities that might result should the Company be unable
      to
      continue as a going concern.





/s/
      Epstein, Weber & Conover, PLC


Scottsdale,
      Arizona


March
      11,
      2005





F-1





*Lawrence
      Scharfman & Co., CPA P.C.*


*Certified
      Public Account*





**18
                E. SUNRISE HIGHWAY, #203**
            **9608
                HONEY BELL CIRCLE****FREEPORT,
                NY 11520**
            **BOYNTON
                BEACH, FL 33437****TELEPHONE:
                (516)****771-5900**
            **TELEPHONE:
                (561 ) 733-0296****FACSIMILE:
                (516) 771-2598**
            **FACSIMILE:
                (561) 740-0613**





INDEPENDENT
      AUDITORS' REPORT





LITFUNDING
      CORP.


3700
      PECOS MCLEOD STE 100


LAS
      VEGAS
      NEV 89121 •





We
      have
      audited the accompanying balance sheet of Litfunding Corp. (a Nevada
      corporation) as of December 31, 2005 and the related statements of operations,
      stockholders equity and cash flows for the year then ended. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit. The statements for 2004 and prior were audited by another
      auditor.





We
      conducted our audit in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits 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
      audit provides a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Litfunding Corp. as of December
      31,2005 and the results of operations and cash flows for the year then ended,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





**Boynton
                Beach Florida**
            /s/
                Lawrence Scharfman**May
                3, 2006**
            **Lawrence
                Scharfman &Co., CPA
                P.C.**





**-
      LICENSED IN FLORIDA & NEW YORK -**





F-2





**LitFunding
      Corp**


**Consolidated
      Balance Sheets**





**For
                the year ended**
            ********
            ****
            **December
                31,**
            ********
            ****
            **2006****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            1,618Accounts
                receivable, net
            
            
            30,760Contingent
                advances less reserves for unsuccessfulresolution
                of lawsuits
            
            
            495,475Note
                receivable
            
            
            174,000Total
                current assets
            
            
            701,853Fixed
                assets, net
            
            
            229,742Total
                fixed assets
            
            
            280,742Other
                assetsOther
                assets
            
            
            210,863Total
                other assets
            
            
            210,863Total
                assets
            
            $
            1,142,
                458**Liabilities
                and Stockholders' Equity**Liabilities
                not subject to compromiseAccounts
                payable
            
            $
            832,071Accrued
                expenses
            
            
            385,586Deferred
                revenue
            
            
            216,672Notes
                payable
            
            
            1,171,806Investor
                participation obligations
            
            
            724,500Interest
                payable
            
            
            -Total
                current liabilities not subject to compromise
            
            $
            3,520,635Liabilities
                subject to compromiseTrade
                and miscellaneous claimsDebentures
            
            
            190,000Total
                liabilities subject to compromise
            
            
            190,000Total
                liabilities
            
            $
            3,520,635Stockholders'
                equity:Series
                A Convertible preferred Stock, par value $0.001,2,000,000
                shares authorized, 400,000 shares issued and outstanding
            
            
            400Series
                B Convertible Preferred Stock, par value $0.001,1,500,000
                shares authorized, 1,500,000 shares issued and outstanding
            
            
            1,500Common
                stock, $0.001 par value, 100,000,000 sharesauthorized,
                28,988,902 and 16,217,402 shares issued and outstanding at December
                31,
                2006 and 2005, respectively
            
            
            29,686Shares
                authorized & unissued
            
            
            12,000Subscription
                Payable
            
            
            5,000Subscription
                Receivable
            
            
            43,500Additional
                paid-in capital
            
            
            8,655,403Additional
                paid-in capital Preferred A
            
            
            99,600Accumulated
                (deficit)
            
            
            (11,225,266
            )(2,378,177
            )$
            1,142,458






The
      accompanying notes are an integral part of these financial
      statements.




F-3




**LitFunding
      Corp**


**Statements
      of Operations**




**For
                the years ending**
            ********
            ****
            ****
            **December
                31,**
            ********
            ****
            ****
            **2006**
            ****
            ****
            **2005**Net
                Revenue
            
            $
            644,040
            
            $
            355,264Expenses:Reserve
                for unsuccessful resolution of lawsuits
            
            $
            
            
            $
            76,950General
                and administrative expenses
            
            
            1,59,845
            
            
            2,986,487Consulting
                fees - related party
            
            
            
            
            
            8,301Financing
                expense
            
            
            45,906
            
            
            67,288Depreciation
                & Amortization
            
            
            23,558
            
            
            28,467Preferred
                stock dividend
            
            
            19,993
            
            
            1,245Total
                operating expenses
            
            
            1,749,302
            
            
            3,168,738Net
                operating (loss)
            
            
            (1,105,262
            )
            
            (2,813,474
            )Other
                income (expenses):Other
                income
            
            
            10,000
            
            
            73,953Interest
                expense
            
            
            (62,685
            )
            
            (57,039
            )Rental
                IncomeAmortization
                of debt discount
            
            
            130,000
            
            
            (677,484
            )Total
                other income (expenses)
            
            
            77,315
            
            
            (660,570
            )Loss
                before reorganization items,extraordinary
                gain and income taxes
            
            
            
            
            
            (3,474,043
            )Bad
                debt in connection with share issuance
            
            
            
            
            
            (498,000
            )Reorganization
                items:Legal
                feesLoss
                before extraordinary gain and income taxes
            
            
            (1,027,947
            )
            
            (3,972,043
            )Extraordinary
                gain, net of income taxes
            
            
            -Income
                (Loss) before Income taxes
            
            
            (1,027,947
            )
            
            (3,972,043
            )Income
                tax (benefit) provision
            
            
            -
            
            
            -Net
                Income (loss)
            
            $
            (1,027,947
            )
            $
            (3,972,043
            )Basic
                Earnings (loss) per share:Before
                Extraordinary item
            
            
            (0.05
            )
            
            (0.28
            )Extraordinary
                itemTotal
            
            
            (0.05
            )
            
            (0.28
            )Diluted
                Earnings (loss) per shareBefore
                Extraordinary item
            
            
            (0.05
            )
            
            (0.28
            )Extraordinary
                itemTotal
            
            
            (0.05
            )
            
            (0.28
            )Weighted
                average number of common shares outstanding:Basic
            
            
            19,099,652
            
            
            14,419,498Diluted
            
            $
            19,099,652
            
            $
            14,419,498






The
      accompanying notes are an integral part of
      these financial statements.




F-4




**LitFunding
      Corp**


**Statements
      of Changes in Stockholders' Equity**




**Common
                Stock**
            
            
            **Preferred
                  Stock**
            
            
            **Additional**
            
            
            
            
            
            
            
            
            
            
            
            **Total****paid
                in**
            
            
            **Subscription**
            
            
            **Deferred**
            
            
            **Accumulated**
            
            
            **Stockholders'****Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Payable**
            
            
            **Compensation**
            
            
            **(Deficit)**
            
            
            **Equity****Balance,
                December 31, 2004**
            
            
            **11,220,063**
            
            
            **11,221**
            
            
            **-**
            
            
            **-**
            
            
            **4,611,310**
            
            
            **-**
            
            
            **-**
            
            
            **(6,225,276**
            **)**
            
            **(1,602,745**
            **)**shares
                issued for cash
            
            
            2,291,951
            
            
            2,292
            
            
            800,000
            
            
            800
            
            
            1,136,608
            
            
            -
            
            
            -
            
            
            -
            
            
            1,139,700Shares
                authorized & unissued
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            327,139
            
            
            -
            
            
            -
            
            
            -
            
            
            327,139Shares
                issued for services
            
            
            757,500
            
            
            757
            
            
            -
            
            
            -
            
            
            415,705
            
            
            -
            
            
            -
            
            
            -
            
            
            416,462Shares
                issued in settlement
            
            
            157,888
            
            
            157
            
            
            -
            
            
            -
            
            
            67,236
            
            
            -
            
            
            -
            
            
            -
            
            
            67,394Shares
                issued in settlement of notes
            
            
            600,000
            
            
            600
            
            
            -
            
            
            -
            
            
            647,891
            
            
            -
            
            
            -
            
            
            -
            
            
            648,491Shares
                issued in lieu of interest
            
            
            75,000
            
            
            75
            
            
            -
            
            
            -
            
            
            38,675
            
            
            -
            
            
            -
            
            
            -
            
            
            38,750Warrants
                and Options issued
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            739,979
            
            
            -
            
            
            -
            
            
            -
            
            
            739,979Warrants
                and Options exercised
            
            
            665,000
            
            
            665
            
            
            -
            
            
            -
            
            
            32,335
            
            
            -
            
            
            -
            
            
            -
            
            
            33,000Options
                exercised - related party
            
            
            450,000
            
            
            450
            
            
            -
            
            
            -
            
            
            44,550
            
            
            -
            
            
            -
            
            
            -
            
            
            45,000Subscription
                payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            327,139
            
            
            -
            
            
            -
            
            
            327,139Net
                (loss) for the year ended(3,972,043
            )
            
            (3,972,043
            )**Balance,
                December 31, 2005**
            
            
            **16,217,402**
            
            $
            16,217
            
            
            **800,000**
            
            $
            800
            
            $
            8,061,428
            
            $
            327,139
            
            $
            -
            
            $
            (10,197,319
            )
            $
            (1,791,735
            )Shares
                issued for cash
            
            
            1,265,334
            
            
            1,265
            
            
            
            
            
            
            
            
            145,268
            
            
            
            
            
            
            
            
            
            
            
            147,333Shares
                issued for investment
            
            
            15,000
            
            
            15
            
            
            
            
            
            
            
            
            3,580
            
            
            
            
            
            
            
            
            
            
            
            3,595Shares
                authorized & unissued
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            327,139
            
            
            
            
            
            
            
            
            
            
            
            327,817Shares
                issued for services
            
            
            7,349,892
            
            
            7,350
            
            
            
            
            
            
            
            
            378,826
            
            
            
            
            
            
            
            
            
            
            
            378,826Shares
                issued in settlement of debt
            
            
            1,406,608
            
            
            1,407
            
            
            
            
            
            
            
            
            256,997
            
            
            
            
            
            
            
            
            
            
            
            258,404Shares
                issued for preferred dividend
            
            
            96,000
            
            
            96
            
            
            
            
            
            
            
            
            9,024
            
            
            
            
            
            
            
            
            
            
            
            9,120Shares
                issued in settlement of notes
            
            
            2,000,000
            
            
            2,000
            
            
            
            
            
            
            
            
            198,000
            
            
            
            
            
            
            
            
            
            
            
            200,000Shares
                issued for financing
            
            
            704,000
            
            
            704
            
            
            
            
            
            
            
            
            65,176
            
            
            
            
            
            
            
            
            
            
            
            65,880Shares
                issued in lieu of interest
            
            
            14,666
            
            
            15
            
            
            
            
            
            
            
            
            1,452
            
            
            
            
            
            
            
            
            
            
            
            1,487Share
                issued in exchange of preferred
            
            
            800,000
            
            
            800
            
            
            (400,000
            )
            
            
            
            
            99,200
            
            
            
            
            
            
            
            
            
            
            
            100,000Warrants
                and options issued
            
            
            320,000
            
            
            320
            
            
            
            
            
            
            
            
            35,207
            
            
            
            
            
            
            
            
            
            
            
            35,527Warrants
                and Options exercised
            
            
            650,000
            
            
            650
            
            
            
            
            
            
            
            
            3,600
            
            
            
            
            
            
            
            
            
            
            
            4,250Shares
                Cancelled
            
            
            (1,850,000
            )
            
            (1,850
            )
            
            400,000
            
            
            (4000
            
            
            (933,918
            )
            
            
            
            
            
            
            
            
            
            
            (935,768
            )Options
                exercised - related party
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,425
            
            
            
            
            
            
            
            
            
            
            
            4,425Subscription
                payable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (322,139
            )Net
                (Loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,027,947
            )
            
            (1,027,947
            )For
                the year endedDecember
                31,2006Balance,
                December31,2006
            
            
            **28,988,902**
            
            
            **28,991**
            
            
            
            
            
            
            
            
            **8,655,403**
            
            
            
            
            
            
            
            
            **(1,027,947**
            **)**
            
            **(2,378,177**
            **)**






The
      accompanying notes are an integral part of
      these financial statements.




F-5




**LitFunding
      Corp**


**Consolidated
      Statements of Cash Flow**




**For
                the years ending**
            ********
            ****
            **December
                31,**
            ********
            ****
            **2005**
            ****
            **2004****Cash
                flows from operating activities**Net
                income (loss)
            
            $
            (1,027,947
            )
            $
            (3,474,043
            )Adjustments
                to reconcile net income to net cashprovided
                by (used in operating activities)Extraordinary
                gain on settlement with IEP creditorsGain
                on forgiveness of capital lease obligationGain
                on Discount of pre-petition debtDepreciation
                and amortization
            
            
            23,558
            
            
            28,467Reserve
                for unsuccessful resolution of lawsuits
            
            
            
            
            
            76,950Reserve
                for Doubtful ReceivablesLoss
                on disposal of assetShare-based
                compensation
            
            
            414,353
            
            
            825,124Common
                stock issued in settlements
            
            
            493,885
            
            
            67,394Share-based
                interest payments
            
            
            1,467Shares
                cancelled
            
            
            (935,768
            )
            
            38,750Gain
                on participation obligation
            
            
            
            
            
            (15,000
            )Debt
                discount amortization
            
            
            (130,0000
            )
            
            603,558Changes
                in assets and liabilities:Trade
                and other accounts receivable
            
            
            (2,790
            )
            
            84,530Other
                assets
            
            
            (138,982
            )
            
            (20,881
            )Contingent
                advances
            
            
            (572,825
            )
            
            (769,500
            )Accounts
                payable and accrued expenses
            
            
            123,945
            
            
            315,705Trade
                and other claims subject to compromise
            
            
            
            
            
            (241,193
            )Note
                receivable
            
            
            (73,819
            )
            
            (100,000
            )Deferred
                revenue
            
            
            75,004
            
            
            141,668Net
                cash (used in) operating activities
            
            
            (1,749,919
            )
            
            (2,438,471
            )Cash
                flows from investing activities:Purchases
                of property and equipment
            
            
            
            
            
            (3,733
            )Net
                cash (used in) investing activities
            
            
            
            
            
            (3,733
            )Cash
                flows from financing activities:Cash
                from issuance of common stock
            
            
            147,333
            
            
            441,700Cash
                from exercise of options & warrants
            
            
            4,250
            
            
            77,550Cash
                from issuance of preferred stock
            
            
            
            
            
            200,000Proceeds
                from notes payable
            
            
            1,106,806
            
            
            222,500Subscription
                Payable
            
            
            
            
            
            76,533Proceeds
                from investor participation borrowingsProceeds
                from investor obligations
            
            
            450,500
            
            
            702,500Principal
                repayments on capital lease obligationsValue
                of Warrants issued
            
            
            35,527
            
            
            387,021Net
                cash provided by financing activities
            
            
            1,744,416
            
            
            2,107,804Increase
                (decrease) in cash
            
            
            (5,503
            )
            
            (334,401
            )Cash
                - beginning of period
            
            
            7,121
            
            
            341,522Cash
                - ending of period
            
            $
            1,618
            
            $
            7,121Supplemental
                disclosures:Interest
                paid
            
            
            62,685
            
            
            57,039Income
                taxes paid
            
            $
            -
            
            $
            -Shares
                issued for services
            
            $
            378,826
            
            
            416,462Number
                of shares issued for services
            
            
            7,349,892
            
            
            757,500Shares
                issued for debt
            
            $
            458,404
            
            
            754,634Number
                of shares issued for debt
            
            
            3,406,608
            
            
            832,888Imputed
                value of warrants issued with debt
            
            
            -
            
            $






The
      accompanying notes are an integral part of
      these financial statements.




F-6





**Note
      1 - Summary of Accounting Policies**





LitFunding
      Corp. ("The Company") was incorporated in the state of Nevada. The Company
      serves as a holding company for its wholly owned subsidiaries, California
      LitFunding and LitFunding USA ("The Companies"), both incorporated in the State
      of Nevada. California LitFunding was the entity that conducted substantially
      all
      operations during 2004, and owned substantially all of the operating assets,
      employed all the personnel, and paid the obligations of all the corporations.
      LitFunding USA began assuming some operations in the last quarter of 2004 and
      in
      2005 assumed responsibility for substantially all the operations of all the
      corporations.





California
      LitFunding is the successor-in-interest by merger to the "original" company
      in
      the three primary entity corporate structure that now exists. It has been in
      the
      business of investing in litigation recoveries since 2000. In summary,
      California LitFunding raised capital and advanced this capital to various law
      firms pursuant to "Settlement Agreements". LitFunding USA resumed the business
      of litigation funding subsequent to June 17th, 2004, after the United States
      Bankruptcy Court entered an order confirming the LitFunding Corp. and California
      LitFunding joint plans of reorganization. LitFunding USA pursues this business
      by itself and through several wholly owned limited liability companies
      ("LLC's"). Settlement Agreements provide that the funds advanced shall be repaid
      to the Companies, plus a fee, when the lawsuits referenced in the agreement
      ultimately settle. The exact amount of the fee payable on the funds advanced
      depends upon the length of time the funds are outstanding, up to a fixed limit.
      Pursuant to the terms of the Settlement Agreements, the Companies' contractual
      right to payment is limited to the funds ultimately paid to the law firm from
      the specified lawsuit, or lawsuits, in which the funds are invested or
      expended.





On
      January 23, 2003, the Company completed a merger with RP Entertainment, Inc.,
      a
      publicly held Nevada corporation, through a newly formed entity, RP Acquisition
      Corp., a Nevada corporation, as a wholly owned subsidiary of RP Entertainment.
      On February 25, 2003, the Company entered into an Agreement of Merger with
      California LitFunding, formerly LitFunding Corp. (LFC) a California corporation.
      LFC became a subsidiary when the Articles of Merger between RP Acquisition
      Corp., the Registrant's wholly owned subsidiary that was formed to facilitate
      the merger, and LFC were filed with the Nevada Secretary of State. The charter
      documents of the Company are the charter documents of the surviving corporation.
      Pursuant to the Merger Agreement, 7,592,250 shares of common stock were to
      be
      issued to the LFC shareholders in exchange for all the issued and outstanding
      shares of LFC common stock. LitFunding Corp, a California corporation changed
      its name to California LitFunding on May 30, 2003. RP Entertainment had no
      material operations, assets or liabilities prior to the merger.





As
      a
      result of the merger transaction with RP Entertainment, the former California
      LitFunding stockholders obtained control of the Company's voting stock. For
      financial accounting purposes, the acquisition was a reverse acquisition of
      the
      Company by California LitFunding, under the purchase method of accounting,
      and
      was treated as a recapitalization with California LitFunding as the acquirer.
      Accordingly, the historical financial
      statements have been restated after giving effect to the January 23, 2003,
      acquisition of the Company. The




F-7




financial
      statements have been prepared to give
      retroactive effect to January 1, 2002, of the reverse acquisition completed
      on
      January 23, 2003, and represent the operations of California LitFunding.
      Consistent with reverse acquisition accounting: (i) all of California
      LitFunding's assets, liabilities, and accumulated deficit, are reflected at
      their combined historical cost (as the accounting acquirer) and (ii) the
      preexisting outstanding shares of the Company (the accounting acquiree) are
      reflected at their net asset value as if issued on January 23, 2003.


On
      April
      2, 2003 certain individuals and entities filed an involuntary bankruptcy
      petition against the Company in the United States Bankruptcy Court, Central
      District of California. After numerous legal proceedings, in November 2003,
      the
      Company filed its voluntary Chapter 11 bankruptcy petition. In January 2004,
      the
      Company's wholly owned operating subsidiary, California LitFunding, filed a
      voluntary Chapter 11 bankruptcy petition. The Company received confirmation
      of
      its plan of reorganization from the United States Bankruptcy Court on June
      17th,
      2004 (see Note 3).





As
      discussed in Note 2, the Company has entered into a Chapter 11 Plan of
      Reorganization under the United States Bankruptcy Code. In June, 2006 the
      Company received it’s discharge from the Bankruptcy Court. Liabilities exceed
      assets by $2,378,177 at December 31, 2006. The Company's net loss for the year
      ended December 31, 2006 is $1,027,947. The ability of the Company to continue
      as
      a going concern remains dependent upon successful operation as it comes out
      from
      the bankruptcy plan, obtaining additional capital and financing, and generating
      positive cash flow from operations. The Company intends to seek additional
      capital either through debt or equity offerings and believes that increased
      volume and reduction in its lead time to finance and collect on funded cases
      will ultimately lead to profitability and positive cash flows. The financial
      statements do not include any adjustments relating to the recoverability and
      classification of asset carrying amounts or the amount and classification of
      liabilities that might result should the Company be unable to continue as a
      going concern.




Cash
      and cash equivalents


Cash
      includes all short-term highly liquid investments that are readily convertible
      to known amounts of cash and have original maturities of three months or less.
      At times cash deposits may exceed government insured limits. At December 31,
      2006 there were no cash deposits that exceeded those insured
      limits.





Principles
      of consolidation


The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries, California LitFunding, LitFunding USA Easy Money
      Express, Inc., Global Universal Film Group, Inc. and its wholly owned LLC's
      and
      a dormant company, E. Evolution Expeditions whose name was changed to Silver
      Dollar Productions on January 21, 2005. All significant intercompany accounts
      and transactions are eliminated.





F-8





Fixed
      Assets


Fixed
      assets are stated at cost less accumulated depreciation. Depreciation is
      recorded on a straight-line basis over a period of the shorter of the related
      applicable lease term or the estimated useful lives of the assets ranging from
      3
      to 5 years. Depreciation expense for the years ended December 31, 2006 and
      2005
      was $23,558 and $28,467, respectively.





Revenue
      recognition


The
      Company recognizes revenues earned for the fees charged on the contingent
      advances upon successful resolution of the funded lawsuit. In accordance with
      the guidelines of Staff Accounting Bulletin (SAB) 104 and Statement of Financial
      Accounting Concepts (SFAC) No. 5, upon successful resolution of the lawsuit,
      including appeals, the fees become realizable and earned. At this time the
      fee
      is determinable and the collection ensured. Fees are determined as set forth
      in
      the individual contracts. Fees are generally progressive the longer the time
      period for which the advances are outstanding. Fees are not earned until there
      is successful resolution to the related legal matter. The Company has begun
      to
      make contingent advances on so called post settlement lawsuit matters. In these
      instances all appeals have been exhausted and the fee is both determinable
      and
      collection ensured at the time the advances are made.





Income
      taxes


The
      Company provides for income taxes based on the provisions of Statement of
      Financial Accounting Standards No. 109, Accounting for Income Taxes, which,
      among other things, requires that recognition of deferred income taxes be
      measured by the provisions of enacted tax laws in effect at the date of
      financial statements. The company is a cash basis taxpayer.





Financial
      Instruments


Financial
      instruments consist primarily of cash, accounts receivable, contingent advances,
      and obligations under accounts payable, accrued expenses, debentures, notes
      payable and investor participation obligations. The carrying amounts of cash,
      accounts receivable, accounts payable and accrued expenses approximate fair
      value because of the short maturity of those instruments. The carrying value
      of
      the Company's contingent advances approximate fair value because the Company
      provides allowances for any estimated uncollectible amounts. The carrying value
      of debentures and notes payable approximate fair value because they contain
      market value interest rates and have specified repayment terms. The
      participation obligations at December 31, 2006 are carried at the expected
      repayment amounts as determined by the individual notes. The Company has applied
      certain assumptions in estimating these fair values. The use of different
      assumptions or methodologies may have a material effect on the estimates of
      fair
      values.





Use
      of
      Estimates


The
      preparation of financial statements in conformity with generally accepted
      accounting principles 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. Significant estimates made in connection with the preparation of
      the
      accompanying financial statements include the carrying value of accounts
      receivable and contingent advances.





F-9




Stock-based
      compensation


In
      December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment,
      which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
      SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
      to
      Employees and amends SFAS No. 95, Statement of Cash Flows. Generally, the
      approach in SFAS No. 123(R) is similar to the approach described in SFAS No.
      123. However, SFAS No. 123(R) requires all share-based payments to employees,
      including grants of employee stock options, to be recognized in the income
      statement based on their fair values. Pro forma disclosure is no longer an
      alternative. The Company adopted SFAS No. 123(R) as of December 31, 2005. Stock
      issued for services totaled $414,353 and 1,288,678 for the years ended December
      31, 2006 and 2005, respectively.





In
      2005,
      the Company accounted for its employee stock-based compensation arrangements
      in
      accordance with provision of Accounting Principles Board (“APB”) Opinion No. 25,
“ *Accounting
      for stock Issued to Employees”,* and
      related interpretations. As such, compensation expense under fixed plans is
      recorded only if the market value of the underlying stock at the date of grant
      exceeds the exercise price. The Company recognized compensation expense for
      stock options, common stock and other equity instruments issued to non-employees
      for services received based upon the fair value of the equity instruments issued
      as the services are provided and the securities earned.





The
      Company accounted for stock-based compensation associated with the re-pricing
      of
      employee stock options in accordance with the provision of FASB Interpretation
      No. 44, “ *Accounting
      for Certain Transactions Involving Stock Compensation”* (“FIN
      44”). For accounting purposes, the repricing of existing stock options requires
      variable accounting for the new options granted from the date of modification.
      Variable accounting requires that the intristic value, being the excess of
      the
      current market price at the end of each reporting period in excess of the
      exercise price of the repriced options, be expensed as non-cash stock-based
      compensation expense until such time as the repriced options are exercised,
      expire or are otherwise forfeited. Any increase in the intristic value of the
      repriced options will decrease reported earnings, and any subsequent decreases
      in value will increase reported earnings.





SFAS
      No. 123, “ *Accounting
      for Stock-Based Compensation* ”,
      requires the continued application of APB Opinion No. 25 for transactions with
      employees to provide pro forma net earnings (loss) and pro forma earnings (loss)
      per share disclosures for employee stock option grants as if the fair value
      based method defined in SFAS 123 has been applied to these
      transactions.





F-10





The
      following table represents the effect on net (loss) and (loss) per share if
      the
      Company had applied the fair value based method and recognition provisions
      of
      SFAS No. 123:





**2005**
            ****
            **2005**Net
                (loss), as reported
            
            $
            (1,027,947)
            )
            $
            (3,972,043
            )Add:
                Employee stock-based compensationExpense,
                as reported
            
            
            4,425
            
            
            825,154Deduct:
                Total stock-based employee compensationexpense
                determined under fair value method
            
            
            (4,425)
            )
            
            (1,854,162
            )Pro
                forma net (loss)
            
            $
            (1,027,947)
            )
            $
            (5,001,051
            )Net
                (loss) per common shareBasic
                (loss) per share, as reported
            
            $
            (0.05)
            )
            $
            (0.28
            )Basic
                per share, pro forma
            
            $
            (0.05)
            )
            $
            (0.35
            )





As
      required, the pro forma disclosures above include options granted during each
      fiscal year. Consequently, the effects of applying SFAS No. 123 for providing
      pro forma disclosures may not be representative of the effects on reported
      net
      income for future years until all options outstanding are included in the pro
      forma disclosures.




Impairment
      of long-lived assets


The
      Company assesses impairment of long-lived assets whenever there is an indication
      that the carrying amount of the asset may not be recoverable. Recoverability
      of
      these assets is determined by comparing the forecasted undiscounted cash flows
      generated by those assets to the assets' net carrying value. The amount of
      impairment loss, if any, is measured as the difference between the net book
      value of the assets and the estimated fair value of the related
      assets.





Net
      Loss Per Share


Net
      loss
      per share is calculated using the weighted average number of shares of common
      stock outstanding during the year. The Company has adopted the provisions of
      SFAS No. 128, Earnings Per Share.





Recently
      Issued Accounting Pronouncements


In
      May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections” (“SFAS No. 154”) which supersedes APB Opinion No. 20,
“Accounting Changes” and SFAS No. 3 “Reporting Accounting Changes in
      Interim Financial Statements”. SFAS No. 154 changes the requirements for
      accounting for and reporting of changes in accounting principle. The statement
      requires the retroactive application to prior periods’ financial statements of
      changes in accounting principles, unless it is impracticable to determine either
      the period specific effects or the cumulative effect of the change. SFAS
      No. 154 does not change the guidance for reporting the correction of an
      error
      in previously issued financial statements or the change in an accounting
      estimate. SFAS No. 154 is effective for accounting changes and corrections
      of errors made in fiscal years beginning after December 15, 2005. The
      Company does not believe SFAS No. 154 will have a significant impact on its
      financial position or results of operations.





F-11





**Note
      2 - Bankruptcy Petition and Reorganization**





On
      April
      2, 2003, certain creditors filed an involuntary bankruptcy petition under
      Chapter 7 of the United States Bankruptcy Code against LitFunding Corp, a Nevada
      corporation. In the Petition, the Petitioning Creditors alleged that LitFunding
      Corp was generally not paying its debts as they became due. The debtors disputed
      this allegation. For approximately eleven months the debtors and the petitioning
      creditors engaged in litigation regarding the merits of the involuntary
      petition, and the Petitioning Creditors rights under disputed
      contracts.





As
      a
      result of the foregoing litigation, LitFunding Corp was placed into a protective
      Chapter 11 proceeding effective November 19, 2003. The costs of litigating
      the
      merits of the involuntary petition, and the financial impact of the pending
      involuntary, so materially damaged both the LitFunding Corp and California
      LitFunding that it ultimately became necessary for both companies to enter
      into
      Chapter 11. Accordingly, California LitFunding entered into a Chapter 11
      proceeding on January 26, 2004.





In
      February of 2004, this litigation was settled. The settlement reached by and
      among the Company and the petitioning creditors has been incorporated into
      a
      reorganization plan confirmed by the United States Bankruptcy Courts on June
      17th, 2004.





During
      2004 and 2003, California LitFunding, as the operating entity, held title to
      substantially all of the assets of The Company. The core assets within
      California LitFunding, and those with most of the value, were the Settlement
      Agreements, which were the primary subject of the litigation indicated with
      the
      filing of the involuntary bankruptcy petition on April 2, 2003. A total of
      approximately $18.6 million dollars was invested through those Settlement
      Agreements.





Pursuant
      to the plan of reorganization, LitFunding Corp and California LitFunding had
      the
      option to voluntarily transfer the control and the collection of the settlement
      agreements ("the Contract Pool") to an IEP distribution agent (the `Contract
      Agent') for the benefit of the IEP claimants who comprise class 6 under the
      terms of the reorganization plan.





LitFunding
      Corp, California LitFunding and the IEP claimants stipulated and agreed to
      do
      this in December 2004. In that stipulation, the Contract Agent would assume
      full
      control and administration over the `Contract Pool' and have full authority
      over
      the enforcement of the obligations set forth in the settlement agreements that
      comprise the Contract Pool.





F-12





Per
      the
      agreement signed on November 30th, 2004, LitFunding Corp and California
      LitFunding transferred all of the original records and files to the Contract
      Agent on December 16th, 2004, and sent written notice to all parties subject
      to
      the settlement agreement notifying them of the transfer of control of the
      Contract Pool and settlement agreements to the Contract Agent including the
      assignment of LitFunding Corp and California LitFunding's legal rights and
      that
      all payments are now payable to the Contract Agent.





As
      a
      result of the transfer, the Company was effectively relieved of the obligation
      due to the IEP claimants of IEP Note of approximately $26,662,000 including
      related accrued interest. The carrying value of receivables and advances at
      the
      time of the transfer was approximately $12,331,000 resulting in a gain on the
      transfer of $14,131,000 for the year ended December 31, 2004. The original
      value
      of the IEP Note was determined based on the stipulations within the bankruptcy
      plan. In the transfer, the Company transferred all of its rights to the
      contingent advances and any potential earnings thereon. Because payments on
      the
      IEP Note were only to come from collections and earnings on the contingent
      advances, the Company is no longer responsible for that obligation.





In
      consideration for the cooperation and support provided by LitFunding Corp.
      and
      California LitFunding making the transition seamless and effective, the IEP
      claimants waived and released LitFunding Corp and California LitFunding from
      all
      liability arising under the "Contingent Recourse Note" of approximately
      $1,560,000, which would have become effective in 2005.





Moreover,
      by effecting this transfer of the Contract Pool, the two other classes of
      creditors (Class 4 and 5) affected by this transition will continue to receive
      the benefit of the unsecured creditors' allocation as defined in the plan of
      reorganization. The contingency administrative charge allowed by the plan of
      reorganization to be paid to LitFunding Corp and California LitFunding has
      ceased as a result of this transfer.




As
      a
      result of the transfer of the contract pool to the IEP claimants effective
      in
      December 2004, the Company recorded an extraordinary gain for the removal the
      associated obligation and assets.





The
      Company's primary liabilities are summarized in the following
      paragraphs:





A.
      Administrative and Priority Claims. The claims within this class total
      approximately $287,000 through December 31, 2005. Most of this amount represents
      the fees and costs payable to the Debtors general insolvency counsel, Winthrop
      Couchot, P.C. who accepted 200,000 shares of common stock from the company
      in
      April 2005 and an additional 100,000 shares in 2005 in part or full payment
      for
      the amount. The balance represents sums owed of approximately $9,300 in priority
      wages owed to two officers of the Debtors. These amounts are not subject to
      compromise and are included in accounts payable and accrued expenses in the
      accompanying balance sheet at December 31, 2006.





F-13





B.
      Gap
      Claims. During the period between the filing of the involuntary petition and
      the
      date on which LitFunding Nevada's stipulated to the entry of an order for
      relief, certain claims accrued. Substantially all of these claims accrued in
      favor of two law firms that were defending LitFunding Nevada against the
      involuntary filing. The Debtors reached an agreement with these claimants to
      pay
      $314,000 over twelve months. The remaining balance owed at December 31, 2005
      is
      approximately 40,557. These amounts are subject to compromise and are included
      in trade and miscellaneous claims in the accompanying balance sheet at December
      31, 2005; During the three months ending March 31, 2006 the debtor elected
      to
      covert $3,676 to 26,250 shares of the Companies $0.001 par value common stock
      and $36,881 to a promissory note bearing interest at 8 % per annum with a
      maturity date of August 1, 2006. The Company is in default on this note and
      owes
      $29,357 and accrued interest.





C.
      Debenture Claims. In calendar years 2002 and 2003 California LitFunding issued
      debentures to seven individuals, creating approximately two hundred thousand
      dollars ($200,000) in debt obligations. Included is a $10,000 debenture payable
      to a related party. These claims are unsecured and they are undisputed. In
      November 2006 the Company won a Judgment against Alan Schuchman for fee owed,
      a
      stipulation in the Judgment was that Mr. Schuchman forfeits the $ 10,000
      debenture he was holding. The balance of debentures at December 31,2006 is
      $190,000. The Company has not made the December 15, 2006 interest payment of
      $9,450.





D.
      Unsecured Claims Other Than Debenture Claims and IEP Claims. The Debtors have
      approximately $339,653 in allowed unsecured claims. These amounts are subject
      to
      compromise and are included in trade and miscellaneous claims in the
      accompanying balance sheet at December 31, 2005. During the months ended March
      31, 2006 , the debtors elected to convert $244,169 to 1,454,108 shares of the
      Companies $0.001 par value common stock and $ 157,258 to notes payable with
      a
      maturity date of June 15, 2006. The remaining balance due as of December 31,
      2006 is $89,798.





E.
      IEP
      Claims. Pursuant to the Settlement Agreement entered into by and between The
      Company and the IEP petitioning creditors, each and every claim held by the
      IEP
      petitioning creditors has been fixed in them Plan. The totality of all claims
      held by the IEP petitioning creditors has been incorporated into the
      non-recourse Plan Note. The Plan Note had an opening balance of $26,111,763.
      This obligation was relieved in connection with the transfer of the Contract
      Pool to the IEP Creditors in December 31, 2004;





F.
      The
      Plan presented for confirmation incorporates both a business plan, and a legal
      framework for the payment of claims. The business plan sets forth how The
      Company intends to generate the funds necessary to meet the monetary obligations
      fixed in the Plan. The legal framework details what each class of creditors
      will
      receive under the terms of the Plan





F-14




G.
      The
      business plan incorporated into the Plan is designed to accomplish two core
      objectives. The first core objective is to maximize the funds collected to
      be
      collected. The second core objective is to essentially restart The Company's
      business model by raising and investing additional capital in new
      lawsuits;





H.
      Interest Holders. Interest holders are the parties who hold ownership interest
      (i.e., equity interest) in The Company. The Plan creates two classes of
      interests. Class 7, which is comprised of LitFunding Nevada, as the holder
      of
      all of the common stock of California LitFunding, and Class 8, which is
      comprised of all of the holders of common stock interests in LitFunding Nevada.
      These classes are not impaired under the terms of the Plan.




**Note
      3 - Note Receivable**





On
      October 16, 2006, the Company issued a demand promissory note in the amount
      of
      $174,000 bearing interest at 6% per annum to Global Universal Film Group Inc..
      The principal and interest are due 180 days after the Spin-off transaction
      described in the Merger Agreement, if the Spin-off does not occur on or before
      June 30, 2007 no payment shall be due.





**Note
      4 - Income taxes**





The
      Company recognizes deferred income taxes for the difference between financial
      accounting and tax bases of assets and liabilities. Income taxes for the years
      ended December 31, 2005 and 2004 consisted of the following:





**As
                of December 31,******
            
            **2006**
            
            **2005**Current
                tax benefit (provision)
            
            $
            0
            
            $
            0Deferred
                (benefit) provision
            
            
            0
            
            
            0Total
                income tax provision
            
            $
            0
            
            $
            0





Net
      deferred income tax assets of $,3,467,088 are fully offset by a valuation
      allowance of $3,467,088. The valuation allowance was increased by $370,088
      in
      the year ended December 31, 2005. The increase in the valuation allowance in
      the
      year ended December 31, 2005, primarily is the result of the increased of net
      operating loss for the year ended December 31, 2005.





Net
      operating loss carryforwards of approximately $10,197,319 expire from 2020
      through 2025. Due to the change in control of the Company as discussed in Note
      1, future utilization of net operating losses may be restricted.





F-15





The
      differences between the statutory and effective tax rates are as follows for
      the
      year ended December 31, 2005:




**December
                31,**
            ********
            ****
            **2006**
            ****
            **2005**Federal
                statutory rates
            
            $
            (1,027,947
            )
            
            (34
            %)
            $
            (3,467,088
            )
            
            34
            %State
                income taxes
            
            
            0
            
            
            
            
            
            0Valuation
                allowance for operating loss carryforwards
            
            
            (1,027,947
            )
            
            34
            %
            
            3,467,088
            
            
            34
            %Permanent
                difference for discharge of debt
            
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Other
            
            
            0
            
            
            0
            %
            
            0
            
            
            0
            %Effective
                rate
            
            $
            0
            
            
            0
            %
            $
            -0-
            
            
            0
            %





**Note
      5 - Contingent Advances**





Contingent
      advances occur when the Company enters into agreements with lawyers and law
      firms whereby the Company advances funds for litigation costs on selected cases.
      Generally, the Company will be repaid those amounts plus negotiated fees when
      and if a case is settled. These agreements are non-recourse but are secured
      by a
      lien against any awards in the case. Fees are generally based on the length
      of
      time the advances are outstanding. If the fee is less than the award or
      settlement, the fees are reduced to the amount of the recovery.





Management
      estimates the net realizable value of contingent advances by periodically
      reviewing the progress of the cases with the attorneys trying them and past
      experience with similar cases. Management believes that the Company has
      historically achieved a success rate of approximately 85% on cases that it
      has
      funded. Post reorganization procedures and policies have been implemented and
      management believes that it will achieve a success rate of no less than 90%
      on
      new fundings. Management monitors all cases and provides an allowance if it
      believes that any advances have been impaired. At December 31, 2006, there
      were
      contingent advances outstanding of $495,475 and a corresponding impairment
      allowance of $49,547.





**Note
      6 - Participation Agreements**





Prior
      to
      the filing of the involuntary petition on April 2, 2003, the Company raised
      capital to enable it to engage in the practice of funding the contingent
      advances by entering into so called IEP agreements. These are considered to
      be
      investment/equity participation agreements the nature of which has been
      redefined and fixed as part of plan of reorganization and the totality of all
      claims held by the IEP petitioning creditors has been incorporated into the
      non-recourse Plan Note. The non-recourse Plan Note had an opening balance of
      $26,111,763 as of May 1, 2004 and as of May 1, 2004 included an approximate
      $2,000,000 from the cancelled sale of stock and a predetermined retroactive
      return. As discussed in note 3 above, the Contract Pool was transferred on
      December 16, 2004, to the Contract Manager designated by the IEP Claimants.
      Accordingly, this non-recourse plan note was removed from the balance sheet
      at
      December 31, 2004, to reflect the
      economic reality of that transaction. As of December 31, 2006, the Company
      had
      participation obligations of $724,500.





F-16





**Note
      7 - Debentures**





During
      the years ended December 31, 2002, the Company issued 5-year 9% convertible
      debentures amounting to $200,000, due January 1, 2007. Included is one debenture
      due to a related party for $10,000. Interest is due semi-annually on the first
      day of June and December of each year, commencing June 1, 2003 until fully
      paid.
      As part of the plan of reorganization, these debentures have an amended maturity
      to 2008. At December 31, 2006, the Company had accrued interest totaling
      $9,750.





The
      registered holders of the debentures have the right, after one year prior to
      maturity, to convert the principal at the original conversion price of $10
      for
      one Common share or at the adjusted conversion price. If and whenever on or
      after the date of this debenture, the Company issues or sells any share of
      common stock for a consideration per share less than the initial conversion
      rate, then upon such issue or sale, the initial conversion rate shall be reduced
      to the lowest net price per share at which such share of common stock have
      been
      issued. The debentures are subordinated to all the senior indebtedness,
      including debts under equity participation agreements.





**Note
      8- Debt**





In
        2005,
        certain of the note holders elected to convert unsecured notes totaling $700,000
        to 1,091,000 common shares. At December 31, 2005 the Company has issued 600,000
        shares and recorded subscription of $250,606 and were issued at September
        30,
        2006.
 
 During
        the three months ended March 31, 2006, certain debtors in (note 2) above
        elected
        to convert $64,684 to promissory notes with a maturity date of June 15, 2006.
        These notes have been verbally extended.
  Notes
          payable at December 31, 2006 is comprised of the following:
 Note
                      payable to entity, original balance of $19,181. Principal
                      and interest due June 15, 2006. The Note is
                      unsecured.
                  
                  $
                  9,591Note
                      payable to entity, original balance of $15,000 due in three
                      monthly
                      installments of $5,000 beginning April 15, 2006. The Note is
                      unsecured
                  
                  
                  10,000Note
                      payable to entity, original balance of $30,502 due in two monthly
                      installments of $15,251 beginning April 15, 2006. The Note
                      is
                      unsecured
                  
                  
                  15,251Notes
                      payable with no specified due dates. Face amount of $19,500
                      and $15,000,
                      interest at 10% per annum, the note is unsecured.
                  
                  
                  34,500Notes
                      payable with specified due dates. Face amount $6,000, interest
                      at 6% due
                      March 15, 2006
                  
                  
                  6,000Notes
                      payable with varying due dates that have been verbally extended.
                      Interest
                      at 6% and 12%, face amounts totaling $62,500. Notes
                      unsecured.
                  
                  
                  62,500Notes
                      payable with specified due dates. Face amount $6,000, interest
                      at 12% due
                      April 1, 2006.
                  
                  
                  25,000Note
                      payable face amount $100,000, at 2% per month due Mayr 13,
                      2007. Note
                      unsecured.
                  
                  
                  100,000Notes
                      payable with no specified due dates. Notes unsecured
                  
                  
                  148,456Total
                  
                  $
                  1,171,806
  During
          the year ended December 31, 2005, certain of the note holders elected to
          convert
          unsecured notes totaling $700,000 to 1,091,000 common shares. At December
          31,
          2005 the Company has issued 600,000 shares and recorded subscription of
          $250,606




F-17




**Note
        9 - Stockholders’ Equity**
  Common
        Stock
 As
        discussed in Note 1, the Company entered into a merger agreement in January
        2003, whereby 7,592,250 shares of its common stock were issued in exchange
        for
        all the issued and outstanding shares of the common stock of California
        LitFunding. The acquisition was a reverse acquisition of the Company by
        California LitFunding, under the purchase method of accounting, and was treated
        as a recapitalization with California LitFunding as the acquirer. Accordingly,
        the historical financial statements have been restated after giving effect
        to
        the January 23, 2003, acquisition of the Company.
 
 In
        the
        year ended December 31, 2004, the Company declared and issued an 11 for 10
        stock
        dividends. As a result 1,042,501 shares were issued. The trading value of
        the
        shares on the declaration date of November 1, 2004, was $0.70. The aggregate
        value of the new shares issued of $729,751 was reclassified from the accumulated
        deficit to additional paid-in capital.
 
 During
        the year ended December 31, 2005, the Company accepted a subscription to
        purchase 186,667 shares of its $.001 par value to an accredited investor
        at
        $0.41 per share. The Company recorded a subscription payable of $76,533 at
        December 31, 2005; the shares were issued at September 30, 2006.
 
 On
        March
        21, 2006 the Company issued 250,000 shares of its $.001 par value common
        stock
        to two accredited investors at $.20 per share for cash totaling
        $50,000.
  During
        the three months ended March 31, 2006, certain consultants and debtors exercised
        their warrant rights to purchase 650,000 shares of the Company’s par value
        common stock for cash totaling $4,250.
 
 In
        March
        2006, the Company issued 2,737,318 shares of its $.001 par value common stock
        for services valued at $271,426 the fair value of the underlying
        shares.
 
 During
        the months ended March 31, 2006, certain unsecured creditors elected to convert
        $244,169 to 1,454,108 shares of the Company’s $.001 par value common stock. At
        March 31, 2006 the Company had issued 281,132 and the remaining1,172,976
        shares
        were issued on April 18, 2006 the Company recorded a subscription payable
        of $
        190,687 at March 31, 2006
  F-18
  On
        April
        18, 2006, the company issued 831,481 shares of its common stock to Morton
        Reed,
        CEO of the Company, in exchange for accrued debt valued at $130,000. The
        shares
        were unrestricted pursuant to the S-8 Registration filed on February 28,
        2006.
 
 On
        April
        18, 2006, the Company issued 50,000 shares of its restricted common stock
        to
        Anthony Longo as a sign-on bonus.
 
 On
        April
        18, 2006, the Company issued 15,000 shares of its restricted common stock
        to
        Rochester Capital Partners, LP and 5,000 shares of our common stock to Joseph
        Weaver in exchange for all of the issued and outstanding shares of Easy Money
        Express, Inc. (200,000 shares).
 
 On
        April
        18, 2006, the Company issued 100,000 shares of its common stock to Marc
        Lieberman for services rendered to the Company. The shares were unrestricted
        pursuant to the S-8 Registration filed with the SEC on February 28,
        2006.
 
 On
        April
        18, 2006, the Company issued 10,700 shares of its common stock to Michael
        Marcelli for services rendered to the Company. The shares were unrestricted
        pursuant to the S-8 Registration filed with the SEC on February 28,
        2006.
 
 On
        April
        18, 2006, the Company issued 20,000 shares of its common stock to Kathleen
        Saur
        for services rendered to the Company. The shares were unrestricted pursuant
        to
        the S-8 Registration filed with the SEC on February 28, 2006.
 
 On
        April
        18, 2006, the Company issued 163,295 shares of its common stock to Jon M.
        Leader
        for services rendered to the Company. The shares were unrestricted pursuant
        to
        the S-8 Registration filed with the SEC on February 28, 2006.
 
 On
        April
        20, 2006, the Company issued 25,000 shares of its restricted common stock
        to
        Baldev Singh Grewal of Navin Enterprises, Inc. pursuant to its consulting
        agreement dated March 1, 2006.
 
 On
        May
        23, 2006, the Company issued 1,000,000 shares of its restricted common stock
        to
        Stoecklein Law Group for services rendered to the Company.
 
 On
        May
        23, 2006, the Company issued 500,000 shares of its restricted common stock
        to
        Opus Pointe for services rendered to the Company.
 
 On
        June
        2, 2006, the Company issued 100,000 shares of its common stock to Marc J.
        Winthrop for legal services provided to the Company. The shares issued were
        unrestricted pursuant to the S-8 Registration filed with SEC on February
        28,
        2006.
  F-19
 
 Apex
        Investment Fund Ltd. converted 400,000 shares of Series A 12% Convertible
        Preferred Stock into 800,000 shares of our restricted common stock. The 800,000
        shares of common stock were issued on June 2, 2006.
  On
        June
        23, 2006, the Company issued 1,000,000 shares of its restricted common stock
        to
        CLX & Associates, Inc. pursuant to its consulting agreement dated March 1,
        2006.
 
 On
        August
        7, 2006, the Company issued 125,000 shares of restricted common stock to
        Howard
        Joffe for $10,000 cash.
 
 On
        August
        7, 2006, the Company issued 125,000 shares of restricted common stock to
        Robert
        Heitner for $10,000 cash.
 
 On
        August
        7, 2006 the Company issued 1,250,000 shares of restricted common stock to
        Morton
        Reed, CEO of the Company, in exchange for accrued debt valued at
        $250,000.
 
 On
        August
        14, 2006 the Company voided the 1,000,000 shares of its restricted common
        stock
        issued on June 23, 2006 to CLX & Associates, Inc pursuant to the
        cancellation agreement dated March 1, 2006.
 
 On
        August
        28, 2006, the Company issued 1,000,000 shares of its restricted common stock
        to
        CLX & Associates, Inc. pursuant to its consulting agreement dated March 1,
        2006 that was reinstated.
 
 On
        August
        28, 2006, the Company issued 1,600,000 shares of restricted common stocks
        to
        Imperial Capital Holdings LLC as follows; 96,000 shares for preferred shares
        dividend, 200,000 shares for the extension of the $30,000 note executed April
        12, 2006 and 504,000 shares for inducement to execute an equity line of
        $3,000,000.
 
 Imperial
        Capital Holdings LLC converted 400,000 shares of Series A 12% Convertible
        Preferred Stock into 800,000 shares of our restricted common stock. The 800,000
        shares of common stock were issued on August 28, 2006.
 
 On
        August
        28, 2006, the Company issued 2,780,000 shares of restricted common stock
        to
        Davric Corporation as follows; 14.666 shares for interest accrued on $200,000
        note, 765,334 shares for cash and 2,000,000 in settlement of $200,000 note.
  F-20
  Series
        “A” Preferred Stock
 On
        July
        20 2005, the Board of Directors authorized the company to amend its Article
        of
        Incorporation to allow the issuance of up to 10,000,000 shares of preferred
        stock, par value $0.001 per share. Further, the Board authorized the initial
        issuance of up to 2,000,000 shares of Series A 12% convertible preferred
        stock.
        The Series A provides for a conversion rate 2 shares of common for 1 share
        of
        preferred, and such conversion rights shall commence six months from the
        date of
        purchase. As of December 31, 2005, the company has issued 800,000 shares
        at
        $0.25 per share to two individual investors for cash totaling
        $200,000.




**Note
      10 - Commitments and Contingencies**





Commitments


In
      October 2004, the Company rescinded its long-term property lease as allowed
      in
      Chapter 11 bankruptcy proceedings of the Federal Bankruptcy code and moved
      its
      offices to Las Vegas, Nevada where it occupied space on a month-to-month lease
      until March 1, 2005. On March 1, 2005 the company entered into three-year lease
      agreement expiring February 29, 2008 at $5,000 per month in 2005, $6,000 per
      month in 2006 and $6,180 for the remaining lease year. Rent expense for the
      years ended December 31, 2005 and 2004 was $78,837 and $127,310,
      respectively.





Commitments
      for minimum operating lease payments are as follows:





2006
            
            $
            70,0002007
            
            
            73,8002008
            
            
            12,360Total
            
            $
            156,160





Contingencies


The
      company is a defendant in several matters in litigation, many of which are
      in
      the normal course of business, including litigation for refunds of funds
      invested. The company believes these suits are without merit and intends to
      defend these litigations in courts of law.





The
      Company is involved in suits for breach of contract, fraud, conspiracy and
      defamation with the same claimants in the United States Bankruptcy Court and
      California State Court. The claimants allege that there was a finder's fee
      agreement between them and the founding officers / shareholders of the company.
      The Company's position is that there was a negotiated agreement with the
      claimants, which was complied with. The claimants allege damages of $16
      million.





In
      May
      2004, the United States Bankruptcy Court upheld the company's objections to
      all
      monetary claims. The claimants appealed this decision. Additionally, they filed
      an adversary proceeding raising most of the issues already raised in the first
      claims. In February 2005, the United States Bankruptcy Court partially dismissed
      the claimant's adversary complaint and told the claimants to amend the complaint
      to give them the opportunity to clarify their claims. The claimants filed that
      amended complaint. In March 2005, the company filed a motion to dismiss with
      prejudice the entire amended complaint on the grounds that the claims therein
      were previously denied by the court in the bankruptcy proceeding.





F-21





The
      State
      Court action has been stayed pending resolution of the issues in the United
      States Bankruptcy Court. The Federal Court's decisions in the company's favor
      will preclude proceedings against the company in the state court
      action.





**Note
      11** **-
      Net Income (Loss) Per Share**




Net
      income per share is calculated using the weighted average number of shares
      of
      common stock outstanding during the year. Options/Warrants to purchase 6,250,750
      to purchase common shares were not considered in the calculation for diluted
      earnings per share for the years ended December 31, 2005. In accordance with
      SFAS No. 128, the control number used in determining the dilutive effect of
      warrants and options is based on operating income, therefore, because the
      Company experienced a net operating loss as of December 31, 2005 the effect
      of
      their inclusion based would be anti-dilutive and hence, were not included.





**2005**
            ****
            **2005**
            ********
            ****
            **Income
                (Loss)**
            ****
            **Shares**
            ****
            **Per
                Share**
            ****
            **Income
                (Loss)**
            ****
            **Shares**
            ****
            **Per
                Share**Net
                income (loss) before extraordinary item
            
            $
            (1,027,947
            )
            
            
            
            
            
            
            $
            (3,970,798
            )Extraordinary
                item
            
            
            -Total
            
            $
            (1,027,947
            )
            
            
            
            
            
            
            
            (3,970,798
            )Preferred
                dividends
            
            
            19,993
            
            
            
            
            
            
            
            
            1,245Income
                (loss) available to common shares holders
            
            $
            (1,047,940
            )
            
            
            
            
            
            
            $
            (3,972,043Basic
                earnings (loss) Per Share:Before
                extraordinary item
            
            $
            (1,047,940
            )
            
            19,099,652
            
            $
            (0.05
            )
            $
            (3,972,043
            )
            
            14,419,498
            
            $
            (0.28
            )Extraordinary
                item
            
            
            -
            
            
            19,099,652
            
            $
            (0.05
            )
            
            
            
            
            14,419,498
            
            $
            (0.28
            )Total
            
            $
            (1,047,940
            )
            
            19,099,652
            
            $
            (0.05
            )
            $
            (3,972,498
            )
            
            14,419,498
            
            $
            (0.28
            )





**Note
      12 -**  **Related
      Party**





During
      the year ended December 31, 2004, the Company entered into an agreement with
      a
      non-independent Board member to lease office space on a month-to-month basis.
      Rent expense recognized for the three months ended March 31, 2005 related to
      this agreement was $13,957. This lease was terminated in March 2005. In
      addition, this same Board member has a $10,000 debenture with the Company as
      described in Note 6.





In
      March
      2005, the Company granted Robert Amira, our Executive Vice President, 10,000
      shares of common stock and 10,000 options to purchase shares of our common
      stock
      at an exercise price of $0.97 per share, We also granted Dermot Ryan 10,000
      options to purchase shares of our common stock at $0.97 per share. Mr. Ryan
      is
      one of our employees, and was appointed as our Corporate Secretary in June
      2005.





F-22





In
      June
      2005, we granted Lloyd Schiller, our Vice President for Sales, 10,000 shares
      of
      our common stock along with options to purchase 10,000 shares of our common
      stock at $0.56 per share.





In
      July
      2005, we granted Terry Gabby, our Treasurer and Chief Financial Officer, 10,000
      options to purchase shares of our common stock at $0.41 per share. Mr.
      Hejmanowski, our director, was granted 150,000 shares of our common stock as
      a
      signing bonus in July 2005.





In
      August
      2005, we granted Dermot Ryan additional options to purchase 10,000 shares at
      $0.41 per share. In September 2005, the company granted options to Morton Reed
      to purchase 500,000 shares at $0.99 per share, and granted options to Stanley
      Weiner to purchase 300,000 shares at $0.99 per share.





On
      November 2, 2005 we issued 150,000 shares of our $0.001 par value common stock
      to Donald Hejmanowski valued at $72,000, for Director services which the Company
      expensed as share-based expense at December 31, 2005.





**Note
      13 - Warrants and Options**





During
      2005, the Company granted options and warrants to purchase 3,773,250 shares
      of
      its common stock at a weighted average exercise price of $0.49 per share.





Options
      and Warrants Exercised


During
      the year ended December 31, 2005, 1,115,000 options were exercised. The warrants
      and options were issued to both non-employees for services and to Directors
      of
      the Company and creditors. The and options issued to Directors of the Company
      were part of the compensation package promised to Directors in August 2004
      and
      are priced accordingly.





The
      summary of activity for the Company's stock options/warrants is presented
      below:





**Year
                ended**
              **December,
                2005**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Year
                ended**
              **December,
                2004**
            
            **Weighted
                Average**
              **Exercise
                Price**Options/Warrants
                outstanding at beginning of Period
            
            
            3,592,500
            
            $
            0.30
            
            
            1,549,500
            
            $
            .0.54Granted
            
            
            3,773,250
            
            $
            0.49
            
            
            2,075,000
            
            $
            0.21Exercised
            
            
            (1,115,000
            )
            $
            0.05
            
            
            -Terminated/Expired
            
            
            -
            
            
            
            
            
            (32,000
            )
            $
            1.00Options
                /warrants outstanding at end of period
            
            
            6,250,750
            
            $
            0.42
            
            
            3,592,500
            
            $
            0.30Options/warrants
                exercisable at end of period
            
            
            6,250,750
            
            $
            0.42
            
            
            3,592,500
            
            $
            0.30Price
                per share of options outstanding
            
            
            $0.01-$7.00
            
            
            
            
            
            $0.01-$7.00Weighted
                average remaining contractual lives
            
            
            3.08
                years
            
            
            
            
            
            2.05
                yearsWeighted
                average fair value of options granted during the period
            
            $
            0.49
            
            
            
            
            $
            0.49





F-23




**Note
      14 - Subsequent Events**





On
      April
      18, 2006, the Company issued 831,481 shares of its restricted common stock
      to
      Morton Reed, CEO of the Company, in exchange for accrued debt valued at
      $130,000.





On
      April
      18, 2006, the Company issued 50,000 shares of its restricted common stock to
      Anthony Longo as a sign-on bonus.





On
      April
      18, 2006, the Company issued 15,000 shares of its restricted common stock to
      Rochester Capital Partners, LP and 5,000 shares of its common stock to Joseph
      Weaver in exchange for all of the issued and outstanding shares of Easy Money
      Express, Inc. (200,000 shares).





On
      April
      18, 2006, the Company issued 100,000 shares of its common stock to Marc
      Lieberman for services rendered to the Company. The shares were unrestricted
      pursuant to the S-8 Registration filed with the SEC on February 28,
      2006.





On
      April
      18, 2006, the Company issued 10,700 shares of its common stock to Michael
      Marcelli for services rendered to the Company. The shares were unrestricted
      pursuant to the S-8 Registration filed with the SEC on February 28,
      2006.





On
      April
      18, 2006, the Company issued 20,000 shares of its common stock to Kathleen
      Saur
      for services rendered to the Company. The shares were unrestricted pursuant
      to
      the S-8 Registration filed with the SEC on February 28, 2006.





On
      April
      18, 2006, the Company issued 163,295 shares of its common stock to Jon M. Leader
      for services rendered to the Company. The shares were unrestricted pursuant
      to
      the S-8 Registration filed with the SEC on February 28, 2006.





On
      April
      20, 2006, the Company issued 25,000 shares of its restricted common stock to
      Baldev Singh Grewal of Navin Enterprises, Inc. pursuant to its consulting
      agreement dated March 1, 2006.




On
        May
        23, 2006, we issued 1,000,000 shares of our restricted common stock to
        Stoecklein Law Group for services rendered to the Company.
 
 On
        May
        23, 2006, we issued 500,000 shares of our restricted common stock to Opus
        Pointe
        for services rendered to the Company.
 
 On
        June
        2, 2006, we issued 100,000 shares of our common stock to Marc J. Winthrop
        for
        legal services provided to the Company. The shares issued were unrestricted
        pursuant to the S-8 Registration filed with SEC on February 28,
        2006.
 
 Apex
        Investment Fund Ltd. converted 400,000 shares of Series A 12% Convertible
        Preferred Stock into 800,000 shares of our restricted common stock. The 800,000
        shares of common stock were issued on June 2, 2006.
 
 On
        June
        23, 2006, we issued 1,000,000 shares of our restricted common stock to CLX
&
Associates, Inc. pursuant to its consulting agreement dated March 1,
        2006.




F-24





**ITEM
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




We
      have
      appointed Lawrence Scharfman & Co., CPA, P.C., as the Company's independent
      accountants for the year ended December 31, 2006. This is a change in
      accountants recommended by the Company's Executive Management and approved
      by
      the Company's Board of Directors. We dismissed Epstein Weber & Conover, PLC
      and engaged Lawrence Scharfman & Co., CPA, P.C. on April 28, 2006. During
      the most recent two fiscal years and during the portion of 2006 preceding the
      Board’s decision, neither the Company, nor anyone engaged on its behalf, has
      consulted with Lawrence Scharfman & Co., CPA, P.C., regarding: (i) either
      the application of accounting principles to a specified transaction, either
      completed or proposed; or the type of audit opinion that might be rendered
      on
      the Company’s financial statements; or (ii) any matter that was either the
      subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K)
      or a reportable event (as described in Item 304(a)(1)(v) of Regulation
      S-K).





T he
      report
      of Epstein Weber & Conover, PLC on
      the
      Company’s consolidated financial statements for the fiscal years ended December
      31, 2004 and 2003 did not contain an adverse opinion or disclaimer of opinion
      and were not qualified or modified as to uncertainty, audit scope or accounting
      principles, except
      for Epstein Weber & Conover, PLC issuance of going concern opinions on the
      financial statements for the fiscal years ended December 31, 2004 and 2003.
      From
      March 26, 2004, the date when Epstein Weber & Conover, PLC was appointed as
      the Company’s independent accountant, and for the most recent fiscal year and
      the subsequent interim period ending on April 27, 2006, when Epstein Weber
&
Conover, PLC was dismissed as the Company’s independent accountant, there were
      no disagreements between the Company and Epstein Weber & Conover, PLC on any
      matter of accounting principles or practices, financial statement disclosure
      or
      auditing scope or procedure, which disagreements, if not resolved to the
      satisfaction of Epstein Weber & Conover, PLC would have caused it to make a
      reference to the subject matter of the disagreement in connection with its
      audit
      reports.





The
      change in accountants does not result from any dissatisfaction with the quality
      of professional services rendered by Epstein Weber & Conover, PLC, as the
      independent accountants of the Company.





Epstein
      Weber & Conover, PLC, in their letter filed as Exhibit 16 to Form 8-K filed
      on May 15, 2006, states in part that “during the past two fiscal years, we have
      informed management of LitFunding Corp. of significant deficiencies in internal
      controls which we believe is a reportable event under 304(a)(1)(iv)(B)(1) of
      Regulation SB.”





The
      Company does not disagree with Epstein Weber & Conover’s statement, in that
      in the first quarter of 2005 the Company’s audit committee was informed of
      Epstein Weber & Conover’s inability to rely on the competency of the
      Company’s prior Chief Financial Officer which resulted in a lack of internal
      controls necessary to develop reliable financial statements. The communication
      from Epstein Weber & Conover to the Company’s audit committee resulted in
      the termination of the services of its prior CFO in June of 2005. In an attempt
      to prevent future significant deficiencies, the Company has retained the
      services of an outside consulting firm, Opus Pointe, to assist in curing
      deficiencies in its internal controls.





30





ITEM
      8A.  **CONTROLS
      AND PROCEDURES**




We
      conducted an evaluation, with the participation of Morton Reed, our Chief
      Executive Officer, and Terry Gabby, our Chief Financial Officer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as amended, as of December 31, 2005, to ensure that
      information required to be disclosed by us in the reports filed or submitted
      by
      us under the Exchange Act is recorded, processed, summarized and reported,
      within the time periods specified in the Securities Exchange Commission’s rules
      and forms, including to ensure that information required to be disclosed by
      us
      in the reports filed or submitted by us under the Exchange Act is accumulated
      and communicated to our management, including our principal executive and
      principal financial officers, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required disclosure. Based
      on
      that evaluation, Messrs. Reed and Gabby have concluded that as of December
      31,
      2006, our disclosure controls and procedures were not effective at the
      reasonable assurance level, primarily due to our inability to timely file this
      report on Form 10-KSB within the time frame prescribed by the Securities and
      Exchange Commission.





In
      light
      of our inability to timely file this report, we performed additional analysis
      and other post-closing procedures to ensure our consolidated financial
      statements were prepared in accordance with generally accepted accounting
      principles. Accordingly, we believe that the consolidated financial statements
      included in this report fairly present, in all material respects, our financial
      condition, results of operations and cash flows for the periods
      presented.





Other
      than the deficiency and weakness described above, Mr. Reed, our Chief Executive
      Officer and Mr. Gabby, our Chief Financial Officer concluded that our disclosure
      controls and procedures are otherwise effective.





In
      an
      attempt to prevent further breakdowns in our internal control over financial
      and
      disclosure reporting, we have engaged the services of an independent financial
      consultant to assist us in the preparation of our financial statements in
      accordance with GAAP and assist in the evaluation of our financial statement
      disclosures. This was our only change in our internal control over financial
      reporting for the most recent quarter ended December 31, 2006.





**ITEM
      8B.**  **OTHER
      INFORMATION**





None.




**PART
      III**





**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
      OF THE EXCHANGE ACT**





31





The
      members of our board of directors serve for one year terms and are elected
      at
      the next annual meeting of stockholders, or until their successors have been
      elected. The officers serve at the pleasure of the board of directors.





Resignations
      and Appointments of Officers and Directors





Effective
      July 1, 2005, Andrew Scherr resigned as a Director of the Company. Mr. Scherr’s
      resignation was not a result of any disagreements with the Company.
      Concurrently, the board of directors appointed Donald Hejmanowski as a Director
      of the Company. Also, effective July 1, 2005, the board of directors appointed
      Terry Gabby as Chief Financial Officer and Treasurer of the
      Company.





Effective
      November 4, 2005, Robert P. Amira resigned as Executive Vice President of the
      Company. Mr. Amira’s resignation was not a result of any disagreements with the
      Company.





Effective
      February 22,
      2007,
      the board of directors appointed Dennis H. Johnston as a director.





Information
      as to our current directors and executive officers is as follows:





**Name**
            **Age**
            **Title**
            **Term**Morton
                Reed
            74
            President,
                CEO and Director
            December
                2000Stanley
                Weiner
            64
            Director
                and VP of Finance
            Director
                since October 2003 &VP of Finance since December
                2000Dennis
                H. Johnston
            53
            Director
            February
                2008Terry
                Gabby
            61
            CFO
                and Treasurer
            July
                2005





**Duties,
      Responsibilities and Experience**





***Morton
      Reed, Ph.D.*** ***,*** 73, has
      served as President, CEO and a Director of the Company since December 2000.
      Dr.
      Reed served in the United States Marine Corps during the Korean War. After
      returning from overseas he attended UCLA for his undergraduate studies in
      English and Philosophy. From 1960 through 1980 he served as an executive in
      several business ventures: CEO of Cathay Studios, from 1960 to 1968; CEO of
      Orient Limited of Nevada from 1968 to 1972; President and Chairman of AAlpha
      Mortgage Company from 1970 to 1982. During this time he continued with his
      education earning a Masters Degree in Psychology form Antioch University in
      1973
      and a Doctorate in philosophy in Clinical Psychology from California Graduate
      Institute in 1975. In 1996 Dr. Reed joined Magnolia Studios a post production
      facility in Burbank, CA and helped effect a rate of that company to Millennium
      Studios which appointed him interim CEO. He left Millennium in 1999 and joined
      Case Financial, a litigation funding company where he served as VP of Sales.
      In
      November 2000, Dr. Reed left Case Financial to for LitFunding Corp. where he
      remains as President. Dr. Reed is not an officer or director of any other
      reporting company.





32





***Stanley
      B. Weiner*** ***,*** 64, has
      served as a Director of the Company since October 2003 and Vice President of
      Finance of the Company since December 2000. Mr. Weiner has more than 35 years
      experience creating and running businesses. Mr. Weiner was the founding officer
      of Gemini Financial Corporation, a NASD Broker/Dealer from 1970 through 1975,
      President of APA, Real Estate Syndication Company from 1975 through 1978,
      Managing Partner of Agri-World Partnership from 1978 through 1983, an
      agricultural project syndication company with offices throughout Europe and
      the
      Middle East. Mr. Weiner was a Founding Officer/President of Regent Properties
      from 1985 through 1990, and Chief Executive Officer of Wise Industries from
      1990
      through 1993, a company specializing in pollution control devices. In 1978,
      Mr.
      Weiner founded Western Pacific Investment Corporation, centers and agricultural
      properties in addition to packaging many tax-sheltered investments. As a result
      of the foregoing activities, Mr. Weiner has extensive experience in marketing,
      acquiring, financing and developing commercial and agricultural property,
      negotiating agreements and packaging transactions. Mr. Weiner received his
      Bachelor of Arts degrees in both Psychology and Economics from California State
      University at Long Beach in 1966. He also did graduate work in both fields
      at
      UCLA. Mr. Weiner has in the past held a National Association of Securities
      Dealers Principals license and is a licensed Real Estate Broker. Mr. Weiner
      is
      not an officer or director of any other reporting company.





***Dennis
      H. Johnston*** , 53,
      is a
      practicing attorney in the State of California and has over twenty-eight years
      experience in representing financial institutions, public and privately traded
      corporations and has successfully completed in excess of three billion dollars
      worth of acquisitions during his practice.





For
      the
      past 12 years, Mr. Johnston has maintained his own law practice specializing
      in
      public companies and related securities transactions. He has negotiated and
      implemented many public company mergers, acquisitions and changes in control
      for
      companies ranging from financial institutions, to manufacturing companies to
      the
      highly publicized Internet related entities. In the last 2 years, Dennis has
      completed three reverse mergers and recently completed the merger of a private
      company into a fully reporting shell through the United States Bankruptcy Court
      in a Chapter 11 proceeding. In addition to advising clients on corporate
      restructuring and securities matters, his particular expertise is in
      representing clients before governmental regulatory agencies including the
      Securities and Exchange Commission, the Department of Corporations, the National
      Association of Securities Dealers and other administrative and governmental
      agencies.





Prior
      to
      the formation of his own law firm, Mr. Johnston had been a partner with two
      highly recognized national law firms including managing the savings and loan
      practice at Manatt, Phelps, Rothenberg and Tunney before being recruited to
      the
      highly publicized firm known as Wyman, Bautzer, Kuchel and Silbert were he
      was
      responsible for establishing and managing the firm's national financial
      institutions practice.





Mr.
      Johnston graduated with honors from UCLA in 1975, with a Bachelor of
      Administration in business and economics and received his Juris Doctor degree
      with Dean's List Honors from Loyola University of Los Angeles where he was
      a
      Note and Comment Editor of The Loyola Law Review, a Founding Member of the
      Loyola International and Comparative Law Journal and the author of a published
      article entitled "Vicarious Liability Of Controlling Persons Under The Securities
      Act Of 1934", (1977) 11 Loyola L.A. L. Review 131. Dennis Johnston was admitted
      to the State Bar of California in November of 1978. Additional professional
      affiliations include the Los Angeles County Bar Association and the American
      Bar
      Association. Mr. Johnston is not an officer or director of any other reporting
      company.





33








***Terry
      Gabby*** ,
      61, has
      served as Chief Financial Officer and Treasurer of the Company since July 1,
      2005. Mr. Gabby has over 30 years’ experience in executive management, auditing
      and finance. As the senior auditor for a regional audit firm, Seidman &
Seidman CPA's, he was the senior in charge of audits for several publicly held
      companies in the casino and manufacturing industries. From 1981 to 1991, Mr.
      Gabby was the corporate director of internal audit for Sahara Resorts, Inc.,
      a
      publicly traded company with several gaming subsidiaries and time-share
      properties. As a consultant for various clients, Mr. Gabby has developed and
      implemented financial accounting systems, internal control systems and
      participated in establishing review procedures for compliance testing as
      required under the Sarbanes-Oxley Act. The past seven years, Mr. Gabby has
      held
      the executive positions of Chief Financial Officer and Controller for several
      large tribal gaming enterprises located in several state jurisdictions. These
      enterprises were business start-ups requiring loan acquisitions, funding
      distributions, construction cost control and the development of financial
      reporting systems. Mr. Gabby earned his Bachelor of Science degree in accounting
      from the University of Nevada, Las Vegas College of Business Administration
      in
      1973. Mr. Gabby will receive a salary of $55,000 annually, and will receive
      a
      signing bonus of 10,000 options to purchase shares of the Registrant's common
      stock at $0.41 per share. Mr. Gabby is not an officer or director of any other
      reporting company.





Election
      of Directors and Officers . ****





Directors
      are elected to serve until the next annual meeting of stockholders and until
      their successors have been elected and qualified. Officers are appointed to
      serve until the meeting of the Board of Directors following the next annual
      meeting of stockholders and until their successors have been elected and
      qualified.





No
      Executive Officer or Director of the Company has been the subject of any Order,
      Judgment, or Decree of any Court of competent jurisdiction, or any regulatory
      agency permanently or temporarily enjoining, barring suspending or otherwise
      limiting him from acting as an investment advisor, underwriter, broker or dealer
      in the securities industry, or as an affiliated person, director or employee
      of
      an investment company, bank, savings and loan association, or insurance company
      or from engaging in or continuing any conduct or practice in connection with
      any
      such activity or in connection with the purchase or sale of any
      securities.





No
      Executive Officer or Director of the Company has been convicted in any criminal
      proceeding (excluding traffic violations) or is the subject of a criminal
      proceeding which is currently pending.





No
      Executive Officer or Director of the Company is the subject of any pending
      legal
      proceedings.





34





Section
      16(a) Beneficial Ownership Reporting Compliance





Section
      16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
      requires our executive officers and directors, and persons who beneficially
      own
      more than ten percent of our common stock, to file initial reports of ownership
      and reports of changes in ownership with the SEC. Executive officers, directors
      and greater than ten percent beneficial owners are required by SEC regulations
      to furnish us with copies of all Section 16(a) forms they file. Based upon
      a
      review of the copies of such forms furnished to us and written representations
      from our executive officers and directors, we believe that as of the date of
      this filing they were all current in there filings.





**Audit
      Committee and Financial Expert**





We
      do not
      have an Audit Committee, our directors perform some of the same functions of
      an
      Audit Committee, such as: recommending a firm of independent certified public
      accountants to audit the annual financial statements; reviewing the independent
      auditors independence, the financial statements and their audit report; and
      reviewing management's administration of the system of internal accounting
      controls. The Company does not currently have a written audit committee charter
      or similar document.





We
      have
      no financial expert. We believe the cost related to retaining a financial expert
      at this time is prohibitive. Further, because of our start-up operations, we
      believe the services of a financial expert are not warranted.





**Code
      of Ethics**





A
      code of
      ethics relates to written standards that are reasonably designed to deter
      wrongdoing and to promote:





(1)
            Honest
                and ethical conduct, including the ethical handling of actual or
                apparent
                conflicts of interest between personal and professional
                relationships;


(2)
            Full,
                fair, accurate, timely and understandable disclosure in reports and
                documents that are filed with, or submitted to, the Commission and
                in
                other public communications made by an
                issuer;


(3)
            Compliance
                with applicable governmental laws, rules and
                regulations;


(4)
            The
                prompt internal reporting of violations of the code to an appropriate
                person or persons identified in the code;
                and


(5)
            Accountability
                for adherence to the code.





We
      have
      not adopted a corporate code of ethics that applies to our principal executive
      officer, principal financial officer, principal accounting officer or
      controller, or persons performing similar functions.





Our
      decision to not adopt such a code of ethics results from our having only three
      officers and three directors operating as the management for the Company. We
      believe that as a result of the limited interaction which occurs having such
      a
      small management structure for the Company eliminates
      the current need for such a code, in that violations of such a code would be
      reported to the party generating the violation.





35





**Nominating
      Committee**





We
      do not
      have a Nominating Committee or Nominating Committee Charter. Our board of
      directors, perform some of the functions associated with a Nominating Committee.
      We have elected not to have a Nominating Committee in that we are a development
      stage company with limited operations and resources.





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**





The
      following table sets forth the cash compensation of the Company’s executive
      officers during the last three fiscal years of the Company. The remuneration
      described in the table does not include the cost of the Company of benefits
      furnished to the named executive officers, including premiums for health
      insurance and other benefits provided to such individuals that are extended
      in
      connection with the conduct of the Company’s business.





***Summary
      Compensation Table***


**Annual
                Compensation**
            
            **Long
                Term Compensation****All
                other****Awards**
            
            
            
            **Payouts**
            
            **compensation**
            ********
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            **Other
              Annual**
            ****
            **Restricted**
            ****
            ****
            ****
            **LTIP**
            ****
            ****
            ******Name
              and Principal Position**
            ****
            **Year**
            ****
            **Salary**
            ****
            **Bonus**
            ****
            **Compensation**
            ****
            **Stock**
            ****
            **Options**
            ****
            **payouts
                $**
            ****Morton
                Reed, Ph.D.
              President,
                CEO & Director
            
            
            2003
            
            $
            175,845
                (1
            )
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            32,500
                (2
            )
            
            -0-
            
            
            200,000
                (3
            )2004
            
            $
            150,000
                (4
            )
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            450,000
                (5
            )
            
            -0-
            
            
            -0-2005
            
            $
            118,750
                (6
            )
            
            -0-
            
            $
              $
            3,500
                (7
              26,019.04
                (8
            )
              )
            
            -0-
            
            
            1,000,000
                (9
            )
            
            
            
            
            112,500
                (10
            )2006
            
            $
            64,927.55
                (17
            )
            
            -0-
            
            $
            24,880.29
                (18
            )
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-David
                Cohen,
              Former
                CFO, Secretary & Treasurer (11)
            
            
            2003
            
            $
            125,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            100,000
                (12
            )
            
            -0-
            
            
            -0-2004
            
            $
            125,000
            
            
            -0-
            
            
            (13
            )
            
            -0-
            
            
            175,000
                (14
              350,000
                (14
            )
              )
            
            -0-
            
            
            -0-2005
            
            $
            52,083.30
            
            
            -0-
            
            $
            9,088.72
                (15
            )
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Terry
                Gabby CFO (19)
            
            
            2005
            
            $
            27,076.98
            
            
            -0-
            
            
            
            
            
            
            
            
            10,000
                (20
            )
            
            -0-
            
            
            -0-2006
            
            
            29,791.71
                (21
            )
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            50,000
                (22
            )
            
            -0-
            
            
            50,000
                (23
            )Michael
              Marcelli, Former General Counsel
            
            
            2003
            
            $
            100,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            20,000
              (16
            )
            
            -0-
            
            
            -0-




*(1)*
                *Dr.
                    Reed voluntarily stopped taking salary in mid 2003 to assist
                    the Company
                    in the financing of ongoing litigation. He received $175,845
                    out of the
                    $252,000 and accrued the remaining $76,155 in
                    2003.*
 36




*(2)*
              *The
                  options are exercisable at $1.00 per share and expire on February
                  3,
                  2007.*


*(3)*
            *Dr.
                Reed received 200,000 warrants to purchase shares of our common stock
                at
                $0.10 per share which expire on December 22,
                2006.*




*(4)*
            *Dr.
                Reed resumed taking salary in 2004 but took only $150,000 of the
                $252,000
                and accrued the remaining
                $102,000.*




*(5)*
            *The
                options are exercisable at $0.10 per share and expire on June 23,
                2007.*




*(6)*
            *Dr.
                Reed received $118,750 out of the $252,000 and accrued the remaining
                $133,250 in 2005.*




*(7)*
            *Dr.
                Reed received $3,500 in board member fees and accrued $21,000 in
                2005.*




*(8)*
            *Dr.
                Reed received $26,019.04 as reimbursement for his rent, telephone,
                utilities, Cable and automobile
                fees.*




*(9)*
            *500,000
                options are exercisable at $0.53 per share and expire on January
                20, 2015
                and the other 500,000 options are exercisable at $0.99 per share
                and
                expire on September 6, 2008.*




*(10)*
            *Dr.
                Reed received 112,500 warrants to purchase shares of our common stock
                at
                $0.20 per share and expire on dates beginning on August 6, 2009 through
                May 6, 2010.*




*(11)*
            *Mr.
                Cohen resigned as Chief Financial Officer, Secretary and Treasurer
                effective June 15, 2005.*




*(12)*
            *The
                options are exercisable at $0.01 per share and expire on dates beginning
                on June 7, 2007 through April 2,
                2008.*




*(13)*
            *Medical
                $380 per month; cost of approximately 4 nights lodging in Las Vegas
                and
                airline fare from San Diego to Las Vegas, per week beginning in October
                2004 (estimated average $400 per week). Prior to that we provided
                Mr.
                Cohen’s cost of 3 nights lodging in Los Angeles at approximately $250 per
                week.*




*(14)*
            *The
                175,000 options are exercisable at $0.10 per share and expire on
                March 3,
                2007 and the 350,000 options are exercisable at $0.30 per share and
                expire
                on December 21, 2014.*




*(15)*
            *Mr.
                Cohen received $9,088.72 in lodging reimbursements.*




*(16)*
            *The
                options are exercisable at $1.00 per share and expire on February
                3,
                2007.*




*(17)*
            *Dr.
                Reed received $64,927.55 out of the $189,000 due to him as of September
                30, 2006 and accrued the remaining
                $124,072.45.*




*(18)*
            *Dr.
                Reed received $24,880.29 as reimbursement for his rent, telephone,
                utilities, cable and automobile
                fees.*




*(19)*
            *Mr.
                Gabby entered into an employment agreement effective June 29, 2005
                to
                serve as the companies Chief Financial Officer with an annual salary
                of
                $55,000.*




*(20)*
            *Mr.
                Gabby received 10,000 options exercisable at $0.41 per share and
                expiring
                on July 1, 2007.*




*(21)*
            *Mr.
                Gabby received $29,791.71 out of the $41,250.06 due to him as of
                September
                30, 2006 and accrued the remaining
                $11,458.35.*




*(22)*
            *Mr.
                Gabby received 50,000 options in November, 2006 exercisable at $0.04
                per
                share and expire on November 21,
                2009.*




*(23)*
            *Mr.
                Gabby received 50,000 warrants in November, 2006 exercisable at $0.04
                per
                share and expire on November 27,
                2009.*




*(24)*
            *Dr.
                Reed voluntarily stopped taking salary in mid 2003 to assist the
                Company
                in the financing of ongoing litigation. He received $175,845 out
                of the
                $252,000 and accrued the remaining $76,155 in
                2003.*




*(25)*
            *The
                options are exercisable at $1.00 per share and expire on February
                3,
                2007.*




*(26)*
            *Dr.
                Reed received 200,000 warrants to purchase shares of our common stock
                at
                $0.10 per share which expire on December 22,
                2006.*




*(27)*
            *Dr.
                Reed resumed taking salary in 2004 but took only $150,000 of the
                $252,000
                and accrued the remaining
                $102,000.*




*(28)*
            *The
                options are exercisable at $0.10 per share and expire on June 23,
                2007.*




*(29)*
            *Dr.
                Reed received $118,750 out of the $252,000 and accrued the remaining
                $133,250 in 2005.*




*(30)*
            *Dr.
                Reed received $3,500 in board member fees and accrued $21,000 in
                2005.*





37





*(31)*
            *Dr.
                Reed received $26.019.04 as reimbursement for his rent, telephone,
                utilities, Cable and automobile
                fees.*




*(32)*
            *500,000
                options are exercisable at $0.53 per share and expire on January
                20, 2015
                and the other 500,000 options are exercisable at $0.99 per share
                and
                expire on September 6, 2008.*




*(33)*
            *Dr.
                Reed received 112,500 warrants to purchase shares of our common stock
                at
                $0.20 per share and expire on dates beginning on August 6, 2009 through
                May 6, 2010.*




*(34)*
            *Mr.
                Cohen resigned as Chief Financial Officer, Secretary and Treasurer
                effective June 15, 2005.*




*(35)*
            *The
                options are exercisable at $0.01 per share and expire on dates beginning
                on June 7, 2007 through April 2,
                2008.*




*(36)*
            *Medical
                $380 per month; cost of approximately 4 nights lodging in Las Vegas
                and
                airline fare from San Diego to Las Vegas, per week beginning in October
                2004 (estimated average $400 per week). Prior to that we provided
                Mr.
                Cohen’s cost of 3 nights lodging in Los Angeles at approximately $250 per
                week.*




*(37)*
            *The
                175,000 options are exercisable at $0.10 per share and expire on
                March 3,
                2007 and the 350,000 options are exercisable at $0.30 per share and
                expire
                on December 21, 2014.*




*(38)*
            *Mr.
                Cohen received $9,088.72 in lodging reimbursements.*




*(39)*
            *The
                options are exercisable at $1.00 per share and expire on February
                3,
                2007.*





**Employment
      Agreements**





*Morton
      Reed*





Effective
      September 5, 2002, we entered into an employment agreement with Morton Reed
      wherein Mr. Reed agreed to serve as the Company’s Chief Executive Officer and
      President. The term of employment is for four (4) years. We
      agreed
      to pay Mr. Reed annual compensation of $252,000. In addition to the cash
      compensation, Mr. Reed is entitled to the use of a Company vehicle. Mr. Reed
      voluntarily stopped taking salary in mid 2003 to assist the Company in the
      financing of ongoing litigation. Mr. Reed resumed taking a salary in 2004 but
      took only $150,000. Mr.
      Reed
      has agreed to accrue such portions of his salary ($355,915 as of December 31,
      2005) as deemed relevant by the board of directors until such time as the
      Company is adequately capitalized and able to pay such salary.




*David
      Cohen*





On
      April
      2, 2003, we entered into an employment agreement with David Cohen wherein Mr.
      Cohen agreed to serve as the Company’s Chief Financial Officer. We agreed to pay
      Mr. Cohen a sign on bonus of $8,541 in shares of our common stock, an annual
      salary of $125,000, and 100,000 options to purchase shares of our common stock
      at $0.01 per share. Of the 100,000 options, 25,000 expire on June 2, 2007,
      25,000 expire on October 2, 2007, 25,000 expire on January 2, 2008 and 25,000
      expire on April 2, 2008. Effective June 15, 2005, Mr. Cohen resigned as Chief
      Financial officer of the Company.





*Terry
      Gabby*





On
      June
      29, 2005, we entered into an employment agreement with Terry Gabby wherein
      Mr.
      Gabby agreed to serve as the Company’s Chief Financial Officer. We agreed to pay
      Mr. Gabby an annual salary of $55,000. On July 1, 2005, we granted Mr. Gabby
      10,000 options to purchase shares of our common stock at $0.41 per share which
      expire on July 1, 2007.





38




**Director
      Compensation and Other Arrangements**





All
      directors will be reimbursed for expenses incurred in attending Board or
      committee, when established, meetings. From time to time, certain directors
      who
      are not employees may receive shares of our common stock.





**Compensation
      Committee**





We
      currently do not have a compensation committee of the board of directors. Until
      a formal committee is established our entire board of directors will review
      all
      forms of compensation provided to our executive officers, directors, consultants
      and employees, including stock compensation.





**Option
      Grants in Last Fiscal Year**





On
      August
      15, 2005, we granted Dermot J. Ryan an option to purchase 10,000 shares of
      our
      common stock at $0.41 per share. The option is exercisable for two years. We
      believe that the grant of the option was exempt from the registration and
      prospectus delivery requirements of the Securities Act of 1933 by virtue of
      Section 4(2).





On
      September 6, 2005, we granted Dr. Morton Reed an option to purchase 500,000
      shares of our common stock at $0.99 per share. The option is exercisable for
      three years. We believe that the grant of the option was exempt from the
      registration and prospectus delivery requirements of the Securities Act of
      1933
      by virtue of Section 4(2).





On
      September 19, 2005, we granted Stanley Weiner, a Director of the Company, an
      option to purchase 300,000 options of our common stock at $0.99 per share.
      The
      option is exercisable for three years. We believe that the grant of the option
      was exempt from the registration and prospectus delivery requirements of the
      Securities Act of 1933 by virtue of Section 4(2).





**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      following table presents information, to the
      best of our knowledge, about
      the
      beneficial ownership of our common stock on December 31, 2006 held by
      those
      persons known to beneficially own more than 5% of our capital stock and by
      our
      directors and executive officers.





The
      percentage of beneficial ownership for the following table is based on
      30,738,902 shares of common stock outstanding as of December 31, 2006. The
      percentage of beneficial ownership table does not take into consideration a
      total of 1,500,000 shares of Series B convertible preferred stock that may
      be
      converted into 1,500,000 shares of common stock upon effecting a spin-off
      transaction of Global Universal Film Group, a wholly-owned subsidiary. Further,
      the following ownership table does not take into consideration the recent
      issuance of 48,000,000 shares of common stock in connection with the Company’s
      agreement of March 5, 2007 with Rochester Capital Partners, as set forth
      elsewhere in this report.





39





Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and does not necessarily indicate beneficial ownership
      for
      any other purpose. Under these rules, beneficial ownership includes those shares
      of common stock over which the stockholder has sole or shared voting or
      investment power. It also includes (unless footnoted) shares of common stock
      that the stockholder has a right to acquire within 60 days after December 31,
      2006 pursuant to options, warrants, conversions privileges or other rights.
      The
      percentage ownership of the outstanding common stock, however, is based on
      the
      assumption, expressly required by the rules of the Securities and Exchange
      Commission, that only the person or entity whose ownership is being reported
      has
      converted options or warrants into shares of our common stock.





**Security
      Ownership of Management**


Name
                of Beneficial Owner (1)
            
            **Number**
              **of
                Shares Beneficially Owned**
            ****
            **Percent
                of**
              **Class
                Beneficially Owned (2)**Morton
                Reed, Ph.D., President, CEO, Chairman
              c/o
                6375 S. Pecos Rd., Ste. 217
              Las
                Vegas, NV 89120
            
            8,217,548
                (3)
            
            27%Stanley
                Weiner, VP of Finance and a Director
              c/o
                6375 S. Pecos Rd., Ste. 217
              Las
                Vegas, NV 89120
            
            1,349,700
                (4)
            
            4%Donald
                Hejmanowski, Director
              c/o
                6375 S. Pecos Rd., Ste. 217
              Las
                Vegas, NV 89120
            
            454,520
            
            1%Terry
                Gabby, Chief Financial Officer & Treasurer
              c/o
                6373 S. Pecos Rd., Ste. 217
              Las
                Vegas, NV 89120
            
            110,000
                (5)
            
            0%Directors
                and Officers as a Group
            
            10,131,768
            
            33%





1.
            As
                used in this table, “beneficial ownership” means the sole or shared power
                to vote, or to direct the voting of, a security, or the sole or shared
                investment power with respect to a security (i.e., the****power
                to dispose of, or to direct the disposition of, a security).It
                also includes shares of common stock that the stockholder has the
                right to
                acquire within 60 days of December 31, 2006, which are treated as
                outstanding for the purpose of determining the percent of class by
                such
                stockholder. NOTE: These figures do not include the March 2007 issuance
                of
                8,000,000 shares issued to Dr. Reed in exchange for $350,000 in back
                wages. The 8,000,000 shares were subsequently sold to Rochester Capital
                Partners.




2.
            Figures
                are rounded to the nearest tenth of a
                percent.




3.
            Includes
                1,282,500 options to purchase shares of our common stock at prices
                ranging
                from $0.30 to $1.00 per share and 162,500 warrants to purchase shares
                of
                our common stock at prices ranging from $0.10 to $0.20 per
                share.




4.
            Includes
                650,000 options to purchase shares of our common stock at prices
                ranging
                from $0.33 to $0.99 per share and 37,500 warrants to purchase shares
                of
                our common stock at $0.20 per
                share.




5.
            Mr.
                Gabby holds 60,000 options to purchase shares of our common stock
                at a
                range of $0.41 to $0.04 per share and 50,000 warrants to purchase
                our
                common stock at $0.04 per share




40
  **Security
        Ownership of Certain Beneficial Owners**





**Name
                of Beneficial Owner (1)**
            ****
            **Number**
              **of
                Shares Beneficially Owned (1)**
            ****
            **Percent
                of**
              **Class
                Beneficially Owned (1) (2)**Davric
                Corporation (3)
              Jerry
                Polis Family Trust
              Jerry
                Polis IRA
              510
                4thSt., #1A
              Encinitas,
                CA 92024
            
            3,018,000
            
            9.8%Imperial
                Capital Holdings, LLC (4)
              Apdo.
                10559-1000
              San
                Jose, Costa Rica
            
            2,100,000
            
            6.8%Gary
                Rasmussen (5)
              Rochester
                Capital Partners
              3155
                E. Patrick Lane, #1
              Las
                Vegas, NV 89120
            
            2,065,000
            
            6.7%Beneficial
                Owners as a Group
            
            17,314,768
            
            56.3%


1.
            As
                used in this table, “beneficial ownership” means the sole or shared power
                to vote, or to direct the voting of, a security, or the sole or shared
                investment power with respect to a security (i.e., the****power
                to dispose of, or to direct the disposition of, a security).It
                also includes shares of common stock that the stockholder has the
                right to
                acquire within 60 days of December 1, 2006, which are treated as
                outstanding for the purpose of determining the percent of class by
                such
                stockholder.




2.
            Figures
                are rounded to the nearest tenth of a
                percent.  3.
            Davric
                Corporation purchased 678,049 shares of our common stock at $0.41
                per
                shares in December of 2004. The stock had not been issued until August
                28,
                2006 and due to the drop in our stock price we issued an additional
                2,101,951 shares of our common stock. The 2,780,000 shares of common
                stock
                were valued at $0.10 per share and the 2,780,000 shares are being
                registered in this registration statement. Jerry Polis, President
                of
                Davric has voting, investment and dispositive power over the shares
                of
                common stock owned by Davric. An additional 230,000 shares were purchased
                in the open market by Mr. Polis.  4.
            Includes
                800,000 shares currently owned, an additional 500,000 shares to be
                issued
                and registered hereunder, and another 800,000 shares of common stock
                that
                may be acquired if Imperial converts its 400,000 shares of Series
                A 12%
                Convertible Preferred Stock. The percentage figure after the Offering
                assumes that none of the 2,100,000 shares are sold and that Imperial
                retains all 9,000,000 shares of common stock that Imperial may acquire
                pursuant to the Investment Agreement (a total of 11,100,000 shares).
                Maritza Sanabria is the Managing Director of Imperial Capital Holdings,
                and exercises voting, investment and dispositive power over the shares
                of
                common stock owned by Imperial.  5.
            Mr.
                Rasmussen holds 665,000 shares directly in his name. The amount of
                shares
                includes 650,000 shares owned by Rochester Capital Partners, of which
                Mr.
                Rasmussen is its General Partner, and said 500,000 shares are being
                registered hereunder. Mr. Rasmussen has voting, investment and dispositive
                power of all shares owned by the partnership. Additionally, the amount
                of
                shares includes 750,000 shares of common stock that may be acquired
                by Mr.
                Rasmussen upon the conversion of a like number of shares of our Series
                B
                Convertible Preferred. Mr. Rasmussen acquired 750,000 shares of our
                Series
                B Convertible Preferred Stock in connection with the acquisition
                of Global
                Universal by LitFunding in March, 2006. NOTE: These figures do not
                include
                the March 7, 2007 issuance of 40,000,000 shares issued to Rochester
                Capital Partners, of which Mr. Rasmussen is the General Partner and
                exercises control over such shares.


**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





Employment
      Agreement with Morton Reed





41








Effective
      September 5, 2002, we entered into an employment agreement with Morton Reed
      wherein Mr. Reed agreed to serve as the Company’s Chief Executive Officer and
      President. The term of employment is for four (4) years. We
      agreed
      to pay Mr. Reed annual compensation of $252,000. In addition to the cash
      compensation, Mr. Reed is entitled to the use of a Company vehicle. Mr. Reed
      voluntarily stopped taking salary in mid 2003 to assist the Company in the
      financing of ongoing litigation. Mr. Reed resumed taking a salary in 2004 but
      took only $150,000. Mr.
      Reed
      has agreed to accrue such portions of his salary as deemed relevant by the
      board
      of directors until such time as the Company is adequately capitalized and able
      to pay such salary. As of December 31, 2005, Mr. Reed had accrued salary of
      $355,915.








**TEM
      13.**  **EXHIBITS**





(a)  Exhibits





**Exhibit**
              **Number**
            **Description**2.1
            Plan
                and agreement of merger between RP Entertainment Inc., RP Acquisition
                Corp. and LitFunding Corp. dated February 21, 2003*(Incorporated
                by reference to the exhibits to Form 8-K filed on March 11,
                2003)*2.2
            U.S.
                Bankruptcy Court Stipulation between LitFunding Corporation and
                Petitioning Creditors dated November 14, 2003*(Incorporated
                by reference to the exhibits to Form 8-K filed on December 4,
                2003)*2.3
            U.
                S. Bankruptcy Court Notice of Entry of Judgment*(Incorporated
                by reference to the exhibits to Form 8-K filed on December 4,
                2003)*2.4
            U.S.
                Bankruptcy Court Chapter 11 Plan of Reorganization dated April 7,
                2004*(Incorporated
                by reference to the exhibits to Form 8-K filed on July 6,
                2004)*2.5
            Agreement
                and Plan of Merger between LitFunding Inc., LFDG Subsidiary Corp.
                and Easy
                Money Express Inc. dated February 7th,
                2006*(Incorporated
                by reference to the exhibits to Form 8-K filed on February 13,
                2006)*3(i).1
            Articles
                of Incorporation dated July 2, 1996*(Incorporated
                by reference to the exhibits to Form SB-2 filed on June 19,
                2001)*3(i).2
            Certificate
                of Amendment to Articles of Incorporation dated September 4, 1996*(Incorporated
                by reference to the exhibits to Form SB-2 filed on June 19,
                2001)*3(ii).1
            By-Laws
                dated September 2, 1996*(Incorporated
                by reference to the exhibits to Form SB-2 filed on June 19,
                2001)*3(ii).2
            Amendment
                of By-laws dated March 5, 1997*(Incorporated
                by reference to the exhibits to Form SB-2 filed on June 19,
                2001)*4.1
            Common
                Stock Certificate Form*(Incorporated
                by reference to the exhibits to Form SB-2 filed on June 19,
                2001)*10.1
            Agreement
                between RP Entertainment Inc. and Brutus Productions dated May 1,
                1999*(Incorporated
                by reference to the exhibits to Form SB-2A filed on August 3,
                2001)*10.2
            Amended
                2002 Employee Stock Compensation Plan Prospectus dated September
                2, 2003*(Incorporated
                by reference to the exhibits to Form S-8 filed on September 10,
                2003)*10.3
            Amended
                2002 Employee Stock Compensation Plan Certification of Plan Adoption
                dated
                September 2, 2003*(Incorporated
                by reference to the exhibits to Form S-8 filed on September 10,
                2003)*10.4
            2004
                Stock Option Plan dated March 9, 2004*(Incorporated
                by reference to the exhibits to Form DEF 14A filed on July 13,
                2004)*10.5
            Employment
                Agreement between LitFunding USA and Stephen D. King dated October
                2004*(Incorporated
                by reference to the exhibits to Form S-8 filed on October 28,
                2004)*10.6
            Investment
                Agreement between LitFunding Corp. and Dutchess Private Equities
                Fund,
                L.P. dated January 14, 2005*(Incorporated
                by reference to the exhibits to Form 8-K filed on January 21,
                2005)*10.7
            Registration
                Rights Agreement between LitFunding Corp. and Dutchess Private Equities
                Fund, L.P. dated January 14, 2005*(Incorporated
                by reference to the exhibits to Form 8-K filed on January 21,
                2005)*




42




10.8
            Option
                Agreement between Silver Dollar Productions Inc. and Morton Reed
                dated
                January 31, 2005*(Incorporated
                by reference to the exhibits to Form PRE 14C filed on March 21,
                2005)*10.9
            Certificate
                of Designation dated July 25, 2005*(Incorporated
                by reference to the exhibits to Form S-8 filed on July 28,
                2005)*10.10
            Binding
                letter of intent of merger between LitFunding Corp. and Cashwize
                Inc.
                dated September 15, 2005*(Incorporated
                by reference to the exhibits to Form 8-K filed on September 19,
                2005)*10.11
            Letter
                of intent of merger between LitFunding Corp. and Easy Money Express
                Inc.
                dated December 14, 2005*(Incorporated
                by reference to the exhibits to Form 8-K filed on January 3,
                2006)*10.12
            Binding
                Letter of Intent between Silver Dollar Productions, Inc. and Global
                Universal Film, Group Ent. Inc. dated December 21, 2005*(Incorporated
                by reference to the exhibits to Form 8-K filed on January 12,
                2006)*10.13
            Investment
                Agreement with Imperial Capital Holdings, dated January 16, 2006*(Incorporated
                by reference to the exhibits to Form 8-K filed on February 1,
                2006)*10.14
            Registration
                Rights Agreement with Imperial Capital Holdings, dated January 19,
                2006*(Incorporated
                by reference to the exhibits to Form 8-K filed on February 1,
                2006)*10.15
            Placement
                Agent Agreement with Brewer Financial Services, LLC., dated January
                16,
                2006*(Incorporated
                by reference to the exhibits to Form 8-K filed on February 1,
                2006)*10.16
            2006
                Non-Qualified****Stock
                Compensation Plan*(Incorporated
                by reference to the exhibits to Form S-8 filed on February 28,
                2006)*10.19
            Share
                Exchange Agreement with Easy Money Express, Inc., dated March 31,
                200620
            Letter
                to Shareholders dated March 11, 2003*(Incorporated
                by reference to the exhibits to Form 8-K filed on March 11,
                2003)*21
            List
                of Subsidiaries : California LitFunding, E.Evolution Expeditions
                and
                LitFunding USA*(Incorporated
                by reference to the exhibits to Form 10-KSB filed on March 21,
                2005)*31.1*
            Certification
                of Morton Reed pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2*
            Certification
                of Terry Gabby pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1*
            Certification
                of Morton Reed pursuant to Section 906 of the Sarbanes-Oxley
                Act32.2*
            Certification
                of Terry Gabby pursuant to Section 906 of the Sarbanes-Oxley
                Act


______________________


*  Filed
      herewith.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





(1)
      AUDIT
      FEES





The
      aggregate fees billed for professional services rendered by Epstein Weber &
Conover, PLC, for the audit of our annual financial statements and review of
      the
      financial statements included in our Form 10-QSB or services that are normally
      provided by the accountant in connection with statutory and regulatory filings
      or engagements for fiscal year 2005 was $50,346 and the aggregate fees billed
      for the review of the financial statements included in our Form 10-QSB or
      services that are normally provided by the accountant in connection with
      statutory and regulatory filings or engagements for fiscal year 2006 was
      $25,035.





The
      aggregate fee billed for professional services rendered by Lawrence Scharfman
      & Co., CPA, P.C., for the audit of our annual financial statements for
      fiscal year 2006 was $25,000.





(2)
      AUDIT-RELATED FEES





The
      aggregate fees billed by Kabani & Company, our accountant for fiscal 2003,
      in fiscal year 2004 was $5,000 which was related to a consent required in the
      filing of the SB-2 filed in December 2004.





43








(3)
      TAX
      FEES





Not
      applicable.





(4)
      ALL
      OTHER FEES





Not
      applicable.





(5)
      AUDIT
      COMMITTEE POLICIES AND PROCEDURES





We
      do not
      have an audit committee.





(6)
      If
      greater than 50 percent, disclose the percentage of hours expended on the
      principal accountant's engagement to audit the registrant's financial statements
      for the most recent fiscal year that were attributed to work performed by
      persons other than the principal accountant's full-time, permanent
      employees.





Not
      applicable.





44





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act, the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





**LITFUNDING
      CORP.**


By:
              /s/ Morton ReedMorton
              Reed, PresidentDate: April
              17,
              2007




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Signature**
              **Title**
              **Date**/s/ Morton
                Reed
              President,
                CEO, Chairman
              April
                17, 2007Morton
                Reed
  /s/ Stanley
                Weiner
              VP
                Finance, Director
              April
                17, 2007Stanley
                Weiner


/s/ Dennis
                  H. Johnston
                Director
                April
                  17, 2007Dennis
                  H. Johnston
 /s/ Terry
                  Gabby
                Chief
                  Financial Officer
                April
                  17, 2007Terry
                  Gabby
 
 45