UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-QSB



xQUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period endedJune 30, 2006



oTRANSITION REPORT UNDER SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission file number000-49679



LITFUNDING CORP.

(Exact name of small business issuer as specified in its charter)



Nevada
        93-1221399(State or other jurisdiction of incorporation or organization)
        (IRS Employer Identification No.)




6375 S. Pecos Road, Suite 217

Las Vegas, Nevada 89120

(Address of principal executive offices)



(702) 898-8388

(Issuers telephone number)



Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883



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.      YesxNoo



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      YesoNox



Check whether the registrant 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.     Yesx
Noo



The number of shares of Common Stock, $0.001 par value, outstanding on August 2, 2006, was 24,483,902 shares.



Transitional Small Business Disclosure Format (check one):     Yeso
			Nox



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PART I  FINANCIAL INFORMATION



Item 1. Financial Statements.

LitFunding Corp.

Consolidated Balance Sheets



(unaudited)
        
        (audited)June 30,
        
        December 31,2006
        
        2005AssetsCurrent assets:Cash and cash equivalents
        
        $
        19,271
        
        $
        7,121Accounts receivable, net
        
        
        30,760
        
        
        27,970Due from employees
        
        
        44,613
        
        
        -Contigent advances less reserves for unsuccessfulresolution of lawsuits
        
        
        268,475
        
        
        1,068,300Note receivable
        
        
        294,500
        
        
        100,181Total current assets
        
        
        657,619
        
        
        1,203,572Fixed assets, net
        
        
        217,554
        
        
        39,402Total fixed assets
        
        
        217,554
        
        
        39,402Other assetsDeposits
        
        
        20,531
        
        
        20,881Total other assets
        
        
        20,531
        
        
        20,881Total assets
        
        $
        895,704
        
        $
        1,263,855Liabilities and Stockholders' EquityLiabilities not subject to compromiseAccounts payable
        
        $
        714,758
        
        $
        709,545Accrued expenses
        
        
        482,792
        
        
        384,167Deferred revenue
        
        
        29,170
        
        
        141,668Notes payable
        
        
        324,830
        
        
        65,000Investor participation obligations
        
        
        683,650
        
        
        1,175,000Total current liabilities not subject to compromise
        
        
        2,235,200
        
        
        2,475,380Liabilities subject to compromiseTrade and miscellaneous claims
        
        
        -
        
        
        380,210Debentures
        
        
        200,000
        
        
        200,000Total  liabilities subject to compromise
        
        
        200,000
        
        
        580,210Total liabilites
        
        
        2,435,200
        
        
        3,055,590Stockholders' equity:Series A Convertible preferred Stock, par value $0.001,2,000,000 shares authorized, 800,000 shares issued andand outstanding
        
        
        800
        
        
        800Common stock, $0.001 par value, 50,000,000 sharesauthorized, 24,483,902 and 16,217,402 shares issued andoutstanding at  June 30, 2006 and December 31, 2005, respectively
        
        
        24,484
        
        
        16,217Subscription Payable
        
        
        500,045
        
        
        327,139Additional paid-in capital
        
        
        9,106,467
        
        
        8,061,428Preferred stock dividend
        
        
        (11,902)
        
        
        -Accumulated (deficit)
        
        
        (11,159,389)
        
        
        (6,225,276)(1,539,495)
        
        
        2,180,308$
        895,704
        
        $
        5,235,898




See notes to consolidated financial statements



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LitFunding Corp.

Consolidated Statement of Operations

Unaudited



Three months ended
        For the six months endedJune 30,
        June 30,2006
        
        2005
        2006
        
        2005Net Revenue
        
        $
        226,369
        
        $
        137,500
        $
        417,908
        
        $
        147,875Expenses:Reserve for unsuccessfl resolution of lawsuits
        
        
        -
        
        
        (4,500)
        
        -
        
        
        27,250General and administrative expenses
        
        
        779,941
        
        
        777,387
        
        1,349,269
        
        
        1,580,847Financing expense
        
        
        -
        
        
        -
        
        3,947
        
        
        -Depreciation & Amortization
        
        
        6,092
        
        
        -
        
        12,671
        
        
        -Total operating expenses
        
        
        786,033
        
        
        772,887
        
        1,365,887
        
        
        1,608,097Net operating (loss)
        
        
        (559,664)
        
        
        (635,387)
        
        (947,979)
        
        
        (1,460,222)Other income (expenses):Other income (expense)
        
        
        769
        
        
        (187,688)
        
        -
        
        
        (121,533)Interest (expense) net of interest income
        
        
        (2,679)
        
        
        (134,136)
        
        (14,090)
        
        
        (221,202)Rental Income
        
        
        -
        
        
        -
        
        -
        
        
        -Amortization of debt discount
        
        
        -
        
        
        -
        
        
        
        
        -Total other income (expenses)
        
        
        (1,910)
        
        
        (321,824)
        
        (14,090)
        
        
        (342,735)Income (Loss) before Income taxes
        
        
        (561,574)
        
        
        (643,648)
        
        (962,070)
        
        
        (1,802,957)Income tax (benefit) provision
        
        
        -
        
        
        -
        
        -
        
        
        -Net Income (loss)
        
        $
        (561,574)
        
        $
        (643,648)
        $
        (962,070)
        
        $
        (1,802,957)Weighted average number ofcommon shares outstanding - basic and fully diluted
        
        
        15,368,879
        
        
        14,411,082
        
        19,721,763
        
        
        13,400,327Net (loss) per share - basic and fully diluted
        
        $
        (0.04)
        
        $
        (0.04)
        $
        (0.05)
        
        $
        (0.13)




See notes to consolidated financial statements



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LitFunding Corp.

Consolidated Statement of Cash Flows

Unaudited



For the six months endedJune 30,2006
        
        2005Cash flows from operating activitiesNet income (loss)
        
        $
        (962,070)
        
        $
        (1,802,957)Adjustments to reconcile net income to net cashprovided by (used in operating activities)Depreciation and amortization
        
        
        12,671
        
        
        14,878Reserve for unsuccessful resolution of lawsuits
        
        
        -
        
        
        15,000Share-based compensation
        
        
        568,981
        
        
        497,979Changes in assets and liabilities:Increase (decrease) in account receivables
        
        
        (2,790)
        
        
        40,250Increase (decrease) in other assets
        
        
        (44,263)
        
        
        13,353Increase (decrease) in contingent advances
        
        
        799,825
        
        
        (275,250)Notes receivable
        
        
        (192,840)
        
        
        -Debt discount
        
        
        -
        
        
        185,890Increase (decrease) in accounts payable and accrued expenses
        
        
        36,883
        
        
        320,955Trade and other claims subject to compromise
        
        
        -
        
        
        (88,110)Increase (decrease) in deferred revenue
        
        
        (112,498)
        
        
        -Net cash (used in) operating activities
        
        
        103,899
        
        
        (1,078,012)Cash flows from investing activities:Purchase of property and equipment
        
        
        -
        
        
        (3,734)Net cash (used in) investing activities
        
        
        -
        
        
        (3,734)Cash flows from financing activities:Cash from issuance of common stock
        
        
        50,000
        
        
        293,300Cash from exercise of options & warrants
        
        
        4,250
        
        
        -Common stock cancellation
        
        
        (7,000)
        
        
        -Proceeds from notes payable
        
        
        31,000
        
        
        222,500Repayments of notes payable
        
        
        (170,000)
        
        
        -from investor participation borrowings
        
        
        -
        
        
        252,500Net cash provided by financing activities
        
        
        (91,750)
        
        
        768,300Increase  (decrease) in cash
        
        
        12,149
        
        
        (313,446)Cash - beginning of period
        
        
        7,121
        
        
        341,522Cash - ending of period
        
        $
        19,270
        
        $
        28,076Supplemental disclosures:Interest paid
        
        $
        14,090
        
        $
        4,250Income taxes paid
        
        $
        -
        
        $
        -Shares issued for services
        
        $
        568,981
        
        
        -




See notes to consolidated financial statements



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LitFunding Corp

Notes To Consolidated Financial Statements



Note 1 - Basis of Presentation

The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2005 and notes thereto included in the Company's Form 10-KSB annual report. The Company follows the same accounting policies in the preparation of interim reports.

Results of operation for the interim period are not indicative of annual results.

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



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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.



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:



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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  March 31 ,2006;



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.  During the three months ended March 31, 2006 the debtor elected to convert $3,676 to 26,250 shares oh the Companys $.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.



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.



D. Unsecured Claims Other Than Debenture Claims and IEP Claims. During the months ended March 31, 2006, the debtors elected to convert $244,169 to 1,454,108 shares of the Companys $.001 par value common stock and $64,684 to notes payable with a maturity date of June 15, 2006.  At March 31, 2006 the Company had issued 281,132 and the remaining 1,172,976 shares were issued on April 18, 2006 the Company recorded a subscription payable of $ 190,687 at March 31, 2006.



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



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



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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.



The remaining bankruptcy liabilities at December 31, 2005 are summarized as follows:



Gap Claims
        $                             -Unsecured Creditors and Other
        -Subtotal
        -Debentures
        200,000$                 200,000




The Company intends to repay all obligations in full. Debenture Claims are impaired as that termed is used in the Bankruptcy Code because obligations will be paid out over a specified longer term. However, for accounting purposes, the Company does not believe any of the obligations are compromised at r March 31, 2006 based on the expected amount of allowed claims.



Note 3 - 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 March 31, 2006 there were contingent advances outstanding of $899,000 and a corresponding impairment allowance of $89,900.



Note 4 - 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



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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. 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 March 31, 2006, the Company had participation obligations of $992,000.



Note 5 - 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 March 31, 2006, the Company had accrued interest totaling $5,700



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 6- 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 was unissued at March 31, 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.



Notes payable at  March 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.
        $19,182






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Note payable to entity, original balance of $15,000 due in three monthly installments of $5,000 beginning April 15, 2006. The Note is unsecured
        15,000Note payable to entity, original balance of $30,502 due in two monthly installments of $15,251 beginning April 15, 2006. The Note is unsecured
        30,502Notes 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 specified due dates.  Face amount $6,000, interest at 12% due April 1, 2006.
        25,000Notes payable with no specified due dates.   Notes unsecured
        7,500Total
        $137,684




Note 7  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 unissued at March 31, 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.



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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



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.



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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.



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.



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 March 31, 2006, the company has issued 800,000 shares at $0.25 per share to two individual investors for cash totaling $200,000.



Note 8  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.



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.





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Note 9  Warrants and Options



During the three months ended March 31, 2006, the Company granted options to purchase 300,000 shares of its common stock at an exercise price of $.15 per share with a one-year term and 20,000 warrants at an exercise price of $.25 with a two-year term. The estimated value of the options and warrants, using the Black-Scholes pricing model, is $31,260 and $3,497, respectively, which was expensed as share-based compensation and financing expense.



Options and Warrants Exercised

During the three months ended March 31, 2006, 650,000 warrants were exercised for cash totaling $4,250.  There were no options exercised during the period.



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



Three monthsMarch 31, 2006Weighted Average
Exercise PriceOptions/warrants outstanding at December 31, 2005
        
        6,250,750
        
        $0.42Granted
        
        320,000
        
        $0.21Exercised
        
        (650,000)
        
        $0.01Terminated/ExpiredOptions/warrants outstanding at end of period
        
        5,920,750
        
        $0.44Options/warrants exercisable at end of period
        
        5,920,750
        
        $0.44Price per share of options outstanding
        
        $0.01-$7.00Weighted average remaining contractual lives
        
        4.03 yearsWeighted average fair value of options granted during the period
        
        $0.21








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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 and in our Annual Report on Form 10-KSB for the year ended December 31, 2005.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.



Throughout this Quarterly Report references to we, our, us, LitFunding, the Company, and similar terms refer to LitFunding Corp.



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 our and California LitFundings 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.



At June 30, 2006, we estimate that the principle and fee expected on the open and unresolved cases is approximately $1,080,893.18.



In our second quarter, one of our largest advances was repaid.  The $450,000 advance represented approximately 48% of our investment capital at the time of the advance.  We received a payoff of $890,000, returning $440,000 after a period of only eight months.  This calculates to a return of roughly 98%, almost 60% of which is retained by the Company; the remaining balance is returned to the investor.  We intend to use a portion of the proceeds to launch our new wholly owned subsidiary, Easy Money Express Inc.



Recent Developments



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.



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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.



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.



Results of Operations for the Three Months Ended June 30, 2006 and 2005.



The following table summarizes selected items from the statement of operation at June 30, 2006 compared to June 30, 2005.



INCOME:



Three Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %Net Revenue
        
        $      226,369
        
        $      137,500
        
        $       88,869
        
        65%




Revenue



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Revenue for the three months ended June 30, 2006 was $226,369 compared to revenues of $137,500 in the three months ended June 30, 2005.  This resulted in an increase in revenues of $88,869, or 65%, from the same period one yare ago.  The increase in revenue is due to several previously funded cases which settled and our collection efforts were successful. 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.



EXPENSES:



Three Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %Reserve for unsuccessful resolution of lawsuits
        
        $              -
        
        $   (4,500)
        
        $       5,500
        
        -General and administrative expenses
        
        779,941
        
        777,387
        
        2,554
        
        0%Depreciation and amortization
        
        6,092
        
        -
        
        6,092
        
        -Total operating expenses
        
        $  786,033
        
        $  772,887
        
        $     13,146
        
        2%




Total Operating Expenses



Total operating expenses for the three month period ended June 30, 2006 increased by $13,146 over the three month period ended June 30, 2005 due to slightly administrative increases.



Three Months Ended
June 30,
        
        Increase (Decrease)2005
        
        2004
        
        $
        
        %Other income (expense)
        
        $           769
        
        $  (187,688)
        
        $   188,457
        
        (100%)Interest (expense) net of interest income
        
        (2,679)
        
        (134,136)
        
        131,457
        
        (98%)Total other income (expense)
        
        $     (1,910)
        
        $  (321,824)
        
        $  319,914
        
        (99%)






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Interest Expense



Our interest expense was $131,457 lower in the three month period ended June 30, 2006 than the three month period ended June 30, 2005 because we reduced short term interest bearing debt.





Three Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %Net income (loss)
        
        $     (561,574)
        
        $    (643,648)
        
        $      82,074
        
        (13%)




Net Loss



Our net loss was $82,074 higher in the three month period ended June 30, 2006 as compared to the three months ended June 30, 2005.



Results of Operations for the Six Months Ended June 30, 2006 and 2005.



The following table summarizes selected items from the statement of operation at June 30, 2006 compared to June 30, 2005.



INCOME:



Six Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %Net Revenue
        
        $       417,908
        
        $      147,875
        
        $     270,033
        
        183%




Revenue



Revenue for the six months ended June 30, 2006 was $417,908 compared to revenues of $147,875 in the six months ended June 30, 2005.  This resulted in an increase in revenues of $270,033, or 183%, from the same period one yare ago.  The increase in revenue is due to several previously funded cases which settled and our collection efforts were successful. 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.



EXPENSES:



Six Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %






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Reserve for unsuccessful resolution of lawsuits
        
        $              -
        
        $     27,500
        
        $   (27,250)
        
        -General and administrative expenses
        
        1,349,269
        
        1,580,847
        
        (231,578)
        
        (15%)Financing expense
        
        3,947
        
        -
        
        3,947
        
        -Depreciation and amortization
        
        12,671
        
        -
        
        12,671
        
        -Total operating expenses
        
        $  (14,090)
        
        $(342,735)
        
        $ (242,210)
        
        (15%)




Total Operating Expenses



Total operating expenses for the six month period ended June 30, 2006 decreased by $242,210 over the six month period ended June 30, 2005 because of our efforts to reduce payroll costs in the General and Administrative expenses.



Six Months Ended
June 30,
        
        Increase (Decrease)2005
        
        2004
        
        $
        
        %Other income
        
        $                  -
        
        $    (121,533)
        
        $   121,533
        
        (100%)Interest (expense) net of interest income
        
        (14,090)
        
        (221,202)
        
        207,112
        
        (94%)Total other income
			(expense)
        
        $      (14,090)
        
        $   (342,735)
        
        $   328,645
        
        (96%)




Interest Expense



Our interest expense was $207,112 higher in the six month period ended June 30, 2006 than the six month period ended June 30, 2005 due to increased financing activity.



Six Months Ended
June 30,
        
        Increase (Decrease)2006
        
        2005
        
        $
        
        %Net income (loss)
        
        $     (962,070)
        
        $ (1,802,957)
        
        $    840,887
        
        (47%)




Net Loss



Our net loss was $840,887 lower in the six month period ended June 30, 2006 as compared to the six months ended June 30, 2005 because we increased revenue with more cases settling and our cost cutting efforts reflected by General and Administrative expenses being substantially reduced.  Until we can increase sales we will continue to have net losses.





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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 $19,271 as of June 30, 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.



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 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.  On June 30, 2006, the note was verbally extended to October 1, 2006.



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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.



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 A. Marcelli, jointly promised to pay to the order of Daniel J. Callahan the sum of $36,881 with interest thereon at the rate of 8% per annum.  Monthly installments commenced on April 1, 2006, in the amount of $7,524 and will continue thereafter on the first day of each month until September 1, 2006, at which time all unpaid principal and accrued interest shall be due and payable.  Each monthly payment shall be credited first on the interest then due, and the remainder, if any, on the principal sum; interest shall
thereupon cease to accrue on the amount so credited on the principal sum.  Should default be made in the payment of any installment due under the note, Mr. Callahan will be entitled to payment of all amounts due plus $8,305 previously waived in consideration for the note and the whole sum of principal and interest shall become immediately due and payable at the option of Mr. Callahan.



On April 26, 2006, we entered into a Promissory Note with Global Universal Film Group, Inc. for the principal amount of $10,000.  Pursuant to the note we promised to pay to the order of Global the sum of $10,000 together with interest at the rate of 6% per on June 30, 2006.  On June 30, 2006, the note was verbally extended to October 1, 2006.



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.





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Investment Agreement with Imperial Capital Holdings



On July 28, 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 the Company up to that number of shares of common stock having an aggregate purchase price of $3,000,000.  The Company will be able to require Imperial to purchase up to the $3,000,000 of our common stock over a two-year period commencing on the date a registration statement is declared effective by the SEC covering shares of the Registrants common stock underlying the Investment Agreement. These funds will be able to be drawn at the Companys discretion by delivering a written notice (Put Notice) stating the amount of funds the Company wishes to draw (Put Amount).  The Put Amount shall be equal to 93% of the market price of the
Companys 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.  The Company 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 the Companys request.



Registration Rights.Pursuant to the terms of the Registration Rights Agreement dated July 28, 2006 between Imperial and the Company, the Company is obligated to file a registration statement registering 15,000,000 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.  The Company 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.



Placement Agent.In connection with the Investment Agreement, on July 28, 2006 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 the Company with respect to the Investment Agreement and will be available for consultation in connection with the advances to be requested by the Company 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 June 30, 2006, our cash balance was $19,271.  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



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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.



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.



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Significant changes in the number of employees.



We currently employ 4 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.



Consultants



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).



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 connection with (i) short and long term strategic planning; (ii) short term crisis management; (iii) short and long term marketing; (iv) meeting with/selecting qualified companies for joint business ventures; (v) contracting and interviewing qualified accounting firms and legal counsel; (vi) recruitment selection of key executives and staff; (vii) internet and website design; and (viii) recommending and identifying of board members.  We agreed to compensate CLX for the services a total of $100,000 in cash, or 1,000,000 shares of our common stock.  CLX will commence providing services for the Company on such date as it has received the agreed compensation (effective date).
The term of the agreement is for three months from the effective date.  On June 23, 2006, the 1,000,000 shares were issued to CLX.



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.



Alliance Marketing.On March 1, 2006, we entered into a sales consultant agreement with Alliance Marketing, wherein we agreed to retain the services of Alliance Marketing to act as an outside, independent marketing consultant and sales representative for sales to new clients, acquiring new investor money to the LLC program and conducting all marketing and sales programs.  We agreed to issue 50,000 shares of our common stock to Alliance Marketing as a sign-on bonus (issued on April 18, 2006 to Anthony Longo, principal of Alliance Marketing).  We also agreed to issue to Alliance Marketing 50,000 options to purchase shares of our common stock at $0.15 per share for one year.  This agreement has been amended and replaced with the consulting agreement with Anthony Longo dated July 1, 2006 (described below).



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Anthony Longo.On July 1, 2006, we entered into a consulting agreement with Anthony Longo, wherein he agreed to act as an outside, independent marketing consultant for the establishment of our wholly-owned subsidiary Easy Money Express, Inc. (EME), acquiring new investor money that program and conducting all other marketing programs.  This agreement serves as an amendment and supercedes the agreement with Alliance dated March 1, 2006.  We agreed to provide Mr. Longo with marketing expenses such as show or event travel expenses and advertising material as well as a fee of $5,000 per month for six months from the date of July 1, 2006.  In addition to a signing bonus of 50,000 shares of our restricted common stock (issued on April 18, 2006), Mr. Longo will receive the following stock bonuses related to specific performance:



When EME commences funding:
        
        200,000 shares of common stockWhen EMEs revenue totals $100,000:
        
        200,000 shares of common stockWhen EMEs revenue totals $300,000:
        
        200,000 shares of common stockWhen EMEs revenue totals $500,000:
        
        400,000 shares of common stock




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.



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.



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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.



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.



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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.



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 three months ended June 30, 2006, we incurred net losses of $561,574. Our accumulated deficit at the end of June 30, 2006 was $11,159,389. 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 June 30, 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 three months ended June 30, 2006 which means that our current liabilities exceeded our current assets on June 30, 2006 by $1,577,581.  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 June 30, 2006 were not sufficient to satisfy all of our current liabilities on June 30, 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.



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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;



        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.



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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 3. 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 June 30, 2006, 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, 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 June 30, 2006, our disclosure controls and procedures were not effective at the reasonable assurance level, primarily due to our inability to efficiently obtain information from our wholly owned subsidiary, Global Universal Film Group.



Although we encountered difficulty in obtaining information from Global Universal Film Group, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance



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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 instituted enhanced reporting requirements for the management of our wholly owned subsidiaries and 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 June 30, 2006.



PART II  OTHER INFORMATION



Item 1.
        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.



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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.



On April 18, 2006, we issued 831,481 shares of our 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, we issued 50,000 shares of our restricted common stock to Anthony Longo as a sign-on bonus.



On April 18, 2006, we issued 15,000 shares of our 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, we issued 100,000 shares of our 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, we issued 10,700 shares of our 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, we issued 20,000 shares of our 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, we issued 163,295 shares of our 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, 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.



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.



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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.



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 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.



Item 3.
        Defaults Upon Senior Securities.




None.




Item 4.
        Submission of Matters to a Vote of Security Holders.




None.




Item 5.
        Other Information.




None.



Item 6.
        Exhibits and Reports on Form 8-K.




Exhibits

Exhibit Number
        Description2.1
        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 Judgement(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)



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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)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-QualifiedStock 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, 2006(Incorporated by reference to the exhibits to Form 10-KSB file on May 19, 2006)20
        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.



Reports on Form 8-K



Form 8-K filed on August 4, 2006; Investment Agreement with Imperial, dated 7/28/06.

Form 8-K filed on July 20, 2006; Press Release.

Form 8-K filed on June 21, 2006; Press Releases.

Form 8-K/A filed on May 26, 2006; Change of auditor.

Form 8-K/A filed on May 15, 2006; Change of auditor.

Form 8-K/A filed May 5, 2006; Change of auditor.

Form 8-K filed May 4, 2006; Change of auditor.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



LITFUNDING CORP.

(Registrant)



By:/s/
			Terry Gabby

Terry Gabby, Chief Financial Officer


(On behalf of the registrant and as principal


accounting officer)




Date: August
21, 2006



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