SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  ____ to ___

            Commission File Number:  0-52589

                  ANCHOR FUNDING SERIVCES,  INC.              

(Exact name of Registrant as specified in its charter)

Delaware	20-545-6087
(State of jurisdiction of  incorporation or organization)	(I.R.S. Employer Identification Number)

10801 Johnston Road, Suite 210 Charlotte, North Carolina	28226
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (866) 950-6669  

Securities registered pursuant to Section 12 (b) of the Act:  None

Securities registered pursuant to Section 12 (g) of the Act:  Common Stock, $.001 Par Value

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X .   No ___.

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB [X].

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

State Issuer’s revenues for its most recent fiscal year: $595,704.

As of March 18, 2008, the number of shares of Common Stock held by non-affiliates was approximately 1,673,585 shares. No market value is being supplied for the value of the shares held by non-affiliates since trading in our Common Stock is limited and such information would not be meaningful.

The number of shares outstanding of the Registrant’s Common Stock, as of March 18, 2008, was 12,454,140. The Registrant also has outstanding 1,317,365 shares of Series 1 Preferred Stock convertible into 6,586,825 shares of Common Stock.  The foregoing reflects February 2008 conversions of 120,000 shares of Series 1 Preferred stock plus accrued and undeclared dividends into a total of 633,585 shares of Common Stock, which were issued in March 2008.

FORWARD-LOOKING STATEMENTS

We believe this annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, based on information currently available to our management. When we use words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely” or similar expressions, we are making forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations set forth under “Business” and/or “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements reflect only our current expectations. We may not update these forward-looking statements, even though our situation may change in the future. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements due to a number of uncertainties, many of which are unforeseen, including:

•  the timing and success of our acquisition strategy;

•  the timing and success of  expanding our market presence in our current locations, successfully entering into new markets, adding new services and integrating acquired businesses;

• the timing, magnitude and terms of a revised credit facility to accommodate our growth;

• competition within our industry; and

•  the availability of additional capital on terms acceptable to us.

 In addition, you should refer to the “Risk Factors” section of this Form 10-KSB under Item 1 for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Registration Statement will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all. Accordingly, you should not place undue reliance on these forward-looking statements.

            We qualify all the forward-looking statements contained in this Form 10-KSB by the foregoing cautionary statements.

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PART I

Item 1.                      Description of Business

Corporate Structure

Anchor Funding Services, Inc. (formerly BTHC XI, Inc.) was originally organized in the State of Texas as BTHC XI LLC. On September 29, 2004, BTHC XI LLC and its sister companies filed an amended petition under Chapter 11 of the United States Bankruptcy Code. On November 29, 2004, the court approved BTHC XI LLC’s Amended Plan of Reorganization. On August 16, 2006, and in accordance with its Amended Plan of Reorganization, BTHC XI LLC changed its state of organization from Texas to Delaware by merging with and into BTHC XI, Inc., a Delaware corporation formed solely for the purpose of effecting the reincorporation.

Anchor Funding Services LLC, a limited liability company, was originally formed under the laws of the State of South Carolina in January 2003 and later reorganized under the laws of the State of North Carolina on August 29, 2005. Anchor Funding Services, LLC was formed for the purposes of providing factoring and back office services to businesses located in the United States and Canada. On January 31, 2007, the former BTHC XI, Inc. and certain principal stockholders entered into a Securities Exchange Agreement (the “Securities Agreement”) with Anchor Funding Services, LLC and its members for Anchor Funding Services, LLC to become a wholly-owned subsidiary of the former BTHC XI, Inc. in exchange for 8,000,000 shares of Common Stock of BTHC XI, Inc. (the “Exchange”).

At the time of the Exchange, the former BTHC XI, Inc. had limited operations and limited assets or liabilities. Because the members of Anchor Funding Services, LLC exchanged their equity ownership interests for an aggregate 67.7% equity ownership interest in the former BTHC XI, Inc. (computed immediately after the completion of the Exchange and before the consummation of a financing), this transaction was for accounting purposes, treated as if Anchor Funding Services, LLC was the surviving entity, as if a merger occurred between the parties. Accordingly, for the periods prior to the Exchange, our consolidated financial statements are based upon the consolidated financial position, results of operations and cash flows of Anchor Funding Services LLC. The assets, liabilities, operations and cash flows of the former BTHC XI, Inc. are included in our consolidated financial statements from January 31, 2007, the effective date of the Exchange, onward.

On April 4, 2007, the former BTHC XI, Inc. changed its corporate name to Anchor Funding Services, Inc., which is currently a holding corporation for its wholly-owned subsidiary, Anchor Funding Services, LLC. Except as otherwise provided in this Form 10-KSB, unless the context otherwise requires, references in this Form 10-KSB to the “Company,” “Anchor,” “we,” “us” and “our” refers collectively to the consolidated business and operations of Anchor Funding Services, Inc. and its wholly-owned operating subsidiary, Anchor Funding Services LLC.

Business Overview

 Our business objective is to create a well-recognized, national financial services firm for small businesses providing accounts receivable funding (factoring), outsourcing of accounts receivable management including collections and the risk of customer default and other specialty finance products including, but not limited to trade finance and government contract funding. For certain service businesses, Anchor also provides back office support including payroll, payroll tax compliance and invoice processing services. We provide our services to clients nationwide and may expand our services internationally in the future. We plan to achieve our growth objectives as described below through a combination of strategic and add-on acquisitions of other factoring and related specialty finance firms that serve small businesses in the United States and Canada and internal growth through mass media marketing initiatives. Our principal operations are located in Charlotte, North Carolina and we  maintain an executive office in Boca Raton, Florida which includes its sales and marketing functions.

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Factoring is the purchase of a company’s accounts receivable, which provide businesses with critical working capital so they can meet their operational costs and obligations while waiting to receive payment from their customers. Factoring services also provide businesses with credit and accounts receivable management services. Typically, these businesses do not have adequate resources to manage internally their credit and accounts receivable functions. Factoring services are typically a non-recourse arrangement whereby the factor takes the entire credit risk if the customer does not pay due to insolvency for any period of time or on a partial non-recourse basis where the factor takes the credit risk for a period of time, which could be 30 to 90 days after the factor purchases an account receivable such that if a client’s customer becomes insolvent during this specific period of time, the factor bears the loss. Under partial non-recourse factoring, after a specific period of time, if the accounts receivable invoice is not collected, the client is required to purchase the accounts receivable invoice back from Anchor. We typically advance our clients 75% to 90% of the face value of invoices that we approve in advance on a partial non-recourse basis and pay them the difference less our fees when the invoice is collected. For our year ended December 31, 2007, our fees for services averaged 3.7% of the invoice value and are tiered such that the longer it takes us to collect on the accounts receivable invoice, the greater our fee. Since our inception, Anchor has incurred  minimal credit losses. The Company incurred approximately $31,000 in 2007. We recently began offering a full-non-recourse factoring product to independent truckers and trucking companies through our transportation funding division, TruckerFunds.com.  TruckerFunds.com focuses on buying freight bills from independent, owner operators of trucks and small fleets with less than six trucks. We typically advance our trucking clients 90% to 95% of the invoices that we approve in advance on a non-recourse basis and pay them the difference less our fees when the invoice is collected.

A summary of some of the advantages of factoring for a small business is as follows:

·   Faster application process since factoring is focused on credit worthiness of the accounts receivable as security and not the financial performance of the company;

·   Unlimited funding based on “eligible” and “credit worthy” accounts receivable; and

·   No financial covenants.

We offer our services nationwide to any type of business where we can verify and substantiate an accounts receivable invoice for delivery of a product or performance of a service and currently have client accounts in 21 states. Examples of current clients include a commercial janitorial company, transportation company, medical staffing firm, IT consulting company and a construction contractor. Current clients range in size from start-up to $5 million in annual sales. Geographically, our five largest customers that account for approximately 52.5% of our accounts receivable portfolio at December 31, 2007 are located in the states of California, Maryland, New Jersey and New York.  We believe that this market is under served by banks and other funding institutions that find many of these companies not “bankable” because of their size, limited operating history, thin capitalization, seasonality patterns or poor, inconsistent financial performance. Anchor’s focus is providing funding based on the quality of our clients’ customers’ ability to pay and the validity of the account receivable invoice. Anchor utilizes credit and verification processes to assist in assuring that customers are creditworthy and invoices are valid. We secure our funding by having a senior first lien on all clients’ accounts receivable and other tangible and intangible assets. We also often obtain personal and validity guarantees from our clients’ owners.

GROWTH OPPORTUNITIES AND STRATEGIES

Our strategy is to become a nationally recognized brand for accounts receivable funding and other related financial services for small businesses. This expansion is expected to be accomplished with media marketing campaigns targeting small businesses and through accretive acquisitions of competitive firms and add-on purchases which broaden our mix of services, brands, customers and geographic and economic diversity. Our focus is to increase revenues and profits, through a combination of internal growth and acquisitions, primarily within our core disciplines and expansion into new service offerings. The key elements to our acquisition growth strategy include the following:

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·   Acquire companies that provide factoring services to small businesses. Our primary strategy is to increase revenues and profitability by acquiring the accounts receivable portfolios and possibly the business development and management teams of other local and regional factoring firms, primarily firms in the United States with revenues of generally less than $5 million. Significant operating leverage and reduced costs are achieved by consolidating back office support functions. Increased revenues across a larger accounts receivable portfolio is anticipated to lead to lower costs of capital, which may enhance profitability. We are working with a consultant to assist us in our acquisition strategy. We intend to evaluate acquisitions using numerous criteria including historical financial performance, management strength, service quality, diversification of customer base and operating characteristics. Our senior management team has prior experience in other service industries in identifying and evaluating attractive acquisition targets and integrating acquired businesses. As of the filing date of this Form 10-KSB, we have not entered into any definitive agreements to complete any mergers or acquisitions.

·   Expand our service offerings by acquiring related specialty finance firms that serve small businesses. These specialty firms will broaden the services that we provide so that we can fulfill additional financial service needs of existing clients and target additional small businesses in different industries. For example, manufacturers have a need for purchase order financing in addition to factoring. The following are types of specialty finance firms that we will target and is not all-inclusive:

o   Purchase order financing

o   Import/export financing;

o   Government contract financing;

o   Agricultural receivable financing; and

o   Transportation / freight invoice financing

·   Expand our discount factoring business by creating a national factoring brand. Inform and educate small businesses owners that factoring can increase cash flow and outsource credit risk and accounts receivable management. Our experience has been that many small businesses have limited awareness that factoring exists and is a viable financing alternative option for them. We have a marketing department that focuses on  creating a national factoring brand identity. This is expected to be accomplished through various marketing initiatives and business alliances that will create in-bound sales leads. These marketing strategies include:

o	Media advertising in key metropolitan markets;
r		Increase our pay-per-click internet advertising which in the past has been a successful strategy for Anchor; and

r		Radio - test market selective radio spot advertising on talk radio and sports oriented programming whose primary demographic are small business owners.
o	Establish cross-selling alliances with other small business providers including:

r	Small business accounting and tax preparation service firms;
r	Small business service centers, providing packing and shipping; and

r		Commercial insurance brokers.
	Develop a referral network of business brokers, consultants and accountants and attorneys;

r Attend cash flow trade shows and advertise in cash flow trade publications.

·   Expand into the growing Hispanic business market. We continue to seek opportunities to expand the reach of our brands into new markets, including the Hispanic business market. We plan to create a Spanish language version of our website, advertise in Hispanic media publications and enter into alliances with Hispanic commercial banks for small business referral prospects who do not meet the banks’ suitability requirements.

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INDUSTRY OVERVIEW

Factoring as it functions today has been in existence for nearly 200 years. Its historical focus has been in the textile and apparel industries, which provides products to major retailers. The factoring industry has expanded beyond the textile and apparel industries into other mainstream businesses. Anchor may provide funding to businesses where the performance of a service or the delivery of a product can be verified. We have the ability to check a company’s credit and evaluate its ability to pay across most industries. Hence, Anchor’s target prospects are most small businesses.

According to the Commercial Finance Association (CFA), an industry trade association for asset based lending and factoring companies, factoring volume (the dollar value of invoices purchased) in 2006 in the United States achieved its highest year-to-year growth since 2000. Factoring volume grew to $127.1 billion in the U.S. representing a 12.7% increase over 2005. The CFA survey highlights that the growth is attributable to a number of factors including a greater acceptance of the factoring product. Our primary strategy is to increase revenues and profitability by acquiring the accounts receivable portfolios and possibly the business development and management teams of other local and regional factoring firms by primarily targeting for acquisition firms in the United States with revenues of generally less than $5 million.  Management of our company is unable to estimate the portion of the $127.1 billion market which consists of companies in our targeted market for acquisition. Nevertheless, Management believes that our targeted market for acquisitions represents a small portion of the overall United States factoring volume.

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Management estimates, based on examination of Dun & Bradstreet data and a market overview provided by a merger and acquisition advisory firm, that there are approximately 2,900 accounts receivable factoring and financing firms in the United States with over 2,000 firms with revenues of less than $1 million, including our company. Management believes that the fragmentation of the market among other factors, make this industry attractive for consolidation. Driving factors for consolidation include:

o   Limited growth capital for small factors. Small factoring firms may have credit availability constraints limiting the business volume which they can factor. The financial leverage that banks typically provide a finance company is a function of the capital in the business. The opportunity to combine their businesses with Anchor’s capital and possible lower cost of funds, back office support and potentially a larger credit facility are incentives to sell their business, particularly where they would receive our capital stock in return as part or all of the transaction price.

o   Anchor would provide an exit strategy for owners of small factoring firms who may have much of their personal wealth tied to the business and want to retire. A cash sale of a factoring firm would provide liquidity to the owner of a factoring firm and the opportunity to receive a price over the factoring firm’s book value. Management believes that we can obtain adequate credit facilities to leverage our intended business plan to acquire other Small Financing Companies for cash and/or Common Stock of our Company.

OPERATIONS

Our executive officers, namely Morry F. Rubin, CEO and Brad Bernstein, President, manage our day to day operations and internal growth and oversee our acquisition strategy. We have a full-time marketing manager, two marketing coordinators, three account executives, an underwriter, a controller, four sales people, an administrative assistant, an operations manager for our transportation division, TruckerFunds.com and a collector/credit analyst that provide daily support for our clients. Our marketing plan will be implemented by our marketing department to increase sales and to build a national brand identity. Our sales personnel handle in-bound sales calls. Our underwriter analyzes prospective funding transactions and submits them for credit committee review. Our controller maintains our books and records, wires funds daily to clients and provides backoffice oversight.  Our collector/credit analyst makes collection calls and evaluates the credit of account debtors.

At times in the past, we used accounting personnel from Preferred Labor, LLC, an affiliated company principally owned by Morry F. Rubin, George Rubin and Brad Bernstein, officers and directors of our company for certain back office functions, including, without limitation, credit and collection, payroll and other bookkeeping services. In the past through April 23, 2007, Preferred Labor charged a fee of .25% of the value of accounts receivable purchased for credit and collection services only and .5% for credit, collection, invoicing, payroll and other bookkeeping services. The fees charged by Preferred Labor were $16,100 and $28,668 for the years ended December 31, 2007 and 2006., respectively. From April 2007 through July 2007, Anchor paid a portion of Preferred Labor’s shared employees salaries based upon actual time incurred. This temporary arrangement ceased  in  July 2007, as we expanded our support staff and hired a full-time credit analyst who is in charge of collections.  Our transactions with Preferred Labor have not been represented by any written agreements between the parties. See “Certain Relationships and Related Transactions.”

Underwriting Process

We have developed and utilize standard underwriting procedures, which are controlled in a checklist format that is reviewed and approved by members of the credit committee. The credit committee is presently comprised of our executive officers, although these functions may be delegated to other responsible personnel in the future as our company expands our operations. A member or members of the credit committee approve all new accounts and conduct periodic credit reviews of the client portfolio. Underwriting criteria include the following:

o   Background and credit checks are performed on the owners.

o   Personal or validity guarantees are sometimes obtained from the owners.

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o   We “Notify” all accounts that are purchased. Anchor is a notification factor, which means that we notify in writing all accounts purchased that we have purchased the account and payments are to be made to Anchor’s central lockbox. Our client’s invoices also provide Anchor’s lockbox as address for payments. We also have a notification statement on our clients’ invoices that indicate we have purchased the account and payment is to be made to Anchor.

o   Initially we attempt to verify most of a new customer’s accounts. Verification includes review of third-party documentation and telephone discussions with the client’s customer so that we may substantiate that invoices are valid and without dispute.

o   We typically evaluate the creditworthiness on accounts with more than a $2,500 balance.

o   Other standard diligence testing includes payroll tax payment verification, company status with state of incorporation, pre and post filing lien searches and review of prior years’ corporate tax returns. For TruckerFunds.com accounts we do not verify payroll tax payments or review prior years’ tax returns.

o   We require that our clients enter into a factoring and security agreement with Anchor and file a first senior lien on purchased accounts, and on a case-by-case basis, sometimes on all of our clients’ tangible and intangible assets.

Credit Management

To efficiently and quickly determine the credit worthiness of an account, Anchor utilizes an instant credit checking system that we call Creditguard.  Creditguard is an in-house evaluation tool that we have developed, but we do not claim any proprietary rights at this time. Creditguard utilizes a proven credit formula that combines various Dun & Bradstreet credit data elements. This formula and system provide an initial credit limit so that accounts can be approved or rejected quickly. If additional credit is necessary beyond the initial credit limit, we then independently check three vendor references and a bank reference to determine if additional credit can be extended. Collection calls are usually made within 14 days of purchasing an invoice to secure a commitment or estimated time to receive payment.

In conjunction with expanding our full-non-recourse factoring services, Anchor is examining the cost and benefits of obtaining credit insurance estimated to cost one-half of one percent of the invoiced amount.

CLIENTS

Our clients are all small businesses that range in size from start-up to $5 million in annual sales. We provide our services to any type of business where we can verify and substantiate an accounts receivable invoice for delivery of a product or performance of a service. Examples of current clients include a commercial janitorial company, transportation company, medical staffing firm, IT consulting company and a construction contractor. Anchor targets all small businesses to educate and convert them to factoring. We believe that this small business market is under served by banks and other funding institutions that view many of these companies not “bankable” because of their size, limited operating history, thin capitalization or poor / inconsistent financial performance. Anchor’s focus is funding based on the quality of our clients’ customer’s ability to pay and the validity of the accounts receivable invoice. Anchor has credit and verification processes to assist in assuring that customers are creditworthy and invoices are valid. We secure our funding by placing a senior first lien on all clients’ accounts receivable and other tangible and intangible assets. We also often obtain personal guarantees from our clients’ owners.

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In addition, there are certain specific small business sectors that Anchor believes also have limited working capital options and are targets for factoring. Examples of these include:

·              Not-for-profit entities; we have factored a not-for-profit foster home’s invoices to a local county.

·              Companies with tax liens by providing funding based upon its eligible accounts receivable; we were successful in paying off the IRS for a client that had tax liens by funding its accounts receivable.

·              Free lance consultants and independent contractors that cannot wait to receive payment from their client.

SALES AND MARKETING

We have hired a marketing manager and marketing coordinators to assist Anchor in creating a national brand identity through various marketing and business alliance strategies that will create in-bound sales leads. These marketing strategies include, without limitation, the following:

●	Media advertising in key metropolitan markets;
		Increase our internet advertising which in the past has been a successful strategy for Anchor; and

		Radio - test market selective radio spot advertising on talk radio and sports oriented programming whose primary demographic are small business owners.
●	Establish cross-selling alliances with other small business providers including:

Small business accounting and tax preparation service firms;

Small business service centers, providing packing and shipping; and

      ● Commercial insurance brokers.

      ● Develop a referral network of business brokers, consultants and accountants and attorneys;

In key metropolitan areas, we plan on hiring business development officers to follow up on in-bound sales leads in person and develop additional business by networking with other small business providers including traditional bankers, accountants, lawyers and insurance brokers.

MANAGEMENT INFORMATION SYSTEMS

We utilize a factoring industry software program designed to effectively manage and operate a factoring company. This system currently manages multiple functions from purchasing invoices, advancing funds, recording collections and rebating clients. The system generates, on demand, numerous management reports including purchase activity, collections activity, return on capital, advances outstanding, accounts receivable trends, and credit reports which provide us with the ability to track, monitor and control the collateral (purchased accounts receivable). In addition, the software integrates with our general ledger accounting package, which enables us to meet our financial reporting requirements. Our clients can retrieve on-line key management reports and statements.

Our current software platform can support our growth. In 2007 we successfully upgraded our factoring software platform, to enable additional users access to the system and support our growth objectives.

Hardware redundancy, backup strategies and disaster recovery have been planned to reduce the risk of downtime.

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GOVERNMENT REGULATIONS

             To Management’s knowledge, factoring receivables is not a regulated industry, as we do not make loans or charge clients interest. Nevertheless, if any of the factoring transactions entered into by us are deemed to be loans or financing transactions by a court of law instead of a true purchase of accounts receivable, then various state laws and regulations would become applicable to us and could limit the fees and other charges we are able to charge our customers and may further subject us to any penalties under such state laws and regulations. These laws would also:

     • regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions,

     • require disclosures to customers,

     • govern secured transactions,

     • Set collection, foreclosure, repossession and claims handling procedures and other trade practices,

     • prohibit discrimination in the extension of credit, and

     • regulate the use and reporting of information related to a seller’s credit experience and other data collection.

This could have a material adverse effect on our business, financial condition, liquidity and results of operations.  See “Risk Factors.”

COMPETITION

The factoring and financial service industry is highly fragmented and competitive. Competitive factors vary depending upon financial services products offered, customer, and geographic region. Competitive forces may limit our ability to charge our customary fees and raise fees to our customers in the future. Pressure on our margins is intensive and we cannot assure you that we will be able to successfully compete with our competitors. Our competitors, of which we are currently an insignificant competitor in our industry, include national, regional and local independent and bank owned factoring and finance companies and other full service factoring and financing organizations. Many of these competitors are larger than we are and may have access to capital at a lower cost than we do. Management estimates, based on examination of Dun & Bradstreet data and a market overview provided by a merger and acquisition advisory firm, that there are approximately 2,900 accounts receivable factoring and/or business financing firms in the United States, including us, with over 2,000 with revenues of less than $1 million. To our knowledge, no single firm dominates the small business segment of the industry.

EMPLOYEES

As of March 1, 2008, we have seventeen full-time employees.

History of former BTHC XI, LLC

Anchor Funding Services, Inc., formerly known as BTHC XI, Inc., was organized on August 16, 2006 as a Delaware corporation to effect the reincorporation of BTHC XI, LLC, a Texas limited liability company, mandated by the plan of reorganization discussed below. 

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In September 1999, Ballantrae Healthcare LLC and its affiliated limited liability companies including BTHC XI, LLC, or collectively Ballantrae, were organized for the purpose of operating nursing homes throughout the United States. Ballantrae did not own the nursing facilities.  Instead, they operated the facilities pursuant to management agreements and/or real property leases with the owners of these facilities. Although Ballantrae continued to increase the number of nursing homes it operated and in June 2000 had received a substantial equity investment, it was unable to achieve profitability. During 2001 and 2002, Ballantrae continued to experience severe liquidity problems and did not generate enough revenues to cover its overhead costs.  Despite obtaining additional capital and divesting unprofitable nursing homes, by March, 2003, Ballantrae was out of cash and unable to meet its payroll obligations. 

On March 28, 2003, Ballantrae filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code.  On November 29, 2004, the bankruptcy court approved the First Amended Joint Plan of Reorganization, as presented by Ballantrae, its affiliates and their creditors (the “Plan”).  On August 16, 2006, pursuant to the Plan, BTHC XI, LLC was merged into BTHC XI, Inc., a Delaware corporation, which later changed its name to Anchor Funding Services, Inc., effective on April 4, 2007. 

On January 31, 2007, we entered into a Securities Exchange Agreement and acquired 100% of the membership (ownership) interests of Anchor Funding Services LLC in exchange for 8,000,000 shares of our Common Stock (the “Anchor Transaction”). The Securities Exchange Agreement was entered into by and among Anchor Funding Services, LLC, its members, Anchor funding Services, Inc. (formerly BTHX XI, Inc.) and certain stockholders (the “Company Stockholders”). The Anchor Transaction was subject to our receipt in escrow of a private placement of our Series 1 Preferred Stock of at least $2,500,000 which was successfully completed immediately after the Exchange on January 31, 2007. The private placement offering was terminated on April 5, 2007 after the raise of $6,712,500 in gross proceeds from the sale of 1,342,500 shares of Series 1 Preferred Stock.

The Anchor Transaction

As a result of the Anchor Transaction, Anchor became a wholly-owned subsidiary of former BTHC XI. Prior to the completion of the Anchor Transaction, former BTHC XI had no operations and had no material assets or liabilities.

The Anchor Transaction was closed on January 31, 2007. The closing of the Anchor Transaction was conditioned on, among other things: (a) the approval of Anchor’s members, (b) the various representations and warranties of the parties being true and correct as provided in the Securities Exchange Agreement, (c) the parties performing their various covenants and agreements as provided in the Securities Exchange Agreement, (d) the parties delivering certain agreements, certificates and other instruments, (e) the Escrow Agent’s receipt of at least $2,500,000 in cleared funds available for the initial closing of the Offering immediately upon the effectiveness of the Securities Exchange, and (f) the entry into 18 month lock-up agreements by members of Anchor.

The Securities Exchange Agreement contained various representations and warranties and covenants of the Company and the Company Stockholders. Generally, the representations and warranties of the Company and the Company Stockholders survive until the first anniversary of the closing date. The Securities Exchange Agreement provides for indemnification by Company Stockholders for breaches or failure to perform covenants of the Company or the Company Stockholders contained in the Securities Exchange Agreement and for any claims by brokers or finders for fees or commissions alleged to be due in connection with the Anchor Transaction. Additionally, certain Company Stockholders agreed to indemnify Anchor for any damages arising from or in connection with the operation or ownership of the Company from and including November 29, 2004, the date the Plan was confirmed by the bankruptcy court through and including December 7, 2006. Certain other Company Stockholders agreed to indemnify Anchor for any damages arising from any breach of any representation or warranty of the Company, or the Company Stockholders contained in the Securities Exchange Agreement resulting from the operation or ownership of the Company from and including their acquisition date of control of the Company (i.e. December 7, 2006) through and including the January 31, 2007 closing date of the Securities Exchange.

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RISK FACTORS

Limited operating history. Anchor Funding Services, LLC was formed in 2003 and has only a limited operating history upon which investors may judge our performance. Future operating results will depend upon many factors, including, without limitation our ability to keep credit losses to a minimum, fluctuations in the economy, the degree and nature of competition, demand for our services, and our ability to integrate the operations of acquired businesses, to expand into new markets and to maintain margins in the face of pricing pressures. We can provide no assurances that our operations will be profitable.

Our past operating losses may occur in the future. Anchor Funding Services, LLC was formed in 2003 and has historically operated at a loss. We can provide no assurances that our operations and consolidations with any companies that we acquire will result in us meeting our anticipated level of projected profitable operations, if at all.

Competition for customers in our industry is intense, and if we are not able to effectively compete, our financial results could be harmed and the price of our Shares could decline. The factoring and financial service industry is highly competitive. There are many large full-service and specialized financing companies, as well as local and regional companies, which compete with us in the factoring industry. Competition in our markets is intense. These competitive forces limit our ability to raise fees to our customers. Pressure on our margins is intense, and we cannot assure you that we will be able to successfully compete with our competitors, many of whom have substantially greater resources than we do. If we are not able to effectively compete in our targeted markets, our operating margins and other financial results will be harmed and the market price of our securities could decline.

If we are not able to obtain new lines of credit on commercially reasonable terms, our financial condition or results of operations could suffer. We previously had  the availability of a $1 million line of credit through September 5, 2007 with an institutional asset based lender which advanced funds against “eligible accounts receivable” as defined in Anchor’s agreement with its institutional lender. This facility, which was secured by our assets, contained certain covenants related to tangible net worth and change in control. In the event that we failed to comply with the covenant(s) and the lender does not waive such non-compliance, we would have been in default of our credit agreement, which could have subjected us to penalty rates of interest and accelerate the maturity of the outstanding balances.  On June 28, 2007, we notified our lender to terminate the facility agreement immediately and the lender subsequently agreed to our request.  Prior to us completing any significant acquisitions, of which no assurances can be given, we intend to seek to obtain a new credit facility and attempt to obtain better lending terms. In the event we are not able to obtain adequate credit facilities for our factoring and acquisition needs on commercially reasonable terms, our ability to operate our business and complete one or more acquisitions would be significantly impacted and our financial condition and results of operations could suffer.

We may acquire companies in the future and these acquisitions could disrupt our business or adversely affect our earnings. Further, we may complete acquisitions without first obtaining stockholder approval under applicable Delaware Law. We intend to acquire small and/or medium local and/or regional factoring and financial service businesses. Our ability to complete acquisitions in the future may be impacted by many factors, including, without limitation, companies available for acquisition and the ability to achieve favorable terms. Entering into an acquisition entails many risks, any of which could harm our business, including, without limitation, failure to successfully integrate the acquired company with our existing business, retention of key employees, alienation or impairment of relationships with substantial customers or key employees of the acquired business or our existing business, and assumption of liabilities of the acquired business. Any acquisition that we consummate also may have an adverse affect on our liquidity or earnings and may be dilutive to our earnings. Adverse business conditions or developments suffered by or associated with any business we acquire additionally could result in impairment to the goodwill or intangible assets associated with the acquired businesses, and a related write down of the value of these assets, and adversely affect our earnings. Further, we may complete acquisitions without first obtaining stockholder approval under applicable Delaware Law.

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Risks Associated with our Growth Strategy. Our plans for growth, both internal and through acquisition of other factoring and financial service companies, are subject to numerous and substantial risks. We can provide no assurances that we will be able to expand our market presence in our current locations, successfully enter new markets, add new services and/or integrate acquired businesses into our operations. Our continued growth is dependent upon a number of factors, including the availability of working capital to support such growth, our response to existing and emerging competition, our ability to maintain sufficient profit margins while experiencing pricing pressures, our efforts to develop and maintain customer and employee relationships, and the hiring, training and retention of qualified personnel. We can provide no assurances that we will be able to identify acceptable acquisition candidates on terms favorable to us in a timely manner, if at all. A substantial portion of our capital resources is anticipated to be used primarily for these acquisitions. We expect to require additional debt or equity financing for future acquisitions, which additional financing may not be available on terms favorable to the Company, if at all. We can provide no assurances that any acquired business will be profitable.

We will seek to make acquisitions that may prove unsuccessful or strain or divert our resources.We intend seek to expand our business through the acquisition of competitors’ factoring and service businesses and assets. We may not be able to complete any acquisitions on favorable terms, if at all. Acquisitions present risks that could materially and adversely affect our business and financial performance, including:

	the diversion of our management's attention from our everyday business activities;
	the contingent and latent risks associated with the past operations of, and other unanticipated problems arising in, the acquired business; and

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

If we make, or plan to make, such acquisitions we cannot predict whether:

	we will be able to successfully integrate the operations and personnel of any new businesses into our business;
	we will realize any anticipated benefits of completed acquisitions;

	there will be substantial unanticipated costs associated with acquisitions, including potential costs associated with liabilities undiscovered at the time of acquisition; or
	stockholder approval of an acquisition will be sought.

In addition, future acquisitions by us may result in:

	potentially dilutive issuances of our equity shares;
	the incurrence of additional debt;

	restructuring charges; and
	the recognition of significant charges for depreciation and amortization related to intangible assets.

Risks Related to Our Factoring Activities. In our history, we have not experienced  material credit losses. If we were to experience material losses on our accounts receivable portfolio, they would have a material adverse effect on (i) our ability to fund our business and, (ii) to the extent the losses exceed our provision for credit losses, our revenues, net income and assets.

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We purchase accounts receivable primarily from privately owned small companies, which present a greater risk of loss than purchasing accounts receivable from larger companies. Our portfolio consists primarily of accounts receivable purchased from small, privately owned businesses with annual revenues ranging from start-up to $5 million. Compared to larger, publicly owned firms, these companies generally have more limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. These financial challenges may make it difficult for our clients to continue as a going concern. Accordingly, advances made to these types of clients entail higher risks than advances made to companies who are able to access traditional credit sources.  In part because of their smaller size, our clients may:

  •  experience significant variations in operating results;  

  •  have narrower product lines and market shares than their larger competitors;  

  •  be particularly vulnerable to changes in customer preferences and market conditions; 

    •  be more dependent than larger companies on one or more major customers, the loss of which could materially impair their business, financial condition and prospects;   

  •  face intense competition, including from companies with greater financial, technical, managerial and marketing resources; 

  •  depend on the management talents and efforts of a single individual or a small group of persons for their success, the death, disability or resignation of whom could materially harm the client’s financial condition or prospects;   

  •  have less skilled or experienced management personnel than larger companies; or  

  •  do business in regulated industries, such as the healthcare industry, and could be adversely affected by policy or regulatory changes.

Accordingly, any of these factors could impair a client’s cash flow or result in other events, such as bankruptcy, which could limit our ability to collect on this client’s purchased accounts receivable, and may lead to losses in our portfolio and a decrease in our revenues, net income and assets.

We may be adversely affected by deteriorating economic or business conditions. Our business, financial condition and results of operations may be adversely affected by various economic factors, including the level of economic activity in the markets in which we operate. Delinquencies and credit losses generally increase during economic slowdowns or recessions. Because we fund primarily small businesses, many of our clients may be particularly susceptible to economic slowdowns or recessions and could impair a client’s cash flow or result in other events, such as bankruptcy, which could limit our ability to collect on this client’s purchased accounts receivable, and may lead to losses in our portfolio and a decrease in our revenues, net income and assets. Unfavorable economic conditions may also make it more difficult for us to maintain both our new business origination volume and the credit quality of new business at levels previously attained. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could significantly harm our operating results.

Our limited operating history makes it difficult for us to accurately judge the credit performance of our portfolio and, as a result, increases the risk that our allowance for credit losses may prove inadequate. Our business depends on the creditworthiness of our clients’ customers and our clients. While we conduct due diligence and a review of the creditworthiness of most of our clients’ customers and all of our clients, this review requires the application of significant judgment by our management. Our judgment may not be correct. We maintain an allowance for credit losses on our consolidated financial statements in an amount that reflects our judgment concerning the potential for losses inherent in our portfolio. Management periodically reviews the appropriateness of our allowance considering economic conditions and trends, collateral values and credit quality indicators. We cannot assure you that our estimates and judgment with respect to the appropriateness of our allowance for credit losses are accurate. Our allowance may not be adequate to cover credit losses in our portfolio as a result of unanticipated adverse changes in the economy or events adversely affecting specific clients, industries or markets. If our allowance for credit losses is not adequate, our net income will suffer, and our financial performance and condition could be significantly impaired.

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We may not have all of the material information relating to a potential client at the time that we make a credit decision with respect to that potential client or at the time we advance funds to the client. As a result, we may suffer credit losses or make advances that we would not have made if we had all of the material information. There is generally no publicly available information about the privately owned companies to which we generally purchase accounts receivable from. Therefore, we must rely on our clients and the due diligence efforts of our employees to obtain the information that we consider when making our credit decisions. To some extent, our employees depend and rely upon the management of these companies to provide full and accurate disclosure of material information concerning their business, financial condition and prospects. If we do not have access to all of the material information about a particular client’s business, financial condition and prospects, or if a client’s accounting records are poorly maintained or organized, we may not make a fully informed credit decision which may lead, ultimately, to a failure or inability to collect our purchased accounts receivable in their entirety.

We may make errors in evaluating accurate information reported by our clients and, as a result, we may suffer credit losses.  We underwrite our clients and clients’ customers based on certain financial information. Even if clients provide us with full and accurate disclosure of all material information concerning their businesses, we may misinterpret or incorrectly analyze this information. Mistakes by our staff and credit committee may cause us to make advances and purchase accounts receivable that we otherwise would not have purchased, to fund advances that we otherwise would not have funded or result in credit losses.

A client’s fraud could cause us to suffer material losses. A client could defraud us by, among other things:

·   directing the proceeds of collections of its accounts receivable to bank accounts other than our established lockboxes;

·   failing to accurately record accounts receivable aging;

·   overstating or falsifying records showing accounts receivable or inventory; or

·   providing inaccurate reporting of other financial information.

As of December 31, 2007, we have  three clients that each account for at least 10% of our accounts receivable portfolio. This includes a staffing company located in New Jersey, which accounts for 14.2% of our accounts receivable portfolio, a medical staffing corporation located in New York, which accounts for 18.2% of our accounts receivable portfolio, and an intellectual technology consulting firm located in Maryland, which accounts for 11.5% of our accounts receivable portfolio. These three clients, as of December 31, 2007, account for 43.9% of our total accounts receivable portfolio.  A client’s fraud could cause us to suffer material losses.

We may be unable to recognize or act upon an operational or financial problem with a client in a timely fashion so as to prevent a credit loss of purchased accounts receivable from that client. Our clients may experience operational or financial problems that, if not timely addressed by us, could result in a substantial impairment or loss of the value of our purchased accounts receivable from the client. We may fail to identify problems because our client did not report them in a timely manner or, even if the client did report the problem, we may fail to address it quickly enough or at all. As a result, we could suffer credit losses, which could have a material adverse effect on our revenues, net income and results of operations.

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The security interest that we have in the purchased accounts receivable may not be sufficient to protect us from a partial or complete loss if we are required to foreclose. While we are secured by a lien on specified collateral of the client, there is no assurance that the collateral will protect us from suffering a partial or complete loss if we move to foreclose on the collateral. The collateral is primarily the purchased accounts receivable. Factors that could reduce the value of accounts receivable that we have a security interest in include among other things:

•   problems with the client’s underlying product or services which result in greater than anticipated returns or disputed accounts;

• unrecorded liabilities such as rebates, warranties or offsets;

•	the disruption or bankruptcy of key customers who are responsible for material amounts of the accounts receivable; and
•   the client misrepresents, or does not keep adequate records of, important information concerning the accounts receivable.

Any one or more of the preceding factors could materially impair our ability to collect all of the accounts receivable we may purchase from a client.

Errors by or dishonesty of our employees could result in credit losses. We rely heavily on the performance and integrity of our employees in making our initial credit decision with respect to our clients and on-going credit decisions on our clients’ customers. Because there is generally little or no publicly available information about our clients or clients’ customers, we cannot independently confirm or verify the information our employees provide us for use in making our credit and funding decisions. Errors by our employees in assembling, analyzing or recording information concerning our clients and clients’ customers could cause us to engage clients and purchase accounts receivable that we would not otherwise fund or purchase. This could result in losses. Losses could also arise if any of our employees were dishonest. A dishonest employee could collude with our clients to misrepresent the creditworthiness of a prospective client or client customers or to provide inaccurate reports or invoices. If, based on an employee’s dishonesty, we may have funded a client and purchased accounts that were not creditworthy, which could result in our suffering suffer credit losses.

We may incur lender liability as a result of our funding activities. In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. We may be subject to allegations of lender liability if it were determined that our advances were in fact loans and the relationship between Anchor and a client was that of lender and borrower rather than purchaser and seller. We cannot assure you that these claims will not arise or that we will not be subject to significant liability if a claim of this type did arise.

We may incur liability under state usury laws or other state laws and regulations if any of our factoring arrangements are deemed to be loans or financing transactions instead of a true purchase of accounts receivable. Various state laws and regulations limit the interest rates, fees and other charges lenders are allowed to charge their borrowers. If any of the factoring transactions entered into by us are deemed to be loans or financing transactions instead of a true purchase of accounts receivable, such laws and regulations may become applicable to us and could limit the interest rates, fees and other charges we are able to charge our customers and may further subject us to any penalties under such state laws and regulations. This could have a material adverse effect on our business, financial condition, liquidity and results of operations.

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We are in a highly competitive business and may not be able to take advantage of attractive funding opportunities. The factoring industry is highly competitive. We have competitors who offer the same types of services to small privately owned businesses that are our target clients. Our competitors include a variety of:

• specialty and commercial finance companies; and

•   national and regional banks that have factoring divisions or subsidiaries.

Some of our competitors have greater financial, technical, marketing and other resources than we do. They also have greater access to capital than we do and at a lower cost than is available to us. Furthermore, we would expect to face increased price competition if other factors seek to expand within or enter our target markets. Increased competition could cause us to reduce our pricing and advance greater amounts as a percentage of a client’s eligible accounts receivable. Even with these changes, in an increasingly competitive market, we may not be able to attract and retain new clients. If we cannot engage new clients, our net income could suffer, and our financial performance and condition could be significantly impaired.

Our information and computer processing systems are critical to the operations of our business and any failure could cause significant problems. Our information technology systems, located at our Charlotte, North Carolina headquarters, are essential for data exchange and operational communications to service our clients. Any interruption, impairment or loss of data integrity or malfunction of these systems could severely hamper our business and could require that we commit significant additional capital and management resources to rectify the problem.

The loss of any of our key personnel could harm our business. Our future financial performance will depend to a significant extent on our ability to motivate and retain key management personnel. Competition for qualified management personnel is intense and in the event we experience turnover in our senior management positions, we cannot assure you that we will be able to recruit suitable replacements. We must also successfully integrate all new management and other key positions within our organization to achieve our operating objectives. Even if we are successful, turnover in key management positions may temporarily harm our financial performance and results of operations until new management becomes familiar with our business. At present, we do not maintain key-man life insurance on any of our executive officers, although we entered into three-year employment contracts with each of Morry F. Rubin, Chief Executive Officer, and Brad Bernstein, President, on January 31, 2007. Our Compensation Committee of the Board of Directors (or Board in absence of such a committee) will be responsible for approval of all future employment contracts with our executive officers. We can provide no assurances that said future employment contracts and/or their current compensation is or will be on commercially reasonable terms to us in order to retain our key personnel. The loss of any of our key personnel could harm our business.

Risks associated with intangible assets. A substantial portion of our future assets may consist of intangible assets including goodwill (excess of cost over fair value of net assets acquired and other intangible assets) relating to the potential acquisition of businesses. In the event of any sale or liquidation of us, there can be no assurance that the value of such intangible assets will be realized. In addition, any significant decrease in the value of such intangible assets could have a material adverse effect on us.

We are continually subject to the risk of new regulation, which could harm our business and/or operating results. In recent years, a number of bills have been introduced in Congress and/or various state legislatures that would add new regulations governing the financial services industry. The enactment of any such new laws or regulations may negatively impact our business, financial condition and/or our financial results.

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Control of the Company.  Our executive officers and directors beneficially own approximately 80% of our outstanding Common Stock and approximately 51% of the voting control of our capital stock. As a result, such persons, in the event that they act in concert, will have the ability to affect the election of all of our directors and the outcome of all issues submitted to our stockholders. Such concentration of ownership could limit the price that certain investors might be willing to pay in the future for shares of Common Stock, and could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. See “Item 11.”

Risks associated with the development of the Company’s management information and internal control systems. Our data processing, accounting and analysis capabilities are important components of our business. As we make acquisitions, we will convert certain systems of the acquired companies to our systems. These conversions and the continued development and installation of such systems involve the risk of unanticipated complications and expenses. We can provide no assurances that we will be successful in this regard.

We have no public market for our Securities. Our outstanding Common Stock and Series 1 Convertible Preferred Stock (collectively the “Securities”) are not currently traded in the Over-the-Counter Market and quoted on the OTC Bulletin Board. In the event that trading does commence in the future for our Common Stock, it may be very limited and sporadic. We also may have a limited public float which could result in a high degree of volatility in the market price of our Common Stock. The availability for sale of restricted securities pursuant to Rule 144 or otherwise could adversely affect the market for our Common Stock, if any. We can provide no assurances that an established public market will ever develop or be sustained for our Common Stock in the future. Further, we do not anticipate a public market will ever develop for our Series 1 Convertible Preferred Stock.

The price of our common stock may fluctuate significantly. The market price for our common stock, if any, can fluctuate as a result of a variety of factors, including the factors listed above, many of which are beyond our control. These factors include: actual or anticipated variations in quarterly operating results; announcements of new services by our competitors or us; announcements relating to strategic relationships or acquisitions; changes in financial estimates or other statements by securities analysts; and other changes in general economic conditions. Because of this, we may fail to meet or exceed the expectations of our shareholders or others, and the market price for our common stock could fluctuate as a result.

Our Common Stock is considered to be a “penny stock” and, as such, the market for our Common Stock should one develop may be further limited by certain Commission rules applicable to penny stocks. To the extent the price of our Common Stock remains below $5.00 per share or we have a net tangible assets of $2,000,000 or less, our common shares will be subject to certain “penny stock” rules promulgated by the Commission. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common shares in the public market should one develop and they limit the liquidity of our Shares.

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An investment in the Company is subject to dilution.We may require substantial additional financing in order to achieve our business objectives. The Company may generate such financing through the sale of securities (including potentially to the owners of businesses we acquire) that would dilute the ownership of its existing security holders. In subsequent rounds of financing, the Company will likely issue securities that will have rights, preferences or privileges senior to our outstanding securities and that will include financial and other covenants that will restrict the Company’s flexibility.

We have never declared or paid cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We have never declared or paid cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to fund the development and growth of our business. Except for the rights of holders of the shares of Series 1 Convertible Preferred Stock as described herein, any future determination to pay dividends will be dependent upon the our financial condition, operating results, capital requirements, applicable contractual restrictions and other such factors as our board of directors may deem relevant.

THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS INHERENT IN AN INVESTMENT IN THE COMPANY.

Item 2 Description of Property

 We currently lease our principal executive office space from a non- affiliated company located at 10801 Johnston Road, Suite 210, Charlotte, NC 28226.  These facilities, which consist of approximately 2,250 square feet of office space are leased from June 2007 for a period of 24 months at a monthly base rent of approximately $2,250.  We have also leased approximately 2,875 square feet of office space located at 800 Yamato Road, Boca Raton, FL, 33431 from a non-affiliated third party. The lease commenced upon the delivery of premises to us in August 2007 and for a term of 61 months. Since taking delivery of the premises in August 2007, we have been paying initially approximately $8,300 per month based upon a base rent of $5,750 (plus applicable Florida sales tax),. We are also responsible for our proportionate share of real estate taxes and assessments, operating costs and professional and other services.

Item 3. Legal Proceedings

We are not a party to any pending legal proceedings. Our property is not the subject of any pending legal proceedings. To our knowledge, no governmental authority is contemplating commencing a legal proceeding in which we would be named as a party.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2007.

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PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

  Our Common Stock is quoted on the OTC Electronic Bulletin Board under the symbol “AFNG.” No market information is provided herein as trading in our Common Stock since quotations began in December 2007 is extremely limited and sporadic.

As of March 18, 2008, there were 12,454,140 shares of Common Stock issued and outstanding. As of March 18, 2008, there were (i) outstanding options to purchase 1,967,000 shares of our Common Stock, (ii) outstanding Placement Agent Warrants to purchase 1,342,500 shares of our Common Stock, and (iii) outstanding 1,317,365 shares of our Series 1 Preferred Stock which are convertible into 6,586,825 shares of our Common Stock, plus accrued and undeclared dividends through each respective conversion date.

Currently, we have a float of 525,555 shares which were issued as free trading shares by the Bankruptcy Court under Section 1145(a)(1) of the Bankruptcy Code. The remaining 11,295,000 outstanding shares of Common Stock are restricted securities and are eligible for sale (subject to certain limitations in the case of stock held by affiliated persons) pursuant to Rule 144 of the Securities Act commencing on April 30, 2008. However, the holders of the 11,295,000 restricted common shares have signed 18 month lock-up agreements not to sell or otherwise transfer these restricted common shares (except in certain limited cases where the transferee agrees to be bound by the transfer restrictions) until July 31, 2008, without the prior written consent of Fordham Financial Management, Inc. Pursuant to Rule 144 of the Securities Act of 1933, as amended, following the one-year anniversary of the April 30, 2007 filing date of our Form 10-SB, shares of our common stock beneficially owned by a person for at least six months (as defined in Rule 144) are eligible for resale under Rule 144 subject to the availability of current public information about us and, in the case of affiliated persons, subject to certain additional volume limitations, manner of sale provisions and notice provisions. Pursuant to Rule 144(k) of the Securities Act, our non-affiliates (who have been non-affiliates for at least three months) may sell their common stock that they have held for one year (as defined in Rule 144) without compliance with the availability of current information.

As of March 18, 2008, we have outstanding 1,317,365 shares of Series 1 Preferred Stock which are convertible into an aggregate of up to 6,586,825 shares of our restricted Common Stock. These securities are eligible for sale under Rule 144 commencing on April 30, 2008.

Holders of Record

As of March 18, 2008, there were 525 holders of record of shares of Common Stock and 90 holders of record of our Series 1 Preferred Stock.

Dividend Policy

The holders of our Series 1 Preferred Stock are entitled to receive dividends as more fully described below. We have not paid or declared any cash dividends on our Common Stock. We currently intend to retain any earnings for future growth and, therefore, do not expect to pay cash dividends on our Common Stock in the foreseeable future.

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Cumulative annual dividends shall be paid in shares of Series 1 Preferred Stock or, in certain instances in cash, at an annual rate of 8% ($.40 per share of Series 1 Preferred Stock), payable on December 31 of each year commencing December 31, 2007. Dividends payable on outstanding Shares of Series 1 Preferred Stock shall begin to accrue on the date of each closing and shall cease to accrue and accumulate on the earlier of December 31, 2009 or the applicable Conversion Date (the “Final Dividend Payment Date”). Thereafter, the holders of Series 1 Preferred Stock shall have the same dividend rights as holders of Common Stock of the Company, as if the Series 1 Preferred Stock has been fully converted into Common Stock. The dividend payable on December 31, 2007 was declared and paid on January 29, 2008 to stockholders of record on January 25, 2008 prorated or adjusted for the period from the date of issuance through December 31, 2007. Unpaid dividends will accumulate and be payable prior to the payment of any dividends on shares of Common Stock or any other class of Preferred Stock. Cash dividends will only be payable from funds legally available therefore, when and as declared by the Board of Directors of the Company, and unpaid dividends will accumulate until the Company has the legal ability to pay the dividends. The Company shall pay a cash dividend in lieu of a stock dividend where on the date of declaration of the dividend, it is the Board’s determination that the Company’s Common Stock is trading consistently at a market price below $1.00 per share. Cash dividends shall not apply to the payment of accrued and unpaid (undeclared) dividends which are paid on a Conversion Date. Dividends paid in shares of Series 1 Preferred Stock shall be based upon an assumed value of $5.00 per share of Series 1 Preferred Stock. Notwithstanding anything contained herein to the contrary, the Company’s Board of Directors shall timely declare dividends on its Series 1 Preferred Stock each year unless the payment of such dividends would be in violation of applicable state law.  

Recent Sales of Unregistered Securities

The following table provides information about the sales during the past three years of securities that have not been registered under Section 5 of the Securities Act of 1933:

Date of Sale	Title of Security	Number Sold	Consideration Received, Commissions	Purchasers	Exemption from Registration Claimed
August 16, 2006	Common Stock	158,055 shares (1)	--- (1)	499 general unsecured creditors	Section 3(a)(7)
August 16, 2006	Common Stock	367,500 shares (1)	--- (1)	One Administrative Claimant	Section 3(a)(7)
December 2006	Common Stock	3,295,000 shares	$0.25 per share; no Commissions paid	14 sophisticated and accredited investors (2)	Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder(5)
January 31, 2007	Common Stock	8,000,000 shares	Exchange of securities; no cash received; no commissions paid	Three sophisticated and accredited investors (2)	Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (5)
January 31, 2007 through March 31, 2007	Series 1 Preferred Stock	1,342,500 shares	$5.00 per share; 14% compensation paid to broker/dealer plus warrants to purchase 1,342,500 shares of common stock	86 accredited investors	Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (4)
January 31, 2007 through March 31, 2007	Warrants to purchase Common Stock	1,342,500 shares	---  (3)	One sophisticated and accredited investor (2)	Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (4)
January 31 and June 11, 2007 and September 28, 2007	Common Stock	Options to purchase 1,970,000 common shares	Securities granted under Equity Compensation Plan; no cash received; no commissions paid	Directors and Officers	Rule 701; Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (6)

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(1)   Plan shares issued to general unsecured claimants and for administrative claims pursuant to the First Amended Joint Plan of Reorganization as authorized by the Bankruptcy Court Order confirming the Chapter 11 proceeding of In re: Ballantrae Healthcare LLC, et al case # 03-33152-HDH-11, US Bankruptcy Court for the Northern District Division, pursuant to Section 1145(a)(1) of Title 11 of the United States Bankruptcy Code. No commissions were paid in connection with the issuance of the Plan shares. It should be noted that while we have listed the Plan shares in the table above, Section 5 of the Securities Act is inapplicable to the issuance of the Plan shares and that the Plan shares issued to the general unsecured claimants and for the administrative claims totaling 525,555 shares are considered to be issued in a public offering pursuant to Section 1145(c) of the Bankruptcy Code.

(2)   Accredited Investors is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.

(3)   Issued to Fordham Financial Management, Inc. as partial consideration for Placement Agent services rendered in connection with our private placement of 1,342,500 shares of Series 1 Preferred Stock resulting in gross proceeds of $6,712,500. No additional consideration was paid by Fordham for said warrants.

(4)   We believe that the transaction is exempt from registration under the section cited above and did not involve a public offering. Each certificate contains an appropriate restrictive legend.

(5)   We believe that the transaction is exempt from registration under the section cited above and did not involve a public offering. Each certificate contains an appropriate restrictive legend. No sales commissions were paid.

(6)   Represents options to purchase common stock granted under our 2007 Omnibus Equity Compensation Plan as incentive to directors and officers of our company.

The foregoing table and notes thereto do not reflect the following:

On December 11, 2007, we received a signed subscription to issue and sell 25,000 shares of our Common Stock at $1.00 per share to a non-affiliated person. The subscription price of $25,000 was paid through the issuance of a promissory note (with full recourse) in like amount due and payable on December 31, 2008. The 25,000 shares have not been issued and will not be issued until the note has been fully paid. The notes to our consolidated financial statements (note 9) treat these 25,000 shares as if we granted the investor options to purchase 25,000 shares at $1.00 per share. Upon issuance, exemption will be claimed under Section 4(2) of the Securities Act. No commissions have been paid or will be paid in connection with the issuance and sale of 25,000 shares.

Recent Purchases of Securities

During the year ended December 31, 2007, the Company had no repurchases of its Common Stock.

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Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-KSB. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future plan of operations, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company’s actual results in future periods to differ materially from forecasted results.

Executive Overview

Our business objective is to create a well-recognized, national financial services firm for small businesses providing accounts receivable funding (factoring), outsourcing of accounts receivable management including collections and the risk of customer default and other specialty finance products including, but not limited to trade finance and government contract funding. For certain service businesses, Anchor also provides back office support including payroll, payroll tax compliance and invoice processing services. We provide our services to clients nationwide and may expand our services internationally in the future. We plan to achieve our growth objectives as described below through a combination of strategic and add-on acquisitions of other factoring and related specialty finance firms that serve small businesses in the United States and Canada and internal growth through mass media marketing initiatives. Our principal operations are located in Charlotte, North Carolina and we  maintain an executive office in Boca Raton, Florida which includes its sales and marketing functions.

Client Accounts

As of December 31, 2007, we have three clients that each account for at least 10% of our accounts receivable portfolio. This includes a staffing company located in New Jersey, which accounts for 14.2% of our accounts receivable portfolio, a medical staffing corporation located in New York, which accounts for 18.2% of our accounts receivable portfolio, and an intellectual technology consulting firm located in Maryland, which accounts for 11.5% of our accounts receivable portfolio. These three clients, as of December 31, 2007, account for 43.9% of our total accounts receivable portfolio.  A client’s fraud could cause us to suffer material losses.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Finance revenues for the year ended December 31, 2007 were $423,024 compared to $558,816 for the year ended December 31, 2006 (a 24.3% decrease).   The change in revenue was primarily due to a client that provided Anchor with approximately $239,239 in finance revenues during the year ended December 31, 2006 and no revenues in 2007. 

Interest income (expense), net for the year ended December 31, 2007 was $172,680 compared to $(193,595) for the year ended December 31, 2006.  Beginning in February 2007, the Company began using the proceeds from the sale of Series 1 Preferred Stock to fund its clients instead of borrowing from its lender. This combined with the interest earned on the excess cash on hand, resulted in net interest income of $172,680 for the year ended December 31, 2007.

Provision for credit losses for the year ended December 31, 2007 was $30,708 compared to $0 for the year ended December 31, 2006.

Operating expenses for the year ended December 31, 2007 were $1,611,676 compared to $223,336 for the year ended December 31, 2006 (a 621.6% increase).  This increase is primarily attributable to the Company’s incurring additional costs for increased payroll, marketing, professional, rent, insurance and other operating expenses to grow Anchor’s core business, build an infrastructure to support anticipated growth and operate as a publicly reporting company. In addition, the Company began leasing its own offices in Charlotte on June 1, 2007 and opened an Executive and Sales office in Boca Raton, Florida in August 2007. Management received no compensation for the year ended December 31, 2006 and $304,058  for the year ended December 31, 2007.

23

Net income (loss) before income taxes for the year ended December 31, 2007 was $(1,046,680) compared to $141,885 for the year ended December 31, 2006.  The decrease in net income before income taxes is the result of decreases in finance revenues ($135,792) and increases in operating costs ($1,388,340) being offset by an increase in interest income, net ($366,275).   The change in revenue was primarily due to a client that provided Anchor with approximately $239,239 in finance revenues during the year ended December 31, 2006 and no revenues in 2007. 

The following table compares the operating results for the year ended December 31, 2007 and December 31, 2006.

	Year Ended December 31,
	2007			2006			$ Change			% Change
Finance revenues	$	423,024		$	558,816		$	(135,792	)		(24.3	)
Interest income (expense), net		172,680			(193,595	)		366,275
Net finance revenues		595,704			365,221			230,483			63.1
Provision for credit losses		30,708			0			30,708
Finance revenues, net of interest expense and credit losses		564,996			365,221			199,775			54.7
Operating expenses		1,611,676			223,336			1,388,340			621.6
Net income (loss) before income taxes		(1,046,680	)		141,885			(1,188,565	)
Income taxes		-			-			-
Net income (loss)	$	(1,046,680	)	$	141,885		$	(1,188,565	)

Finance revenue.   The decrease in finance revenue was primarily due to a client that provided Anchor with approximately $239,239 in finance revenues during the year ended December 31, 2006 and no revenues in 2007.  Anchor had 37 active clients as of December 31, 2007 compared to 10 active clients as of December 31, 2006.

Interest income (expense).  Anchor had net interest income of $172,680 for the year ended December 31, 2007 compared to net interest expense of $193,595 for the year ended December 31, 2006. Beginning in February 2007, the company began using the proceeds from the sale of Series 1 Preferred Stock to fund its clients instead of borrowing from its lender. This combined with the interest earned on the excess cash on hand, resulted in net interest income for the year ended December 31, 2007.

Provision for credit losses. Anchor has reviewed its portfolio of accounts receivable purchased and determined that it had $30,708 of credit losses for the year ended December 31, 2007 and $0 credit losses for the year ended December 31, 2006.

Operating expenses.  Operating expenses are primarily selling, general and administrative (“SG&A”) expenses. Operating expenses for the year ended December 31, 2007 increased by $1,388,340 compared to the year ended December 31, 2006. This increase is primarily attributable to the company’s incurring additional costs for increased payroll, marketing, professional and other operating expenses to grow Anchor’s core business, build an infrastructure to support anticipated growth  and operate as a publicly reporting company. In addition, the Company began leasing its own offices in Charlotte on June 1, 2007 and \opened an Executive and Sales office in Boca Raton, Florida in August, 2007. 

24

Key changes in certain selling, general and administrative expenses are shown below:

	Year Ended December 31,
	2007		2006		$ Change		Explanation
Payroll, payroll taxes and benefits	$	545,035	$	73,824	$	471,211	Increased payroll and health benefits for executive, sales, administrative and operations personnel.
Advertising		284,522		67,367		217,155	Increased marketing and advertising
Professional fees		203,427		23,145		180,282	Increased cost for 2007 audit and SEC filings. Additional legal fees for corporate matters and SEC filings
Insurance		78,100		-		78,100	Premiums for insurance policies including Directors and Officers and fidelity policies
	$	1,111,084	$	164,336	$	946,748

Liquidity and Capital Resources

Cash Flow Summary

Cash Flows from Operating Activities

Net cash used by operating activities was $1,882,629 for the year ended December 31, 2007 and was primarily due to our net loss for the year and cash used by operating assets, primarily to purchase accounts receivable. The net loss was $1,046,680 for the year ended December 31, 2007. Cash used by operating assets and liabilities was primarily due to an increase of $1,091,668 in retained interest in accounts receivable. Increases and decreases in prepaid expenses, accounts payable, accrued payroll and accrued expenses were primarily the result of timing of payments and receipts.

Cash Flows from Investing Activities

For the year ended December 31, 2007, net cash used in investing activities was $111,060 for the purchase of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $5,436,962 for the year ended December 31, 2007. This was primarily the result of $6,712,500 of proceeds from the sale of Preferred Stock offset by $1,209,383 of payments related to costs of the sale.

Between January 31, 2007 and April 5, 2007, we raised $6,712,500 in gross proceeds from the sale of 1,342,500 shares of our Series 1 Convertible Preferred Stock to expand our operations both internally and through possible acquisitions as more fully described under “Description of Business.”

Capital Resources

We previously had the availability of a $1 million line of credit through September 5, 2007 with an institutional asset based lender which advanced funds against “eligible accounts receivable” as defined in Anchor’s agreement with its institutional lender. This facility, which was secured by our assets, contained certain covenants related to tangible net worth and change in control. In the event that we failed to comply with the covenant(s) and the lender does not waive such non-compliance, we would have been in default of our credit agreement, which could have subjected us to penalty rates of interest and accelerate the maturity of the outstanding balances.  On June 28, 2007, we notified our lender to terminate the facility agreement immediately and the lender subsequently agreed to our request.  Prior to us completing any significant acquisitions, of which no assurances can be given, we intend to seek to obtain a new credit facility and attempt to obtain better lending terms. In the event we are not able to obtain adequate credit facilities for our factoring and acquisition needs on commercially reasonable terms, our ability to operate our business and complete one or more acquisitions would be significantly impacted and our financial condition and results of operations could suffer.

25

We are not reliant on loans from related parties. Based on our current cash position, we believe can meet our cash needs for the next 12 to 18 months and support our anticipated organic growth. In the event we acquire another company, particularly one with a large cash purchase price, we may need additional financing to complete the transaction and our daily cash needs and liquidity could change based on the needs of the combined companies.   At that time, in the event we are not able to obtain a sufficient line of credit to complete the acquisition (if needed) and to operate the combined companies financing needs on commercially reasonable terms, our ability to operate our business would be significantly impacted and our financial condition and results of operations could suffer.

Summary of Critical Accounting Policies and Estimates

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

Revenue Recognition – The Company charges fees to its customers in one of two ways as follows:

1)   Fixed Transaction Fee. Fixed transaction fees are a fixed percentage of the purchased invoice.  This percentage does not change from the date the purchased invoice is funded until the date the purchased invoice is collected.

2)   Variable Transaction Fee.  Variable transaction fees are variable based on the length of time the purchased invoice is outstanding.   As specified in its contract with the client, the Company charges variable increasing percentages of the purchased invoice as time elapses from the purchase date to the collection date.

For both Fixed and Variable Transaction fees, the Company recognizes revenue by using one of two methods depending on the type of customer.  For new customers the Company recognizes revenue using the cost recovery method.  For established customers the Company recognizes revenue using the accrual method.

Under the cost recovery method, all revenue is recognized upon collection of the entire amount of purchased accounts receivable.

The Company considers new customers to be accounts whose initial funding has been within the last three months or less.  Management believes it needs three months of history to reasonably estimate a customer’s collection period and accrued revenues.  If three months of history has a limited number of transactions, the cost recovery method will continue to be used until a reasonable revenue estimate can be made based on additional history.  Once the Company obtains sufficient historical experience, it will begin using the accrual method to recognize revenue.

For established customers the Company uses the accrual method of accounting.  The Company applies this method by multiplying the historical yield, for each customer, times the amount advanced on each purchased invoice outstanding for that customer, times the portion of a year that the advance is outstanding.  The customers’ historical yield is based on the Company’s last six months of experience with the customer along with the Company’s experience in the customer’s industry, if applicable.

The amounts recorded as revenue under the accrual method described above are estimates.  As purchased invoices are collected, the Company records the appropriate adjustments to record the actual revenue earned on each purchased invoice. Adjustments from the estimated revenue to the actual revenue have not been material.

Retained Interest in Purchased Accounts Receivable – Retained interest in purchased accounts receivable represents the gross amount of invoices purchased from factoring customers less amounts maintained in a reserve account.  The Company purchases a customer’s accounts receivable and advances them a percentage of the invoice total.  The difference between the purchase price and amount advanced is maintained in a reserve account.  The reserve account is used to offset any potential losses the Company may have related to the purchased accounts receivable.

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The Company’s factoring and security agreements with their customers include various recourse provisions requiring the customers to repurchase accounts receivable if certain conditions, as defined in the factoring and security agreement, are met.

Senior management reviews the status of uncollected purchased accounts receivable monthly to determine if any are uncollectible.  The Company has a security interest in the accounts receivable purchased and, on a case-by-case basis, may have additional collateral.  The Company files security interests in the property securing their advances.  Access to this collateral is dependent upon the laws and regulations in each state where the security interest is filed.  Additionally, the Company has varying types of personal guarantees from their factoring customers relating to the purchased accounts receivable.

Management considered approximately $31,000 of their December 31, 2007 retained interest in purchased accounts receivable to be uncollectible.  Management did not consider any of their December 31, 2006 retained interest in purchased accounts receivable to be uncollectible.

Management believes the fair value of the retained interest in purchased accounts receivable approximates its recorded value because of the relatively short term nature of the purchased receivable and the fact that the majority of these invoices have been subsequently collected.

Property and Equipment – Property and equipment, consisting furniture and fixtures and computers and software, are stated at cost.  Depreciation is provided over the estimated useful lives of the depreciable assets using the straight-line method.  Estimated useful lives range from 2 to 7 years.

Advertising Costs – The Company charges advertising costs to expense as incurred.  Total advertising costs were approximately, $289,700 and $68,200 for the years ending December 31, 2007 and 2006, respectively.

Earnings per Share – The Company computes net income per share in accordance with SFAS No. 128 “Earnings Per Share.”  Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period.  The impact of convertible preferred stock, stock options and stock warrants were excluded since their impact would have been anti-dilutive.  The dilutive effect of stock options and warrants is computed using the treasury stock method, which assumes the repurchase of common shares at the average market price.

Stock Based Compensation - In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Accounting for Stock-Based Compensation.” SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The provisions of this statement were effective for the first interim reporting period that began after December 15, 2005. The Company adopted the provisions of SFAS No.123(R) in the first quarter of fiscal 2006.

See Note 9 for the SFAS No. 123(R) impact on the operating results for the year ended December 31, 2007.  The adoption of SFAS No. 123(R) had no impact on the Company’s operating results for the years ended December 31, 2006.

Fair Value of Financial Instruments – The carrying value of cash equivalents, retained interest in purchased accounts receivable, due from/to financial institution, accounts payable and accrued liabilities approximates their fair value.

Cash and cash equivalents – Cash and cash equivalents consist primarily of highly liquid cash investment funds with original maturities of three months or less when acquired.

Income Taxes – Effective January 31, 2007, the Company became a “C” corporation for income tax purposes.  In a “C” corporation income taxes are provided for the tax effects of transactions reported in the financial statements plus deferred income taxes related to the differences between financial statement and taxable income.

27

The primary differences between financial statement and taxable income for the Company are as follows:

·   Compensation costs related to the issuance of stock options

·   Use of the reserve method of accounting for bad debts

·   Differences in bases of property and equipment between financial and income tax reporting

·   Net operating loss carryforwards.

The deferred tax asset represents the future tax return consequences of utilizing these items.   Deferred tax assets are reduced by a valuation reserve, when management is uncertain if the net deferred tax assets will ever be realized.

Prior to January 31, 2007,Anchor Funding Services, LLC was treated as a partnership for Federal and state income tax purposes.  Its earnings and losses were included in the personal tax returns of its members; therefore, no provision or benefit from income taxes has been included in those financial statements.

In July 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of SFAS No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions.  This Interpretation requires that the Company recognize in its consolidated financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.  The provisions of FIN 48 became effective for the Company on January 1, 2007.

The Company applied FIN 48 to all its tax positions, including tax positions taken and those expected to be taken, under the transition provision of the interpretation.  As a result of the implementation of FIN 48, the Company recognized no increases or decreases in its recorded tax liabilities or the December 31, 2006 retained earnings.

For the year ended December 31, 2007, the Company recognized no liability for uncertain tax positions.

The Company classifies interest accrued on unrecognized tax benefits with interest expense.  Penalties accrued on unrecognized tax benefits are classified with operating expenses.

Recent Accounting Pronouncements –

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities.  It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  SFAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact of SFAS 157 on its results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option to report selected financial assets and liabilities at estimated fair value.  Most of the provisions of SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities that own trading and available-for-sale securities.  The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates.  The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and must be applied to the entire instrument and not to only a portion of the instrument.

SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007.  Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of the fiscal year, has not yet issued financial statements for any interim period of such year, and also elects to apply the provisions of SFAS No. 157.  The Company is currently evaluating the impact of SFAS 157 on its results of operations and financial condition.

On December 4, 2007, the FASB issued SFAS 141(R) “Business Combinations”.  SFAS 141R modifies the accounting for business combinations and requires, with limited exceptions, the acquiring entity in a business combination to recognize 100 percent of the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date fair value.  In addition, SFAS 141R limits the recognition of acquisition-related restructuring liabilities and requires the following: the expense of acquisition-related and restructuring costs and the acquirer to record contingent consideration measured at the acquisition date at fair value.  SFAS 141R is effective for new acquisitions consummated on or after January 1, 2009.  Early adoption is not permitted.  The Company is currently evaluating the effect of this standard.

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On December 4, 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160).  SFAS 160 requires all entities to report noncontrolling (i.e. minority) interests in subsidiaries as equity in the Consolidated Financial Statements and to account for transactions between an entity and noncontrolling owners as equity transactions if the parent retains its controlling financial interest in the subsidiary.  SFAS 160 also requires expanded disclosure that distinguishes between the interests of a parent’s owners and the interests of a noncontrolling owners of a subsidiary.  SFAS 160 is effective for the Company’s financial statements for the year beginning January 1, 2009 and early adoption is not permitted.  The adoption of SFAS 160 is not expected to have a material impact on the Company’s financial condition and results of operations.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements made by or on behalf of our Company. Our Company and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in this report and other Company filings with the Securities and Exchange Commission and in our reports to stockholders. Statements that relate to other than strictly historical facts, such as statements about the Company's plans and strategies and expectations for future financial performance are forward-looking statements within the meaning of the Act. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will” and other similar expressions identify forward-looking statements. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance, and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See “Risk Factors” for a discussion of events and circumstances that could affect our financial performance or cause actual results to differ materially from estimates contained in or underlying our forward-looking statements.

Item 7. Consolidated Financial Statements

Consolidated Financial Statements

The report of the Independent Registered Public Accounting Firm, Consolidated Financial Statements and Schedules are set forth beginning on page F-1 of this Annual Report on Form 10-KSB following this page.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

During the fiscal year ended December 31, 2007, there were no changes in and disagreements with accountants. In 2007, the Company engaged Cherry, Bekaert & Holland, L.L.P (“CBH”) as its independent auditor for Registrant's fiscal year ended December 31, 2007 and 2006. Registrant did not consult CBH with respect to either (i) the Prior Fiscal Years, (ii) the Interim Period with respect to either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or (iii) any matter that was either the subject of a Disagreement or a Reportable Event.

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ANCHOR FUNDING SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

ASSETS
	2007			2006
CURRENT ASSETS:
Cash	$	3,499,044		$	55,771
Retained interest in purchased accounts receivable, net		1,502,215			441,255
Earned but uncollected fee income		25,742			10,799
Prepaid expenses and other		65,016			41,134
Total current assets		5,092,017			548,959
PROPERTY AND EQUIPMENT, net		89,044			4,010
SECURITY DEPOSITS		20,216			-
	$	5,201,277		$	552,969
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to financial institution	$	-		$	44,683
Accounts payable		68,728			39,218
Due to related company		-			21,472
Accrued payroll and related taxes		101,248			37,796
Accrued expenses		73,201			-
Collected but unearned fee income		30,748			11,730
Preferred dividends payable		405,995			-
Total current liabilities		679,920			154,899
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY		-			391,800
PREFERRED STOCK, net of issuance costs of
$1,209,383		5,503,117			-
COMMON STOCK		11,821			3,821
ADDITIONAL PAID IN CAPITAL		536,199			79,554
ACCUMULATED DEFICIT		(1,529,780	)		(77,105	)
		4,521,357			398,070
	$	5,201,277		$	552,969

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

F-1

ANCHOR FUNDING SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31,

	2007			2006
FINANCE REVENUES	$	423,024		$	558,816
INTEREST EXPENSE, net - financial institution		(27,285	)		(134,231	)
INTEREST EXPENSE, net - related parties		-			(59,364	)
INTEREST INCOME		199,965			-
NET FINANCE REVENUES		595,704			365,221
PROVISION FOR CREDIT LOSSES		30,708			-
FINANCE REVENUES, NET OF INTEREST EXPENSE
AND CREDIT LOSSES		564,996			365,221
OPERATING EXPENSES		1,611,676			223,336
INCOME (LOSS) BEFORE INCOME TAXES		(1,046,680	)		141,885
INCOME TAXES		-			-
NET INCOME (LOSS)		(1,046,680	)		141,885
DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK		(405,995	)		-
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDER	$	(1,452,675	)	$	141,885
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDER, per share
Basic	$	(0.13	)		N/A
Dilutive	$	(0.13	)		N/A
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and dilutive		11,141,103			N/A

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

F-2

ANCHOR FUNDING SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the years ended December 31, 2007 and 2006

	Members'			Preferred		Common		Additional		Accumulated
	Equity			Stock		Stock		Paid in Capital		Deficit
Balance, January 1, 2006	$	(206,085	)	$	0	$	0	$	0	$	0
Net income, year ended December 31, 2006		141,885			-		-		-		-
Contribution of related party demand notes payable to members' equity		456,000			-		-		-		-
To record the net assets of BTHC XI, Inc. as of December 31, 2006		-			-		3,821		79,554		(77,105	)
Balance, December 31, 2006		391,800			0		3,821		79,554		(77,105	)
To record the exchange of 8,000,000 common shares of BTHC XI, Inc.
stock for 100,000 membership units of Anchor Funding Services, LLC		(391,800	)		-		8,000		383,800		-
To record issuance of 1,342,500 shares of convertible preferred stock
and related costs of raising this capital of $1,209,383 and issuance
of 1,342,500 warrants		-			5,503,117		-		-		-
To record issuance of 1,970,000 stock options		-			-		-		72,678		-
To record award of 25,000 shares of common stock									167
Preferred stock dividends		-			-		-		-		(405,995	)
Net loss, year ended December 31, 2007		-			-		-		-		(1,046,680	)
Balance, December 31, 2007	$	0		$	5,503,117	$	11,821	$	536,199	$	(1,529,780	)

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

F-3

ANCHOR FUNDING SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:	2007			2006
Net income (loss):	$	(1,046,680	)	$	141,885
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization		26,026			5,476
Provision for uncollectible accounts		30,708			-
Compensation expense related to issuance of stock options		72,845			-
(Increase) decrease in retained interest in purchased
accounts receivable		(1,091,668	)		575,057
(Increase) decrease in earned but uncollected fee income		(14,943	)		-
Increase in prepaid expenses and other		(23,882	)		(35,565	)
Increase in security deposits		(20,216	)		-
Increase in accounts payable		29,510			39,218
Increase in collected but unearned fee income		19,018			-
Increase (decrease) in accrued payroll and related taxes		63,452			(5,032	)
Increase in accrued expenses		73,201			-
Net cash (used in) provided by operating activities		(1,882,629	)		721,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received in connection with acquistion		-			6,270
Purchases of property and equipment		(111,060	)		(1,329	)
Net cash (used in) provided by investing activities		(111,060	)		4,941
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to financial institution, net		(44,683	)		(778,895	)
(Payments to) borrowings from related company		(21,472	)		78,446
Proceeds from sale of preferred stock		6,712,500			-
Payments made related to sale of preferred stock		(1,209,383	)		-
Net cash provided by (used in) financing activities		5,436,962			(700,449	)
INCREASE IN CASH		3,443,273			25,531
CASH, beginning of period		55,771			30,240
CASH, end of period	$	3,499,044		$	55,771

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

F-4

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

1.  BACKGROUND AND DESCRIPTION OF BUSINESS:

The consolidated financial statements include the accounts of Anchor Funding Services, Inc. (formerly BTHC XI, Inc.) and its wholly owned subsidiary, Anchor Funding Services, LLC (“the Company”).  In April of 2007, BTHC XI, Inc. changed its name to Anchor Funding Services, Inc.  All significant intercompany balances and transactions have been eliminated in consolidation.

Anchor Funding Services, Inc. is a Delaware corporation.  Anchor Funding Services, Inc. has no operations; substantially all operations of the Company are the responsibility of Anchor Funding Services, LLC.

Anchor Funding Services, LLC is a North Carolina limited liability company.    Anchor Funding Services, LLC was formed for the purpose of providing factoring and back office services to businesses located throughout the United States of America.

On January 31, 2007, BTHC XI, Inc acquired Anchor Funding Services, LLC by exchanging shares in BTHC XI, Inc. for all the outstanding membership units of Anchor Funding Services, LLC (See Note 8).   Anchor Funding Services, LLC is considered the surviving entity therefore these financial statements include the accounts of BTHC XI, Inc. and Anchor Funding Services, LLC since January 1, 2007.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

Revenue Recognition – The Company charges fees to its customers in one of two ways as follows:

1)   Fixed Transaction Fee. Fixed transaction fees are a fixed percentage of the purchased invoice.  This percentage does not change from the date the purchased invoice is funded until the date the purchased invoice is collected.

F-5

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

2)   Variable Transaction Fee.  Variable transaction fees are variable based on the length of time the purchased invoice is outstanding.   As specified in its contract with the client, the Company charges variable increasing percentages of the purchased invoice as time elapses from the purchase date to the collection date.

For both Fixed and Variable Transaction fees, the Company recognizes revenue by using one of two methods depending on the type of customer.  For new customers the Company recognizes revenue using the cost recovery method.  For established customers the Company recognizes revenue using the accrual method.

Under the cost recovery method, all revenue is recognized upon collection of the entire amount of purchased accounts receivable.

The Company considers new customers to be accounts whose initial funding has been within the last three months or less.  Management believes it needs three months of history to reasonably estimate a customer’s collection period and accrued revenues.  If three months of history has a limited number of transactions, the cost recovery method will continue to be used until a reasonable revenue estimate can be made based on additional history.  Once the Company obtains sufficient historical experience, it will begin using the accrual method to recognize revenue.

For established customers the Company uses the accrual method of accounting.  The Company applies this method by multiplying the historical yield, for each customer, times the amount advanced on each purchased invoice outstanding for that customer, times the portion of a year that the advance is outstanding.  The customers’ historical yield is based on the Company’s last six months of experience with the customer along with the Company’s experience in the customer’s industry, if applicable.

The amounts recorded as revenue under the accrual method described above are estimates.  As purchased invoices are collected, the Company records the appropriate adjustments to record the actual revenue earned on each purchased invoice. Adjustments from the estimated revenue to the actual revenue have not been material.

Retained Interest in Purchased Accounts Receivable – Retained interest in purchased accounts receivable represents the gross amount of invoices purchased from factoring customers less amounts maintained in a reserve account.  The Company purchases a customer’s accounts receivable and advances them a percentage of the invoice total.  The difference between the purchase price and amount advanced is maintained in a reserve account.  The reserve account is used to offset any potential losses the Company may have related to the purchased accounts receivable.

The Company’s factoring and security agreements with their customers include various recourse provisions requiring the customers to repurchase accounts receivable if certain conditions, as defined in the factoring and security agreement, are met.

F-6

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Senior management reviews the status of uncollected purchased accounts receivable monthly to determine if any are uncollectible.  The Company has a security interest in the accounts receivable purchased and, on a case-by-case basis, may have additional collateral.  The Company files security interests in the property securing their advances.  Access to this collateral is dependent upon the laws and regulations in each state where the security interest is filed.  Additionally, the Company has varying types of personal guarantees from their factoring customers relating to the purchased accounts receivable.

Management considered approximately $31,000 of their December 31, 2007 retained interest in purchased accounts receivable to be uncollectible.  Management did not consider any of their December 31, 2006 retained interest in purchased accounts receivable to be uncollectible.

Management believes the fair value of the retained interest in purchased accounts receivable approximates its recorded value because of the relatively short term nature of the purchased receivable and the fact that the majority of these invoices have been subsequently collected.

Property and Equipment – Property and equipment, consisting furniture and fixtures and computers and software, are stated at cost.  Depreciation is provided over the estimated useful lives of the depreciable assets using the straight-line method.  Estimated useful lives range from 2 to 7 years.

Advertising Costs – The Company charges advertising costs to expense as incurred.  Total advertising costs were approximately:

For the years ending December 31,
2007		2006
$	289,700	$	68,200

Earnings per Share – The Company computes net income per share in accordance with SFAS No. 128 “Earnings Per Share.”  Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period.  The impact of convertible preferred stock, stock options and stock warrants were excluded since their impact would have been anti-dilutive.  The dilutive effect of stock options and warrants is computed using the treasury stock method, which assumes the repurchase of common shares at the average market price.

Stock Based Compensation -In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Accounting for Stock-Based Compensation.” SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The provisions of this statement were effective for the first interim reporting period that began after December 15, 2005. The Company adopted the provisions of SFAS No.123(R) in the first quarter of fiscal 2006.

See Note 9 for the SFAS No. 123(R) impact on the operating results for the year ended December 31, 2007.  The adoption of SFAS No. 123(R) had no impact on the Company’s operating results for the years ended December 31, 2006.

F-7

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Fair Value of Financial Instruments – The carrying value of cash equivalents, retained interest in purchased accounts receivable, due from/to financial institution, accounts payable and accrued liabilities approximates their fair value.

Cash and cash equivalents – Cash and cash equivalents consist primarily of highly liquid cash investment funds with original maturities of three months or less when acquired.

Income Taxes – Effective January 31, 2007, the Company became a “C” corporation for income tax purposes.  In a “C” corporation income taxes are provided for the tax effects of transactions reported in the financial statements plus deferred income taxes related to the differences between financial statement and taxable income.

The primary differences between financial statement and taxable income for the Company are as follows:

·   Compensation costs related to the issuance of stock options

·   Use of the reserve method of accounting for bad debts

·   Differences in bases of property and equipment between financial and income tax reporting

·   Net operating loss carryforwards.

The deferred tax asset represents the future tax return consequences of utilizing these items.   Deferred tax assets are reduced by a valuation reserve, when management is uncertain if the net deferred tax assets will ever be realized.

Prior to January 31, 2007,Anchor Funding Services, LLC was treated as a partnership for Federal and state income tax purposes.  Its earnings and losses were included in the personal tax returns of its members; therefore, no provision or benefit from income taxes has been included in those financial statements.

In July 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of SFAS No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions.  This Interpretation requires that the Company recognize in its consolidated financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.  The provisions of FIN 48 became effective for the Company on January 1, 2007.

F-8

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

The Company applied FIN 48 to all its tax positions, including tax positions taken and those expected to be taken, under the transition provision of the interpretation.  As a result of the implementation of FIN 48, the Company recognized no increases or decreases in its recorded tax liabilities or the December 31, 2006 retained earnings.

For the year ended December 31, 2007, the Company recognized no liability for uncertain tax positions.

The Company classifies interest accrued on unrecognized tax benefits with interest expense.  Penalties accrued on unrecognized tax benefits are classified with operating expenses.

Recent Accounting Pronouncements –

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities.  It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  SFAS 157 is effective for fiscal years beginning after November 15, 2007.  The Company is currently evaluating the impact of SFAS 157 on its results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.  SFAS 159 provides companies with an option to report selected financial assets and liabilities at estimated fair value.  Most of the provisions of SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities that own trading and available-for-sale securities.  The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates.  The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and must be applied to the entire instrument and not to only a portion of the instrument.

SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007.  Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of the fiscal year, has not yet issued financial statements for any interim period of such year, and also elects to apply the provisions of SFAS No. 157.  The Company is currently evaluating the impact of SFAS 157 on its results of operations and financial condition.

On December 4, 2007, the FASB issued SFAS 141(R) “Business Combinations”.  SFAS 141R modifies the accounting for business combinations and requires, with limited exceptions, the acquiring entity in a business combination to recognize 100 percent of the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date fair value.  In addition, SFAS 141R limits the recognition of acquisition-related restructuring liabilities and requires the following: the expense of acquisition-related and restructuring costs and the acquirer to record contingent consideration measured at the acquisition date at fair value.  SFAS 141R is effective for new acquisitions consummated on or after January 1, 2009.  Early adoption is not permitted.  The Company is currently evaluating the effect of this standard.

F-9

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

On December 4, 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160).  SFAS 160 requires all entities to report noncontrolling (i.e. minority interests) in subsidiaries as equity in the Consolidated Financial Statements and to account for transactions between an entity and noncontrolling owners as equity transactions if the parent retains its controlling financial interest in the subsidiary.  SFAS 160 also requires expanded disclosure that distinguishes between the interests of a parent’s owners and the interests of a noncontrolling owners of a subsidiary.  SFAS 160 is effective for the Company’s financial statements for the year beginning January 1, 2009 and early adoption is not permitted.  The adoption of SFAS 160 is not expected to have a material impact on the Company’s financial condition and results of operations.

3.  RETAINED INTEREST IN PURCHASED ACCOUNTS RECEIVABLE:

Retained interest in purchased accounts receivable consists of the following:

	December 31, 2007			December 31, 2006
Purchased accounts receivable outstanding	$	1,841,539		$	614,034
Reserve account		(308,616	)		(172,779	)
Allowance for uncollectible invoices		(30,708	)		-
	$	1,502,215		$	441,255

Total accounts receivable purchased were as follows:

		For the years ending December 31,
2007		2006
$	11,579,000	$	11,469,000

Retained interest in purchased accounts receivable consists, excluding amounts recorded asuncollectible, of United States companies in the following industries:

F-10

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

	December 31, 2007		December 31, 2006
Staffing	$	656,020	$	397,061
Transportation		218,264		(52,854	)
Publishing		6,000		45,971
Construction		8,291		26,591
Service		498,614		14,951
Other		145,734		9,535
	$	1,532,923	$	441,255

4.  PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

	Estimated
	Useful Lives	December 31, 2007			December 31, 2006
Furniture and fixtures	2-5 yers	$	33,960		$	1,235
Computers and software	3-7 years		93,866			15,531
			127,826			16,766
Less accumulated depreciation			(38,782	)		(12,756	)
		$	89,044		$	4,010

5.  DUE FROM/TO FINANCIAL INSTITUTION:

The Company had an agreement with a financial institution under which the institution financed their purchased accounts receivable.  The institution received a fee of .3 percent of the receivables financed plus interest as described below.  The Company terminated this agreement on July 16, 2007.

Borrowings were made at the request of the Company.  The amount eligible to be borrowed was the lower of $1,000,000 or a borrowing base formula as defined in the agreement.  The interest on borrowings was paid monthly at a rate ranging from the institution’s prime rate plus 1% to 12.75%.

The agreement was collateralized by all current and future Company assets and was guaranteed by the Company’s majority shareholders.

6.  CAPITAL STRUCTURE:

The Company’s capital structure consists of preferred and common stock as described below:

F-11

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Preferred Stock – The Company is authorized to issue 10,000,000 shares of $.001 par value preferred stock.  The Company’s Board of Directors determines the rights and preferences of its preferred stock.

On January 31, 2007, the Company filed a Certificate of Designation with the Secretary of State of Delaware.  Effective with this filing, 2,000,000 preferred shares became Series 1 Convertible Preferred Stock.  Series 1 Convertible Preferred Stock will rank senior to Common Stock.

Series 1 Convertible Preferred Stock is convertible into 5 shares of the Company’s Common Stock.  The holder of the Series 1 Convertible Preferred Stock has the option to convert the shares to Common Stock at any time.  Upon conversion all accumulated and unpaid dividends will be paid as additional shares of Common Stock.

The dividend rate on Series 1 Convertible Preferred Stock is 8%.  Dividends are paid annually on December 31st in the form of additional Series 1 Convertible Preferred Stock unless the Board of Directors approves a cash dividend.  Dividends on Series 1 Convertible Preferred Stock shall cease to accrue on the earlier of December 31, 2009, or on the date they are converted to Common Shares.  Thereafter, the holders of Series 1 Convertible Preferred Stock have the same dividend rights as holders of Common Stock, as if the Series 1 Convertible Preferred Stock had been converted to Common Stock.   Accrued dividends at December 31, 2007 and December 30, 2006 were $405,995 and $0, respectively.

Common Stock – The Company is authorized to issue 40,000,000 shares of $.001 par value Common Stock.  Each share of Common Stock entitles the holder to one vote at all stockholder meetings.  Dividends on Common Stock will be determined annually by the Company’s Board of Directors.

F-12

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

The changes in Series 1 Convertible Preferred Stock and Common Stock shares for the year ended December 31, 2007 is summarized as follows:

	Series 1 Convertible		Common
	Preferred Stock		Stock
Balance, December 31, 2006		-		3,820,555
Shares issued in exchange for
the membership units of
Anchor Funding Services, LLC		-		8,000,000
Shares issued in connection
with sale of Series 1 Convertible
Preferred Stock		1,342,500		-
Balance, December 31, 2007		1,342,500		11,820,555

There was no share activity in 2006.

As of December 31, 2007 and 2006 the components of additional paid in capital were as follows:

	December 31, 2007		December 31, 2006
Consideration received in excess of
common stock's par value	$	463,354	$	79,554
Stock options		72,678		-
Common stock awarded		167		-
				-
	$	536,199	$	79,554

F-13

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

7.  RELATED PARTY TRANSACTIONS:

Due from/to Related Company – Prior to December 31, 2006, the Company had borrowing and loan transactions with a limited liability company (LLC) related through common ownership.  These amounts were unsecured, interest bearing (at 10 percent), and payable on demand.  The Company recorded the following interest income (expense) amounts related to this activity:

	For the years ending December 31,
	2007			2006
Income	$	-		$	29,000
(Expense)		(71	)		(17,000	)
	$	(71	)	$	12,000

Administrative Charges – The Company uses the administrative staff and facilities of the LLC referred to above.  The services provided by the LLC consist primarily of rent, credit, collection, invoicing, payroll and bookkeeping.  The Company pays the LLC a fee for these services.  The fee is computed as a percentage of accounts receivable purchased by the Company.  The administrative fee charged by the LLC was as follows:

For the years ending December 31,
2007		2006
$	16,100	$	28,700

In connection with the Company’s relocation (See Note 14) to their Charlotte, NC facility, theCompany is no longer using the administrative services of the related LLC.

8.  EXCHANGE TRANSACTION:

On January 31, 2007, Anchor Funding Services, LLC and its members entered into a Securities Exchange Agreement with BTHC XI, Inc.  The members namely, George Rubin, Morry Rubin (“M. Rubin”) and Ilissa Bernstein exchanged their units in Anchor Funding Services, LLC for an aggregate of 8,000,000 common shares of BTHC XI, Inc. issued to George Rubin (2,400,000 shares), M. Rubin (3,600,000 shares) and Ilissa Bernstein (2,000,000 shares).  Upon the closing of this transaction Anchor Funding Services, LLC became a wholly-owned subsidiary of BTHC XI, Inc.

At the time of this transaction, BTHC XI, Inc. had no operations and no assets or liabilities. After this transaction the former members of Anchor Funding Services, LLC owned approximately 67.7% of the outstanding common stock of BTHC XI, Inc.

This transaction was accounted for as a purchase.  There was no market value for the common shares of BTHC XI, Inc. or the membership units of Anchor Funding Services, LLC at the transaction date.  Accordingly, BTHC XI, Inc. recorded the membership units received in Anchor Funding Services, LLC at Anchor Funding Service LLC’s net asset value as of the transaction date.

F-14

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

9. EMPLOYMENT AND STOCK OPTION AGREEMENTS:

At closing of the exchange transaction described above, M. Rubin and Brad Bernstein (“B. Bernstein”), the husband of Ilissa Bernstein and President of the Company, entered into employment contracts and stock option agreements.  Additionally, at closing two non-employee directors entered into stock option agreements.

.

The following summarizes M. Rubin’s employment agreement and stock options:

·   The employment agreement with M. Rubin retains his services as Co-chairman and Chief Executive Officer for a three-year period.

·   An annual salary of $1 until, the first day of the first month following such time as the Company, shall have, within any period beginning on January 1 and ending not more than 12 months thereafter, earned pre-tax net income exceeding $1,000,000, M. Rubin’s base salary shall be adjusted to an amount, to be mutually agreed upon between M. Rubin and the Company, reflecting the fair value of the services provided, and to be provided, by M. Rubin taking into account (i) his position, responsibilities and performance, (ii) the Company’s  industry, size and performance, and (iii) other relevant factors. M. Rubin is eligible to receive annual bonuses as determined by the Company’s compensation committee.  M. Rubin shall be entitled to a monthly automobile allowance of $1,500.

·   10-year options to purchase 650,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. Vesting of the fair value of the options is one-third immediately, one-third on February 29, 2008 and one-third on February 28, 2009, provided that in the event of a change in control or M. Rubin is terminated without cause or M. Rubin terminates for good reason, all unvested options shall accelerate and immediately vest and become exercisable in full on the earliest of the date of change in control or date of M. Rubin’s voluntary termination or by the Company without cause.

The following summarizes B. Bernstein’s employment agreement and stock options:

·   The employment agreement with B. Bernstein retains his services as President for a three-year period.

·   An annual salary of $205,000 during the first year, $220,000 during the second year and $240,000 during the third year and any additional year of employment.  The Board may periodically review B. Bernstein’s base salary and may determine to increase (but not decrease) the base salary in accordance with such policies as the Company may hereafter adopt from time to time.  B. Bernstein is eligible to receive annual bonuses as determined by the Company’s compensation committee.  B. Bernstein shall be entitled to a monthly automobile allowance of $1,000.

F-15

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

·   10-year options to purchase 950,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. Vesting of the fair value of the options is one-third immediately, one-third on February 29, 2008 and one-third on February 28, 2009, provided that in the event of a change in control or B. Bernstein is terminated without cause or B. Bernstein terminates for good reason, all unvested options shall accelerate and immediately vest and become exercisable in full on the earliest of the date of change in control or date of B. Bernstein’s voluntary termination or by the Company without cause.

The following summarizes the stock option agreements entered into with two directors:

·   10-year options to purchase 360,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. Vesting of the fair value of the options is one-third immediately, one-third on February 29, 2008 and one-third on February 28, 2009.  If either director ceases serving the Company for any reason, all unvested options shall terminate immediately and all vested options must be exercised within 90 days after the director ceases serving as a director.

The following summarizes the employee stock option agreements entered into with two managerial employees:

·   10-year options to purchase 10,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. The grant date was September 28, 2007.  Vesting of the fair value of the options is one-fourth on September 28, 2008, one-fourth on September 28, 2009, one-fourth on September 28, 2010 and one-fourth on September 28, 2011.  If either employee ceases being employed by the Company for any reason, all vested and unvested options shall terminate immediately.

The following summarizes a stock subscription agreement entered into with an unrelated individual:

·   Pursuant to a subscription agreement entered into on December 11, 2007, the Company awarded 25,000 shares of common stock, at $1 per share in exchange for a full recourse note received of $25,000. This transaction was accounted for in accordance with SFAS 123 (R).

The following table summarizes information about stock options as of December 31, 2007:

		Weighted Average
Exercise	Number	Remaining	Number
Price	Outstanding	Contractual Life	Exercisable
$1.25	1,970,000	10 years	653,334

The Company recorded the issuance of these options in accordance with SFAS No. 123(R).  The following information was input into a Black Scholes option pricing model to compute a per option price of $.0468:

F-16

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Exercise price	$	1.25
Term	1 to 10 years
Volatility		2.5
Dividends		0	%
Discount rate		4.75	%

The financial effect of these options to record over their life is as follows:

Options to value		1,970,000
Option price	$	0.0468
Total expense to recognize over
life of options	$	92,196

The fair value amounts recorded for these options in the statement of operations for the year ended December 31, 2007 was $72,678.

The pre-tax effect recorded in the financial statements for the year ending December 31, 2007 consists of $30,576 in fully vested stock options and a provision of $42,102 to record eleven months of the unvested portions of stock options that will eventually vest between February 2008 and September 2011.

10. SALE OF CONVERTIBLE PREFERRED STOCK:

From February 1, 2007 to April 5, 2007 the Company sold 1,342,500 shares of convertible preferred stock to accredited investors.  The gross proceeds, transaction expenses and net proceeds of these transactions were as follows:

Gross proceeds	$	6,712,500
Cash fees:
Placement agent		(951,483	)
Legal and accounting		(218,552	)
Blue sky		(39,348	)
Net cash proceeds	$	5,503,117
Non-cash fees:
Placement agents fees - warrants		(62,695	)
Net proceeds	$	5,440,422

The placement agent was issued warrants to purchase 1,342,500 shares of the Company’s common stock.  The following information was input into a Black Scholes option pricing model to compute a per warrant price of $.0462:

F-17

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Exercise price	$	1.10
Term	5 years
Volatility		2.5
Dividends		0	%
Discount rate		4.70	%

The following table summarizes information about stock warrants as of December 31, 2007:

		Weighted Average
Exercise	Number	Remaining	Number
Price	Outstanding	Contractual Life	Exercisable
$1.10	1,342,500	5 years	1,342,500

11.  CONCENTRATIONS:

Revenues – The Company recorded revenues from United States companies in the following industries as follows:

Industry	For the year ending December 31,
	2007		2006
Staffing	$	284,568	$	189,395
Transportation		14,975		93,956
Logistics		0		224,214
Publishing		3,173		26,481
Construction		8,460		2,017
Service		100,849		9,970
Other		10,999		12,783
	$	423,024	$	558,816

F-18

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Major Customers – The Company had the following transactions and balances with unrelated customers (3 customers for the year ending December 31, 2007 and 3 for the year ending December 31, 2006 which represent 10 percent or more of its revenues for the years ending December 31, 2007 and 2006 as follows:

	For the year ending December 31, 2007
Revenues	$	69,500	$	60,000	$	43,500
		As of December 31,2007
Purchased accounts
receivable outstanding	$	174,000	$	140,000	$	211,500
		For the year ending December 31, 2006
Revenues	$	228,000	$	95,500	$	87,500
		As of December 31,2006
Purchased accounts
receivable outstanding	$	-	$	15,000	$	146,500

Cash – The Company maintains cash deposits with a bank.  At various times throughout the year, these balances exceeded the federally insured limit of $100,000.

12.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW:

Cash paid for interest was as follows:

		For the year ending December 31,
2007		2006
$	27,300	$	240,000

 Non-cash financing and investing activities consisted of the following:

8,000,000 shares of common stock were issued in exchange for 100,000 membership units of Anchor Funding Services, LLC (see Note 8).  In connection with this exchange, the Company acquired cash of $6,270.

1,970,000 stock options were issued to the Company’s President, CEO, two managerial employees and two non-employee directors (see Note 9).

1,342,500 stock warrants were issued to the placement agent handling the sale of the Company’s convertible preferred stock (see Note 10).

25,000 shares of common stock awarded in exchange for a promissory note of $25, 000

During 2006, $456,000 in related party subordinated debt was converted to equity.

F-19

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

13.  INCOME TAXES:

The current and deferred income tax provision for the year ending December 31, 2007 consists of the following:

	For the Year
	Ending
	December 31, 2007
Current provision	$	-
Deferred benefit		409,000
	$	409,000
Valuation reserve		(409,000	)
	$	-

The deferred tax assets related to the differences between financial statement and taxable income as of December 31, 2007 are as follows:

	December 31, 2007
Compensation  costs related to issuance of stock options	$	29,000
Reserve method of accounting for bad debts		12,000
Basis differences in property and equipment		(6,000	)
Net operating loss carryforwards		374,000
		409,000
Valuation reserve		(409,000	)
	$	-

F-20

ANCHOR FUNDING SERVICES, INC

Notes To Consolidated Financial Statements

December 31, 2007 and 2006

Management is uncertain if these deferred tax assets will ever be realized, therefore they have been fully reserved.

    Thenet operating loss carryforward generated in the year ending December 31, 2007 wasapproximately $934,000.

The Company has the following net operating loss carryforwards available to offset future taxable income:

	Amount		Expiration
Federal	$	936,000	2021
State	$	934,000	2021

The Company files tax returns in the U.S. federal jurisdiction and various states.  Currently, none of the Company’s open tax returns are being examined by the taxing authorities.

14. FACILITY LEASES:

In May 2007, the Company executed lease agreements for office space in Charlotte, NC and Boca Raton, FL.  All lease agreements are with unrelated parties.

The Charlotte lease is effective on August 15, 2007, is for a twenty-four month term and includes an option to renew for an additional three year term at substantially the same terms.  The monthly rental is approximately $1,500. On November 1, 2007, the Companys entered into a lease for additional space adjoining its Charlotte office. The lease is for 19 months at a monthly rental of $750. The lease has a two year renewal option at substantials the same terms. 

The Boca Raton lease was effective on August 20, 2007 and is for a sixty-one month term.  The monthly rental is approximately $8,300.

The rental expense for the years ended December 31, 2007 and 2006 was approximately $44,000 and $0, respectively.  The future minimum lease payments are as follows:

2008	$	117,500
2009		111,000
2010		99,500
2011		99,500