FlexShopper, Inc. - Interim / Quarterly Report 2009

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act Of 1934

For The Quarterly Period Ended September 30, 2009

Commission File Number: 0-52589

ANCHOR FUNDING SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5456087
(State
of jurisdiction of Incorporation)	(I.R.S.
Employer Identification No.)

10801 Johnston Road. Suite 210 Charlotte, NC (Address of Principal Executive Offices) 28226 (Zip Code)

(866) 789-3863

(Registrant's telephone number)

Not Applicable

(Former name, address and fiscal year, if changed since last report)

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [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]

As of September 30, 2009, the Company had a total of 13,592,695 shares of Common Stock outstanding, excluding 1,189,484 outstanding shares of Series 1 Preferred Stock convertible into 5,947,420 shares of Common Stock.

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This report contains certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and are including this statement for purposes of these safe harbor provisions. "Forward-looking statements," which are based on certain assumption and describe our future plans, strategies and expectations, may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated" and "potential." Examples of forward-looking statements, include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for commercial, mortgage, consumer and other loans, real estate values, competition, changes in accounting principles, policies or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect our financial results, is included in our other filings with the Securities and Exchange Commission.

ANCHOR FUNDING SERVICES, INC.

Form 10-Q Quarterly Report

Table of Contents


PART
I. FINANCIAL INFORMATION
Item

| Financial Statements | F-1 | | | Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008 (audited) | F-1 | | | Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2009 and 2008 (unaudited) | F-2 | | | Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2009 (unaudited) | F-3 | | | Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2009 and 2008 (unaudited) | F-4 | | | Notes to Consolidated Financial Statements | F-5-F-16 | | Item
| Management's Discussion and Analysis of Financial Condition and Results of Operations | 4 | | Item
| Quantitative and Qualtitative Disclosures about Market Risk | 10 | | Item
| Controls and Procedures | 10 | | PART II. OTHER INFORMATION | | | | Item
| Legal Proceedings | 11 | | Item 1A. | Risk Factors | 11 | | Item
| Changes in Securities | 11 | | Item
| Defaults Upon Senior Securities | 11 | | Item
| Submissions of Matters to a Vote of Security Holders | 11 | | Item 5 | Other Information | 12 | | Item
| Exhibits and Reports on Form 8-K | 13 | | Signatures | | |

Certifications

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

| ANCHOR

FUNDING SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS
ASSETS
	(Unaudited)	(Audited)
	September	December
	30,
2009		31,
2008
CURRENT
ASSETS:
Cash	$ 384,891	$	401,104
Retained
interest in purchased accounts receivable, net	5,392,420		4,292,366
Earned
but uncollected fee income	93,427		87,529
Other
receivable	215,152		-
Deferred
financing costs, current	72,728		85,130
Prepaid
expenses and other	101,131		116,950
Total
current assets	6,259,749		4,983,079
PROPERTY
AND EQUIPMENT, net	59,353		70,181
DEFERRED
FINANCING COSTS, non-current	-		156,073
SECURITY
DEPOSITS	19,500		19,500
	$ 6,338,602	$	5,228,833
LIABILITIES
AND STOCKHOLDERS' EQUITY
CURRENT
LIABILITIES:
Due
to financial institution	$ 3,412,936	$	1,187,224
Accounts
payable	78,940		122,900
Loan
fees payable	-		50,000
Accrued
payroll and related taxes	50,899		35,067
Accrued
expenses	42,305		45,141
Collected
but unearned fee income	52,145		58,707
Preferred
dividends payable	354,552		-
Total
current liabilities	3,991,777		1,499,039
LOAN
FEES PAYABLE, non-current	-		50,000
TOTAL
LIABILITIES	3,991,777		1,549,039
COMMITMENTS
AND CONTINGENCIES
PREFERRED
STOCK, net of issuance costs of
$1,209,383	4,736,937		5,361,512
COMMON
STOCK	13,594		12,941
ADDITIONAL
PAID IN CAPITAL	2,404,608		1,660,516
ACCUMULATED
DEFICIT	(4,808,314	)	(3,355,175	)
	2,346,825		3,679,794
	$ 6,338,602	$	5,228,833
The
accompanying notes to consolidated financial statements are an integral
part of these statements.

F-1

ANCHOR FUNDING SERVICES, INC

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

| | For the quarters ending September 30, — 2009 | | 2008 | | For the nine months ending September 30, — 2009 | 2008 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FINANCE REVENUES | $ 390,555 | | $ 338,356 | | $ 1,188,035 | | 823,533 | | | INTEREST EXPENSE - financial institution | (28,722 | ) | | | (62,339 | ) | | | | INTEREST INCOME | | | 5,087 | | | | 39,606 | | | NET FINANCE REVENUES | 361,833 | | 343,443 | | 1,125,696 | | 863,139 | | | (PROVISION) BENEFIT FOR CREDIT LOSSES | 1,706 | | (226 | ) | (26,003 | ) | (5,270 | ) | | FINANCE REVENUES, NET OF INTEREST EXPENSE | | | | | | | | | | AND CREDIT LOSSES | 363,539 | | 343,217 | | 1,099,693 | | 857,869 | | | OPERATING EXPENSES | 760,461 | | 583,644 | | 2,170,268 | | 1,805,549 | | | NET LOSS BEFORE INCOME TAXES | (396,922 | ) | (240,427 | ) | (1,070,575 | ) | (947,680 | ) | | INCOME TAXES: | | | | | | | | | | Current | - | | - | | - | | - | | | Deferred | - | | - | | - | | - | | | Total | - | | - | | - | | - | | | NET LOSS | (396,922 | ) | (240,427 | ) | (1,070,575 | ) | (947,680 | ) | | DEEMED DIVIDEND ON CONVERTIBLE PREFERRED STOCK | (93,841 | ) | (122,682 | ) | (354,552 | ) | (383,863 | ) | | NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDER | $ (490,763 | ) | $ (363,109 | ) | $ (1,425,127 | ) | (1,331,543 | ) | | NET LOSS ATTRIBUTABLE TO COMMON | | | | | | | | | | STOCKHOLDER, per share | | | | | | | | | | Basic | $ (.04 | ) | $ (.03 | ) | $ (.11 | ) | (.11 | ) | | Dilutive | $ (.04 | ) | $ (.03 | ) | $ (.11 | ) | (.11 | ) | | WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | | | | | | | | | | Basic and dilutive | 13,415,664 | | 12,940,168 | | 13,100,548 | | 12,649,494 | |

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

F-2

| ANCHOR

FUNDING SERVICES, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
For
the nine months ended September 30, 2009
	Preferred	Common	Additional	Accumulated
	Stock	Stock	Paid
in Capital	Deficit
Balance,
December 31, 2008 (audited)	$ 5,361,512	$ 12,941	$ 1,660,516	$	(3,355,175	)
Provision
for compensation expense related to issued stock
options	-	-	4,582		-
Benefit
for compensation expense related to expired stock
options	-	-	(8,424	)	-
Stock
options issued to directors/officers related to financing agreement
obtained	-	-	96,000		-
To
record conversion of 124,915 preferred shares, plus accrued
and declared
dividends to 652,587 common shares	(624,575)	653	651,934		(28,012	)
Preferred
stock dividends	-	-	-		(354,552	)
Net
loss for the nine months ended September 30, 2009	-	-	-		(1,070,575	)
Balance,
September 30, 2009 (unaudited)	$ 4,736,937	$ 13,594	$ 2,404,608	$	(4,808,314	)

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

F-3

| ANCHOR

FUNDING SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
For the nine months ended
September 30,
CASH
FLOWS FROM OPERATING ACTIVITIES:	2009	2008
Net
loss:	$ (1,070,575	)	(947,680	)
Adjustments
to reconcile net loss to net cash
used
in operating activities:
Depreciation	21,857		33,798
Compensation
(benefit) expense related to issuance of
stock
options	(3,842	)	16,261
Allowance
for uncollectible accounts	21,646		5,270
Amortization
of loan fees	122,841		-
Increase
in retained interest in purchased
accounts
receivable	(1,121,700	)	(1,800,239	)
Increase
in earned but uncollected	(5,898	)	(38,527	)
Increase
in other receivable	(215,152	)	-
Decrease
(increase) in prepaid expenses and other	15,819		(49,511	)
Decrease
in security deposits	-		453
(Decrease) increase in accounts payable	(2,326	)	13,229
Increase
(decrease) in accrued payroll and related taxes	15,832		(14,610	)
(Decrease)
increase in collected but not earned	(6,562	)	16,847
Decrease
in accrued expenses	(2,836	)	(58,215	)
Net
cash used in operating activities	(2,230,896	)	(2,822,924	)
CASH
FLOWS FROM INVESTING ACTIVITIES:
Purchases
of property and equipment	(11,029	)	(27,147	)
CASH
FLOWS FROM FINANCING ACTIVITIES:
Proceeds
from financial institution, net	2,225,712		-
DECREASE
IN CASH	(16,213	)	(2,850,071	)
CASH,
beginning of period	401,104		3,499,044
CASH,
end of period	$ 384,891		648,973
The
accompanying notes to financial statements are an integral part of these
statements.

F-4

ANCHOR FUNDING SERVICES, INC

Notes To Condensed Financial Statements

Three and Nine Months Ended September 30, 2009 and 2008

(Unaudited)

The Consolidated Balance Sheet as of September 30, 2009, the Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008 and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 have been prepared by us without audit. In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly in all material respects our financial position as of September 30, 2009, results of operations for the three and nine months ended September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008 are necessarily indicative of the results to be expected for the full year.

This report should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2008.

BACKGROUND AND DESCRIPTION OF BUSINESS:

The consolidated financial statements include the accounts of Anchor Funding Services, Inc. and its wholly owned subsidiary, Anchor Funding Services, LLC (“the Company”). 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Estimates – The preparation of 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 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:

Fixed Transaction Fee - Fixed transaction fees are derived from 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.
Variable Transaction Fee - Variable transaction fees vary based on the length of time the purchased invoice is outstanding. As specified in its contract with the customer, 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.

F-5

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. These 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 and collected but unearned fee income, plus earned but uncollected fee income. 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. Upon collection, the retained interest is refunded back to the client.

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 $67,000 and $94,000 of their September 30, 2009 and December 31, 2008 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 primarily of furniture and fixtures, 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.

Deferred Financing Costs – Costs incurred to obtain financing are capitalized and amortized over the term of the debt using the straight-line method, which approximates the effective interest method.

In March 2009, the Company issued stock options to its Chief Executive Officer and President. These options were issued to reward these executive’s for providing personal guarantees on the Company’s financing agreement obtained in November of 2008 (see Note 5). The fair value of these options were computed as specified by current accounting standards (see Note 7) and recorded as deferred financing costs. This amount will be amortized to operations over the remaining term of the financing agreement.

In May 2009, the terms of the financing agreement were amended. One of the amendments was to remove the Company from its obligation to pay the lender $100,000 in loan fees. Also, in May the Company negotiated a reduction in legal fees charged by their corporate attorney related to work done on this financing agreement. This reduction was approximately $41,600.

The expiration date of the financing agreement was also amended in May 2009. Under the initial terms the financing agreement was scheduled to expire in November 2011. Under the amended terms the financing agreement will expire on December 31, 2009.

F-6

As of September 30, 2009 and December 31, 2008, the total amount capitalized and accumulated amortization is as follows:

| Cash paid or payable | September 30, 2009 — $ 105,000 | $ | 246,634 | | | --- | --- | --- | --- | --- | | Stock options granted | 96,000 | | - | | | Accumulated amortization | (128,272 | ) | (5,431 | ) | | | $ 72,728 | $ | 241,203 | | | The net amount is classified in the balance sheets based on future expected amortization as follows: | | | | | | | September 30, 2009 | December 31, 2008 | | | | Current | $ 72,728 | $ | 85,130 | | | Non-current | - | | 156,073 | | | | $ 72,728 | $ | 241,203 | |

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

| For

the nine months ending September 30,
2009	2008
$ 256,000	$ 309,000
For
the quarters ending September 30,
2009	2008
$ 83,000	$ 78,000

Earnings per Share – Basic earnings per share is computed by dividing the earnings for the period by the weighted average number of common shares outstanding during the period. Dilutive earnings per share includes the potential impact of dilutive securities, such as convertible preferred stock, stock options and stock warrants. 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.

Under the treasury stock method, options and warrants will have a dilutive effect if the average price of common stock during the period exceeds the exercise price of the options and warrants.

Also when there is a year-to-date loss from continuing operations, potential common shares should not be included in the computation of diluted earnings per share. For the quarters and nine months ending September 30, 2009 and 2008, there was a year-to-date loss from continuing operations.

Stock Based Compensation – The fair value of transactions in which the Company exchanges its equity instruments for employee services (share-based payment transactions) must be recognized as an expense in the financial statements as services are performed.

See Note 7 for the impact on the operating results for the nine months ended September 30, 2009 and 2008.

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

F-7

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 – 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.

The Company recognizes 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 Company analyzed all its tax positions, including tax positions taken and those expected to be taken.

For the nine months ended September 30, 2009 and 2008, the Company recognized no liability or benefit for uncertain tax positions (see Note 10).

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

RETAINED INTEREST IN PURCHASED ACCOUNTS RECEIVABLE:

Retained interest in purchased accounts receivable consists of the following:

| Purchased accounts receivable outstanding | September 30, 2009 — $ 6,525,766 | $ | 5,340,975 | | | --- | --- | --- | --- | --- | | Reserve account | (1,066,124 | ) | (954,104 | ) | | Allowance for uncollectible accounts | (67,222 | ) | (94,505 | ) | | | $ 5,392,420 | $ | 4,292,366 | |

Retained interest in purchased accounts receivable consists of United States companies in the following industries:

| | September 30, 2009 | December 31, 2008 | | --- | --- | --- | | Staffing | $ 618,057 | $ 1,049,623 | | Transportation | 2,281,632 | 1,666,895 | | Construction | 5,218 | 5,218 | | Service | 2,121,856 | 1,417,615 | | Other | 432,880 | 247,520 | | | $ 5,459,643 | $ 4,386,871 |

F-8

Total accounts receivable purchased were as follows:

| For

the nine months ending September 30,
2009	2008
$ 40,846,200	$ 23,851,600
For
the quarters ending September 30,
2009	2008
$ 16,350,000	$ 10,255,500

PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

| | Estimated | September 30, | December 31, | | --- | --- | --- | --- | | | Useful Lives | 2009 | 2008 | | Furniture and fixtures | 2-5 years | $ 33,960 | $ 33,960 | | Computers and software | 3-7 years | 143,682 | 121,012 | | | | 177,642 | 154,972 | | Less: accumulated depreciation | | 118,289 | 84,791 | | | | $ 59,353 | $ 70,181 |

DUE FROM/TO FINANCIAL INSTITUTION:

In November 2008, the Company entered into an agreement with a financial institution to finance the factoring of receivables and to provide ongoing working capital. The agreement is a revolving credit facility that allows the Company to borrow up to a maximum amount, subject to a borrowing base formula. This agreement was amended in May 2009.

The original agreement permitted the Company to borrow up to $15,000,000; the amended agreement lowers the maximum borrowing amount to $5,000,000. The original agreement was scheduled to expire in November 2011; the amended agreement expires on December 31, 2009. The amended agreement requires the Company to pay a $50,000 fee if any amounts are unpaid on the expiration date.

In the event the Company is not able to obtain replacement financing for this revolving credit facility on or before its expiration date (December 31, 2009) severe liquidity problems could occur.

Borrowings are made at the request of the Company. The amount eligible to be borrowed is based on a borrowing base formula as defined in the agreement. The interest on borrowings is paid monthly at LIBOR rate plus 4%. In addition to interest, the Company pays the financial institution various monthly fees as defined in the agreement.

The agreement is collateralized by a first lien on all Company assets. Borrowings on this agreement are partially guaranteed by the Company’s President and Chief Executive Officer. The partial guarantee is $250,000 each.

The original agreement, among other covenants, required the Company to maintain certain financial ratios. The amended agreement revised the financial ratio covenants. As of September 30, 2009 and December 31, 2008, the Company was in compliance with, or obtained waivers for, all provisions of this agreement.

F-9

CAPITAL STRUCTURE:

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

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 September 30, 2009 and December 31, 2008 were $260,711 and $0.

Common Stock – The Company is authorized to issue 40,000,000 shares of $.001 par value Common Stock. See “Subsequent Events.” 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.

The shares issued in Series 1 Convertible Preferred Stock and Common Stock as of September 30, 2009 and December 31, 2008 is summarized as follows:

| Preferred

Stock	Stock
Balance,
December 31, 2008	1,314,359	12,940,378
Balance,
September 30, 2009	1,189,484	13,592,965

EMPLOYMENT AND STOCK OPTION AGREEMENTS:

Employee/Directors

The Company has employment and stock option agreements with its Chief Executive Officer, Morry Rubin (“M. Rubin”) and its President, Brad Bernstein (“B. Bernstein”)

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

· The employment agreement (dated January 31, 2007) 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.

F-10

· 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 options was one-third immediately, one-third on February 29, 2008 and one-third on February 28, 2009.

· 10-year options to purchase 250,000 shares exercisable at $.62 per share, pursuant to agreements entered into in March 2009. These options were issued in March 2009 in connection with a personal guarantee provided to a financial institution (see Note 5). These options were recorded as deferred financing costs and will be amortized to operations over the remaining life of the line of credit agreement.

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

· The employment agreement (dated January 31, 2007) 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.

· 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 options is one-third immediately, one-third on February 29, 2008 and one-third on February 28, 2009.

Outside Directors

The Company entered into stock option agreements with outside directors. The following summarizes stock option agreements entered into with these directors:

· As of December 31, 2008, there were 460,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. The exercise period for these options is 10 years. Vesting of the options was one-third immediately, one-third one year from the grant date and the remainder two years from grant date. If any 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. In December 2008, one of these directors resigned. As of September 30, 2009, all options granted to this director expired.

As of September 30, 2009, there were 280,000 shares exercisable at $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan. The exercise period for these options is 10 years. Of the 280,000 options, 246,666 are fully vested and the balance of 33,334 options will fully vest on May 28, 2010. If any director ceases serving the Company for any reason, the options must be exercised within 90 days after the director ceases serving as a director.

Managerial Employees

The following summarizes stock option agreements entered into with five managerial employees:

· As of September 30, 2009, 10-year options to purchase 56,500 shares exercisable at $1.00 to $1.25 per share, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan were granted. The grant dates vary from September 2007 to March 2009. Vesting periods range from one to four years. If any employee ceases being employed by the Company for any reason, all vested and unvested options shall terminate immediately.

F-11

The following table summarizes information about stock options as of September 30, 2009 (it being understood that options to purchase 500,000 shares were granted outside of any compensation plans):

| Exercise | Number | Weighted Average — Remaining | Number | | --- | --- | --- | --- | | Price | Outstanding | Contractual Life | Exercisable | | $.62 to $1.25 | 2,436,500 | 10 years | 2,314,583 |

The Company records 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 to $.1920:

| Exercise price | $.62 to $1.25 | | --- | --- | | Term | 10 years | | Volatility | 83% to 250% | | Dividends | 0% | | Discount rate | 2.82% to 4.75% |

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

| Options to value — Option

price	$ 0.0468	$ 0.1920
Total
expense to recognize over
life
of options	$ 90,628	$ 96,000	$ 186,628

The pre-tax fair value recorded for these options in the statement of operations for the nine months ended September 30, 2009 and 2008 was as follows:

| | For the nine — months ended | | For the nine — months ended | | --- | --- | --- | --- | | | September 30, 2009 | | September 30, 2008 | | Fully vested stock options | $ 1,466 | | $ 2,548 | | Unvested portion of stock options | 3,116 | | 13,713 | | | 4,582 | | 16,261 | | Benefit for expired stock options | (8,424 | ) | - | | (Benefit) provision, net | $ (3,842 | ) | $ 16,261 |

F-12

STOCK WARRANTS:

In connection with the Company’s initial public offering in 2007, the Company issued warrants to purchase 1,342,500 shares of the Company’s common stock. The following information was input into a Black Scholes pricing model to compute a per warrant price $.0462:

The following table summarizes information about stock warrants as of September 30, 2009:

| Exercise

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

CONCENTRATIONS:

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

| Industry | For the nine months ending September 30, | | | --- | --- | --- | | | 2009 | 2008 | | Staffing | $ 191,718 | $ 202,746 | | Transportation | 465,738 | 343,382 | | Construction | - | 4,850 | | Service | 480,935 | 239,177 | | Other | 49,644 | 33,378 | | | $ 1,188,035 | $ 823,533 |

| Industry | For the quarter ending September 30, | | | --- | --- | --- | | | 2009 | 2008 | | Staffing | $ 55,597 | $ 52,348 | | Transportation | 147,876 | 174,705 | | Construction | - | 1,945 | | Service | 173,493 | 99,721 | | Other | 13,589 | 9,637 | | | $ 390,555 | $ 338,356 |

Major Customers – The Company had the following transactions and balances with unrelated customers (one for the nine months ending September 30, 2009) which represent 10 percent or more of its revenues for the nine months ending September 30, 2009 and 2008 as follows:

F-13

| | For the nine | For the nine | | --- | --- | --- | | | months ended | months ended | | | September 30, 2009 | September 30, 2008 | | Revenues | $ 124,242 | $ 0 | | | As of | As of | | | September 30,2009 | September 30,2008 | | Purchased accounts | | | | receivable outstanding | $ 818,985 | $ 0 |

Cash – The Company places its cash and cash equivalents on deposit with a North Carolina financial institution. In October and November, 2008 the Federal Deposit Insurance Corporation (FDIC) temporarily increased coverage to $250,000 for substantially all depository accounts and temporarily provides unlimited coverage for certain qualifying and participating non-interest bearing transaction accounts. The increased coverage is scheduled to expire on December 31, 2009, at which time it is anticipated amounts insured by the FDIC will return to $100,000. During the year, the Company from time to time may have had amounts on deposit in excess of the insured limits.

INCOME TAXES:

The income tax benefit for the nine months ending September 30, 2009 and 2008 consists of the following:

| | September — 30, 2009 | | 30, 2008 | | | --- | --- | --- | --- | --- | | Current provision | $ 0 | $ | 0 | | | Deferred benefit | 418,000 | | 313,000 | | | | 418,000 | | 313,000 | | | Valuation reserve | (418,000 | ) | (313,000 | ) | | | $ 0 | $ | 0 | |

The net operating loss carryforward generated in the nine months ending September 30, 2009 and 2008 was approximately $1,070,000 and $921,000, respectively. The deferred tax assets related to these net operating loss carryforwards was approximately $418,000 and $313,000 as September 30, 2009 and 2008, respectively. These deferred tax assets have been reduced by valuation allowances. Management is uncertain if this net operating loss will ever be utilized, therefore it has been fully reserved.

FACILITY LEASES:

In May 2007, the Company executed lease agreements for office space in Charlotte, NC and Boca Raton, FL. Both 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. On November 1, 2007, the Company entered into a lease for additional space adjoining its Charlotte office. The lease is for 19 months and includes a two year renewal option at substantially the same terms. The monthly rent for the combined space is approximately $2,250.

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.

F-14

Pursuant to an agreement dated as of October 16, 2009, Anchor Funding Services, LLC, entered into an agreement to terminate its Boca Raton lease. Anchor vacated these premises on October 31, 2009. Anchor bought out the lease at a total cost of $100,000 in order to reduce leasing costs of an estimated $100,000 per annum in future reporting periods.

Total rent expense for the nine months ending September 30, 2009 and 2008 was approximately $105,000 and $103,000 respectively.

OTHER RECEIVABLE:

Other receivable represents an amount due from a customer that the Company had purchased accounts receivable from. In June of 2009, the Company learned that the accounts receivable purchased from this customer were not paid to the Company, but to another party. The Company’s factoring and security agreements provide the Company with several remedies for collecting. The Company is pursuing all collection remedies available to it under its factoring and security agreements, including personal guarantees by the customer’s principals. The Company has initiated a lawsuit against the customer and its principals. As of September 30, 2009, the Company believes, through the available courses of action, these funds will be collected and has ceased accruing fees on the invoices. The Company will be monitoring this account closely and will make additional judgments and decisions as the facts and circumstances dictate.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW:

Cash paid for interest for the nine months ended September 30, 2009 and 2008 was $62,300 and $0 respectively.

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

For the nine months ending September 30, 2009 -

Exchange of 124,915 preferred shares for 652,587 of common shares.

For the nine months ending September 30, 2008 -

94,685 preferred shares issued in satisfaction of the accrued dividend obligation as of December 31, 2007.

Exchange of 220,366 preferred shares for 1,119,613 of common shares.

RECENT ACCOUNTING PRONOUNCEMENTS:

In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1 “ Interim Disclosures about Fair Value of Financial Instruments ” (“ASC 825-10” and “ASC 270-10”, Transition Related to FSP SFAS 107-1 and APB 28-1). ASC 825-10and 270-10 amend the disclosure requirements in ASC 825, “ Disclosures about Fair Value of Financial Instruments ”, and ASC 270, “ Interim Financial Reporting, ” to require disclosures about the fair value of financial instruments, including disclosure of the method(s) and significant assumptions used to estimate the fair value of financial instruments, in interim financial statements as well as in annual financial statements. Previously, these disclosures were required only in annual financial statements. ASC 825-10and 270-10 are effective and should be applied prospectively for financial statements issued for interim and annual reporting periods ending after June 15, 2009. In periods after initial adoption, ASC 825-10and 270-10 require comparative disclosures only for periods ending subsequent to initial adoption and does not require earlier periods to be disclosed for comparative purposes at initial adoption. The Company was not impacted by the adoption of this pronouncement.

In May 2009, the FASB issued FASB Statement No. 165, Subsequent Events (“ASC 855”, Subsequent Events) , which establishes general standards of and accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This Statement was effective for interim and annual periods ending after June 15, 2009. The Company has complied with the requirements of ASC 855.

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles (“ASC 105,” Generally Accepted Accounting Principles). ASC 105 replaces FASB Statement No. 162 . Under the Statement, The FASB Accounting Standards Codification (Codification) has become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The codification is effective for these third quarter financial statements and the principal impact is limited to disclosures as all future references to authoritative literature will be referenced in accordance with the codification.

F-15

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value. This ASU provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance or fourth quarter 2009. The Company is assessing the impact of ASU 2009-05 on our financial condition, results of operations and disclosures.

SUBSEQUENT EVENTS:

Subsequent events have been evaluated through November __, 2009, which is the date the financial statements were available to be issued.

On October 19, 2009, stockholders of Anchor Funding Services, Inc. owning 10,684,500 shares of the outstanding voting stock of Anchor, representing 52% of the outstanding shares approved the following resolutions and the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware:

RESOLVED, that the stockholders do hereby ratify, adopt and approve the re-election of George Rubin, Morry F. Rubin, Brad Bernstein, Kenneth Smalley and E. Anthony Woods to the Board as directors of the Corporation to serve in such capacity for a period of one year and until their successors are elected and shall qualify; and it was further

RESOLVED, that the stockholders hereby ratify, adopt and approve the selection of Cherry, Bekaert & Holland, LLP as our independent auditors for the year ended December 31, 2009; and it was further

RESOLVED, that the stockholders hereby ratify, adopt and approve an amendment to the Company’s Certificate of Incorporation and the filing of said amendment with the Secretary of State of the State of Delaware (a) changing the par value of the Company’s Common Stock from $.001 par value to $.0001 par value; and (b) increasing the number of authorized shares of Common Stock from 40,000,000 shares to 65,000,000 shares of Common Stock; and it was further

RESOLVED, that the stockholders hereby ratify, adopt and approve an amendment to the Company’s 2007 Omnibus Equity Compensation Plan to increase the number of shares of Common Stock underlying the Plan to 4,200,000 shares.

Pursuant to an agreement dated as of October 16, 2009, the Registrant’s wholly-owned subsidiary, Anchor Funding Services, LLC, entered into an agreement to terminate its lease covering premises currently known as 800 Yamato Road, Suite 102, Boca Raton, FL 33431. The lease agreement which was entered into on April 16, 2007 and would have expired on May 31, 2012 will now terminate and Anchor will vacate these premises on or before October 31, 2009. The Registrant’s subsidiary bought out the lease at a total cost of $100,000 in order to reduce net leasing costs of an estimated $8,300 per month or $100,000 per annum. The termination of this lease is part of the organization’s effort to substantially reduce overhead costs. There is no material relationship between the Registrant and the landlord of the premises being surrendered.

F-16

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

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 support and assumption of risk of customer default. 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 sales and marketing functions.

Summary of Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to credit provisions, intangible assets, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experience as well as various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, reflect the more significant judgments and estimates used in the preparation of our financial statements.

Summary of Critical Accounting Policies and Estimates

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

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

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

Management considered approximately $67,000 and $94,000 of their September 30, 2009 and December 31, 2008 retained interest in purchased accounts receivable to be uncollectible.

The expiration date of the financing agreement was also amended in May 2009. Under the initial terms the financing agreement was scheduled to expire November 2011. Under the amended terms the financing agreement will expire on December 31, 2009.

As of September 30, 2009 and December 31, 2008, the total amount capitalized and accumulated amortization is as follows:

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

| For

the nine months ending September 30,
2009	2008
$ 256,000	$ 309,000
For
the quarters ending September 30,
2009	2008
$ 83,000	$ 78,000

Under the treasury stock method, options and warrants will have a dilutive effect if the average price of common stock during the period exceeds the exercise price of the options and warrants.

See Note 7 for the impact on the operating results for the nine months ended September 30, 2009 and 2008.

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.

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.

For the nine months ended September 30, 2009 and 2008, the Company recognized no liability or benefit for uncertain tax positions (see Note 10).

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

Results of Operations

Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008

Finance revenues increased 15.4% for the three months ended September 30, 2009 to $390,555 compared to $338,356 for the comparable period of the prior year. The change in revenue was primarily due to an increase in the number of clients. As of September 30, 2009, the Company had 103 active clients compared to 84 active clients as of September 30, 2008.

The Company had interest expense of $28,722 for the three months ended September 30, 2009 compared to interest income of $5,087 for the three months ended September 30, 2008. This change is primarily the result of the decrease in cash in interest bearing accounts due to the Company’s using its cash and borrowing on its line of credit to fund its purchasing of clients’ accounts receivable.

The Company had a benefit for credit losses of $1,706 for the three months ended September 30, 2009 compared to a provision for credit losses for the three months ended September 30, 2008 of $226.

Operating expenses for three months ended September 30, 2009 were $760,461 compared to $583,644 for the three months ended September 30, 2008, a 30.3% increase. This increase is primarily attributable to the Company’s incurring additional costs to grow Anchor’s core business and support growth, along with increased amortization of the financing costs incurred in connection with the Company’s line of credit.

In September 2009, the Company began implementing certain cost reducing initiatives, including reducing personnel, eliminating certain advertising and buying out of its Boca Raton lease. The Company anticipates that these initiatives will reduce annual operating expenses by approximately $500,000.

Key changes in certain selling, general and administrative expenses:

| | Three Months Ended | | | | | --- | --- | --- | --- | --- | | | September 30, | | | | | | 2009 | 2008 | $ Change | Explanation | | Amortization of financing costs | $ 72,726 | $ | $ 72,726 | Increased amortization of deferred financing costs | | Recruiting expense | 28,750 | | 28,750 | Placement fee paid for business development executive | | Credit bureau fees | 29,799 | (3,099) | 32,898 | Increase in cost to check debtors | | | $ 131,275 | $ (3,099) | $ 134,374 | |

Net loss for the three months ended September 30, 2009 was $(396,922) compared to $(240,427) for the three months ended September 30, 2008.

The following table compares the operating results for the three months ended September 30, 2009 and September 30, 2008:

| | Three Months Ended | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | September 30, | | | | | | | | | 2009 | | 2008 | | $ Change | % Change | | | Finance revenues | $ 390,555 | | $ 338,356 | | $ 52,199 | | 15.4 | | Interest income (expense), net | (28,722 | ) | 5,087 | | (33,809 | ) | | | Net finance revenues | 361,833 | | 343,443 | | 18,390 | | 5.4 | | (Provision) Benefit for credit losses | 1,706 | | (226 | ) | | | | | Finance revenues, net of interest expense and credit losses | 363,539 | | 343,217 | | 20,322 | | 5.9 | | Operating expenses | 760,461 | | 583,644 | | 176,817 | | 30.3 | | Net loss before income taxes | (396,922 | ) | (240,427 | ) | (156,495 | ) | 65.1 | | Income tax (provision) benefit: | | | | | | | | | Net loss | $ (396,922 | ) | $ (240,427 | ) | $ (156,495 | ) | 65.1 |

Client Accounts

As of and for the three months ended September 30, 2009, we have one client that accounts for an aggregate of approximately 12.6% of our accounts receivable portfolio and approximately 11.2% of our revenues. The transactions and balances with these clients as of and for the three months ended September 30, 2009 are summarized below:

| | Percentage of Accounts Receivable Portfolio as of | Percentage of Revenues for — The Three Months Ended | | --- | --- | --- | | Entity | September 30, 2009 | September 30, 2009 | | Transportation Company in Virginia | 12.6 | 11.2 |

A client’s fraud could cause us to suffer material losses.

Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008

Finance revenues increased 44.3% for the nine months ended September 30, 2009 to $1,188,035 compared to $823,533 for the comparable period of the prior year. The change in revenue was primarily due to an increase in the number of clients. As of September 30, 2009, the Company had 103 active clients compared to 84 active clients as of September 30, 2008.

The Company had interest expense of $62,339 for the nine months ended September 30, 2009 compared to interest income of $39,606 for the nine months ended September 30, 2008. This change is primarily the result of the decrease in cash in interest bearing accounts due to the Company’s using its cash and borrowing on its line of credit to fund its purchasing of clients’ accounts receivable.

The Company had a provision for credit losses of $26,003 for the nine months ended September 30, 2009 compared to a provision for credit losses for the nine months ended September 30, 2008 of $5,270.

Operating expenses for nine months ended September 30, 2009 were $2,170,268 compared to $1,805,549 for the nine months ended September 30, 2008, an 20.2% increase. This increase is primarily attributable to the Company’s incurring additional costs to grow Anchor’s core business and support growth, along with increased amortization of the financing costs incurred in connection with the Company’s line of credit.

| Key changes in certain selling, general and administrative

expenses:
	Nine
Months Ended
	September
30,
	2009	2008	$
Change	Explanation
Legal
fees	$ 132,601	$ 74,946	$ 57,655	Additional
legal fees for corporate matters.
Payroll,
payroll taxes and benefits	928,526	802,560	125,966	Increased
payroll to support growth initiatives
Credit
bureau fees	94,361	45,729	48,632	Increase
in cost to check debtors
Amortization
of financing costs	122,841		122,841	Increased
amortization of deferred financing costs
	$ 1,278,329	$ 923,235	$ 355,094

Net loss for the nine months ended September 30, 2009 was $(1,070,575) compared to $(947,680) for the nine months ended September 30, 2008.

The following table compares the operating results for the nine months ended September 30, 2009 and September 30, 2008:

| | Nine Months Ended | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | September 30, | | | | | | | | | 2009 | | 2008 | | $ Change | % Change | | | Finance revenues | $ 1,188,035 | | $ 823,533 | | $ 364,502 | | 44.3 | | Interest income (expense), net | (62,339 | ) | 39,606 | | (101,945 | ) | - | | Net finance revenues | 1,125,696 | | 863,139 | | 262,557 | | 30.4 | | (Provision) Benefit for credit losses | (26,003 | ) | (5,270 | ) | (20,733 | ) | 393.4 | | Finance revenues, net of interest expense and credit losses | 1,099,693 | | 857,869 | | 241,824 | | 28.2 | | Operating expenses | 2,170,268 | | 1,805,549 | | 364,719 | | 20.2 | | Net loss before income taxes | (1,070,575 | ) | (947,680 | ) | (122,895 | ) | 13.0 | | Income tax (provision) benefit: | | | | | | | | | Net loss | $ (1,070,575 | ) | $ (947,680 | ) | $ (122,895 | ) | 13.0 |

Client Accounts

As of and for the nine months ended September 30, 2009, we have one client that accounts for an aggregate of approximately 12.5% of our accounts receivable portfolio and approximately 10.4% of our revenues. The transactions and balances with these clients as of and for the nine months ended September 30, 2009 are summarized below:

| | Percentage of Accounts Receivable Portfolio as of | Percentage of Revenues for — The Nine Months Ended | | --- | --- | --- | | Entity | September 30, 2009 | September 30, 2009 | | Transportation Company in Virginia | 12.6 | 10.4 |

Liquidity

Cash Flow Summary

Cash Flows from Operating Activities

Net cash used by operating activities was $2,230,896 for the nine months ended September 30, 2009 and was primarily due to our net loss for the period and cash used in acquiring operating assets, primarily to purchase 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.

Net cash provided by operating activities was lower for the nine months ended September 30, 2008 compared to the same period last year primarily due to the increased purchase of accounts receivable and the loss incurred in the current period of $1,070,575 compared to a net loss of $947,680 for the nine months ended September 30, 2008.

Cash Flows from Investing Activities

For the nine months ended September 30, 2009, net cash used in investing activities was $11,029 for the purchase of property and equipment.

For the nine months ended September 30, 2008, net cash used in investing activities was $27,147 for the purchase of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $2,225,712 for the nine months ended September 30, 2009 and was primarily due to increased borrowings from a financial institution to fund the purchase of accounts receivable.

Net cash provided by financing activities was $0 for the nine months ended September 30, 2008.

Capital Resources

Based on numerous financial covenants, we currently have the availability to borrow up to $5 million senior credit facility through December 31, 2009 with an institutional asset based lender which advanced funds against up to 85% of “eligible net factored accounts receivable” (minus client reserves as lender may establish in good faith) as defined in Anchor’s agreement with its institutional lender. This facility, which is secured by our assets, contains certain covenants related to tangible net worth, change in control and other matters. In the event that we fail to comply with the covenant(s) and the lender does not waive such non-compliance, we could be in default of our credit agreement, which could subject us to penalty rates of interest and accelerate the maturity of the outstanding balances. In the event we are not able to maintain 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 can provide no assurances that a replacement facility will be obtained by us on terms satisfactory to us, if at all. Our two executive officers have each personally guaranteed the indebtedness under our existing credit facility up to $250,000 per person for a total of $500,000. We can provide no assurances that personal guarantees will be provided by our executive officers to a new institutional lender or how that may impact the definitive terms of any new facility.

On May 20, 2009, the Registrant amended its Credit Facility to modify certain financial covenants which modifications the Registrant believes are favorable to it. These modifications will immediately increase our leverage to borrow based on our tangible net worth and allow us to use the Credit Facility for factoring portfolio acquisitions. However, the amendment accelerates the expiration date of the Credit Facility from November 21, 2011 to December 31, 2009 and decreases the facility from $15,000,000 to $5,000,000. The Credit Facility continues to contain customary representations and warranties, covenants, events of default and limitations, among other provisions. The amended agreement requires the Company to pay a $50,000 fee if any amounts are unpaid on the expiration date.

The financial statements and related financial data presented herein have been prepared in accordance with U.S. generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time and resulting from inflation. The impact of inflation on operations of the Company is reflected in increased operating costs. Unlike most industrial companies, almost all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level at the end of our most recent quarter. There have been no changes in the Company's disclosure controls and procedures or in other factors that could affect the disclosure controls subsequent to the date the Company completed its evaluation. Therefore, no corrective actions were taken.

Management has not yet completed, and is not yet required to have completed, its assessment of the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS:

As of the filing date of this Form 10-Q we are not a party to any pending legal proceedings.

Item 1A. Risk Factors:

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.

ITEM 2. CHANGES IN SECURITIES:

(a) For the nine months ended September 30, 2009, there were no sales of unregistered securities, except as follows:

| Date of Sale | Title of Security | Number Sold | Consideration Received, Commissions | Purchasers | Exemption from Registration Claimed | | --- | --- | --- | --- | --- | --- | | March 2009 | Common Stock Options | 51,500 | Securities granted under Equity Compensation Plan; no cash received; no commissions paid | Employees, directors and/or Officers | Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (6) | | March 2009 | Common Stock Options | 500,000 | Securities granted outside Equity Compensation Plan; no cash received; no commissions paid | Employees, directors and/or Officers | Section 4(2) of the Securities Act of 1933 and/or Rule 506 promulgated thereunder (6) |

(b) Rule 463 of the Securities Act is not applicable to the Company.

Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

Not applicable.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS:

RESOLVED, that the stockholders hereby ratify, adopt and approve the selection of Cherry, Bekaert & Holland, LLP as our independent auditors for the year ended December 31, 2009; and it was further

ITEM 5. OTHER INFORMATION:

ITEM 6. EXHIBITS:

The following exhibits are all previously filed in connection with our Form 10-SB, as amended, unless otherwise noted.

2.1 Exchange Agreement

3.1 Certificate of Incorporation-BTHC,INC.

3.2 Certificate of Merger of BTHC XI, LLC into BTHC XI, Inc.

3.3 Certificate of Amendment

3.4 Designation of Rights and Preferences-Series 1 Convertible Preferred Stock

3.5 Amended and Restated By-laws

3.6 Amendment to Certificate of Incorporation (3)

4.1 Form of Placement Agent Warrant issued to Fordham Financial Management

10.1 Directors’ Compensation Agreement-George Rubin

10.2 Employment Contract-Morry F. Rubin

10.3 Employment Contract-Brad Bernstein

10.4 Agreement-Line of Credit

10.5 Fordham Financial Management-Consulting Agreement

| 10.6 | Facilities Lease – Florida | | --- | --- | | 10.7 | Facilities Lease – North Carolina | | 10.8 | Loan and Security Agreement with Textron Financial Corporation (1) | | 10.9 | Revolving Note (1) | | 10.10 | Debt Subordination Agreement (1) | | 10.11 | Guaranty Agreement (Morry Rubin) (1) | | 10.12 | Guaranty Agreement (Brad Bernstein) (1) | | 10.13 | Continuing Guaranty Agreement (1) |

| 10.14 | Pledge Agreement (1) | | --- | --- | | 10.15 | Amendment to Loan and Security Agreement with Textron Financial Corporation (2) | | 10.16 | Termination of Lease and surrender, acceptance and release dated October 16, 2009 by and between Boca Town Partners, LLC and Anchor Funding Services, LLC. (4) | | 31(a) | Rule 13a-14(a) Certification – Chief Executive Officer

| | 31(b) | Rule 13a-14(a) Certification – Chief Financial Officer
| | 32(a) | Section 1350 Certification – Chief Executive Officer * | | 32(b) | Section 1350 Certification – Chief Financial Officer * | | 99.1 | 2007 Omnibus Equity Compensation Plan |

| 99.2 | Form of Non-Qualified Option under 2007 Omnibus Equity Compensation Plan | | --- | --- | | 99.3 | Press Release – Results of Operations – Third Quarter 2009* |

*Filed herewith.

(1) Incorporated by reference to the Registrant’s Form 8-K filed November 24, 2008 (date of earliest event November 21, 2008).

(2) Incorporated by reference to Registrant’s Form 8-K filed May 21, 2009 (date of earliest event – May 20, 2009).

(3) Incorporated by reference to Registrant’s Form 8-K filed October 20, 2009 (date of earliest event – October 19, 2009).

(4) Incorporated by reference to Registrant’s Form 8-K filed October 22, 2009 (date of earliest event – October 16, 2009).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| /s/ Morry

F. Rubin
Morry
F. Rubin
Chief
Executive Officer

| Date:

November 16, 2009
Brad
Bernstein
President
and Chief Financial Officer

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FlexShopper, Inc. Interim / Quarterly Report 2009

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FlexShopper, Inc. — Interim / Quarterly Report 2009

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