**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**









(Mark
      One)




x QUARTERLY
      REPORT
      UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
      QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007




o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      Transition Period from ________ to ___________




Commission
      File No.:  0-29525




**DEBT
      RESOLVE, INC.**


(Name
      of
      small business issuer in its charter)




**Delaware**
            
            **33-0889197**(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)








**707
                Westchester Avenue, Suite L7****White
                Plains, New York**
            
            **10604**(Address
                of principal executive offices)
            
            (Zip
                Code)







**(914)
      949-5500**


(Issuer’s
      telephone number)




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





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







As
      of
      November 16, 2007, 8,474,364 shares of the issuer’s Common Stock were issued and
      outstanding.




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
















**DEBT
      RESOLVE, INC. AND SUBSIDIARIES**


**TABLE
      OF CONTENTS**




Page**PART
                I. Financial Information**Item
                1. Condensed Consolidated Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheet at September 30, 2007
            3Condensed
                Consolidated Statements of Operations for the Three and Nine Months
                Ended
                September 30, 2007 and 2006
            4Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended September
                30, 2007 and 2006
            5Notes
                to Condensed Consolidated Financial Statements
            7Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            22Item
                3. Controls and Procedures
            31**PART
                II. Other Information**Item
                1. Legal Proceedings
            33Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            33Item
                3. Defaults Upon Senior Securities
            33Item
                4. Submission of Matters to a Vote of Security Holders
            33Item
                5. Other Information
            34Item
                6. Exhibits and Reports on Form 8-K
            34Signatures
            35Certifications
            36







2


**PART
      I: FINANCIAL INFORMATION**




**Item
      1. Condensed Consolidated Financial Statements (Unaudited)**









DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheet


September
      30, 2007


(Unaudited)




ASSETS




Current
                assets:Cash
            
            $
            1,258Restricted
                cash
            
            
            108,373Accounts
                receivable
            
            
            149,221Prepaid
                debt collection payments
            
            
            106,346Prepaid
                expenses and other current assets
            
            
            210,058Total
                current assets
            
            
            575,256Fixed
                assets, net
            
            
            317,299Other
                assets:Deposits
                and other assets
            
            
            112,005Purchased
                accounts receivable
            
            
            108,868Intangible
                assets, net
            
            
            225,000Total
                other assets
            
            
            763,172Total
                assets
            
            $
            1,338,428LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCYCurrent
                liabilities:Accounts
                payable
            
            $
            1,814,878Collections
                payable
            
            
            108,373Accrued
                payroll
            
            
            74,839Accrued
                expenses
            
            
            18,956Portfolio
                loans payable
            
            
            54,678Lines
                of credit - related party
            
            
            575,000Total
                current liabilities
            
            
            2,646,724Stockholders’
                deficiency:Preferred
                stock, 10,000,000 shares authorized, $0.001 par value, none issued
                and outstanding
              Common
                stock, 100,000,000 shares authorized, $0.001 par value, 8,457,697
                shares
                issued and outstanding
            
            
            ---
              
              8,458Additional
                paid-in capital
            
            
            42,112,618Accumulated
                deficit
            
            
            (43,429,372
            )Total
                stockholders’ deficiency
            
            
            (1,308,296
            )Total
                liabilities and stockholders’ deficiency
            
            $
            1,338,428




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





3





DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Operations




(Unaudited **)**




Three
                Months Ended September 30,
            
            Nine
                Months Ended September 30,2007
            
            2006
            
            2007
            
            2006Revenues
            
            $
            526,818
            
            $
            30,617
            
            $
            2,539,884
            
            $
            84,908Costs
                and expenses:Payroll
                and related expenses (1)
            
            
            1,490,069
            
            
            1,921,778
            
            
            6,230,667
            
            
            3,123,518General
                and administrative expenses (2)
            
            
            1,333,850
            
            
            1,644,887
            
            
            4,699,193
            
            
            2,762,100Impairment
                of goodwill and intangibles
              Terminated
                acquisition costs
            
            
            27,255
              959,811
            
            
            --
              --
            
            
            1,206,335
              959,811
            
            
            --
              --Depreciation
                and amortization expense
            
            
            56,707
            
            
            12,020
            
            
            176,704
            
            
            39,487Total
                expenses
            
            
            3,867,692
            
            
            3,578,685
            
            
            13,272,710
            
            
            5,925,105Loss
                from operations
            
            
            (3,340,874
            )
            
            (3,548,068
            )
            
            (10,732,826
            )
            
            (5,840,197
            )Other
                (expense) income:Net
                interest expense
            
            
            (29,513
            )
            
            (443,269
            )
            
            (25,960
            )
            
            (662,332
            )Amortization
                of deferred debt discount
            
            
            --
            
            
            (2,119,810
            )
            
            --
            
            
            (3,017,944
            )Amortization
                of deferred financing costs
            
            
            --
            
            
            (393,232
            )
            
            --
            
            
            (532,603
            )Other
                income
            
            
            38,901
            
            
            1,500
            
            
            9,428
            
            
            4,500Total
                other (expense) income
            
            
            9,388
            
            
            (2,954,811
            )
            
            (16,532
            )
            
            (4,208,379
            )Net
                loss
            
            $
            (3,331,486
            )
            $
            (6,502,879
            )
            $
            (10,749,358
            )
            $
            (10,048,576
            )Per
                share data:Basic
                and diluted net loss per common share (See Note 2)
            
            $
            (0.41
            )
            $
            (1.57
            )
            $
            (1.38
            )
            $
            (2.95
            )Basic
                and diluted weighted average number of common shares outstanding
                (See Note
                2)
            
            
            8,054,031
            
            
            4,130,978
            
            
            7,812,125
            
            
            3,403,906




(1) Includes
      stock based compensation to employees of $337,721 and $2,084,375 for the three
      and nine months ended September 30, 2007, respectively, and $1,334,366 for
      the
      three and nine months ended September 30, 2006, respectively.


(2)  
      Includes stock based compensation to non-employees of $17,100 and $238,694
      for
      the three and nine months ended September 30, 2007, respectively, and $1,267,768
      and $1,380,580 for the three and nine months ended September 30, 2006,
      respectively.














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


4


DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Cash Flows




(Unaudited)




Nine
                Months Ended September 30,2007
            
            2006**Cash
                flows from operating activities:**Net
                loss
            
            $
            (10,749,358
            )
            $
            (10,048,576
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non
                cash stock based compensation
            
            
            2,323,069
            
            
            2,714,946Amortization
                of deferred debt discount
            
            
            —
            
            
            3,017,944Amortization
                of deferred financing costs
            
            
            —
            
            
            532,603Depreciation
                and amortization
            
            
            90,965
            
            
            39,487Goodwill
                and intangibles impairment charge
            
            
            1,206,335
            
            
            —Write
                downs of purchased receivables
            
            
            23,096
            
            
            —Changes
                in operating assets & liabilitiesRestricted
                cash
            
            
            49,112
            
            
            —Accounts
                receivable
            
            
            279,523
            
            
            (25,456
            )Prepaid
                debt collection payments
            
            
            (106,346
            )
            
            59,708Prepaid
                expenses and other current assets
            
            
            (16,748
            )
            
            —Deposits
                and other assets
            
            
            34,539
            
            
            —Accounts
                payable
            
            
            352,357
            
            
            300,237Collections
                payable
            
            
            (49,112
            )
            
            —Accrued
                expenses
            
            
            (274,186
            )
            
            737,796Accrued
                payroll
            
            
            74,839
            
            
            —Net
                cash used in operating activities
            
            
            (6,761,915
            )
            
            (2,671,311
            )**Cash
                flows from investing activities:**Purchase
                of First Performance Corporation, including direct
                expenses
            
            
            (586,915
            )
            
            —Investment
                in purchased accounts receivable
            
            
            (607,994
            )
            
            —Liquidations
                of purchased receivables
            
            
            123,753
            
            
            —Sales
                of purchased receivables
            
            
            352,277
            
            
            —Purchases
                of fixed assets
            
            
            118,604
            
            
            (4,170
            )Net
                cash used in investing activities
            
            
            (600,275
            )
            
            (4,170
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of notes and convertible notes
            
            
            —
            
            
            2,504,750Proceeds
                from portfolio loans
            
            
            547,195
            
            
            —Repayment
                of portfolio loans
            
            
            (492,517
            )
            
            —Proceeds
                from loans - other
            
            
            —
            
            
            525,000Proceeds
                from issuance of short term notes
            
            
            —
            
            
            300,000Repayment
                of stockholders’ loans
            
            
            —
            
            
            (25,000
            )—
            
            
            —Proceeds
                from issuance of common stock
            
            
            1,759,100
            
            
            —Borrowings
                from lines of credit
              Repayment
                of line of credit
            
            
            575,000
              (150,000
            )
            
            —
              —Proceeds
                from exercise of warrants
            
            
            199,099
            
            
            —Stock
                offering costs
            
            
            —
            
            
            (271,584
            )Deferred
                financing costs
            
            
            —
            
            
            (365,317
            )Net
                cash provided by financing activities
            
            
            2,437,877
            
            
            2,667,849Net
                decrease in cash and cash equivalents
            
            
            (4,924,313
            )
            
            (7,632
            )Cash
                and cash equivalents at beginning of period
            
            
            4,925,571
            
            
            23,576Cash
                and cash equivalents at end of period
            
            $
            1,258
            
            $
            15,944







5




**Non
                  cash investing and financing activities:**Conversion
                  of loans payable, accounts payable and accrued expenses to convertible
                  notes
              
              $
              —
              
              $
              977,012Issuance
                  of warrants for deferred financing fees
              
              $
              —
              
              $
              119,238


**Supplemental
                investing and financing activities:**Current
                assets acquired
            
            $
            679,734
            
            $
            —Property
                and equipment acquired
            
            
            286,229
            
            
            —Security
                deposits acquired
            
            
            51,999
            
            
            —Intangible
                assets acquired
            
            
            450,000
            
            
            —Goodwill
                recognized on business combination
            
            
            1,042,205
            
            
            —Accrued
                liabilities assumed in the acquisition
            
            
            (1,573,252
            )
            
            —Direct
                acquisition costs
            
            
            (86,915
            )
            
            —Non-cash
                consideration to seller
            
            
            (350,000
            )
            
            —Cash
                paid to acquire business
            
            $
            500,000
            
            $
            —




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







6







DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


September
      30, 2007


(Unaudited)









NOTE
      1.
      BASIS OF PRESENTATION AND MANAGEMENT’S LIQUIDITY PLANS:






The
      accompanying unaudited condensed consolidated financial statements of Debt
      Resolve Inc. and subsidiaries (the “Company” or “Debt Resolve”) have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America (“GAAP”) for interim financial information. In the
      opinion of management, such statements include all adjustments (consisting
      only
      of normal recurring adjustments) necessary for the fair presentation of the
      Company’s financial position, results of operations and cash flows at the dates
      and for the periods indicated. Pursuant to the requirements of the Securities
      and Exchange Commission (the “SEC”) applicable to quarterly reports on Form
      10-QSB, the accompanying financial statements do not include all the disclosures
      required by GAAP for annual financial statements. While the Company believes
      that the disclosures presented are adequate to make the information not
      misleading, these unaudited interim condensed consolidated financial statements
      should be read in conjunction with the consolidated financial statements and
      related notes included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2006. Operating results for the three and nine months
      ended September 30, 2007 are not necessarily indicative of the results that
      may
      be expected for the fiscal year ending December 31, 2007, or any other interim
      period.






The
      accompanying condensed consolidated financial statements have been prepared
      in
      conformity with accounting principles generally accepted in the United States
      of
      America, which contemplate continuation of the Company as a going concern and
      the realization of assets and the satisfaction of liabilities in the normal
      course of business. The carrying amounts of assets and liabilities presented
      in
      the financial statements do not purport to represent realizable or settlement
      values. The Company has suffered significant recurring operating losses, has
      a
      working capital deficiency and needs to raise additional capital in order to
      be
      able to accomplish its business plan objectives. These conditions raise
      substantial doubt about the Company’s ability to continue as a going concern.
      These condensed consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.




The
      Company has historically raised funds through the sale of debt and equity
      instruments. On November 6, 2006, the Company completed an initial public
      offering (“IPO”). The Company sold 2,500,000 shares of common stock at $5.00 per
      share pursuant to the IPO. After deducting underwriting discounts and expenses
      and offering-related expenses, the IPO resulted in net proceeds to the Company
      of $10,655,782. After the repayment of approximately $3,650,000 in interest
      and
      a portion of the remaining principal of the Company’s outstanding notes and
      convertible notes, the Company’s net cash received was approximately $7,000,000.
      Subsequent to the IPO, the Company has entered into three lines of credit with
      related parties aggregating $1,075,000. The Company also completed a private
      offering on September 5, 2007 that generated gross proceeds of approximately
      $1,760,000 for the issuance of 880,000 shares of common stock. In addition,
      during the nine months ended September 30, 2007, the Company has received
      approximately $199,000 in cash proceeds from the exercise of
      warrants.




Management
      is actively pursuing additional debt/equity financing.  In January
      2007, the Company acquired the outstanding capital stock of
      First Performance Corporation, an accounts receivable management agency
      (see Note 3), and accordingly, is no longer in the development stage as of
      the
      date of the acquisition.  Management believes that it will be
      successful in obtaining additional financing and that it will successfully
      integrate its acquisition to a level of profitability, however it has not yet
      achieved profitability, and no assurance can be provided that the Company
      will be able to do so.  If the Company is unable to raise sufficient
      additional funds or integrate its acquisition to a level of profitability,
      it
      will have to develop and implement a plan to extend payables and reduce overhead
      until sufficient additional capital is raised to support further operations.
      However, there can be no assurance that its efforts will be
      successful.







7




NOTE
      2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:







Principles
      of Consolidation





The
      accompanying condensed consolidated financial statements include the accounts
      of First Performance Corporation, a wholly-owned subsidiary, together with
      its wholly-owned subsidiary, First Performance Recovery Corporation, and DRV
      Capital LLC, a wholly-owned subsidiary, together with its wholly owned
      subsidiary, EAR Capital, LLC. All material inter-company balances and
      transactions have been eliminated in consolidation.





Reverse
      Stock Split





On
      August
      25, 2006, the Company effected a one-for-ten reverse stock split. All share
      and
      per share information herein has been retroactively restated to give effect
      to
      this reverse stock split.




Fair
      Value of Financial Instruments




The
      reported amounts of the Company’s financial instruments, including accounts
      payable and accrued liabilities, approximate their fair value due to their
      short
      maturities. The carrying amounts of debt approximate fair value because the
      debt
      agreements provide for interest rates that approximate market.





Restricted
      Cash





The
      Company typically receives cash collected on behalf of its clients. Such cash
      is
      held in trust for the clients, and is not available to the Company for general
      corporate purposes. As such, it is segregated from Cash and Cash Equivalents.
      The Company also records a corresponding liability as Collections
      Payable.




Accounts
      Receivable




The
      Company extends credit to large and mid-size companies for collection services.
      The Company has concentrations of credit risk as 77% of the balance of accounts
      receivable at September 30, 2007 consists of only 3 customers. At September
      30,
      2007, accounts receivable from the three largest accounts amounted to
      approximately $58,810 (41%), $25,787 (18%) and $25,523 (18%), respectively.
      The
      Company does not generally require collateral or other security to support
      customer receivables. Accounts receivable are carried at their estimated
      collectible amounts. Accounts receivable are periodically evaluated for
      collectibility and the allowance for doubtful accounts is adjusted accordingly.
      Management determines collectibility based on their experience and knowledge
      of
      the customers.





Business
      Combinations




In
      accordance with business combination accounting, the Company allocates the
      purchase price of acquired companies to the tangible and intangible assets
      acquired and liabilities assumed, based on their estimated fair values. The
      Company engaged a third-party appraisal firm to assist management in determining
      the fair values of First Performance Corporation. Such a valuation requires
      management to make significant estimates and assumptions, especially with
      respect to intangible assets.





Management
      makes estimates of fair values based upon assumptions believed to be reasonable.
      These estimates are based on historical experience and information obtained
      from
      the management of the acquired companies. Critical estimates in valuing certain
      of the intangible assets include but are not limited to: future expected cash
      flows from customer relationships and market position, as well as assumptions
      about the period of time the acquired trade names will continue to be used
      in
      the combined company's product portfolio; and discount rates. These estimates
      are inherently uncertain and unpredictable. Assumptions may be incomplete or
      inaccurate, and unanticipated events and circumstances may occur which may
      affect the accuracy or validity of such assumptions, estimates or actual
      results. See Note 6.







8







Goodwill
      and Intangible Assets




The
      Company accounts for goodwill and intangible assets in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
      142”). Under SFAS 142, goodwill and intangibles that are deemed to have
      indefinite lives are no longer amortized but, instead, are to be reviewed at
      least annually for impairment. Application of the goodwill impairment test
      requires judgment, including the identification of reporting units, assigning
      assets and liabilities to reporting units, assigning goodwill to reporting
      units, and determining the fair value. Significant judgments required to
      estimate the fair value of reporting units include estimating future cash flows,
      determining appropriate discount rates and other assumptions. Changes in these
      estimates and assumptions could materially affect the determination of fair
      value and/or goodwill impairment for each reporting unit. Intangible assets
      will
      be amortized over their estimated useful lives. The Company performed an
      analysis of its goodwill and intangible assets in accordance with SFAS 142
      as of
      June 30, 2007 and determined that an impairment charge was necessary. The
      Company performed a further analysis of its intangible assets as of September
      30, 2007 and determined that an additional impairment charge was necessary.
      See
      Note 6.





Use
      of
      estimates




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the amounts reported in the financial
      statements and the accompanying notes. These estimates and assumptions are
      based
      on management’s judgment and available information and, consequently, actual
      results could be different from these estimates.




Income
      Taxes





****** Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of
      FASB Statement No. 109,” (“FIN 48”). FIN 48 prescribes a recognition threshold
      and a measurement attribute for the financial statement recognition and
      measurement of tax positions taken or expected to be taken in a tax return.
      For
      those benefits to be recognized, a tax position must be more likely than not
      to
      be sustained upon examination by taxing authorities. Differences between tax
      positions taken or expected to be taken in a tax return and the benefit
      recognized and measured pursuant to the interpretation are referred to as
“unrecognized benefits”. A liability is recognized (or amount of net operating
      loss carry forward or amount of tax refundable is reduced) for an unrecognized
      tax benefit because it represents an enterprise’s potential future obligation to
      the taxing authority for a tax position that was not recognized as a result
      of
      applying the provisions of FIN 48.





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as “Interest
      expense, net” in the consolidated statements of operations. Penalties would be
      recognized as a component of “General and administrative expenses.”





In
      many
      cases, the Company’s tax positions are related to tax years that remain subject
      to examination by relevant tax authorities. The Company files income tax returns
      in the United States (federal) and in various state and local jurisdictions.
      In
      most instances, the Company is no longer subject to federal, state and local
      income tax examinations by tax authorities for years prior to 2003.





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company’s consolidated financial position and results of operations. As of
      September 30, 2007, no liability for unrecognized tax benefits was required
      to
      be recorded.




The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      become deductible. The Company considers projected future taxable income and
      tax
      planning strategies in making this assessment. At present, the Company does
      not
      have a sufficient history of income to conclude that it is more likely than
      not
      that the Company will be able to realize all of its tax benefits in the near
      future and therefore a valuation allowance was established for the full value
      of
      the deferred tax asset.







9


A
      valuation allowance will be maintained until sufficient positive evidence exists
      to support the reversal of any portion or all of the valuation allowance net
      of
      appropriate reserves. Should the Company continue to be profitable in future
      periods with a supportable trend, the valuation allowance will be reversed
      accordingly.




Revenue
      Recognition




The
      Company earned revenue during 2007 and 2006 from several collection agencies,
      collection law firms and lenders that implemented the Company’s online system.
      The Company’s current contracts provide for revenue based on a percentage of the
      amount of debt collected, a flat fee per settlement from accounts submitted
      on
      the DebtResolve system or through a flat monthly license fee. Although other
      revenue models have been proposed, most revenue earned to date has been
      determined using these methods, and such revenue is recognized when the
      settlement amount of debt is collected by the client. For the early adopters
      of
      the Company’s product, the Company waived set-up fees and other transactional
      fees that the Company anticipates charging in the future. While the percent
      of
      debt collected will continue to be a revenue recognition method going forward,
      other payment models are also being offered to clients and may possibly become
      the Company’s preferred revenue model. Dependent upon the structure of future
      contracts, revenue may be derived from a combination of set up fees or monthly
      licensing fees with transaction fees upon debt settlement.




In
      recognition of the principles expressed in Staff Accounting Bulletin 104 (“SAB
      104”), that revenue should not be recognized until it is realized or realizable
      and earned, and given the element of doubt associated with the collectability
      of
      an agreed settlement on past due debt, at this time the Company uniformly
      postpones recognition of all contingent revenue until its client receives
      payment from the debtor. As is required by SAB 104, revenues are considered
      to
      have been earned when the Company has substantially accomplished the agreed-upon
      deliverables to be entitled to payment by the client. For most current active
      clients, these deliverables consist of the successful collection of past due
      debts using its system and/or, for clients under a licensing arrangement, the
      successful availability of its system to its customers.




In
      addition, in accordance with Emerging Issues Task Force (“EITF”) Issue 00-21,
      revenue is recognized and identified according to the deliverable provided.
      Set-up fees, percentage contingent collection fees, fixed settlement fees,
      monthly license fees, etc. are identified separately.




Recently
      signed contracts and contracts under negotiation call for multiple deliverables,
      and each component of revenue will be considered to have been earned when the
      Company has met the associated deliverable, as is required by SAB 104 Topic
      13(A). For new contracts being implemented which include a licensing fee per
      account, following the guidance of SAB 104 regarding services being rendered
      continuously over time, the Company will recognize revenue based on contractual
      prices established in advance and will recognize income over the contractual
      time periods. Where some doubt exists on the collectability of the revenues,
      a
      valuation reserve will be established or the income charged to losses, based
      on
      management’s opinion regarding the collectability of those revenues.




In
      January 2007, the Company initiated operations of its debt buying subsidiary,
      DRV Capital LLC. DRV Capital and its wholly-owned subsidiary, EAR Capital I,
      LLC, have engaged in the acquisition of pools of past due debt at a deeply
      discounted price, for the purpose of collecting on those debts. In recognition
      of the principles expressed in Statement of Position 03-3 (“SOP 03-3”), where
      the timing and amount of cash flows expected to be collected on these pools
      is
      reasonably estimable, the Company will recognize the excess of all cash flows
      expected at acquisition over the initial investment in the pools of debt as
      interest income on a level-yield basis over the life of the pool (accretable
      yield). Because the Company is exiting this business, it will use the cost
      recovery method. Revenue will be earned by this debt buying subsidiary under
      the
      cost recovery method when the amount of debt collected exceeds the discounted
      price paid for the pool of debt.




On
      January 19, 2007, the Company completed the acquisition of First Performance
      Corporation, a collection agency, and its wholly-owned subsidiary First
      Performance Recovery Corporation. In recognition of the principles expressed
      in
      SAB 104, that revenue should not be recognized until it is realized or
      realizable and earned, and given the element of doubt associated with
      collectability of an agreed settlement on past due debt, at this time, the
      Company uniformly postpones recognition of all contingent revenue until the
      cash
      payment is received from the debtor. At the time it remits fees collected to
      its
      clients, the Company accrues the portion of those fees that the client
      contractually owes. As is required by SAB 104, revenues are considered to have
      been earned when the Company has substantially accomplished the agreed-upon
      deliverables to be entitled to payment by the client. For most current active
      clients, these deliverables consist of the successful collection of past due
      debts.







10


Stock-based
      compensation




Beginning
      on January 1, 2006, the Company accounts for stock options issued under
      stock-based compensation plans under the recognition and measurement principles
      of SFAS No. 123 - Revised. The Company adopted the modified prospective
      transition method and therefore, did not restate prior periods’ results. Total
      stock-based compensation expense related to these and other stock-based grants
      for the three and nine months ended September 30, 2007 amounted to $354,821
      and
      $2,323,069, respectively and for the three and nine months ended September
      30,
      2006 amounted to $2,602,134 and $2,714,946, respectively.




The
      fair
      value of share-based payment awards granted during the periods was estimated
      using the Black-Scholes option pricing model with the following assumptions
      and
      weighted average fair values as follows:





**Nine
                months ended**
              **September
                30,****2007**
            **2006**Risk
                free interest rate range
            4.50-4.84%
            1.66-4.12%Dividend
                yield
            0%
            0%Expected
                volatility
            81.1%-96.7%
            96.7%Expected
                life in years
            3-7
            3-10





The
      fair
      value of each option granted to employees and non-employees is estimated as
      of
      the grant date using the Black-Scholes option pricing model. The estimated
      fair
      value of the options granted is recognized as an expense over the requisite
      service period of the award, which is generally the option vesting period.
      As of
      September 30, 2007, total unrecognized compensation cost for these and prior
      grants amounted to $484,713.




Net
      loss
      per share of common stock





Basic
      net
      loss per share excludes dilution for potentially dilutive securities and is
      computed by dividing net loss attributable to common stockholders by the
      weighted average number of common shares outstanding during the period. Diluted
      net loss per share reflects the potential dilution that could occur if
      securities or other instruments to issue common stock were exercised or
      converted into common stock. Potentially dilutive securities realizable from
      the
      exercise of options and warrants of 4,000,934 and 1,684,437, respectively at
      September 30, 2007, are excluded from the computation of diluted net loss per
      share as their inclusion would be anti-dilutive.




The
      Company’s issued and outstanding common shares as of September 30, 2007 do not
      include the underlying shares exercisable with respect to the issuance of
      232,106 warrants as of September 30, 2007, exercisable at $0.01 per share
      related to a financing completed in June 2006. In accordance with SFAS No.
      128
“Earnings Per Share”, the Company has given effect to the issuance of these
      warrants in computing basic net loss per share.




NOTE
      3.  ACQUISITION
      OF FIRST PERFORMANCE CORPORATION:





As
      discussed in Note 1, on January 19, 2007, the Company acquired all of the
      outstanding capital stock of First Performance Corporation, a Nevada corporation
      (“First Performance”), and its wholly-owned subsidiary, First Performance
      Recovery Corporation, pursuant to a Stock Purchase Agreement dated January
      19,
      2007. First Performance is an accounts receivable management agency with
      operations in Las Vegas, Nevada and formerly in Fort Lauderdale, Florida. The
      aggregate purchase price of $850,000 included $500,000 of cash and $350,000
      of
      the Company’s common stock, consisting of 88,563 shares at $3.95 per share.




The
      assets and liabilities of First Performance have been recorded in the Company’s
      consolidated balance sheet at their fair values at the date of acquisition.
      As
      part of the purchase of First Performance, the Company acquired identifiable
      intangible assets of approximately $450,000. Of the identifiable intangibles
      acquired, $60,000 was assigned to trade names and $390,000 was assigned to
      customer relationships. In accordance with SFAS 142, based on certain changes
      in
      the operations of First Performance, including the loss of four of its major
      clients, the Company performed an interim impairment analysis at June
      30, 2007 and at September 30, 2007. See Note 6. The amounts of these intangibles
      have been estimated based upon information available to management and are
      subject to change based upon an outside appraisal being completed. The acquired
      intangibles have been assigned definite lives and are subject to amortization,
      as described in the table below.





11


The
      following table details amortization periods for the identifiable, amortizable
      intangibles:





Intangible
                Asset
            
            Amortization
                Period
              in
                YearsTrade
                names
            
            10
                yearsCustomer
                relationships
            
            4
                years








The
      following table details the preliminary allocation of the purchase price for
      the
      acquisition of First Performance:





Fair
                ValueRestricted
                cash
            
            $
            157,485Accounts
                receivable
            
            
            419,167Prepaid
                expenses and other current assets
            
            
            103,082Fixed
                assets, net
            
            
            286,229Intangible
                asset - trade names
            
            
            60,000Intangible
                asset - customer relationships
            
            
            390,000Deposits
                and other assets
            
            
            51,999Accounts
                payable
            
            
            (1,573,252
            )Net
                  fair values assigned to assets acquired andliabilities assumed
            
            
            (105,290
            )Direct
                costs of acquisition
            
            
            (86,915
            )Goodwill
            
            
            1,042,205Total
            
            $
            850,000




The
      following represents a summary of the purchase price consideration:





Cash
            
            $
            500,000Value
                of common stock issued
            
            
            350,000Total
                purchase price paid
            
            $
            850,000Direct
                acquisition costs
            
            
            86,915Total
                purchase price consideration
            
            $
            936,915







First
      Performance was purchased on January 19, 2007, and therefore only its operations
      from January 19, 2007 through September 30, 2007 are included in the Company’s
      condensed consolidated financial statements. The following table presents the
      Company’s unaudited pro forma combined results of operations for each of the
      three and nine months ended September 30, 2007 and 2006, respectively, as if
      First Performance had been acquired at the beginning of each of the periods.


For
                  the three months ended
                September
                  30,
              
              For
                  the nine months ended
                September
                  30,2007
              
              2006
              
              2007
              
              2006(unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)Revenues
              
              $
              526,818
              
              $
              1,554,177
              
              $
              2,700,051
              
              $
              4,845,534Net
                  loss
              
              $
              (3,331,486
              )
              $
              (7,089,195
              )
              $
              (10,935,483
              )
              $
              (12,133,793
              )Pro-forma
                  basic and diluted net loss per common share
              
              $
              (0.41
              )
              $
              (1.68
              )
              $
              (1.40
              )
              $
              (3.47
              )Weighted
                  average common shares outstanding - basic and diluted
              
              
              8,054,031
              
              
              4,219,542
              
              
              7,821,533
              
              
              3,492,469





12




The
      pro forma combined results are not necessarily indicative of the results that
      actually would have occurred if the First Performance acquisition had been
      completed as of the beginning of 2006, nor are they necessarily indicative
      of
      future consolidated results.




Effective
      with the acquisition of First Performance on January 19, 2007, the Company
      also
      sponsors the First Performance employee savings plan, for all employees of
      First
      Performance who have completed 1,000 hours of service.  This plan does not
      include a company matching contribution.  The Company is currently in
      the process of merging this plan and its existing 401(k) plan.








NOTE
      4.  SECURITIES
      PURCHASE AGREEMENT - CREDITORS INTERCHANGE:







Securities
      Purchase Agreement





On
      April
      30, 2007, the Company, Credint Holdings, and the holders of all of the limited
      liability membership interests of Credint Holdings entered into a securities
      purchase agreement for the Company to acquire 100% of the outstanding limited
      liability company membership interests of Creditors Interchange, an accounts
      receivable management agency and wholly-owned subsidiary of Credint Holdings.
      Prior to this agreement, an agreement with Creditors Interchange for the use
      by
      Creditors Interchange of the Company’s DebtResolve system, and a management
      services agreement pursuant to which Creditors Interchange provides management
      consulting services to First Performance were in place.





The
      total
      consideration for the acquisition was to consist of (a) 840,337 shares of the
      Company’s common stock, and (b) $60,000,000 in cash less the sum, as of the date
      the acquisition is consummated, of all principal, accrued interest, prepayment
      penalties and other charges in respect of Creditors Interchange’s outstanding
      indebtedness. The closing date in the original agreement was June 30, 2007,
      and
      was extended to August 31, 2007. On August 31, 2007 the total consideration
      was
      reduced to $54 million with a further extension of the closing date to September
      14, 2007. On September 24, 2007, the Company terminated the securities purchase
      agreement based on certain terms in the Purchase Agreement.





In
      connection with the financing of the transaction, as well as to provide
      additional working capital and to fund operations, the Company signed an
      engagement letter with investment banks to explore financing alternatives.
      Subsequent to June 30, 2007, the Company secured financing commitments for
      up to
      $40 million in debt, consisting of $25 million of senior secured debt and $15
      million of mezzanine debt. The Company also procured financing commitments
      for
      the balance of the cash portion of the reduced total consideration as equity
      financing and had completed a financing package for the transaction. However,
      the Company terminated the securities purchase agreement due to a material
      adverse change in the financial condition of Creditors Interchange, and the
      financing commitments lapsed at termination of the transaction.







13


Employment
      Agreements





In
      connection with the Purchase Agreement, the Company entered into employment
      agreements with Bruce Gray and John Farinacci. Pursuant to his employment
      agreement, Mr. Gray was to serve as Executive Vice President of the Company
      and
      President and Chief Executive Officer of Creditors Interchange. Mr. Gray was
      also to be nominated to join the Board of Directors of the Company. Mr. Gray
      was
      to receive a base salary of $400,000 and options to purchase up to 400,000
      shares of the Company’s common stock. Mr. Gray was also eligible for an annual
      bonus based on certain performance criteria.





Pursuant
      to his employment agreement with the Company, Mr. Farinacci was to serve as
      President of First Performance Corporation, and Executive Vice
      President-Operations of Creditors Interchange. Mr. Farinacci was also to serve
      as a Senior Vice President of the Company. Mr. Farinacci was to receive a base
      salary of $300,000 and options to purchase up to 400,000 shares of the Company’s
      Common Stock. Mr. Farinacci was also eligible for an annual bonus based on
      certain performance criteria.





While
      the
      employment agreements with Messrs. Gray and Farinacci were executed on April
      30,
      2007, both employment agreements would only be declared effective as of the
      closing of the transactions contemplated by the Purchase Agreement and will
      automatically terminate should the transaction not occur. The agreements
      terminated on September 24, 2007, in conjunction with the termination of the
      Purchase Agreement.








NOTE
      5.  FIXED
      ASSETS:




Fixed
      assets consist of the following:




September
                30,Useful
                life
            
            2007Computer
                equipment
            
            
            3-5
                years
            
            $
            493,731Computer
                software
            
            
            3
                years
            
            
            67,641Telecommunications
                equipment
            
            
            5
                years
            
            
            3,165Office
                equipment
            
            
            3
                years
            
            
            6,361Furniture
                and fixtures
            
            
            5
                years
            
            
            137,865Leasehold
                improvements
            
            
            Lease
                term
            
            
            21,081Less:
                accumulated depreciation
            
            
            
            
            
            729,844
              (412,545
            )$
            317,299




Depreciation
      expense totaled $38,961 and $12,020 for the three months ended September 30,
      2007 and 2006, respectively. Depreciation expense totaled $115,832 and $39,487
      for the nine months ended September 30, 2007 and 2006,
      respectively.




On
      August
      31, 2007, certain First Performance assets were abandoned due to the closure
      of
      the Florida office on July 31, 2007. Accordingly, the Company included a charge
      to general and administrative expenses in the amount of $68,329 related to
      the
      disposal of these assets.




NOTE
      6.  IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS





The
      Company recorded $1,042,205 of goodwill in connection with its acquisition
      of
      First Performance (See Note 3). It also recorded $450,000 in intangible assets
      related to First Performance’s trade names and customer relationships (See Note
      6). The amounts of goodwill that the Company  recorded  in 
connection  with this acquisition  was  determined  by
      comparing the aggregate  amount of the purchase price plus related
      transaction  costs to the  fair  value of the net  tangible
      and  identifiable intangible assets acquired.







14


In
      accordance with SFAS 142, based on certain changes in the operations of First
      Performance, including the loss of four of its major clients, the
      Company performed an interim impairment analysis at June 30, 2007 and
      September 30, 2007. As a result of this analysis, the Company determined that
      the entire amount of goodwill with respect to First Performance was deemed
      to be impaired. In addition, the other intangible assets subject to amortization
      were also found to be impaired, and were revalued at $270,000, as of June 30,
      2007.  Accordingly, the Company recorded a goodwill and
      intangibles impairment charge in the amount of $1,179,080 as of June 30, 2007.
      The Company recorded an additional $27,255 charge at September 30, 2007,
      revaluing the intangible assets to $225,000.





Making
      estimates about the carrying value of goodwill requires management to exercise
      significant judgment. It is reasonably possible that the estimate of the
      effect on the financial statements of a condition, situation, or set
      of circumstances that existed at the date of the financial statements,
      which management considered in formulating its estimate could change in the
      near
      term due to one or more future confirming events. 
Accordingly, the actual results regarding estimates of the
      carrying value of these intangibles could differ materially from the Company's
      estimates.







NOTE
      7.  INTANGIBLE
      ASSETS:







Intangible
      assets consist exclusively of amounts related to the acquisition of First
      Performance.





The
      components of intangible assets as of September 30, 2007 are set forth in the
      following table:








Useful
                life
            
            Original
                amount
            
            Amortization
            
            Impairment
            
            September
                30,
              2007Trade
                names
            
            
            10
                years
            
            $
            60,000
            
            
            (3,152
            )
            
            (41,848
            )
            $
            15,000Customer
                relationships
            
            
            4
                years
            
            $
            390,000
            
            
            (57,718
            )
            
            (122,282
            )
            $
            210,000$
            450,000
            
            
            (60,870
            )
            
            (164,130
            )
            $
            225,000







The
      amortization of intangibles will result in the following additional expense
      by
      year:




Years
                  Ended December 31:
              
              Intangible
                  Amortization2007
              
              $
              16,1522008
              
              
              64,6072009
              
              
              64,6072010
              
              
              64,6072011
              
              
              6,857Thereafter
              
              
              8,170Total
              
              $
              225,000







Amortization
      expense totaled $17,745 and $60,870 for the three and nine months ended
      September 30, 2007, respectively.




The
      weighted average amortization period for amortizable intangibles is 3.7 years
      and has no residual value.







NOTE
      8.  LINES
      OF
      CREDIT:





First
      Performance had a line of credit on the date of the Company’s acquisition. The
      outstanding balance as of January 19, 2007 of $150,000 was repaid during the
      nine months ended September 30, 2007, and the line of credit was
      terminated.







15


On
      May
      31, 2007, the Company entered into a line of credit agreement with Arisean
      Capital, Ltd. (“Arisean”), pursuant to which the Company may borrow from time to
      time up to $500,000 from Arisean to be used by the Company to fund its working
      capital needs. Borrowings under the line of credit are secured by the assets
      of
      the Company and bear interest at a rate of 12% per annum, with interest payable
      monthly in cash. The principal balance outstanding will be due at any time
      upon
      30 days written notice, subject to mandatory prepayment (without penalty) of
      principal and interest, in whole or in part, from the net cash proceeds of
      any
      public or private, equity or debt financing completed by the Company. Arisean’s
      obligation to lend such funds to the Company is subject to a number of
      conditions, including review by Arisean of the proposed use of such funds by
      the
      Company. Arisean is controlled by Charles S. Brofman, the Co-Chairman of the
      Company and a member of its Board of Directors. As of September 30, 2007, the
      outstanding balance on this line of credit was $500,000. The Company
      incurred interest expense related to this line of credit of $15,333 and $17,967
      during the three and nine months ended September 30, 2007, respectively.
      Subsequent to September 30, 2007, the Company borrowed an additional $76,000
      from this line.





On
      August
      10, 2007, the Company entered into a line of credit agreement with James D.
      Burchetta, Debt Resolve’s CEO and Co-Chairman, for up to $100,000 to be used
      primarily to fund the working capital needs of First Performance. Borrowings
      under the line of credit will bear interest at 12% per annum, with interest
      payable monthly in cash. The principal balance outstanding will be due at any
      time upon 30 days written notice, subject to mandatory prepayment (without
      penalty) of principal and interest, in whole or in part, from the net cash
      proceeds of any public or private, equity or debt financing made by Debt
      Resolve. As of September 30, 2007, the Company has borrowed $75,000 under this
      line of credit. The Company incurred interest expense related to this line
      of
      credit of $1,362 during the three and nine months ended September 30, 2007.
      Subsequent to September 30, 2007, the Company borrowed an additional $40,000
      from this line.








NOTE
      9.  PURCHASED
      ACCOUNTS RECEIVABLE:





On
      December 22, 2006, the Company and its wholly-owned subsidiaries, EAR Capital
      I,
      LLC, as borrower, and DRV Capital, LLC, as servicer, entered into a $20.0
      million secured debt financing facility pursuant to a Master Loan and Servicing
      Agreement, dated as of December 21, 2006, with Sheridan Asset Management, LLC
      (“Sheridan”), as lender, to finance the purchase of distressed consumer debt
      portfolios from time to time. The facility generally provides for a 90.0%
      advance rate with respect to each qualified debt portfolio purchased. Interest
      accrues at 12% per annum and is payable monthly. Notes issued under the facility
      are collateralized by the distressed consumer debt portfolios that are purchased
      with the proceeds of the loans. Each note has a maturity date not to exceed
      a
      maximum of 24 months after the borrowing date. Once the notes are repaid and
      the
      Company has been repaid its investment (generally 10% of the purchase price),
      the Company and Sheridan share the residual collections from the debt
      portfolios, net of servicing fees, as per the terms specified in each
      acquisition agreement. The sharing in residual cash flows continues for the
      entire economic life of the debt portfolios financed using this facility and
      will extend beyond the expiration date of the facility. New advances for
      portfolio purchases under the facility are not available beyond the December
      21,
      2007 expiration date. The Company is required to give Sheridan the opportunity
      to fund all of its purchases of distressed consumer debt with advances through
      December 21, 2008. As of September 30, 2007, the Company had acquired $607,994
      in discounted value of acquired receivables, with a remaining balance of
      $108,868. During the nine months ended September 30, 2007, the Company performed
      a revaluation of the remaining receivables and recorded a decline in value
      of
      $23,096. The Company borrowed a total of $547,195 to finance these receivables
      and had outstanding remaining portfolio loans payable in the amount of $54,678.
      Management of the Company made a strategic decision in October, 2007 to suspend
      the purchase of debt portfolios on the open market.





The
      following tables represent the activity with respect to purchased receivables
      and financings for those receivables for the nine months ended September 30,
      2007.







16




**Purchased
                Accounts Receivable**Beginning
                balance - January 1, 2007
            
            $
            —Purchases
            
            
            607,994Liquidations
            
            
            (123,753
            )Sale
                of pools
            
            
            (352,277
            )Write
                downs
            
            
            (23,096
            )Ending
                balance - September 30, 2007
            
            $
            108,868




**Portfolio
                Loans Payable:**Beginning
                balance - January 1, 2007
            
            $
            —Borrowings
            
            
            547,195Repayments
            
            
            (492,517
            )Ending
                balance - September 30, 2007
            
            $
            54,678










NOTE
      10.  STOCKHOLDERS’
      DEFICIENCY




On
      September 5, 2007, the Company completed a private placement for gross proceeds
      of $1,760,000 for the sale of 880,000 shares of common stock. In
      conjunction with this transaction, the Company issued an aggregate of 440,000
      warrants to purchase common stock to the investors and 88,000 warrants to
      purchase common stock to the placement agent. Each warrant is exercisable at
      $2.00 per share for a term of five years. The common stock and warrants sold
      have "piggy - back' registration rights on the Company's next registration
      statement if the required private placement holding period has not previously
      elapsed.






NOTE
      11.  STOCK
      OPTIONS:




As
      of
      September 30, 2007, the Company had one stock-based employee compensation
      plan.  The 2005 Incentive Compensation Plan (the “2005 Plan”) was approved
      by the stockholders on June 14, 2005 and provides for the issuance of options
      and restricted stock grants to officers, directors, key employees and
      consultants of the Company to purchase up to 900,000 shares of common
      stock.





A
      summary
      of option activity within the 2005 Plan during the nine months ended September
      30, 2007 is presented below:





WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2007
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2007
              
              
              261,000
              
              $
              5.00
              
              
              3.9
                  Years
              
              $
              --Granted
              
              
              632,000
              
              $
              4.61
              
              
              5.7
                  Years
              
              $
              --Exercised
              
              
              --
              
              $
              --
              
              
              --
              
              $
              --Forfeited
                  or expired
              
              
              (5,500
              )
              $
              5.00
              
              
              --
              
              $
              --Outstanding
                  at September 30, 2007
              
              
              887,500
              
              $
              4.74
              
              
              5.2
                  Years
              
              $
              --Exercisable
                  at September 30, 2007
              
              
              617,250
              
              $
              4.80
              
              
              5.1
                  Years
              
              $
              --





As
      of
      September 30, 2007, the Company had 270,250 unvested options within the 2005
      Plan.





On
      February 1, 2007, the Company issued options to purchase 30,000 shares of its
      common stock exercisable
      at $4.04 per share to a
      new
      employee .
      The stock options
      have an exercise period of five years and vest 30% at issuance, 30% in nine
      months and 40% on the anniversary of issuance. The grant was valued at
      $91,200 ,
      will be
      expensed over the vesting period and resulted in an expense during the nine
      months ended September 30, 2007 of $81,067.







17


On
      February 28, 2007, the Company issued options to purchase 20,000 shares of
      its
      common stock exercisable
      at $4.10 per share to a
      new
      board member .
      The stock options
      have an exercise period of five years, vest 50% at issuance and 50% on the
      anniversary of issuance, were valued at $61,600 ,
      will be
      expensed over the vesting period and resulted in an expense during the nine
      months ended September 30, 2007 of $48,767.




On
      April
      23, 2007, the Company issued options to purchase 75,000 shares of its common
      stock exercisable at $3.70 per share to a new employee. The stock options have
      an exercise period of seven years and vest 25% at issuance, 25% at nine months,
      25% at eighteen months and 25% at thirty months after the grant date. The grant
      was valued at $210,750, will be expensed over the one year employment contract
      term and resulted in expense during the nine months ended September 30, 2007
      of
      $140,500.




On
      April
      27, 2007, the Company issued options to purchase 75,000 shares of its common
      stock exercisable at $4.75 per share to a new employee. The stock options have
      an exercise period of seven years and vest 33% on the first, second and third
      anniversary of the grant date. The grant was valued at $270,750, will be
      expensed over the one year employment contract term and resulted in expense
      during the nine months ended September 30, 2007 of $112,813.




On
      April
      27, 2007, the Company issued options to purchase 278,000 shares of its common
      stock exercisable at $4.75 per share to four current employees. The stock
      options have an exercise period of seven years. Of the grant, 276,500 shares
      vest immediately and 1,500 vest on the first anniversary of the grant date.
      The
      grant was valued at $1,003,580, were expensed immediately except for the grant
      vesting over the first year and resulted in expense during the nine months
      ended
      September 30, 2007 of $1,001,775.




On
      April
      27, 2007, the Company issued options to purchase 154,000 shares of its common
      stock exercisable at $5.00 per share to six current employees as an extension
      of
      expiring three year non-plan options. The stock options have an exercise period
      of four years, providing the grantees with the equivalent of a seven year grant,
      as all new options granted now have a seven year term. Of the grant, options
      to
      purchase 77,000 shares vest immediately and options to purchase the remaining
      77,000 shares vest on the first anniversary of the grant date. The grant was
      valued at $446,600, the expense associated with the first 77,000 shares were
      expensed immediately and the remainder are being expensed over the one year
      vesting period and resulted in a charge during the nine months ended September
      30, 2007 of $256,933.




A
      summary
      of stock option activity outside the 2005 Plan during the nine months ended
      September 30, 2007 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2007
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2007
              
              
              3,147,434
              
              $
              4.96
              
              
              6.4
                  Years
              
              $
              --Granted
              
              
              50,000
              
              $
              4.75
              
              
              6.6
                  Years
              
              $
              --Exercised
              
              
              --
              
              $
              --
              
              
              --
              
              $
              --Forfeited
                  or Expired
              
              
              (84,000
              )
              $
              5.60
              
              
              --
              
              $
              --Outstanding
                  at September 30, 2007
              
              
              3,113,434
              
              $
              4.97
              
              
              6.4
                  Years
              
              $
              32,625Exercisable
                  at September 30, 2007
              
              
              3,113,434
              
              $
              4.97
              
              
              6.4
                  Years
              
              $
              32,625





On
      April
      27, 2007, the Company issued options to purchase 50,000 shares of its common
      stock exercisable at $4.75 per share to a current employee. The stock options
      vest immediately and have an exercise period of seven years. The grant was
      valued at $180,500 and was expensed immediately.





As
      of
      September 30, 2007, the Company had no unvested stock options outside the 2005
      Plan.





During
      the nine months ended September 30, 2007 and 2006, the Company recorded an
      expense of $15,436 and $157,277 respectively, representing the amortized amount
      of the fair value of stock options issued to non-employees prior to January
      1,
      2006.







18


The
      Company recorded stock based compensation expense representing the amortized
      amount of the fair value of options granted in 2006 in the amount of $84,279
      and
      $352,061 during the three and nine months ended September 30, 2007,
      respectively.









NOTE
      12.  WARRANTS:




A
      summary
      of warrant activity as of January 1, 2007 and changes during the nine months
      ended September 30, 2007 is presented below:




Weighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2007
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2007
              
              
              2,091,158
              
              $
              1.44
              
              
              3.1
                  Years
              
              
              --Granted
              
              
              628,000
              
              $
              2.29
              
              
              4.7
                  Years
              
              
              --Exercised
              
              
              (984,721
              )
              $
              0.20
              
              
              --
              
              
              --Forfeited
                  or Expired
              
              
              (50,000
              )
              $
              3.85
              
              
              --
              
              
              --Outstanding
                  at September 30, 2007
              
              
              1,684,437
              
              $
              1.62
              
              
              2.8
                  Years
              
              $
              1,510,205Exercisable
                  at September 30, 2007
              
              
              1,459,437
              
              $
              1.86
              
              
              3.2
                  Years
              
              $
              1,510,205








As
      of
      September 30, 2007, there were 225,000 unvested warrants to purchase shares
      of
      common stock.





On
      March
      1, 2007 the Company issued a warrant to purchase 100,000 shares of its common
      stock exercisable at $3.85 per share to a consultant. The warrant has an
      exercise period of three years, which vests 25% at issuance and 25% at three,
      nine and nine months from issuance. The warrant was valued at $240,000. On
      June
      30, 2007, warrants for 50,000 shares of common stock were cancelled due to
      termination of the consultant’s services. Expense during the nine months ended
      September 30, 2007 was $134,571.




During
      the nine months ended September 30, 2007, the Company received $199,099 in
      cash
      proceeds from the exercise of 984,721 warrants to purchase common
      stock.









NOTE
      13.  LITIGATION:




On  January
      8, 2007, the Company filed a patent infringement lawsuit against Apollo
      Enterprise Solutions, LLC (“Apollo”) in federal court in New Jersey.  The
      suit alleges that Apollo’s online debt collection system infringes one or
      more claims of the patents-in-suit, U.S. Patent Nos. 6,330,551 and
      6,954,741.  The Company claims that it has exclusive rights under these and
      certain other patents with respect to the settlement of consumer
      debt.  A change
      of venue moved the suit to the Southern District of New York.





In
      response to the Company’s complaint, Apollo (i) filed a motion to dismiss for an
      alleged lack of personal jurisdiction and, (ii) on January 29, 2007, filed
      a
      mirror lawsuit against the Company in federal court in the Central District
      of
      California which seeks a declaratory judgment of non-infringement and invalidity
      with respect to these patents. The Company filed a motion to dismiss, transfer
      or stay the California case in preference to the first-filed New Jersey case.
      That motion has
      been
      granted by the court, and the California case has been stayed in preference
      to
      the New Jersey case .
      In the New Jersey case, the Court issued an order requiring the parties to
      submit a series of briefs showing why the case should not be transferred from
      New Jersey to the District of Delaware, the Southern District of New York or
      the
      Central District of California. The New Jersey Court subsequently denied
      Apollo’s motion to transfer the case to California and granted the Company’s
      request in the alternative that the case be heard in New York if the Court
      decided it should not stay in New Jersey. The case was transferred to federal
      court in the Southern District of New York where it remains pending at a
      preliminary stage. The mirror action that Apollo filed against the Company
      in
      California has been dismissed without prejudice by the parties. Subsequent
      to
      September 30, 2007, the Company entered into a settlement agreement with
      Apollo.  See Note 17.







19




NOTE
      14.  OPERATING
      LEASES:




On
      August
      1, 2005, the Company entered into a five year lease for its corporate
      headquarters which includes annual escalations in rent. Since that date, in
      accordance with SFAS No. 13, “Accounting for Leases,” the Company accounts for
      rent expense using the straight line method of accounting, accruing the
      difference between actual rent due and the straight line amount. At September
      30, 2007, accrued rent payable totaled $15,385.





The
      Company also leased an office in Fort Lauderdale, Florida under a non-cancelable
      operating lease that expires January 31, 2009 and called for monthly payments
      of
      $22,481. Until August 31, 2007, the monthly payment has been reduced by a $5,000
      abatement to $17,481 per month. In July 2007, the Company negotiated an early
      cancellation of the Florida lease whereby the rent obligation terminated on
      August 31, 2007. The
      Company continues to lease an office in Las Vegas, Nevada under a non-cancelable
      operating lease that expires July 31, 2014 and calls for monthly payments of
      $21,644.





Rent
      expense for the three months ended September 30, 2007 and 2006 was $140,177
      and
      $30,862, respectively. Rent expense for the nine months ended September 30,
      2007
      and 2006 was $413,652 and $92,505, respectively.





Future
      minimum rental payments under the above non-cancelable operating leases (as
      renegotiated) are as follows:




For
                the Year Ending
              December
                31,
            
            Amount2007
            
            $
            96,2462008
            
            
            387,0292009
            
            
            389,8922010
            
            
            335,6572011
            
            
            259,728Thereafter
            
            
            670,964$
            2,139,516





NOTE
      15.  EMPLOYMENT
      AGREEMENTS:




On
      April
      23, 2007, Anthony P. Canale was appointed to the position of General Counsel
      of
      the Company. Mr. Canale’s employment agreement provides for a base salary of
      $175,000 with certain bonus provisions. Mr. Canale was also awarded 75,000
      options vesting 25% on the date of hire, 25% in six months, 25% in eighteen
      months and 25% in 30 months. The employment agreement has a one year renewable
      term. Subsequent to September 30, 2007, Mr. Canale resigned from the
      Company.




On
      May 1,
      2007, the Company appointed David M. Rainey to the position of Chief Financial
      Officer and Treasurer. Mr. Rainey’s employment agreement provides for a base
      salary of $200,000 with certain bonus provisions. Mr. Rainey was also awarded
      75,000 options which vest 1/3 each on the first, second and third anniversaries
      of his employment. The employment agreement has a one year renewable term.
      Katherine A. Dering, the former Chief Financial Officer, remained with the
      Company as Senior Vice President - Finance, under an amended employment
      agreement until September 1, 2007.










NOTE
      16.  SEGMENT
      DATA:




The
      Company is a technology-driven accounts receivable management company with
      operations in three segments: internet debt resolution software and services
      (“Internet Services”), defaulted consumer debt buying (“Debt Buying”), and a
      consumer debt collections agency (“Collection Agency”).







20


Debt
      Resolve, operating the Company’s core business, offers online debt resolution
      services to creditors and collection agencies. DRV Capital is a debt buyer
      that
      uses the Company’s patent-based online collection software to boost its
      collections on the debt which it owns. First Performance operates collection
      operations in two states and collects on defaulted consumer debt on behalf
      of
      its clients, who are debt buyers and creditors.





The
      following tables summarize financial information about the Company’s business
      segments for the three and nine months ended September 30, 2007:





**Three
      months ended September 30, 2007**





**Internet****Services**
            
            **Debt
                Buying**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            13,810
            
            $
            591
            
            $
            512,417
            
            $
            --
            
            $
            526,818Loss
                from operations
            
            $
            (2,284,792
            )
            $
            (96,493
            )
            $
            (744,050
            )
            $
            (215,539
            )
            $
            (3,340,874
            )Depreciation
                and amortization
            
            $
            14,380
            
            $
            --
            
            $
            42,327
            
            $
            --
            
            $
            56,707Goodwill
                & intangibles impairment charge
            
            $
            --
            
            $
            --
            
            $
            (27,255
            )
            $
            --
            
            $
            (27,255
            )Interest
                income
            
            $
            (19,681
            )
            $
            (8,551
            )
            $
            (1,281
            )
            $
            --
            
            $
            (29,513
            )Capital
                expenditures
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            --Total
                assets
            
            $
            484,355
            
            $
            116,046
            
            $
            738,027
            
            $
            --
            
            $
            1,338,428




**Nine
      months ended September 30, 2007**








**Internet****Services**
            
            **Debt
                Buying**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            46,938
            
            $
            3,818
            
            $
            2,489,128
            
            $
            --
            
            $
            2,539,884Loss
                from operations
            
            $
            (6,394,966
            )
            $
            (333,748
            )
            $
            (3,318,474
            )
            $
            (702,170
            )
            $
            (10,749,358
            )Depreciation
                and amortization
            
            $
            42,558
            
            $
            --
            
            $
            134,146
            
            $
            --
            
            $
            176,704Goodwill
                & intangibles impairment charge
            
            $
            --
            
            $
            --
            
            $
            (1,206,335
            )
            $
            --
            
            $
            (1,206,335
            )Interest
                income
            
            $
            14,224
            
            $
            (38,460
            )
            $
            (1,724
            )
            $
            --
            
            $
            (25,960
            )Capital
                expenditures
            
            $
            40,320
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            40,320Total
                assets
            
            $
            484,355
            
            $
            116,046
            
            $
            738,027
            
            $
            --
            
            $
            1,338,428








NOTE
      17.  SUBSEQUENT
      EVENTS:




a.
            Warrant
                Exercises




Subsequent
      to September 30, 2007, the Company issued 16,667 shares in connection with
      the
      exercise of warrants for cash proceeds of $167.




b.
            Line
                of Credit - Related Party


On
      October 17, 2007, Debt Resolve entered into a line of credit with William M.
      Mooney, a Director of Debt Resolve, for up to $275,000 to be used primarily
      to
      fund the working capital needs of First Performance. Borrowings under the line
      of credit will bear interest at 12% per annum, with interest payable monthly
      in
      cash. The principal balance outstanding will be due at any time upon 30 days
      written notice from Mr. Mooney, subject to mandatory prepayment (without
      penalty) of principal and interest, in whole or in part, from the net cash
      proceeds of any public or private, equity or debt financing made by Debt
      Resolve. In addition, the Company issued to Mr. Mooney warrants to purchase
      137,500 shares of common stock at an exercise price of $2.00 per share. The
      warrant award is subject to certain regulatory approvals. Subsequent to October
      17, 2007, the Company has borrowed $275,000 under this line of credit. Drawings
      under this line of credit are guaranteed personally by James Burchetta and
      Charles Brofman, the Company’s Co-Chairmen.







21




c.
            Patent
                Litigation




On
      October 26, 2007, the Company settled the patent litigation against Apollo. Pursuant
      to the settlement, the Company’s infringement claims against Apollo’s present
      system were dismissed with prejudice, subject to the understanding that the
      Company is free to file a patent infringement action against Apollo in the
      future under the patents in the event Apollo’s product is configured differently
      than as represented by Apollo and in a manner that infringes the patents. In
      the
      event of such litigation, Apollo retains its rights to assert any defense
      available to it.







**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**





**Overview**





Prior
      to January 19, 2007, we were a development stage company. On
      January 19, 2007, we acquired all of the outstanding capital stock of First
      Performance Corporation, a Nevada corporation (“First Performance”), and its
      wholly owned subsidiary, First Performance Recovery Corporation, pursuant to
      a
      Stock Purchase Agreement dated January 19, 2007. Accordingly, we are no longer
      considered a development stage entity.





Since
      completing initial product development in early 2004, our primary business
      has
      been providing a software solution to consumer lenders or those collecting
      on
      those loans based on our proprietary DebtResolve system, our Internet-based
      bidding system that facilitates the settlement and collection of defaulted
      consumer debt via the Internet. We have marketed our service primarily to
      consumer credit card issuers, collection agencies, collection law firms and
      the
      buyers of defaulted debt in the United States and Europe. We intend to market
      our service to other segments served by the collections industry worldwide.
      For
      example, we believe that our system will be especially valuable for the
      collection of low balance debt, such as that held by utility companies and
      online service providers, where the cost of traditionally labor intensive
      collection efforts may exceed the value collected. We also intend to pursue
      past-due Internet-related debt, such as that held by sellers of sales and
      services online. We believe that consumers who incurred their debt over the
      Internet will be likely to respond favorably to an Internet-based collection
      solution. In addition, creditors of Internet-related debt usually have access
      to
      debtors’ e-mail addresses, facilitating the contact of debtors directly by
      e-mail. We believe that expanding to more recently past-due portfolios of such
      debt will result in higher settlement volumes, improving our clients’
profitability by increasing their collections while reducing their cost of
      collections. We do not anticipate any material incremental costs associated
      with
      developing our capabilities and marketing to these creditors, as our existing
      DebtResolve system can already handle this type of debt, and we make contact
      with these creditors in our normal course of business.




We
      have
      prepared for our entry into the European marketplace by reviewing our mode
      of
      business and modifying our contracts to comply with appropriate European
      privacy, debtor protection and other applicable regulations. We expect that
      initially, our expense associated with servicing our United Kingdom and other
      potential European clients will be minimal, consisting primarily of travel
      expense to meet with those clients and additional legal fees, as our European
      contracts, although already written to conform to European regulations, may
      require customization. We have begun investigation of, and negotiations with,
      companies who may provide local, outsourced European customer service support
      for us on an as needed basis, the expense of which will be variable with the
      level of business activity. In the United Kingdom, we have engaged an agent
      to
      represent us for sales and customer service for a flat monthly fee. We recently
      announced the signing of our first European customer, a U.K.-based large
      collection agency. We may incur additional costs, which we cannot anticipate
      at
      this time, if we expand into Canada and other countries.




Our
      revenues to date have been insufficient to fund our operations. We have financed
      our activities to date through our management’s contributions of cash, the
      forgiveness of royalty and consulting fees, the proceeds from sales of our
      common stock in private placement financings, the proceeds of our convertible
      promissory notes in three private financings, short-term borrowings from
      previous investors or related parties and the proceeds from the sale of our
      common stock in our initial public offering. In connection with our marketing
      and client support goals, we expect our operating expenses to grow as we employ
      additional technicians, sales people and client support representatives. We
      expect that salaries and other compensation expenses will continue to be our
      largest category of expense, while travel, legal and other sales and marketing
      expenses will grow as we expand our sales, marketing and support capabilities.
      Effective utilization of our system will require a change in thinking on the
      part of the collection industry, but we believe the effort will result in new
      collection benchmarks. We intend to provide detailed advice and hands-on
      assistance to clients to help them make the transition to our system.





22


Our
      current contracts provide that we will earn revenue based on a percentage of
      the
      amount of debt collected from accounts submitted on our DebtResolve system,
      from
      flat fees per settlement achieved or a flat monthly license fee. Although other
      revenue models have been proposed, most revenue earned to date has been
      determined using these methods, and such revenue is recognized when the
      settlement amount of debt is collected by our client. For the early adopters
      of
      our system, we waived set-up fees and other transactional fees that we
      anticipate charging on a going-forward basis. While the percent of debt
      collected will continue to be a revenue recognition method going forward, other
      payment models are also being offered to clients and may possibly become our
      preferred revenue model. Most contracts currently in process include provisions
      for set up fees and base revenue on a monthly licensing fee, in the aggregate
      or
      per account, with some contracts having a small transaction fee on debt
      settlement as well. In addition, with respect to our DR Prevent TM module, which
      settles consumer debt at earlier stages, we expect that a licensing fee per
      account on our system, and/or the hybrid revenue model which will include both
      fees per account and transaction fees at settlement, may become the preferred
      revenue methods. As we expand our knowledge of the industry, we have become
      aware that different revenue models may be more appropriate for the individual
      circumstances of our potential clients, and our expanded choice of revenue
      models reflects that knowledge.




We
      also
      entered into the business of purchasing and collecting debt. Through our
      subsidiary, DRV Capital LLC, and its single-purpose subsidiary, EAR Capital
      I,
      LLC, we have bought two portfolios of charged-off debt at a significant discount
      to their face value and, through subcontracted, licensed debt collectors,
      attempted to collect on that debt by utilizing both our DebtResolve system
      and
      also traditional collection methods. We were also testing marketing strategies
      targeted to debtors for the DebtResolve system. We purchased the portfolios
      in
      an effort to, develop a new paradigm for the collection of such debts, as well
      as develop “best practice” usage methods, which we can then share with our core
      clients, in addition to the actual revenues earned from this venture by buying
      and settling these debts. On October 15, 2007, we notified our debt buying
      business partners that we would no longer be buying portfolios of debt on the
      open market, since many of our current and future partners are debt buyers.
      In
      the future, we may use our DRV Capital entity to participate with one or more
      of
      our debt buying customers in purchasing a percentage of their portfolio, for
      the
      purpose of getting a larger percentage of the portfolio to collect and to
      enhance the introduction our DebtResolve system to new debt buying clients.
      We
      have no plans at the present time to engage in this activity.




On
      December 22, 2006, we, EAR Capital I, LLC, as borrower, and DRV Capital LLC,
      as
      servicer, entered into a $20.0 million secured debt financing facility pursuant
      to a Master Loan and Servicing Agreement, dated December 21, 2006, with Sheridan
      Asset Management, LLC, (“Sheridan”) as lender, to finance the purchase of
      distressed consumer debt portfolios from time to time. The facility generally
      provides for a 90.0% advance rate with respect to each qualified debt portfolio
      purchased. Interest accrues at 12% per annum and is payable monthly. Notes
      issued under the facility are collateralized by the distressed consumer debt
      portfolios that are purchased with the proceeds of the loans. Each note has
      a
      maturity date not to exceed a maximum of 24 months after the borrowing date,
      and
      amounts repaid cannot be re-borrowed. Once the notes are repaid and we have
      been
      repaid our investment, we and Sheridan share the residual collections from
      the
      debt portfolios, net of servicing fees, in a ratio determined according to
      terms
      agreed upon at each acquisition of each pool of accounts receivable. The sharing
      in residual cash flows continues for the entire economic life of the debt
      portfolios financed using this facility, and will extend beyond the expiration
      date of the facility. New advances for portfolio purchases under the facility
      are not available beyond the December 21, 2007 expiration date. Under the terms
      of the agreement, we are required to give Sheridan the opportunity to fund
      any
      of our purchases of distressed consumer debt with advances through December
      21,
      2008. As we wind down its debt buying business, the outstanding loans will
      be
      repaid and this agreement terminated.





Revenue
      streams associated with this business will include servicing fees earned and
      paid, collections of principal in excess of the price paid, interest earned
      on
      purchased debt and paid to investment partners, and, from time to time, gains
      on
      the resale of remaining balances. We, as the parent company, may also earn
      increased revenues from the use of our DebtResolve system by agencies that
      may
      be subcontracted to collect these debts. We expect that revenues earned from
      the
      debt purchase and collection business will develop slowly, over several months,
      beginning from the time we first capitalized the subsidiary. We have already
      hired experienced staff and incurred certain legal expenses to meet compliance
      requirements for entering this business. Unless we achieve certain scale in
      these operations, early revenues will not fully cover those costs. In January
      2007, we purchased our first two pools of defaulted debt through DRV Capital
      and
      its single-purpose subsidiary, EAR Capital. The remaining uncollected portfolios
      are being sold at this time.





23


In
      January 2007, we purchased the outstanding common stock of First Performance.
      First Performance is a collection agency that represents both regional and
      national credit grantors from such diverse industries as retail, bankcard,
      oil
      cards, mortgage and auto. By entering this business directly, we have signaled
      our intention to become a significant player in the accounts receivable
      management industry. We believe that through a mixture of both traditional
      and
      our innovative, technologically-driven collection methods, we can achieve
      superior returns. Due to the loss of four major clients at First Performance
      during the first nine months of 2007, we performed two interim impairment
      analyses in accordance with SFAS 142. As a result of these analyses,
      we received two impairment charges aggregating $1,206,335 during
      the nine months ended September 30, 2007.





Revenue
      streams associated with this business include contingency fee revenue on
      recovery of past due consumer debt and non-sufficient funds fees on returned
      checks.





On
      April
      30, 2007, we, Credint Holdings, LLC (“Credint Holdings”) and the holders of all
      of the limited liability membership interests of Credint Holdings entered into
      a
      securities purchase agreement (the “Purchase Agreement”) for us to acquire 100%
      of the outstanding limited liability company membership interests of Creditors
      Interchange Receivables Management, LLC (“Creditors Interchange”), an accounts
      receivable management agency and wholly-owned subsidiary of Credint Holdings.
      Prior to this agreement, an agreement with Creditors Interchange for the use
      by
      Creditors Interchange of our DebtResolve system, and a management services
      agreement pursuant to which Creditors Interchange provides management consulting
      services to First Performance were in place.





The
      total
      consideration for the acquisition was to consist of (a) 840,337 shares of our
      common stock, and (b) $60,000,000 in cash less the sum, as of the date the
      acquisition is consummated, of all principal, accrued interest, prepayment
      penalties and other charges in respect of Creditors Interchange’s outstanding
      indebtedness. The closing date in the original agreement was June 30, 2007,
      which was extended to August 31, 2007. On August 31, 2007, the total
      consideration was reduced to $54 million with a further extension of the closing
      date to September 14, 2007. On September 24, 2007, we terminated the securities
      purchase agreement based on certain terms in the Purchase
      Agreement.





In
      connection with the financing of the transaction, and as well as to provide
      additional working capital and to fund operations, we signed an engagement
      letter with investment banks to explore financing alternatives. Subsequent
      to
      June 30, 2007, we secured financing commitments for up to $40 million in debt,
      consisting of $25 million of senior secured debt and $15 million of mezzanine
      debt. We also procured financing commitments for the balance of the cash portion
      of the reduced total consideration as equity financing and had completed a
      financing package for the transaction. However, the Company terminated the
      securities purchase agreement due to a material adverse change in the financial
      condition of Creditors Interchange, and the commitments lapsed at termination.




We
      have
      suffered significant recurring operating losses, have negative working capital
      and need to raise additional capital in order to be able to accomplish our
      business plan objectives. These conditions raise substantial doubt about our
      ability to continue as a going concern. In 2007, we have secured lines of credit
      with three related parties in the aggregate amount of $1,075,000. If we are
      unable to raise sufficient additional funds or integrate our acquisition to
      a
      level of profitability, we will have to develop and implement a plan to extend
      payables and reduce overhead until sufficient additional capital is raised
      to
      support further operations. In the second and fourth quarters of 2007, we
      reduced overhead and extended payables. However, we cannot assure you that
      our
      efforts to raise additional capital will be successful.







24








**Results
      of Operations for the Three Months Ended September 30, 2007 Compared to the
      Three Months Ended September 30, 2006**




***Revenues***




Revenues
      totaled $526,818 and $30,617 for the three months ended September 30, 2007
      and
      2006, respectively. We earned revenue during the three months ended September
      30, 2007 from fees earned on debt collected by our collection agency, and as
      a
      percent of debt collected or flat settlement fee at collection agencies, law
      firms, a lender and two banks that implemented our online system. Of the revenue
      earned during the three months ended September 30, 2007, $512,417 was earned
      as
      fees on debt collected at our collection agency and $13,810 was contingency
      fee
      income, based on a percentage of the amount of debt collected or fees per
      settlement from accounts placed on our online system. In addition, we earned
      $591 in revenue for management fees related to investments in past due consumer
      debt portfolios purchased through our DRV Capital subsidiary. Of the revenue
      earned during the three months ended September 30, 2006, $12,500 was earned
      for
      fees charged to license our software for the period, and $18,117 was contingency
      fee income, based on a percentage of the amount of debt collected from accounts
      placed on our online system.




***Costs
      and Expenses***




**Payroll
      and related expenses** .
      Payroll
      and related expenses totaled $1,490,069 for the three months ended September
      30,
      2007, a decrease of $431,709 over payroll and related expenses of $1,921,778
      for
      the three months ended September 30, 2006. This decrease was due primarily
      to
      the reduction in payroll and related expenses from the closing of our First
      Performance office in Florida. Total payroll and related expenses for First
      Performance totaled $745,488 for the three months ended September 30, 2007,
      and
      non-cash stock based compensation expense was $337,721 and $1,334,366 for the
      three months ended September 30, 2007 and 2006, respectively. Internet business
      cash payroll and related expenses decreased by $7,465, or 1.3%, from $587,412
      for the three months ended September 30, 2006 to $579,947 for the three months
      ended September 30, 2007. Salary expenses were $994,638 for the three months
      ended September 30, 2007, an increase of $477,031 over salary expenses of
      $517,607 for the three months ended September 30, 2006. In addition, the
      staffing increase related to the First Performance acquisition resulted in
      payroll tax expense of $71,698 for the three months ended September 30, 2007,
      an
      increase of $53,469 over payroll tax expense of $18,229 for the three months
      ended September 30, 2006 and an increase in health insurance expense to $74,659
      for the three months ended September 30, 2007 from $39,197 in the three months
      ended September 30, 2006, an increase of $35,462. Other miscellaneous salary
      related expenses were $11,352 in payroll expenses for the three months ended
      September 30, 2007 as compared with $12,379 for the three months ended September
      30, 2006, a decrease of $1,027.




**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $1,333,850 for the three months ended
      September 30, 2007, as compared to $1,644,887 for the three months ended
      September 30, 2006, a decrease of $311,037. This decrease was due to a reduction
      in the general and administrative expenses at First Performance of $468,866
      from
      the second quarter of 2007. The acquisition of First Performance added $373,068
      to general and administrative expenses for the three months ended September
      30,
      2007. Also, a charge for $68,329 for disposal of fixed assets at First
      Performance is included in general and administrative expense. The expense
      for
      stock based compensation for stock options granted to consultants for the three
      months ended September 30, 2007 was $17,100, as compared with stock based
      compensation in the amount of $1,267,768 for the three months ended September
      30, 2006. Also, for the three months ended September 30, 2007 consulting fees
      totaled $372,446, as compared with $56,701 in consulting fees for the three
      months ended September 30, 2006, resulting in an increase of $315,745, primarily
      related to fundraising costs associated with the August 2007 private placement.
      Legal fees increased by $252,352 to $299,698 for the three months ended
      September 30, 2007 from $47,346 for the three months ended September 30, 2006,
      primarily due to the patent litigation against Apollo Enterprise Solutions.
      The
      expenses for occupancy, telecommunications, travel and office supplies for
      the
      three months ended September 30, 2007 were $140,177, $130,052, $43,880 and
      $84,278, respectively, as compared with expenses of $30,862, $39,227, $45,338
      and $8,484 for occupancy, telecommunications, travel and office supplies,
      respectively, for the three months ended September 30, 2006, all due to the
      addition of First Performance and travel related to the Creditors Interchange
      acquisition. Marketing expenses increased by $25,256 to $56,759 for the three
      months ended September 30, 2007 from $31,503 for the three months ended
      September 30, 2006, primarily due to more press releases and more trade show
      expense. During the three months ended September 30, 2007, we recognized a
      $36,373 benefit to mark to market the purchased receivables held by DRV Capital.
      Other general operating costs for the three months ended September 30, 2007,
      including insurance and accounting expenses, amounted to $157,504, as compared
      with $117,657 for the three months ended September 30, 2006.




**Impairment
      of goodwill and intangibles**. For the three months ended September 30,
      2007, an expense of $27,255 was recorded related to the impairment of purchased
      intangibles at First Performance.







25


**Terminated
      acquisition costs.** For the
      three months ended September 30, 2007, costs associated with the terminated
      Creditors Interchange transaction were charged to expense as a result of the
      termination of the Purchase Agreement on September 24, 2007. The total expenses
      charged during the period were $959,811.




**Depreciation
      and amortization expense** .
      For the
      three months ended September 30, 2007, we recorded depreciation expense of
      $17,745 and an expense of $38,962 for the amortization of intangibles recorded
      in connection with the acquisition of First Performance Corporation in January
      2007. Depreciation expense for the three months ended September 30, 2006 was
      $12,020. We had no amortization or other expense related to intangibles in
      2006.




**Interest
      income (expense).** We
      recorded interest expense of $29,513 for the three months ended September 30,
      2007, compared to interest expense of $443,269 for the three months ended
      September 30, 2006. Interest expense for the three months ended September 30,
      2007 includes interest accrued on our lines of credit, and interest expense for
      the three months ended September 30, 2006 includes interest accrued on our
      7%
      convertible notes and other short term notes.




**Amortization
      of deferred debt discount.** Amortization
      expense of $2,119,810 was incurred for the three months ended September 30,
      2006
      for the amortization of the value of the beneficial conversion feature and
      deferred debt discount associated with our convertible note offerings. These
      convertible note offerings were repaid during 2006 and the related deferred
      debt
      discount was fully amortized.




**Amortization
      of deferred financing costs.** Amortization
      expense of $393,232 was incurred for the three months ended September 30, 2006
      for the amortization of deferred financing costs associated with our convertible
      note offerings. These convertible note offerings were repaid in 2006 and the
      related deferred financing costs were fully amortized.







**Results
      of Operations for the Nine Months ended September 30, 2007 Compared to the
      Nine
      Months ended September 30, 2006**




***Revenues***




Revenues
      totaled $2,539,884 and $84,908 for the nine months ended September 30, 2007
      and
      2006, respectively. We earned revenue during the nine months ended September
      30,
      2007 from fees earned on debt collected by our collection agency, as a percent
      of debt collected at collection agencies, collection law firms, a lender and
      two
      banks that implemented our online system and as a flat fee per settlement with
      some clients. Of the revenue earned during the nine months ended September
      30,
      2007, $2,489,129 was earned as fees on debt collected at our collection agency,
      $39,438 was contingency fee income, based on a percentage of the amount of
      debt
      collected from accounts placed on our online system or settlement fees, and
      $7,500 was start up fee income. In addition, we earned $3,818 in revenue for
      management fees related to investments in past due consumer debt portfolios
      purchased through our DRV Capital subsidiary. Of the revenue earned during
      the
      nine months ended September 30, 2006, $27,083 was earned for fees charged to
      license our software for the period, $3,600 was start up fee income and $54,224
      was contingency fee income, based on a percentage of the amount of debt
      collected from accounts placed on our online system.




***Costs
      and Expenses***




**Payroll
      and related expenses** .
      Payroll
      and related expenses totaled $6,230,667 for the nine months ended September
      30,
      2007, an increase of $3,107,149 over payroll and related expenses of $3,123,518
      for the nine months ended September 30, 2006. This increase was due to payroll
      and related expenses for our First Performance subsidiary acquired in 2007,
      which totaled $2,638,868 for the nine month period and non-cash stock based
      compensation expense of $2,068,939 and $1,334,366 for the nine months ended
      September 30, 2007 and 2006, respectively, an increase of $734,573. Internet
      business cash (excluding non-cash stock based compensation and inter-company
      allocations) payroll and related expenses for the nine months ended September
      30, 2007 and 2006 were $1,843,315 and $1,789,152, respectively, an increase
      of
      $54,163, or 3.0% due to additional staff. Salary expenses were $3,499,033 for
      the nine months ended September 30, 2007, an increase of $1,997,218 over salary
      expenses of $1,501,815 for the nine months ended September 30, 2006, almost
      entirely due to the addition of First Performance. In addition, the staffing
      increase related to the First Performance acquisition resulted in payroll tax
      expense of $311,072 for the nine months ended September 30, 2007, an increase
      of
      $212,147 over payroll tax expense of $98,925 for the nine months ended September
      30, 2006 and an increase in health insurance expense to $266,422 for the nine
      months ended September 30, 2007 from $112,641 in the nine months ended September
      30, 2006, an increase of $153,781. Other miscellaneous salary related expenses
      were $85,202 in payroll expenses for the nine months ended September 30, 2007
      as
      compared with $75,770 for the nine months ended September 30, 2006, an increase
      of $9,432.





26


**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $4,699,193 for the nine months ended
      September 30, 2007, as compared to $2,762,100 for the nine months ended
      September 30, 2006, an increase of $1,937,093. This increase was primarily
      due
      to the acquisition of First Performance, which added $1,795,023 to general
      and
      administrative expenses for the nine month period. In addition, a charge of
      $68,329 for disposal of fixed assets was incurred by First Performance. The
      expense for stock based compensation for stock options granted to consultants
      for the nine months ended September 30, 2007 was $254,130, as compared with
      stock based compensation in the amount of $1,380,580 for the nine months ended
      September 30, 2006. Also, for the nine months ended September 30, 2007,
      consulting fees totaled $787,983, as compared with $127,273 in consulting fees
      for the nine months ended September 30, 2006, resulting in an increase of
      $660,710, primarily related to hiring outside consultants to assist in selling
      the Debt Resolve system in the United States and the United Kingdom, and to
      assist in the integration and management of our new First Performance
      subsidiary, as well as costs related to the August 2007 private placement.
      Legal
      fees increased by $258,329 to $674,828 for the nine months ended September
      30,
      2007 from $416,499 for the nine months ended September 30, 2006, primarily
      due
      to the patent litigation against Apollo Enterprise Solutions. The expenses
      for
      occupancy, telecommunications, travel and office supplies in the nine months
      ended September 30, 2007 were $413,652, $484,563, $265,567 and $374,737,
      respectively, as compared with expenses of $92,505, $154,846, $158,135 and
      $25,005 for occupancy, telecommunications, travel and office supplies,
      respectively, for the nine months ended September 30, 2006, all due almost
      exclusively to the addition of First Performance and additional travel in
      support of the Creditors Interchange acquisition. Marketing expenses increased
      by $195,242 to $274,795 during the nine months ended September 30, 2007 from
      $79,554 for the nine months ended September 30, 2006, primarily due to our
      expanded efforts to market the DebtResolve system. Direct collection costs
      of
      First Performance and DRV Capital were $481,882 during the nine months ended
      September 30, 2007 and $0 for the nine months ended September 30, 2006, as
      both
      DRV and First Performance began operations with us in January, 2007. During
      the
      nine months ended September 30, 2007, we recognized a $22,670 charge to mark
      to
      market the purchased receivables held by DRV Capital. Other general operating
      costs for the nine months ended September 30, 2007, including insurance and
      accounting expenses, amounted to $596,057, as compared with $327,704 for the
      nine months ended September 30, 2006.




**Impairment
        of goodwill and intangibles**. For the three months ended September 30,
        2007, an expense of $1,206,335 was recorded related to the impairment of
        purchased intangibles and goodwill at First Performance.


**Terminated
      acquisition costs.** For the
      nine months ended September 30, 2007, costs associated with the terminated
      Creditors Interchange transaction were charged to expense as a result of the
      termination of the Purchase Agreement on September 24, 2007. The total expenses
      charged during the period were $959,811.




**Depreciation
      and amortization expense** .
      For the
      nine months ended September 30, 2007 we recorded depreciation expense of
      $115,834 and an expense of $60,870 for the amortization of intangibles recorded
      in connection with the acquisition of First Performance Corporation in January
      2007. For the nine months ended September 30, 2006 we had no amortization
      expense, but recorded depreciation expense of $39,487.




**Interest
      expense.** We
      recorded interest expense of $25,960 for the nine months ended September 30,
      2007, compared to interest expense of $662,332 for the nine months ended
      September 30, 2006. Interest expense for the nine months ended September 30,
      2007 includes interest on our lines of credit, and interest expense for the
      nine
      months ended September 30,2006 includes interest accrued on our 7% convertible
      notes and other short term notes.




**Amortization
      of deferred debt discount.** Amortization
      expense of $3,017,944 was incurred for the nine months ended September 30,
      2006
      for the amortization of the value of the beneficial conversion feature and
      deferred debt discount associated with our convertible note offerings. These
      convertible note offerings were repaid during 2006 and the related deferred
      debt
      discount was fully amortized.




**Amortization
      of deferred financing costs.** Amortization
      expense of $532,603 was incurred for the nine months ended September 30, 2006
      for the amortization of deferred financing costs associated with our convertible
      note offerings. These convertible note offerings were repaid in 2006 and the
      related deferred financing costs were fully amortized.





27





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, we had a working capital deficiency in the amount of
      $1,897,172, and cash and cash equivalents totaling $1,258. We incurred a net
      loss of $10,749,358 for the nine months ended September 30, 2007. Net cash
      used
      in operating and investing activities was $7,362,190 for the nine months ended
      September 30, 2007. Cash flow provided by financing activities was $2,437,877
      for the nine months ended September 30, 2007. Our working capital as of the
      date
      of this report is negative and is not sufficient to fund our plan of operations
      for the next twelve months.  The aforementioned factors raise substantial
      doubt about our ability to continue as a going concern.




Our
      management is actively pursuing additional debt and/or equity
      financing.  As discussed above, we acquired First Performance, an
      accounts receivable management agency, in January 2007, and accordingly, are
      no
      longer in the development stage as of the date of the
      acquisition.  Our management believes that we will be successful in
      obtaining additional financing and successfully integrate our First Performance
      acquisition to a level of profitability, however, we cannot assure you that
      we
      will be able to do so.




Through
      September 2007, two stockholders have provided us with $600,000 in lines of
      credit. In addition, subsequent to September 30, 2007, a Director and
      stockholder provided interim operating funds of $275,000 through a line of
      credit. If we are unable to raise sufficient additional funds or integrate
      our
      acquisition to a level of profitability, we will have to develop and implement
      a
      plan to extend payables and reduce overhead until sufficient additional capital
      is raised to support further operations. In the second and third quarters of
      2007, we reduced overhead and extended payables. However, we cannot assure
      you
      that our efforts will be successful. To the extent that we are unsuccessful,
      we
      may need to curtail our operations.









**Critical
      Accounting Policies and Estimates**






Accounts
      Receivable




We
      extend
      credit to large and mid-size companies for collection services. We have
      concentrations of credit risk as 77% of the balance of accounts receivable
      at
      September 30, 2007 consists of only 3 customers. At September 30, 2007, accounts
      receivable from the three largest accounts amounted to approximately $58,810
      (41%), $25,787 (18%) and $25,523 (18%), respectively. We do not generally
      require collateral or other security to support customer receivables. Accounts
      receivable are carried at their estimated collectible amounts. Accounts
      receivable are periodically evaluated for collectibility and the allowance
      for
      doubtful accounts is adjusted accordingly. Our management determines
      collectibility based on their experience and knowledge of the
      customers.





Business
      Combinations




In
      accordance with business combination accounting, we allocate the purchase price
      of acquired companies to the tangible and intangible assets acquired and
      liabilities assumed, based on their estimated fair values. We engaged a
      third-party appraisal firm to assist our management in determining the fair
      values of First Performance. Such a valuation requires our management to make
      significant estimates and assumptions, especially with respect to intangible
      assets.





Our
      management makes estimates of fair values based upon assumptions believed to
      be
      reasonable. These estimates are based on historical experience and information
      obtained from the management of the acquired companies. Critical estimates
      in
      valuing certain of the intangible assets include but are not limited to: future
      expected cash flows from customer relationships and market position, as well
      as
      assumptions about the period of time the acquired trade names will continue
      to
      be used in the combined company's product portfolio; and discount rates. These
      estimates are inherently uncertain and unpredictable. Assumptions may be
      incomplete or inaccurate, and unanticipated events and circumstances may occur
      which may affect the accuracy or validity of such assumptions, estimates or
      actual results.





28


Goodwill
      and Intangible Assets




We
      account for goodwill and intangible assets in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS
      141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).
      Under SFAS 142, goodwill and intangibles that are deemed to have indefinite
      lives are no longer amortized but, instead, are to be reviewed at least annually
      for impairment. Application of the goodwill impairment test requires judgment,
      including the identification of reporting units, assigning assets and
      liabilities to reporting units, assigning goodwill to reporting units, and
      determining the fair value. Significant judgments required to estimate the
      fair
      value of reporting units include estimating future cash flows, determining
      appropriate discount rates and other assumptions. Changes in these estimates
      and
      assumptions could materially affect the determination of fair value and/or
      goodwill impairment for each reporting unit. Intangible assets will be amortized
      over their estimated useful lives. We performed an analysis of our goodwill
      and
      intangible assets in accordance with SFAS 142 as of June 30, 2007 and determined
      that an impairment charge was necessary. We performed a further analysis of
      our
      intangible assets as of September 30, 2007 and determined that an additional
      impairment charge was necessary.





Use
      of
      estimates




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires our management
      to
      make estimates and assumptions that affect the amounts reported in the financial
      statements and the accompanying notes. These estimates and assumptions are
      based
      on our management’s judgment and available information and, consequently, actual
      results could be different from these estimates.




Income
      Taxes





Effective
      January 1, 2007, we adopted the provisions of FASB Interpretation Number 48,
      “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109,” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
      measurement attribute for the financial statement recognition and measurement
      of
      tax positions taken or expected to be taken in a tax return. For those benefits
      to be recognized, a tax position must be more likely than not to be sustained
      upon examination by taxing authorities. Differences between tax positions taken
      or expected to be taken in a tax return and the benefit recognized and measured
      pursuant to the interpretation are referred to as “unrecognized benefits.” A
      liability is recognized (or amount of net operating loss carry forward or amount
      of tax refundable is reduced) for an unrecognized tax benefit because it
      represents an enterprise’s potential future obligation to the taxing authority
      for a tax position that was not recognized as a result of applying the
      provisions of FIN 48.





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as “Interest
      expense, net” in the consolidated statements of operations. Penalties would be
      recognized as a component of “General and administrative expenses.”





In
      many
      cases, our tax positions are related to tax years that remain subject to
      examination by relevant tax authorities. We file income tax returns in the
      United States (federal) and in various state and local jurisdictions. In most
      instances, we are no longer subject to federal, state and local income tax
      examinations by tax authorities for years prior to 2003.





The
      adoption of the provisions of FIN 48 did not have a material impact on our
      consolidated financial position and results of operations. As of September
      30,
      2007, no liability for unrecognized tax benefits was required to be
      recorded.




The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      become deductible. We consider projected future taxable income and tax planning
      strategies in making this assessment. At present, we do not have a sufficient
      history of income to conclude that it is more likely than not that we will
      be
      able to realize all of our tax benefits in the near future and therefore a
      valuation allowance was established in the full value of the deferred tax
      asset.





29


A
      valuation allowance will be maintained until sufficient positive evidence exists
      to support the reversal of any portion or all of the valuation allowance net
      of
      appropriate reserves. Should we continue to be profitable in future periods
      with
      a supportable trend, the valuation allowance will be reversed
      accordingly.




Revenue
      recognition




We
      earned
      revenue during 2007 and 2006 from several collection agencies, collection law
      firms and lenders that implemented our online system. Our current contracts
      provide for revenue based on a percentage of the amount of debt collected,
      a
      flat fee per settlement from accounts submitted on the DebtResolve system or
      through a flat monthly license fee. Although other revenue models have been
      proposed, most revenue earned to date has been determined using these methods,
      and such revenue is recognized when the settlement amount of debt is collected
      by the client. For the early adopters of our product, we waived set-up fees
      and
      other transactional fees that we anticipate charging in the future. While the
      percent of debt collected will continue to be a revenue recognition method
      going
      forward, other payment models are also being offered to clients and may possibly
      become our preferred revenue model. Dependent upon the structure of future
      contracts, revenue may be derived from a combination of set up fees or monthly
      licensing fees with transaction fees upon debt settlement.




In
      recognition of the principles expressed in Staff Accounting Bulletin 104 (“SAB
      104”), that revenue should not be recognized until it is realized or realizable
      and earned, and given the element of doubt associated with collectability of
      an
      agreed settlement on past due debt, at this time we uniformly postpone
      recognition of all contingent revenue until our client receives payment from
      the
      debtor. As is required by SAB 104, revenues are considered to have been earned
      when we have substantially accomplished the agreed-upon deliverables to be
      entitled to payment by the client. For most current active clients, these
      deliverables consist of the successful collection of past due debts using our
      system and/or, for clients under a licensing arrangement, the successful
      availability of our system to its customers.




In
      addition, in accordance with Emerging Issues Task Force (“EITF”) Issue 00-21,
      revenue is recognized and identified according to the deliverable provided.
      Set-up fees, percentage contingent collection fees, fixed settlement fees,
      monthly license fees, etc. are identified separately.




Recently
      signed contracts and contracts under negotiation call for multiple deliverables,
      and each component of revenue will be considered to have been earned when we
      have met the associated deliverable, as is required by SAB 104 Topic 13(A).
      For
      new contracts being implemented which include a licensing fee per account,
      following the guidance of SAB 104 regarding services being rendered continuously
      over time, we will recognize revenue based on contractual prices established
      in
      advance and will recognize income over the contractual time periods. Where
      some
      doubt exists on the collectability of the revenues, a valuation reserve will
      be
      established or the income charged to losses, based on management’s opinion
      regarding the collectability of those revenues.




In
      January 2007, we initiated operations of our debt buying subsidiary, DRV Capital
      LLC. DRV Capital and its wholly-owned subsidiary, EAR Capital I, LLC, have
      engaged in the acquisition of pools of past due debt at a deeply discounted
      price, for the purpose of collecting on those debts. In recognition of the
      principles expressed in Statement of Position 03-3 (“SOP 03-3”), where the
      timing and amount of cash flows expected to be collected on these pools is
      reasonably estimable, we will recognize the excess of all cash flows expected
      at
      acquisition over the initial investment in the pools of debt as interest income
      on a level-yield basis over the life of the pool (accretable yield). Because
      we
      are exiting this business, we will use the cost recovery method. Revenue will
      be
      earned by this debt buying subsidiary under the cost recovery method when the
      amount of debt collected exceeds the discounted price paid for the pool of
      debt.




On
      January 19, 2007, we completed the acquisition of First Performance, a
      collection agency, and its wholly-owned subsidiary First Performance Recovery
      Corporation. In recognition of the principles expressed in SAB 104, that revenue
      should not be recognized until it is realized or realizable and earned, and
      given the element of doubt associated with collectability of an agreed
      settlement on past due debt, at this time we uniformly postpone recognition
      of
      all contingent revenue until the cash payment is received from the debtor.
      At
      the time we remit fees collected to our clients, we accrue the portion of those
      fees that the client contractually owes. As is required by SAB 104, revenues
      are
      considered to have been earned when we have substantially accomplished the
      agreed-upon deliverables to be entitled to payment by the client. For most
      current active clients, these deliverables consist of the successful collection
      of past due debts.





30


Stock-based
      compensation




Beginning
      on January 1, 2006, we account for stock options issued under stock-based
      compensation plans under the recognition and measurement principles of SFAS
      No.
      123 - Revised. We adopted the modified prospective transition method and
      therefore, did not restate prior periods’ results. Total stock-based
      compensation expense related to these issuances and other stock-based grants
      for
      the three and nine months ended September 30, 2007 amounted to $354,821 and
      $2,323,069, respectively, and for the three and nine months ended September
      30,
      2006 amounted to $2,602,134 and $2,714,946, respectively.




The
      determination of the fair value of stock-based awards on the date of grant
      is
      affected by our stock price as well as assumptions regarding a number of complex
      and subjective variables. These variables include the price of the underlying
      stock, our expected stock price volatility over the expected term of the awards,
      actual and projected employee stock option exercise behaviors, the risk-free
      interest rate and the expected annual dividend yield on the underlying
      shares.




If
      actual
      results differ significantly from these estimates or different key assumptions
      were used, there could be a material effect on our financial statements.
 The future impact of the cost of stock-based compensation on our results
      of operations, including net income/(loss) and earnings/(loss) per diluted
      share, will depend on, among other factors, the level of equity awards as well
      as the market price of our common stock at the time of the award as well as
      various other assumptions used in valuing such awards. We will periodically
      evaluate these estimates.









**Statement
      Relating to Forward-Looking Statements**




This
      report contains forward-looking statements that are based on our beliefs as
      well
      as assumptions and information currently available to us. When used in this
      report, the words “believe,” “expect,” “anticipate,” “estimate,” “potential” and
      similar expressions are intended to identify forward-looking statements. These
      statements are subject to risks, uncertainties and assumptions, including,
      without limitation, the risks and uncertainties concerning our recent research
      and development activities; the risks and uncertainties concerning acceptance
      of
      our services and products, if and when fully developed, by our potential
      customers; our present financial condition and the risks and uncertainties
      concerning the availability of additional capital as and when required; the
      risks and uncertainties concerning the Limited License Agreement with Messrs.
      Brofman and Burchetta; the risks and uncertainties concerning our dependence
      on
      our key executives; the risks and uncertainties concerning technological changes
      and the competition for our services and products; the risks and uncertainties
      concerning general economic conditions; and the risks and uncertainties
      described in our Annual Report on Form 10-KSB for the year ended December 31,
      2006, filed on April 17, 2007, in the section labeled “Risk Factors.” Should one
      or more of these risks or uncertainties materialize, or should underlying
      assumptions prove incorrect, actual results may vary materially from those
      anticipated, estimated, or projected. We caution you not to place undue reliance
      on any forward-looking statements, all of which speak only as of the date of
      this report.




**Item
      3. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and our Chief Financial
      Officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon
      that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our company’s disclosure controls and procedures are effective,
      as of September 30, 2007, in ensuring that material information relating to
      us
      required to be disclosed by us in reports that we file or submit under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the Securities Exchange Commission rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      an
      issuer in reports it files or submits under the Exchange Act is accumulated
      and
      communicated to management, including its principal executive officer or
      officers and principal financial officer or officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure.




31


**Changes
      in Internal Control over Financial Reporting**




For
      the
      nine months ended September 30, 2007, our internal controls over financial
      reporting were materially impacted by its acquisition of First Performance,
      which took place on January 19, 2007. First
      Performance is a collection agency which operates one branch location and
      employs approximately 35 people. The books and records of the acquired company
      were moved to our White Plains location, and the controller of First Performance
      currently works under the supervision of our Chief Financial Officer. We have
      added more staff in the accounting department to assist in the consolidations
      and daily accounting processes. We are currently in the process of reviewing
      and
      formalizing controls in place over the preparation of First Performance’s
      financial statements, which have been consolidated into ours and included in
      this report. Based on initial review and assessment, our management believes
      that the design and operation of First Performance’s disclosure controls and
      procedures, together with the supervisory review we provide, are adequate and
      effective.










**CEO
      and CFO Certifications**




Appearing
      as Exhibits 31.1 and 31.2 to this report are “Certifications” of the CEO and
      CFO. The certifications are required pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”).



















32


**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





**Lawsuit
      against Apollo**




On  January
      8, 2007, we filed a patent infringement lawsuit against Apollo Enterprise
      Solutions, LLC (“Apollo”) in federal court in New Jersey.  The suit alleges
      that Apollo’s online debt collection system infringes one or more claims of
      the patents-in-suit, U.S. Patent Nos. 6,330,551 and 6,954,741.  We
      have exclusive rights under these and certain other patents with respect to
      the settlement of consumer debt.  In
      response to our complaint, Apollo (i) filed a motion to dismiss for an alleged
      lack of personal jurisdiction and, (ii) on January 29, 2007, filed a mirror
      lawsuit against us in federal court in the Central District of California which
      seeks a declaratory judgment of non-infringement and invalidity with respect
      to
      these patents. We have filed a motion to dismiss, transfer or stay the
      California case in preference to the first-filed New Jersey case. That motion
      has been granted by the court, and the California case has been stayed in
      preference to the New Jersey case. In the New Jersey case, the Court issued
      an
      order requiring the parties to submit a series of briefs showing why the case
      should not be transferred from New Jersey to the District of Delaware, the
      Southern District of New York or the Central District of California. The New
      Jersey Court subsequently denied Apollo’s motion to transfer the case to
      California and granted our request in the alternative that the case be heard
      in
      New York if the Court decided it should not stay in New Jersey. The case was
      transferred to federal court in the Southern District of New York where it
      remains pending at a preliminary stage. The mirror action that Apollo filed
      against us in California has been dismissed without prejudice by the parties.




On
      October 26, 2007, the Company settled the patent litigation against Apollo
      Enterprise Solutions LLC (“Apollo”) alleging an infringement of U.S. Patent Nos.
      6,330,551 and 6,954,741 (the “patents”), under which the Company has an
      exclusive license in the field of consumer debt.




The
      parties reached a settlement following a deposition of Apollo’s president, as
      well as further representations made by Apollo that its present system (which,
      for example, does not compare pairs of values submitted by a creditor and
      debtor) has not infringed and does not infringe the patents. It was further
      agreed that both parties would respect each other’s valid intellectual property
      rights in the future.




Pursuant
      to the settlement, the Company’s infringement claims against Apollo’s present
      system were dismissed with prejudice, subject to the understanding that the
      Company is free to file a patent infringement action against Apollo in the
      future under the patents in the event Apollo’s product is configured differently
      than as represented by Apollo and in a manner that infringes the patents. In
      the
      event of such litigation, Apollo retains its rights to assert any defense
      available to it.




As
      far as
      the Company is aware, the Company remains the only company that offers the
      Company’s patented, automated system and process for the settlement of consumer
      debt. The patents remain in full force and effect and the Company intends to
      continue to vigorously enforce its intellectual property rights.




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







On
      September 5, 2007, we completed the sale of 880,000 shares of common stock
      in a
      private placement for gross proceeds of $1,760,000. In conjunction with this
      transaction, we also issued an aggregate of 440,000 warrants to purchase common
      stock to the investors in the transaction, as well as a warrant to purchase
      88,000 shares of common stock to the Placement Agent.








**Item
      3. Defaults upon Senior Securities**





None





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





None





33


**Item
      5. Other Information**





None





**Item
      6. Exhibits and Filings on Form 8-K**








31.1
      Certification of Chief Executive Officer required by Rule
      13(a)-14(a).


31.2
      Certification of Chief Financial Officer required by Rule
      13(a)-14(a).


32.1
      Certifications required by Rule 13(a)-14(b) and 18 U.S.C. Section
      1350.


Filing
      on Form 8-K dated August 8, 2007


Filing
      on Form 8-K dated August 31, 2007


Filing
      on Form 8-K dated September 5, 2007


Filing
      on Form 8-K dated September 25, 2007



































34





**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this Report to be signed on its behalf by the undersigned,
      thereunto duly authorized.







Dated:
      November 19, 2007


**DEBT
      RESOLVE, INC.**





By: /s/ James
      D. Burchetta


James
      D. Burchetta


Co-Chairman
      and Chief Executive Officer


(principal
      executive officer)




By: /s/ David
      M. Rainey


David
      M. Rainey


Chief
      Financial Officer and Treasurer


(principal
      financial and accounting officer)












35