**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 MARCH 31, 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 May
      16, 2007, 7,209,738 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 March 31, 2007
              
              3Condensed
                  Consolidated Statements of Operations for the Three Months Ended
                  March 31,
                  2007 and 2006
              
              4Condensed
                  Consolidated Statements of Cash Flows for the Three Months Ended
                  March 31,
                  2007 and 2006
              
              5Notes
                  to Condensed Consolidated Financial Statements
              
              6Item
                  2. Management’s Discussion and Analysis or Plan of
                  Operation
              
              17Item
                  3. Controls and Procedures
              
              23**PART
                  II. Other Information**Item
                  1. Legal Proceedings
              
              24Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              24Item
                  3. Defaults Upon Senior Securities
              
              24Item
                  4. Submission of Matters to a Vote of Security Holders
              
              24Item
                  5. Other Information
              
              24Item
                  6. Exhibits and Reports on Form 8-K
              
              24Signatures
              
              25Certifications
              
              26




2




**PART
      I: FINANCIAL INFORMATION**




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




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheet


March
      31,
      2007


(Unaudited)




ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            1,612,073Restricted
                cash
            
            
            287,240Accounts
                receivable
            
            
            545,678Prepaid
                debt collection payments
            
            
            125,794Prepaid
                expenses and other current assets
            
            
            188,565Total
                current assets
            
            
            2,759,350Fixed
                assets, net
            
            
            458,697Other
                assets:Deposits
                and other assets
            
            
            147,159Deferred
                acquisition costs
            
            
            150,535Purchased
                accounts receivable
            
            
            570,866Intangible
                assets, net
            
            
            432,750Goodwill
            
            
            1,026,869Total
                other assets
            
            
            2,328,179Total
                assets
            
            $
            5,546,226LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            1,109,322Collections
                payable
            
            
            287,240Accrued
                payroll
            
            
            190,109Accrued
                expenses
            
            
            56,887Total
                current liabilities
            
            
            1,643,558Portfolio
                loans payable
            
            
            533,105Total
                liabilities
            
            
            2,176,663Stockholders’
                equity: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, 6,675,263
                shares
                issued and outstanding
            
            
            6,675Additional
                paid-in capital
            
            
            38,157,044Accumulated
                deficit
            
            
            (34,794,156
            )Total
                stockholders’ equity
            
            
            3,369,563Total
                liabilities and stockholders’ equity
            
            $
            5,546,226




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 March 31,2007
            
            2006Revenues
            
            $
            1,137,854
            
            $
            27,264Costs
                and expenses:Payroll
                and related expenses
            
            
            1,647,592
            
            
            616,462General
                and administrative expenses
            
            
            1,577,066
            
            
            570,297Depreciation
                and amortization expense
            
            
            52,785
            
            
            13,618Total
                expenses
            
            
            3,277,443
            
            
            1,200,377Loss
                from operations
            
            
            (2,139,589
            )
            
            (1,173,113
            )Other
                income (expense):Net
                interest income (expense)
            
            
            20,437
            
            
            (75,817
            )Amortization
                of deferred debt discount
            
            
            —
            
            
            (520,135
            )Amortization
                of deferred financing costs
            
            
            —
            
            
            (81,830
            )Other
                income
            
            
            5,010
            
            
            1,500Total
                other income (expense)
            
            
            25,447
            
            
            (676,282
            )Net
                loss
            
            $
            (2,114,142
            )
            $
            (1,849,395
            )Per
                share data:Basic
                and diluted net loss per common share (See Note 2)
            
            $
            (0.28
            )
            $
            (0.62
            )Basic
                and diluted weighted average number of common shares outstanding
                (See Note
                2)
            
            
            7,670,462
            
            
            2,970,390




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)




Three
                Months
              Ended
                March 31,2007
            
            2006**Cash
                flows from operating activities:**Net
                loss
            
            $
            (2,114,142
            )
            $
            (1,849,395
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non
                cash stock based compensation
            
            
            323,088
            
            
            56,406Accrued
                rent
            
            
            1,351
            
            
            2,578Amortization
                of deferred debt discount
            
            
            —
            
            
            520,135Amortization
                of deferred financing costs
            
            
            —
            
            
            81,830Depreciation
                and amortization
            
            
            52,785
            
            
            13,618Changes
                in operating assets & liabilitiesRestricted
                cash
            
            
            (129,755
            )
            
            —Accounts
                receivable
            
            
            (116,934
            )
            
            (16,759
            )Prepaid
                debt collection payments
            
            
            (125,794
            )
            
            —Prepaid
                expenses
            
            
            4,745
            
            
            45,877Deposits
                and other assets
            
            
            (615
            )
            
            —Deferred
                acquisition costs
            
            
            (150,535
            )
            
            —Accounts
                payable
            
            
            (353,199
            )
            
            241,216Collections
                payable
            
            
            129,755
            
            
            —Accrued
                expenses
            
            
            (237,606
            )
            
            101,504Accrued
                payroll
            
            
            190,109
            
            
            —Net
                cash used in operating activities
            
            
            (2,526,747
            )
            
            (802,990
            )**Cash
                flows from investing activities:**Purchase
                of First Performance Corporation
            
            
            (571,579
            )
            
            —Purchased
                accounts receivable
            
            
            (570,866
            )
            
            —Purchases
                of fixed assets
            
            
            (28,234
            )
            
            (4,169
            )Net
                cash used in investing activities
            
            
            (1,170,679
            )
            
            (4,169
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of convertible notes
            
            
            —
            
            
            300,000Proceeds
                from portfolio loans
            
            
            550,000
            
            
            —Repayment
                of portfolio loans
            
            
            (16,895
            )
            
            —Proceeds
                from issuance of short term notes
            
            
            —
            
            
            525,000Repayment
                of line of credit
            
            
            (150,000
            )
            
            —Proceeds
                from exercise of warrants
            
            
            823
            
            
            —Deferred
                financing costs
            
            
            —
            
            
            (39,000
            )Net
                cash provided by financing activities
            
            
            383,928
            
            
            786,000Net
                decrease in cash and cash equivalents
            
            
            (3,313,498
            )
            
            (21,159
            )Cash
                and cash equivalents at beginning of period
            
            
            4,925,571
            
            
            23,576Cash
                and cash equivalents at end of period
            
            $
            1,612,073
            
            $
            2,417**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 purchase business combination
            
            
            1,026,869
            
            
            —Accrued
                liabilities assumed in the acquisition
            
            
            (1,573,252
            )
            
            —Direct
                acquisition costs
            
            
            (71,579
            )
            
            —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.




5


DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


March
      31,
      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 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 months ended March 31, 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 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. Gross proceeds of the IPO were $12,500,000. 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.




Management
      is actively pursuing additional debt/equity financing and pursuing strategic
      acquisitions.  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 successfully integrate its acquisition to a level of profitability, however,
      no assurance can be provided that the Company will be able to do so. 
If the Company is unable to raise sufficient additional funds, 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. There
      can
      be no assurance that such a plan will be successful.




On
      April
      30, 2007, the Company, 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 the
      Company to acquire 100% of the outstanding limited liability company membership
      interests of Creditors Interchange Receivable Management, LLC (“Creditors
      Interchange”), an accounts receivable management agency and wholly-owned
      subsidiary of Credint Holdings. The total consideration for the acquisition
      consists of (a) 840,337 shares of the Company’s common stock, and (b) $60
      million 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 acquisition is
      subject to, among other things, shareholder approval of the acquisition and
      the
      Company securing financing relating to the acquisition. There is no assurance
      that the transaction will be completed. See Note 14a.




6




NOTE
      2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts
      of First Performance Corporation, a wholly-owned subsidiary, 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.




Accounts
      Receivable




The
      Company’s extends credit to large and mid-size companies for collection
      services. The Company has concentrations of credit risk in that 91% of the
      balance of accounts receivable at March 31, 2007 is made up of only eight
      customers. At March 31, 2007, accounts receivable from the two largest accounts
      amounted to approximately $149,355 (27%) and $57,646 (11%), 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.




Goodwill
      and Intangible Assets




The
      Company accounts for Goodwill and Intangible Assets in accordance with Statement
      of Financial Accounting Standards (“FAS”) No. 141, “Business Combinations” (“FAS
      141”) and FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under
      FAS No. 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.





7





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 No. 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 statement 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 March
      31, 2007, no liability for unrecognized tax benefits was required to be
      recorded.




The
      Company recognized a deferred tax asset of approximately $6.9 million as of
      March 31, 2007, primarily relating to net operating loss carry forwards of
      approximately $20.5 million, available to offset future taxable income through
      2026. The net operating loss carry forwards of the Company’s First Performance
      subsidiary are expected to be limited under Section 382 of the Internal Revenue
      Code to an annual amount estimated to be $80,000.





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.




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 supportable trends, the valuation allowance will be reversed
      accordingly.







8




Revenue
      Recognition




The
      Company earned revenue during 2007 and 2006 from several collection agencies
      and
      lenders that implemented the Company’s online system. The Company’s preliminary
      contracts provide for revenue based on a percentage of the amount of debt
      collected from accounts submitted on the DebtResolve system. Although other
      revenue models have been proposed, most revenue earned to date has been
      determined using this method, 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 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, fixed or percentage success fees, monthly maintenance 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 engage
      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 only recently entered into this business, it will use the cost recovery
      method until it has evaluated the accuracy of its model. 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. When
      management has determined that it is able to predict cash flows with some
      reliability, it will adopt the income accrual method, described above,
      recognizing the revenues on a level yield method over the expected ownership
      period of the pool.




On
      January 19, 2007, the Company completed the acquisition of First Performance
      Corporation, a collection agency. 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.




9


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 Statement of Financial Accounting Standards 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 months ended March 31,
      2007
      and March 31, 2006 amounted to $323,088 and $56,406, respectively.




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





**Three
                months ended**
              **March
                31,****2007**
            
            **2006**Risk
                free interest rate range
            
            4.50-4.84%
            
            2.13-3.75%Dividend
                yield
            
            0%
            
            0%Expected
                volatility
            
            96.7%
            
            96.7%Expected
                life in years
            
            3-5
            
            2-3





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
      March 31, 2007, total unrecognized compensation cost for these and prior grants
      amounted to $477,943.




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 3,458,454 and 1,084,150 at March 31, 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 March 31, 2007 do not
      include the underlying shares exercisable with respect to the issuance of
      1,024,720 warrants as of March 31, 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:





On
      January 19, 2007, the Company acquired all of the outstanding capital stock
      of
      First Performance Corporation, a Nevada corporation (“First Performance”),
      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 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.




10


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 has been assigned to trade names and $390,000 has been
      assigned to customer relationships. 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.





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





Intangible
                Asset Category
            
            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
            
            
            (71,579
            )Goodwill
            
            
            1,026,869Total
            
            $
            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
            
            
            71,579Total
                purchase price consideration
            
            $
            921,579




First
      Performance was purchased on January 19, 2007, and therefore only its operations
      from January 19, 2007 through March 31, 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 months ended March 31, 2007 and 2006, respectively, as if First
      Performance had been acquired at the beginning of each of the periods.





For
                the three months ended March 31,2007
            
            2006(unaudited)
            
            (unaudited)Revenues
            
            $
            1,298,022
            
            $
            1,643,538Net
                loss
            
            $
            (2,300,266
            )
            $
            (2,569,360
            )Pro-forma
                basic and diluted net loss per common share
            
            $
            (0.30
            )
            $
            (0.84
            )Weighted
                average common shares outstanding-
                basic and diluted
            
            
            7,698,999
            
            
            3,058,953





11


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.  FIXED
      ASSETS:




Fixed
      assets consist of the following:




March
                31,Useful
                life
            
            2007Computer
                equipment
            
            
            3-5
                years
            
            $
            601,400Computer
                software
            
            
            3
                years
            
            
            67,641Telecommunications
                equipment
            
            
            5
                years
            
            
            2,685Office
                equipment
            
            
            3
                years
            
            
            6,361Furniture
                and fixtures
            
            
            5
                years
            
            
            177,515Leasehold
                improvements
            
            
            Lease
                term
            
            
            21,081876,683Less:
                accumulated depreciation
            
            (417,986
            )$
            458,697




Depreciation
      expense totaled $35,535 and $13,618 for the three months ended March 31, 2007
      and 2006, respectively.




NOTE
      5.  INTANGIBLE
      ASSETS:





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





The
      components of intangible assets as of March 31, 2007 are set forth in the
      following table:





March
                31,Useful
                life
            
            2007Trade
                names
            
            
            10
                years
            
            $
            60,000Customer
                relationships
            
            
            4
                years
            
            
            390,000450,000Less:
                accumulated depreciation
            
            (17,250
            )$
            432,750




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




Years
              ended December 31:
            
            Intangible
                Amortization2007
            
            $
            94,8752008
            
            $
            103,5002009
            
            $
            103,5002010
            
            $
            103,5002011
                and thereafter
            
            $
            27,375Total
            
            $
            432,750




The
      weighted average amortization period for amortizable intangibles is 4.8 years
      and has no residual value.




NOTE
      6.  LINE
      OF
      CREDIT:





First
      Performance had a line of credit that terminated on the date of the Company’s
      acquisition. The outstanding balance of First Performance as of January 19,
      2007
      of $150,000 was repaid during the three months ended March 31, 2007, and the
      line of credit was terminated.





12




NOTE
      7.  LOAN
      FINANCING AGREEMENT:





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 March 31, 2007, the Company had outstanding portfolio loans payable in
      the
      amount of $533,105.





NOTE
      8.  STOCKHOLDERS’
      EQUITY:




The
      Company recorded stock based compensation expense representing the amortized
      amount of the fair value of options granted, in 2006 in the amount of $139,114
      during the three months ended March 31, 2007.




NOTE
      9.  STOCK
      OPTIONS:




As
      of
      March 31, 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.  As
      of
      March 31, 2007, 311,000 stock options have been issued under this
      plan.





A
      summary
      of option activity within the 2005 Plan during the three months ended March
      31,
      2007 is presented below:


2007
              
              Weighted
                    Average
                  Exercise
                Price
              
              Weighted
                      Average
                    Remaining
                  Contractual
                Term
              
              Aggregate
                  Intrinsic
                ValueOutstanding
                  at January 1,
              
              
              261,000
              
              $
              5.00
              
              
              4.7
                  Years
              
              
              —Granted
              
              
              50,000
              
              $
              4.06
              
              
              4.9
                  Years
              
              
              —Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
                  or expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at March 31,
              
              
              311,000
              
              $
              4.85
              
              
              4.5
                  Years
              
              $
              —Exercisable
                  at March 31,
              
              
              163,000
              
              $
              4.89
              
              
              4.5
                  Years
              
              $
              —


As
      of
      March 31, 2007, the Company had 148,000 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 six
      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 three
      months ended March 31, 2007 of $45,600.




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 three
      months ended March 31, 2007 of $33,367.




13


A
      summary
      of stock option activity outside the 2005 Plan during the three months ended
      March 31, 2007 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2007
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1,
              
              
              3,147,434
              
              $
              4.96
              
              
              6.9
                  Years
              
              
              —Granted
              
              
              —
              
              
              —
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
                  or expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at March 31,
              
              
              3,147,434
              
              $
              4.96
              
              
              6.7
                  Years
              
              $
              76,125Exercisable
                  at March 31,
              
              
              3,147,434
              
              $
              4.96
              
              
              6.7
                  Years
              
              $
              76,125


As
      of
      March 31, 2007, the Company had no unvested stock options outside the 2005
      Plan.





During
      the three months ended March 31, 2007 and 2006, the Company recorded an expense
      of $15,436 and $56,406 respectively, representing the amortized amount of the
      fair value of stock options issued to non-employees prior to January 1,
      2006.




NOTE
      10.  WARRANTS:




A
      summary
      of warrant activity as of December 31, 2006 and changes during the three months
      ended March 31, 2007 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2007
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1,
              
              
              2,091,158
              
              $
              1.44
              
              
              3.8
                  Years
              
              
              —Granted
              
              
              100,000
              
              $
              3.85
              
              
              2.9
                  Years
              
              
              —Exercised
              
              
              (82,288
              )
              $
              0.01
              
              
              —
              
              
              —Forfeited
                  or Expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at March 31,
              
              
              2,108,870
              
              $
              1.62
              
              
              3.5
                  Years
              
              $
              5,069,113Exercisable
                  at March 31,
              
              
              1,808,870
              
              $
              0.98
              
              
              3.4
                  Years
              
              $
              5,069,113


As
      of
      March 31, 2007, there were 300,000 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,
      six and nine months from issuance. The warrant was valued at $240,000, will
      be
      expensed over the vesting period, and resulted in an expense during the three
      months ended March 31, 2007 of $89,571.




During
      the three months ended March 31, 2007, the Company received $823 in cash
      proceeds from the exercise of 82,288 options to purchase common stock at $0.01
      per share.




NOTE
      11.  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.  The
      jurisdiction of the federal district court in New Jersey has not yet been
      established, and a change of venue is possible. Management
      believes that the Company has a reasonable chance of successfully
      asserting the patents-in-suit against Apollo.  However, the
      Company is unable to predict the outcome of these claims and, accordingly,
      no adjustments have been made in the condensed consolidated financial statements
      in response to these claims.





14





NOTE
      12.  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 March 31,
      2007, accrued rent payable totaled $13,912. The Company also leases an office
      in
      Fort Lauderdale, Florida under a non-cancelable operating lease that expires
      January 31, 2009 and calls for monthly payments of $22,481. Until September
      30,
      2007, the monthly payment has been reduced by a $5,000 abatement to $17,481
      per
      month. The
      Company also
      leases 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 March 31, 2007 and 2006 was $68,415 and
      $30,822, respectively.





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




For
                the Year Ending
              December
                31,
            
            **Amount**2007
            
            $
            458,6112008
            
            
            656,8012009
            
            
            412,3732010
            
            
            335,6572011
            
            
            259,7282012
            
            
            259,7282013
            
            
            259,7282014
            
            
            151,508$
            2,794,134




NOTE
      13.  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”).





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 months ended March 31, 2007:




**Internet****Services**
            
            **Debt
                Buying**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            20,620
            
            $
            2,100
            
            $
            1,115,134
            
            $
            —
            
            $
            1,137,854Loss
                from operations
            
            $
            (1,384,054
            )
            $
            (92,508
            )
            $
            (434,686
            )
            
            (228,340
            )
            $
            (2,139,588
            )Depreciation
                and Amortization
            
            $
            13,797
            
            $
            —
            
            $
            38,988
            
            $
            —
            
            $
            52,785Interest
                income
            
            $
            36,699
            
            $
            (16,052
            )
            $
            (210
            )
            
            —
            
            $
            20,438Capital
                expenditures
            
            $
            28,234
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            28,234Total
                assets
            
            $
            4,343,316
            
            $
            606,740
            
            $
            2,889,623
            
            
            (2,293,453
            )
            $
            5,546,226Goodwill
            
            
            —
            
            
            —
            
            $
            1,026,869
            
            
            —
            
            $
            1,026,869





15




NOTE
      14.  SUBSEQUENT
      EVENTS:




a.
            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 Corporation were in
      place.





The
      total
      consideration for the acquisition consists 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 acquisition is subject to, among other things, shareholder
      approval of the acquisition and the Company securing financing relating to
      the
      acquisition. There is no assurance that the Company will obtain financing,
      or
      that it will consummate the transaction.





In
      connection with the financing of the transaction, the Company has signed an
      engagement letter with investment banks to explore financing
      alternatives.





Employment
      Agreements





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





Pursuant
      to his employment agreement with the Company, Mr. Farinacci will serve as
      President of First Performance Corporation, a wholly owned subsidiary of the
      Company, and Executive Vice President-Operations of Creditors Interchange.
      Mr.
      Farinacci will also serve as a Senior Vice President of the Company. Mr.
      Farinacci will receive a base salary of $300,000 and options to purchase up
      to
      400,000 shares of the Company’s Common Stock. Mr. Farinacci is 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 are effective as of the closing of the
      transactions contemplated by the Purchase Agreement and will automatically
      terminate should the transaction not occur.




b.
            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. The employment agreement has a one
      year
      renewable term.




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. The employment agreement
      has a
      one year renewable term. Katherine A. Dering, the current Chief Financial
      Officer, Treasurer and Secretary of the Company until April 30, 2007, will
      remain with the Company as Senior Vice President - Finance, under an amended
      employment agreement.




c.
            Stock
                Options




On
        April
        27, 2007, an initial stock option grant was approved by the Board of Directors
        for David M. Rainey. Mr. Rainey was granted options to purchase 75,000 shares
        of
        the Company’s common stock, at $4.75 per share, vesting equally on the first,
        second and third anniversary of his May 1, 2007 start date. On April 4, Mr.
        Canale was granted options to purchase 75,000 shares of the Company’s common
        stock at $3.70 per share, vesting equally beginning on April 23, 2007 and
        the
        first, second and third anniversary of his employment. These options have
        a
        seven year term, were valued collectively at $525,750, and will be expensed
        over
        their vesting periods.
  On
        April
        27, 2007, Mr. Richard Rosa, President of the Company, received an additional
        grant of options to purchase 200,000 shares of the Company’s common stock at
        $4.75 per share, vesting immediately. Ms. Sandra Styer, and Katherine A.
        Dering,
        Senior Vice Presidents of the Company, received grants of options to purchase
        75,000 and 50,000 shares of the Company’s common stock, respectively, vesting
        immediately. A junior employee of the Company also received an initial grant
        of
        options to purchase 3,000 shares of the Company’s common stock at $4.75 per
        share, 50% vesting immediately and 50% vesting in one year. These options
        have a
        seven year term, were valued collectively at $1,292,320, and will be expensed
        over their vesting periods.
  Also
        on
        April 27, 2007, the Board approved the grant of options to a number of Company
        employees to purchase 154,000 shares of the Company’s common stock at $5.00 per
        share, vesting over the coming 18 months. These options have a four year
        term,
        and their vesting is planned to coincide with the expiration of options granted
        to these employees in 2003. The options have a collective value of $503,580,
        and
        will be expensed over their vesting periods.
  d.
            Warrant
                Exercises  From
        April 1, 2007 to May 16, 2007, the Company issued 534,475 shares in connection
        with the exercise of warrants for cash proceeds of $20,111.




16


**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”), 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 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 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. 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 insignificant. 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 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.




Our
      preliminary contracts provide that we will earn revenue based on a percentage
      of
      the amount of debt collected from accounts submitted on our DebtResolve system.
      Although other revenue models have been proposed, most revenue earned to date
      has been determined using this method, 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 per account, with
      a
      small transaction fee on debt settlement. In addition, with respect to our
      DR
      Prevent TM module, 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 reflect that
      knowledge.




17


We
      have
      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 begun to buy portfolios of charged-off debts at a significant
      discount to their face value and, through subcontracted, licensed debt
      collectors, attempt to collect on that debt by utilizing both our DebtResolve
      system and also traditional collection methods. We hope that, in addition to
      the
      actual revenues earned from this venture, by buying and settling these debts,
      and especially opportunistic, Internet-related debt, such as debts associated
      with Internet service providers and sellers and lenders over the Internet,
      we
      will 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.




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
      all
      of our purchases of distressed consumer debt with advances through December
      21,
      2008.





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. Until we achieve certain scale in
      these
      operations, early revenues will at first only 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.




In
      January 2007, we purchased the outstanding common stock of First Performance
      Corporation (“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.





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.





**Three
      Months ended March 31, 2007 Compared to Three Months ended March 31,
      2006**




**Revenues**




Revenues
      totaled $1,137,854 and $27,264 for the three months ended March 31, 2007 and
      2006, respectively. We earned revenue during the three months ended March 31,
      2007 from fees earned on debt collected by our collection agency, and as a
      percent of debt collected at collection agencies, a lender and a bank that
      implemented our online system. Of the revenue earned during the three months
      ended March 31, 2007, $1,115,134 was earned as fees on debt collected at our
      collection agency and $20,620 was contingency fee income, based on a percentage
      of the amount of debt collected from accounts placed on our online system.
      In
      addition, we earned $2,100 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 March 31, 2006,
      $12,500 was earned for fees charged to license our software for the period,
      and
      $14,764 was contingency fee income, based on a percentage of the amount of
      debt
      collected from accounts placed on our online system.




18


**Costs
      and Expenses**




**Payroll
      and related expenses** .
      Payroll
      and related expenses totaled $1,647,592 for the three months ended March 31,
      2007, an increase of $1,031,130 over payroll and related expenses of $616,462
      for the three months ended March 31, 2006. This increase was due primarily
      to
      payroll and related expenses for our First Performance subsidiary, which totaled
      $930,811 for the three month period. Salary expenses were $1,243,022 for the
      three months ended March 31, 2007, an increase of $737,028 over salary expenses
      of $505,994 for the three months ended March 31, 2006. Stock-based compensation
      charge for employees in the three months ended March 31, 2007 totaled $151,138;
      we recorded no stock based compensation for employees for the three months
      ended
      March 31, 2006. In addition, the staffing increase related to the First
      Performance acquisition resulted in payroll tax expense of $123,332 for the
      three months ended March 31, 2007, an increase of $80,047 over payroll tax
      expense of $43,285 for the three months ended March 31, 2006 and an increase
      in
      health insurance expense to $89,246 for the three months ended March 31, 2007
      from $34,456 in the three months ended March 31, 2006, an increase of $54,790.
      Other miscellaneous salary related expenses were $35,479 in payroll expenses
      for
      the three months ended March 31, 2007 as compared with $32,727 for the three
      months ended March 31, 2006, an increase of $2,752.




**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $1,577,066 for the three months ended
      March 31, 2007, as compared to $570,297 for the three months ended March 31,
      2006, an increase of $1,006,769. This increase was primarily due to the
      acquisition of First Performance, which added $580,021 to general and
      administrative expenses for the three month period. The expense for stock based
      compensation for stock options granted to consultants for the three months
      ended
      March 31, 2007 was $171,950, as compared with stock based compensation in the
      amount of $56,406 for the three months ended March 31, 2006. Also, for the
      three
      months ended March 31, 2007 consulting fees totaled $305,661, as compared with
      $31,278 in consulting fees for the three months ended March 31, 2006, resulting
      in an increase of $274,383, primarily related to hiring outside consultants
      to
      assist in selling the DebtResolve system in the United States and the United
      Kingdom, and to assist in the integration of our new First Performance
      subsidiary. Legal fees increased by $133,473 to $275,446 for the three months
      ended March 31, 2007 from $141,973 for the three months ended March 31, 2006,
      primarily due to $176,587 in legal expenses related to the defense of our
      licensed patent. The expenses for occupancy, telecommunications, travel and
      office supplies in the three months ended March 31, 2007 were $142,363,
      $141,501, $105,538 and $166,957, respectively, as compared with expenses of
      $36,089, $70,933, $74,343 and $10,082 for occupancy, telecommunications, travel
      and office supplies, respectively, for the three months ended March 31, 2006,
      all due almost exclusively to the addition of First Performance. Marketing
      expenses increased by $76,779 to $108,772 during the three months ended March
      31, 2007 from $31,993 for the three months ended March 31, 2006, primarily
      due
      to the Company’s expanded efforts to market the DebtResolve system. Other
      general operating costs for the three months ended March 31, 2007, including
      insurance and accounting expenses, amounted to $174,254, as compared with
      $117,200 for the three months ended March 31, 2006.




**Interest
      income (expense).** We
      recorded interest income of $36,770 net of interest expense of $16,333 for
      the
      three months ended March 31, 2007, compared to interest expense of $75,834,
      net
      of interest income of $17 for the three months ended March 31, 2006. Interest
      expense for the three months ended March 31, 2006 includes interest accrued
      on
      our 7% convertible notes and other short term notes.




**Amortization
      of deferred debt discount.** Amortization
      expense of $520,135 was incurred for the three months ended March 31, 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 $81,830 was incurred for the three months ended March 31, 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.




**Liquidity
      and Capital Resources**





As
      of
      March 31, 2007, we had working capital in the amount of $1,115,792, and cash
      and
      cash equivalents totaling $1,612,073. We incurred a net loss of $ $2,114,142
      for
      the three months ended March 31, 2007. Cash used in operating and investing
      activities was $3,697,426 for the three months ended March 31, 2007. Cash flow
      provided by financing activities was $383,928 for the three months ended March
      31, 2007. Based upon projected operating expenses, we believe that our
      working capital as of the date of this report may not be 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.




19


Our
      management is actively pursuing additional debt and/or equity financing and
      pursuing strategic acquisitions.  As discussed above, we acquired
      First Performance in January 2007, an accounts receivable management
      agency, 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.  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 in that 91% of the balance of accounts receivable
      at March 31, 2007 is made up of only eight customers. At March 31, 2007,
      accounts receivable from the two largest accounts amounted to approximately
      $149,355 (27%) and $57,646 (11%), 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.




Goodwill
      and Intangible Assets




We
      account for Goodwill and Intangible Assets in accordance with Statement of
      Financial Accounting Standards (“FAS”) No. 141, “Business Combinations” (“FAS
      141”) and FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under
      FAS No. 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.





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 No. 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.


20
 
  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 statement 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 March
          31, 2007, no liability for unrecognized tax benefits was required to be
          recorded.
 The
            Company recognized a deferred tax asset of approximately $6.9 million
            as of
            March 31, 2007, primarily relating to net operating loss carry forwards
            of
            approximately $20.5 million, available to offset future taxable income
            through
            2026. The net operating loss carry forwards of the Company’s First Performance
            subsidiary are expected to be limited under Section 382 of the Internal
            Revenue
            Code to an annual amount estimated to be $80,000.
 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 in the full
          value of
          the deferred tax asset.
  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 supportable trends, the valuation allowance will be reversed
          accordingly.




Revenue
      recognition




We
        earned
        revenue during 2007 and 2006 from several collection agencies and lenders
        that
        implemented our online system. Our preliminary contracts provide for revenue
        based on a percentage of the amount of debt collected from accounts submitted
        on
        the DebtResolve system. Although other revenue models have been proposed,
        as of
        March 31, 2007 most revenue earned to date has been determined using this
        method, 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.




21
 
 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 the Company uniformly
          postpones
          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 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
          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, fixed or percentage success fees, monthly maintenance 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 engages 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 only recently entered into
          this
          business, it will use the cost recovery method until it has evaluated the
          accuracy of its model. 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. When our management has determined
          that it is able to predict cash flows with some reliability, it will adopt
          the
          income accrual method, described above, recognizing the revenues on a level
          yield method over the expected ownership period of the pool.
  On
          January 19, 2007, the Company completed the acquisition of First Performance
          Corporation, a collection agency. 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 our
          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.
  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 Statement of Financial Accounting Standards 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 issuances and other stock-based grants for the three months ended
          March
          31, 2007 and March 31, 2006 amounted to $323,088 and $56,406,
          respectively.
  The
          determination of the fair value of stock-based awards on the date of grant
          is
          affected by the Company’s stock price as well as assumptions regarding a number
          of complex and subjective variables. These variables include the price
          of the
          underlying stock, the Company’s expected stock price volatility over the
          expected term of the awards, actual and projected employee stock option
          exercise
          behaviors, risk-free interest rate and the expected annual dividend yield
          on the
          underlying shares.




22
 
 If
          actual
          results differ significantly from these estimates or different key assumptions
          were used, there could be a material effect on the Company’s financial
          statements.  The future impact of the cost of stock-based compensation on
          the Company’s 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 the Company’s common stock
          at the time of the award as well as various other assumptions used in valuing
          such awards. The Company will periodically evaluate these estimates.
  **Statement
          Relating to Forward-Looking Statements**
  This
          report contains forward-looking statements that are based on the Company’s
          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, 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
          the Company’s 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 March 31, 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 SEC 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.
 
 **Changes
          in Internal Control over Financial Reporting**
  For
          the
          three months ended March 31, 2007, the Company’s 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 two branch locations
          and
          employs approximately 100 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. The
          Company has added more staff in the accounting department to assist in
          the
          consolidations and daily accounting processes. The Company is 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, the
          Company’s 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.
 
 Subsequent
          to March 31, 2007, the Company announced the appointment of a new Chief
          Financial Officer. The outgoing Chief Financial Officer is remaining with
          the
          company as the Senior Vice President - Finance.
  **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”).




23




**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





**Lawsuit
      against Apollo**


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 has 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. The Company has 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. That briefing is not yet completed. We have filed
        a
        motion in the New Jersey case to permit us to take discovery on these
        jurisdictional issues from Apollo in the event that the Court declines to
        find
        that we have presented a *prima
        facie* case on
        jurisdiction. That motion, while fully briefed, remains pending. The Company’s
        management believes that we have a reasonable chance of successfully
        asserting the patents-in-suit  against Apollo, however, we are
        unable to predict the outcome of these claims.


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





None





**Item
      3. Defaults upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None





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





(a)
            Exhibits





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.





(b)
            Reports
                on Form 8-K





Current
      Report on Form 8-K filed on January 24, 2007 reporting the acquisition of First
      Performance Corporation.





Current
      Report on Form 8-K filed on March 6, 2007 reporting the appointment of Michael
      G. Carey to the board of directors.




24





**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:
              May
              15, 2007
            **DEBT
                RESOLVE, INC.**By:
            /s/
                JAMES
                D. BURCHETTAJames
              D. BurchettaCo-Chairman
                and
                Chief Executive Officer
              (principal executive
                officer)




By:
            /s/
              DAVID
              M. RAINEYDavid
              M. RaineyChief
                Financial Officer and Treasurer
              (principal financial and accounting
                officer)




25