UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

|                                                  |                                                                                          
|------------------------------------------------- | -----------------------------------------------------------------------------------------
|x                                                 | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934       
|                                                  |                                                                                          
|For the quarterly period ended SEPTEMBER 30, 2009
|                                                  |                                                                                          
|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.: 1-33110

|                                                      
|------------------------------------------------------
|DEBT
 RESOLVE, INC.                                   
|                                                      
|(Exact name of registrant as specified in its charter)

|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Delaware                                 |  | 33-0889197                          
|                                         |  |                                     
|(State or other jurisdiction of          |  | (I.R.S. Employer Identification No.)
|incorporation or organization)           |  |                                     
|                                         |  |                                     
|150 White Plains Road, Suite 108         |  |                                     
|Tarrytown, New York                      |  | 10591                               
|                                         |  |                                     
|(Address of principal executive offices) |  | (Zip Code)                          

|                           
|---------------------------
|(914) 949-5500             
|                           
|(Issuers telephone number)

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

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

|                           |                             
|-------------------------- | ----------------------------
|Large
 accelerated filer o | Accelerated
 filer o        
|Non-accelerated
 filer o   | Smaller
 reporting company x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by
check mark whether the registrant has filed all documents and reports required
to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
o
Yes o No

As of November
18, 2009, 39,648,584 shares of the issuers Common Stock were outstanding.

---



DEBT
RESOLVE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

|                                                                                                                              |  |     
|----------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                              |  | Page
|                                                                                                                              |  |     
|PART I.
 Financial Information                                                                                                |  |     
|                                                                                                                              |  |     
|Item 1. Financial
 Statements                                                                                                 |  |     
|                                                                                                                              |  |     
|Condensed Consolidated
 Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008                                |  | 3   
|                                                                                                                              |  |     
|Condensed Consolidated
 Statements of Operations for the Three and Nine Months Ended September 30,
 2009 and 2008 (unaudited) |  | 4   
|                                                                                                                              |  |     
|Condensed Consolidated
 Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
 2008 (unaudited)           |  | 5   
|                                                                                                                              |  |     
|Condensed Consolidated
 Statements of Stockholders Deficiency from January 1, 2009 through September
 30, 2009 (unaudited)   |  | 6   
|                                                                                                                              |  |     
|Notes to Condensed
 Consolidated Financial Statements (unaudited)                                                             |  | 7   
|                                                                                                                              |  |     
|Item 2. Managements
 Discussion and Analysis of Financial Condition and Results of Operations                                |  | 34  
|                                                                                                                              |  |     
|Item 3. Quantitative and
 Qualitative Disclosures about Market Risk                                                           |  | 40  
|                                                                                                                              |  |     
|Item 4T. Controls and
 Procedures                                                                                             |  | 40  
|                                                                                                                              |  |     
|PART
 II. Other Information                                                                                                   |  |     
|                                                                                                                              |  |     
|Item 1. Legal
 Proceedings                                                                                                    |  | 42  
|                                                                                                                              |  |     
|Item 1A. Risk Factors                                                                                                         |  | 43  
|                                                                                                                              |  |     
|Item 2. Unregistered
 Sales of Equity Securities and Use of Proceeds                                                          |  | 43  
|                                                                                                                              |  |     
|Item 3. Defaults Upon
 Senior Securities                                                                                      |  | 43  
|                                                                                                                              |  |     
|Item 4. Submission of
 Matters to a Vote of Security Holders                                                                  |  | 44  
|                                                                                                                              |  |     
|Item 5. Other
 Information                                                                                                    |  | 44  
|                                                                                                                              |  |     
|Item 6. Exhibits                                                                                                              |  | 44  
|                                                                                                                              |  |     
|Signature                                                                                                                     |  | 45  
|                                                                                                                              |  |     
|Certifications                                                                                                                |  | 46  

2

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ----------- | ------------------------------------ | - | ----------- | -
|                                                                                                                                                             |  | September 30, 2009
 (Unaudited) |             | December 31, 2008
 Restated Note 15) |  
|                                                                                                                                                             |  |                                 |             |                                      |  
|ASSETS                                                                                                                                                       |  |                                 |             |                                      |   |             |  
|Current assets:                                                                                                                                              |  |                                 |             |                                      |   |             |  
|Cash                                                                                                                                                         |  | $                               | 984         |                                      | $ | 32,551      |  
|Accounts receivable                                                                                                                                          |  |                                 | 12,102      |                                      |   | 11,582      |  
|Prepaid expenses and other current assets                                                                                                                    |  |                                 | 259,487     |                                      |   | 77,220      |  
|Current assets of discontinued operations                                                                                                                    |  |                                 | 4,485       |                                      |   | 5,582       |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total current assets                                                                                                                                         |  |                                 | 277,058     |                                      |   | 126,935     |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Fixed assets, net                                                                                                                                            |  |                                 | 48,865      |                                      |   | 84,271      |  
|Deposits and other assets                                                                                                                                    |  |                                 | 13,805      |                                      |   | 94,855      |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total assets                                                                                                                                                 |  | $                               | 339,728     |                                      | $ | 306,061     |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|LIABILITIES
 AND STOCKHOLDERS DEFICIENCY                                                                                                                    |  |                                 |             |                                      |   |             |  
|Current liabilities:                                                                                                                                         |  |                                 | 2,535,068   |                                      |   |             |  
|Accounts payable and accrued liabilities                                                                                                                     |  | $                               | 3,525,849   |                                      |   |             |  
|Bank
 overdraft                                                                                                                                              |  | $                               | 81,095      |                                      |   | 0           |  
|Convertible short-term debentures (net of
 deferred debt discount of $0 and $162,750 as of September 30, 2009 and
 December 31, 2008, respectively)          |  |                                 | 320,050     |                                      |   | 188,250     |  
|Short-term notes                                                                                                                                             |  |                                 | 308,500     |                                      |   | 487,000     |  
|Current maturities of long-term debt (net
 of deferred debt discount of $0 and $69,556 as of September 30, 2009 and
 December 31, 2008, respectively)        |  |                                 | 823,000     |                                      |   | 753,444     |  
|Lines of credit  related parties                                                                                                                            |  |                                 | 157,000     |                                      |   | 1,203,623   |  
|Derivative liability                                                                                                                                         |  |                                 | 3,933,934   |                                      |   | 331,268     |  
|Current liabilities of discontinued
 operations                                                                                                              |  |                                 | 2,311,653   |                                      |   | 2,330,912   |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total current liabilities                                                                                                                                    |  |                                 | 10,470,300  |                                      |   | 8,820,346   |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Convertible long-term notes (net of
 deferred debt discount of $625,962 and $0 as of September 30, 2009 and
 December 31, 2008, respectively)                |  |                                 | 104,038     |                                      |   |            |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total liabilities                                                                                                                                            |  |                                 | 10,574,338  |                                      |   | 8,820,346   |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Commitments and contingencies                                                                                                                                |  |                                 |             |                                      |   |             |  
|Stockholders deficiency:                                                                                                                                    |  |                                 |             |                                      |   |             |  
|Preferred stock, 10,000,000 shares
 authorized, $0.001 par value, none issued and outstanding as of
 September 30, 2009 and December 31, 2008                |  |                                 |            |                                      |   |            |  
|Common stock, 100,000,000 shares
 authorized, $0.001 par value, 37,214,017 issued and 10,061,865 outstanding as
 of September 30, 2009 and December 31, 2008 |  |                                 | 37,214      |                                      |   | 10,512      |  
|Additional paid-in capital                                                                                                                                   |  |                                 | 53,857,380  |                                      |   | 46,809,318  |  
|Shares to be issued                                                                                                                                          |  |                                 |            |                                      |   | 47,970      |  
|Shares held under escrow (0 and 450,000
 shares as of September 30, 2009 and December 31, 2008)                                                              |  |                                 |            |                                      |   | (450        | )
|Accumulated deficit                                                                                                                                          |  |                                 | (64,129,204 | )                                    |   | (55,381,635 | )
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total stockholders deficiency                                                                                                                               |  |                                 | (10,234,610 | )                                    |   | (8,514,285  | )
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  
|Total liabilities and stockholders
 deficiency                                                                                                              |  | $                               | 339,728     |                                      | $ | 306,061     |  
|                                                                                                                                                             |  |                                 |             |                                      |   |             |  

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

3

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Condensed Consolidated
Statements of Operations(Unaudited)

|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | ---------- | ------------------------------- | - | ---------- | - | -------------------- | ---------- | - | - | ---------- | -
|                                                                                     |  | Three
 Months Ended September 30, |            | Nine
 Months Ended September 30 |  
|                                                                                     |  |                                   |            |                                 |  
|                                                                                     |  | 2009                              |            | 2008                            |   | 2009       |   | 2008                 |           
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |           
|                                                                                     |  |                                   |            | (restated;
 Note 15)            |   |            |   | (restated;
 Note 15) |           
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |           
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Revenues                                                                             |  | $                                 | 18,055     |                                 | $ | 17,143     |   | $                    | 56,517     |   | $ | 148,140    |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Costs and expenses:                                                                  |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Payroll and related expenses                                                         |  |                                   | 963,435    |                                 |   | 583,035    |   |                      | 1,338,810  |   |   | 2,816,614  |  
|General and administrative expenses                                                  |  |                                   | 890,279    |                                 |   | 450,101    |   |                      | 1,223,341  |   |   | 3,461,643  |  
|Depreciation and amortization expense                                                |  |                                   | 10,897     |                                 |   | 14,343     |   |                      | 35,406     |   |   | 43,313     |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Total expenses                                                                       |  |                                   | 1,864,611  |                                 |   | 1,047,479  |   |                      | 2,597,557  |   |   | 6,321,570  |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Loss from operations                                                                 |  |                                   | (1,846,556 | )                               |   | (1,030,336 | ) |                      | (2,541,040 | ) |   | (6,173,430 | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Other (expense) income:                                                              |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Interest income                                                                      |  |                                   |           |                                 |   |           |   |                      |           |   |   | 190        |  
|Interest expense                                                                     |  |                                   | (57,094    | )                               |   | (36,906    | ) |                      | (164,763   | ) |   | (104,509   | )
|Interest expense  related parties                                                   |  |                                   | (28,311    | )                               |   | (43,594    | ) |                      | (99,935    | ) |   | (99,692    | )
|Interest expense-amortization of deferred debt
discount                              |  |                                   | (43,875    | )                               |   | (114,208   | ) |                      | (265,137   | ) |   | (661,663   | )
|Loss on derivative liability                                                         |  |                                   | (2,002,206 | )                               |   | (63,201    | ) |                      | (2,823,873 | ) |   | (63,201    | )
|Other expenses                                                                       |  |                                   | (2,855,985 | )                               |   | (2,829     | ) |                      | (2,855,985 | ) |   | (3,166     | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Total other (expense)                                                                |  |                                   | (4,987,471 | )                               |   | (260,738   | ) |                      | (6,209,693 | ) |   | (932,041   | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Loss from continuing operations                                                      |  |                                   | (6,834,027 | )                               |   | (1,291,074 | ) |                      | (8,750,733 | ) |   | (7,105,471 | )
|Income (loss) from discontinued operations                                           |  |                                   | (164       | )                               |   | (85,466    | ) |                      | 3,164      |   |   | (2,736,085 | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Net loss                                                                             |  |                                   | (6,834,191 | )                               |   | (1,376,540 | ) |                      | (8,747,569 | ) |   | (9,841,556 | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Income tax provision                                                                 |  |                                   |           |                                 |   |           |   |                      |           |   |   |           |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Net Loss after income tax                                                            |  | $                                 | (6,834,191 | )                               | $ | (1,376,540 | ) | $                    | (8,747,569 | ) | $ | (9,841,556 | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Net income (loss) per common share:                                                  |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|basic and diluted (See Note 2)                                                       |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Continuing operations                                                                |  | $                                 | (0.23      | )                               | $ | (0.13      | ) | $                    | (0.46      | ) | $ | (0.76      | )
|Discontinued operations                                                              |  | $                                 |           |                                 | $ | (0.01      | ) | $                    |           |   | $ | (0.29      | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Total                                                                                |  | $                                 | (0.23      | )                               | $ | (0.14      | ) | $                    | (0.46      | ) | $ | (1.05      | )
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  
|Basic and diluted weighted average number of common shares outstanding
 (See Note 2) |  |                                   | 29,120,586 |                                 |   | 9,669,152  |   |                      | 19,282,750 |   |   | 9,329,038  |  
|                                                                                     |  |                                   |            |                                 |   |            |   |                      |            |   |   |            |  

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

4

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

|                                                                             |  |                                  |            |                      |   |            |  
|---------------------------------------------------------------------------- |  | -------------------------------- | ---------- | -------------------- | - | ---------- | -
|                                                                             |  | Nine
 months ended September 30, |           
|                                                                             |  |                                  |           
|                                                                             |  | 2009                             |            | 2008                 |  
|                                                                             |  |                                  |            |                      |  
|                                                                             |  |                                  |            | (restated;
 note 15) |  
|Cash flows from continuing operating
activities:                             |  |                                  |            |                      |   |            |  
|Net loss from continuing operations                                          |  | $                                | (8,750,733 | )                    | $ | (7,105,471 | )
|Net income (loss) from discontinued operations                               |  |                                  | 3,164      |                      |   | (2,736,085 | )
|Adjustments to reconcile net loss to net cash used in operating
 activities: |  |                                  |            |                      |   |            |  
|Non cash stock based compensation                                            |  |                                  | 1,417,178  |                      |   | 2,503,056  |  
|Loss on debt conversion and extinguishment                                   |  |                                  | 2,855,985  |                      |   |           |  
|Derivative debited to expenses                                               |  |                                  | 120,000    |                      |   |           |  
|Loss of Derivative liability                                                 |  |                                  | 2,823,874  |                      |   | 15,231     |  
|Amortization of deferred debt discount                                       |  |                                  | 265,136    |                      |   | 206,663    |  
|Issuance of common stock for funding and
services                            |  |                                  |           |                      |   | 845,500    |  
|Stock placed in escrow                                                       |  |                                  |           |                      |   | (450       | )
|Depreciation and amortization                                                |  |                                  | 35,406     |                      |   | 43,313     |  
|Changes
 in operating assets & liabilities                                   |  |                                  |            |                      |   |            |  
|Accounts receivable                                                          |  |                                  | (520       | )                    |   | 5,240      |  
|Prepaid expenses and other current assets                                    |  |                                  | (103,767   | )                    |   | (51,876    | )
|Deposits and other assets                                                    |  |                                  | 81,050     |                      |   |           |  
|Accounts payable and accrued expenses                                        |  |                                  | 577,863    |                      |   | 1,406,633  |  
|                                                                             |  |                                  |            |                      |   |            |  
|Net cash used in continuing operating
activities                             |  |                                  | (675,364   | )                    |   | (729,560   | )
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Cash flows from continuing investing
activities:                             |  |                                  | (15,000    | )                    |   | 836,126    |  
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Cash flows from continuing financing
activities:                             |  |                                  |            |                      |   |            |  
|Proceeds from other receivable                                               |  |                                  |           |                      |   | 200,000    |  
|Proceeds from long term convertible notes                                    |  |                                  | 625,459    |                      |   | 498,000    |  
|Proceeds from short term convertible notes                                   |  |                                  |           |                      |   | 300,000    |  
|Proceeds from issuance of short term notes                                   |  |                                  |           |                      |   | 625,000    |  
|Repayment of short term notes                                                |  |                                  | (113,500   | )                    |   | (295,000   | )
|Proceeds from line of credit                                                 |  |                                  | 169,236    |                      |   | 304,623    |  
|Repayment of line of credit                                                  |  |                                  | (19,236    | )                    |   | (16,000    | )
|Proceeds from issuance of common stock                                       |  |                                  |           |                      |   | 1,572,600  |  
|Release of stock from escrow                                                 |  |                                  |           |                      |   |           |  
|Proceeds from exercise of warrants                                           |  |                                  |           |                      |   | 375        |  
|                                                                             |  |                                  |            |                      |   |            |  
|Net cash provided by continuing financing
activities                         |  |                                  | 661,959    |                      |   | 3,834,648  |  
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Cash flows from discontinued operations                                      |  |                                  |            |                      |   |            |  
|Net cash used in operating activities                                        |  |                                  | (3,162     | )                    |   | (733,855   | )
|Net cash used in investing activities                                        |  |                                  |           |                      |   | (56        | )
|Net cash used in financing activities                                        |  |                                  |           |                      |   | (101,000   | )
|Net cash used in discontinued operations                                     |  |                                  |           |                      |   | (834,911   | )
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Net
 (decrease) increase in cash and cash equivalents                        |  |                                  | (31,567    | )                    |   | 2,527      |  
|                                                                             |  |                                  |            |                      |   |            |  
|Cash and cash equivalents at beginning of period                             |  |                                  | 32,551     |                      |   |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|Cash and cash equivalents at end of period  continuing
operations           |  | $                                | 984        |                      | $ | 2,527      |  
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Supplemental disclosures of cash flow information:                           |  |                                  |            |                      |   |            |  
|Cash paid during the period for:                                             |  |                                  |            |                      |   |            |  
|Income taxes                                                                 |  | $                                |           |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|Interest                                                                     |  | $                                |           |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|                                                                             |  |                                  |            |                      |   |            |  
|Non-cash financing activities:                                               |  |                                  |            |                      |   |            |  
|Conversion of accounts payable to short term
note                            |  | $                                | 9,000      |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|Issuance of unfunded short term note                                         |  | $                                | 7,500      |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|Legal fees paid directly from short term note
proceeds                       |  | $                                | 5,000      |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  
|Interest paid directly from short term note
proceeds                         |  | $                                | 15,500     |                      | $ |           |  
|                                                                             |  |                                  |            |                      |   |            |  

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

5

---



DEBT RESOLVE, INC. and SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Deficiency
For the Nine Months Ended September 30, 2009
(Unaudited)

|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |            |                      |   |         |   |   |      |   |   |             |   |   |             |  
|------------------------------------------------------------------------------------------------------------ |  | ----------------- | - | ------------- | - | ----------------- |  | ------ | ---------- | --------------------------- | - | -------------------------- |  | ------------------------- | ---------- | -------------------- | - | ------- | - | - | ---- | - | - | ----------- | - | - | ----------- | -
|                                                                                                             |  | Preferred
 Stock  |   | Common
 Stock |   |                   |  |        |            |                             |   |                            |  |                           |           
|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |           
|                                                                                                             |  | Number
 of Shares |   | Amount        |   | Number
 of Shares |  | Amount |            | Additional
 Paid in Capital |   | Common
 stock to be issued |  | Shares
 Held Under Escrow |            | Accumulated
 Deficit |   | Total   |  
|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |            |                      |   |         |  
|Balance at December 31, 2008                                                                                 |  |                   |  |               | $ |                  |  |        | 10,061,865 |                             | $ | 10,512                     |  | $                         | 46,809,318 |                      | $ | 47,970  |   | $ | (450 | ) | $ | (55,381,635 | ) | $ | (8,514,285  | )
|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |            |                      |   |         |   |   |      |   |   |             |   |   |             |  
|Capital contributed from the grant of stock options to
employees                                             |  |                   |  |               |   |                  |  |        |           |                             |   |                           |  |                           | 207,850    |                      |   |         |   |   |     |   |   |            |   |   | 207,850     |  
|Issuance of common stock to consultants for
services                                                         |  |                   |  |               |   |                  |  |        | 4,200,000  |                             |   | 4,200                      |  |                           | 200,800    |                      |   |         |   |   |     |   |   |            |   |   | 205,000     |  
|Issuance of common stock to employees and directors
to convert accrued
 payroll, loans and interest to stock |  |                   |  |               |   |                  |  |        | 15,462,830 |                             |   | 15,463                     |  |                           | 4,764,185  |                      |   |         |   |   |     |   |   |            |   |   | 4,779,648   |  
|Issuance of common stock to consultant director to
modify contract                                           |  |                   |  |               |   |                  |  |        | 1,686,000  |                             |   | 1,686                      |  |                           | 419,814    |                      |   |         |   |   |     |   |   |            |   |   | 421,500     |  
|Issuance of common stock to investors for conversion
of notes and
 interest to stock                         |  |                   |  |               |   |                  |  |        | 1,129,745  |                             |   | 1,130                      |  |                           | 281,154    |                      |   |         |   |   |     |   |   |            |   |   | 282,284     |  
|Issuance of common stock to investor for exchange of
notes                                                   |  |                   |  |               |   |                  |  |        | 150,000    |                             |   | 150                        |  |                           | 47,820     |                      |   | (47,970 | ) |   |     |   |   |            |   |   |            |  
|Issuance of common stock to vendors for conversion
of accounts payable                                       |  |                   |  |               |   |                  |  |        | 1,406,160  |                             |   | 1,406                      |  |                           | 434,382    |                      |   |         |   |   |     |   |   |            |   |   | 435,788     |  
|Issuance of common stock to directors for
services                                                           |  |                   |  |               |   |                  |  |        | 2,000,000  |                             |   | 2,000                      |  |                           | 378,000    |                      |   |         |   |   |     |   |   |            |   |   | 380,000     |  
|Issuance of common stock to employee per
contract                                                            |  |                   |  |               |   |                  |  |        | 50,000     |                             |   | 50                         |  |                           | 22,450     |                      |   |         |   |   |     |   |   |            |   |   | 22,500      |  
|Capital contributed from the exercise of options and
warrants                                                |  |                   |  |               |   |                  |  |        | 617,417    |                             |   | 617                        |  |                           | 179,557    |                      |   |         |   |   |     |   |   |            |   |   | 180,174     |  
|Release of shares from escrow                                                                                |  |                   |  |               |   |                  |  |        | 450,000    |                             |   |                           |  |                           | 112,050    |                      |   |         |   |   | 450  |   |   |            |   |   | 112,500     |  
|                                                                                                             |  |                   |  |               |   |                  |  |        |           |                             |   |                           |  |                           |            |                      |   |         |   |   |     |   |   |            |   |   |             |  
|Net loss                                                                                                     |  |                   |  |               |   |                  |  |        |           |                             |   |                           |  |                           |           |                      |   |         |   |   |     |   |   | (8,747,569  | ) |   | (8,747,569  | )
|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |            |                      |   |         |   |   |      |   |   |             |   |   |             |  
|Balance at September 30, 2009                                                                                |  |                   |  |               | $ |                  |  |        | 37,214,017 |                             | $ | 37,214                     |  | $                         | 53,857,380 |                      |   |        |   | $ |     |   | $ | (64,129,204 | ) | $ | (10,234,610 | )
|                                                                                                             |  |                   |   |               |   |                   |  |        |            |                             |   |                            |  |                           |            |                      |   |         |   |   |      |   |   |             |   |   |             |  

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

6

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(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, we, us,
our) 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-Q, the accompanying unaudited condensed
consolidated financial statements do not include all the disclosures required
by GAAP for annual financial statements. While the Company believes that the
disclosures presented are adequate to make the information not misleading,
these unaudited interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008. Operating results for the three and nine months ended
September 30, 2009 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2009, or any other interim
period.

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

The
accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. For the nine months ended September 30, 2009, the Company
incurred a net loss of $8,750,733 from continuing operations. Cash used in
operating and investing activities from continuing operations was $690,364 for
the nine months ended September 30, 2009. In addition, the Company had a
working capital deficiency (Current liabilities minus current assets) of
$7,886,524 from continuing operations as of September 30, 2009. The Companys
cash need is approximately $70,000 per month. Based upon projected operating
expenses and currently available cash, the Company believes that its
working capital as of the date of this report is not sufficient to fund its
plan of operations for the next twelve months. The aforementioned factors raise
substantial doubt about the Companys ability to continue as a going concern.

The
Company needs to raise additional capital in order to be able to accomplish its
business plan objectives. The Company has historically satisfied its capital
needs primarily from the sale of debt and equity securities. Management of the
Company is continuing its efforts to secure additional funds through debt
and/or equity instruments. Management believes that it will be successful in
obtaining additional financing; however, no assurance can be provided that the
Company will be able to do so. There is no assurance that these funds will be
sufficient to enable the Company to attain profitable operations or continue as
a going concern. To the extent that the Company is unsuccessful, the Company
may need to curtail its operations 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. In the alternative, the Company may be required to file for
bankruptcy. These unaudited condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

The
accompanying unaudited condensed consolidated statements of operations for the
three and nine month periods ended September 30, 2008 and the unaudited
condensed consolidated statement of cash flows for the nine month period ended
September 30, 2008 have been restated to correct the accounting treatment of
Company common stock issuances in the three months ended June 30, 2008,
consisting of the recording of (i) a 450,000 share issuance for
fundraising costs that was not previously recorded, (ii) the recording of a
50,000 share issuance for fundraising costs that was originally recorded in the
three months ended September 30, 2008, and (iii) the recording of a 400,000
share issuance on April 1, 2008 for fundraising costs that was originally
recorded using a valuation date of May 29, 2008. See Note 15 for additional
details. Also there was change due to derivative liability calculation on the
Convertible Note of $300,000.

7

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles
of Consolidation

The
accompanying unaudited condensed consolidated financial statements include the
accounts of First Performance Corporation, a wholly-owned subsidiary,
together with its wholly-owned subsidiary, First Performance Recovery
Corporation, and DRV Capital LLC, a wholly-owned subsidiary (DRV Capital),
together with its wholly-owned subsidiary, EAR Capital, LLC (EAR). The
results of all subsidiaries, including DRV Capital, EAR, First Performance and
First Performance Recovery are shown as discontinued operations in the
financial statements. All material inter-company balances and transactions have
been eliminated in consolidation.

Reclassifications

Certain
accounts in the prior period financial statements have been reclassified for
comparison purposes to conform to the presentation of the current period
financial statements. These reclassifications had no effect on the previously
reported loss.

Revenue
Recognition

To
date, we have earned revenue from collection agencies, collection law firms and
lenders that implemented our online system. Our current contracts provide for
revenue based on a percentage of the amount of debt collected or through a flat
monthly fee. Although other revenue models have been proposed, most revenue
earned to date has been determined using these methods, and such revenue is
recognized when the settlement amount of debt is collected by the client or at
the beginning of the month for a flat fee. 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 flat monthly fees with transaction fees upon debt
settlement. The Company is currently marketing our system to three primary
markets. The first and second are financial institutions and collection
agencies, our traditional markets. The Company is also expanding into
healthcare, particularly hospitals, our third market. The Company is in
discussions with a number of new clients at this time. The Company believes
that its revenue will increase significantly during 2010.

In
recognition of the principles expressed in Accounting Standards
Codification subtopic 605-10, Revenue Recognition (ASC 605-10) that revenue should not be
recognized until it is realized or realizable and earned, and given the element
of doubt associated with collectability of an agreed settlement on past due
debt, at this time we uniformly postpone recognition of all contingent revenue
until our client receives payment from the debtor. As is required by SAB 104,
revenues are considered to have been earned when we have substantially
accomplished the agreed-upon deliverables to be entitled to payment by the
client. For most current active clients, these deliverables consist of the
successful collection of past due debts using our system and/or, for clients
under a flat fee arrangement, the successful availability of our system to its
customers.

In
addition, in accordance with ASC 605-10, revenue is recognized and identified
according to the deliverable provided. Set-up fees, percentage contingent
collection fees, fixed settlement fees, monthly fees, etc. are identified
separately.

Cash
and Cash Equivalents

For
purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. Cash equivalents consist of money market funds and
demand deposits. From time to time, the Company has balances in excess of the
federally insured limit.

Accounts
Receivable

We
extend credit to large, mid-size and small companies for collection services.
We have a concentration of credit risk as 100% of the balance of accounts
receivable at September 30, 2009 and almost 100% of the revenues for the three
and nine months ended September 30, 2009 consists of only one customer. 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 collectability and
the allowance for doubtful accounts is adjusted accordingly. Our management
determines collectability based on their experience and knowledge of the
customers. As of September 30, 2009, no allowance for doubtful accounts has
been booked.

8

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Accounts
Payable and Accrued Liabilities

Included
in accounts payable and accrued liabilities as of September 30, 2009 are
accrued professional fees of $1,269,205, accrued closing costs for First
Performance of $1,350,931 and cash disbursed in excess of available balance of
$81,095. The Company owed 15 vendors a total of $2,064,450 at September 30,
2009, each of whom was individually owed in excess of 10% of total Company
assets.

Derivative
Financial Instruments

The
Companys derivative financial instruments consist of embedded derivatives
related to Convertible Debentures. These embedded derivatives include certain
conversion features. The accounting treatment of derivative financial
instruments requires that the Company records the derivatives and related
warrants at their fair values as of the inception date of the Convertible
Debenture Agreement and at fair value as of each subsequent balance sheet date.
In addition, under the provisions of Accounting Standards Codification subtopic
815-40, Derivatives and Hedging; Contracts in Entitys Own Equity (ASC
815-40) as a result of entering into the Debentures, the Company is required
to classify all other non-employee stock options and warrants as derivative
liabilities and mark them to market at each reporting date. Any change in fair
value inclusive of modifications of terms will be recorded as non-operating,
non-cash income or expense at each reporting date. If the fair value of the
derivatives is higher at the subsequent balance sheet date, the Company will
record a non-operating, non-cash charge. If the fair value of the derivatives
is lower at the subsequent balance sheet date, the Company will record
non-operating, non-cash income. As of September 30, 2009, conversion-related
derivatives and the warrants were valued using the Black Scholes Option Pricing
Model with the following assumptions: dividend yield of 0%; annual volatility
of 323%; and risk free interest rate from 0.18% to 2.31%. The derivatives are
classified as short term liabilities.

Stock-Based
Compensation

The
Company accounts for stock options issued under the recognition and measurement
principles of Accounting
Standards Codification subtopic 718-10, Compensation (ASC 718-10).
Under the provisions of ASC 718-10 the Company is required to measure the cost
of services received in exchange for an award of equity instruments based on
the fair value of the award. For employees and directors, the award is measured
on the grant date and for non-employees, the award is generally re-measured on
interim financial reporting dates until the service period is complete, in
accordance with ASC 718-10. The fair value amount is then recognized over the
period during which services are required to be provided in exchange for the
award, usually the vesting period. As of September 30, 2009, there was no
unrecognized compensation cost. Total stock-based compensation expense for the
three months ended September 30, 2009 and 2008 amounted to $190,000 and
$367,326, respectively, and for the nine months ended September 30, 2009 and
2008 amounted to $207,850 and $2,048,106, respectively.

9

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

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

|                                      |  |  |                                 |  |   |             | 
|------------------------------------- |  |  | ------------------------------- |  | - | ----------- | 
|                                      |  |  | Nine months ended September 30, | 
|                                      |  |  |                                 | 
|                                      |  |  | 2009                            |  |   | 2008        | 
|                                      |  |  |                                 |  |   |             | 
|Risk free interest rate range         |  |  | 3.50%                           |  |   | 2.10 -3.50% | 
|                                      |  |  |                                 |  |   |             | 
|Dividend yield                        |  |  | 0%                              |  |   | 0%          | 
|                                      |  |  |                                 |  |   |             | 
|Expected volatility                   |  |  | 291.0%                          |  |   | 81.1%       | 
|                                      |  |  |                                 |  |   |             | 
|Expected life in years                |  |  | 7                               |  |   | 3 -7        | 
|                                      |  |  |                                 |  |   |             | 
|Weighted average fair value per share |  |  | $ 0.19                          |  | $ | 0.88        | 
|                                      |  |  |                                 |  |   |             | 

Until
such time as the Company had sufficient relevant trading history to compute the
historical volatility of its common stock, the Company utilized an expected
volatility figure derived from the historical volatilities of an index of
comparable public entities. The Company accounts for the expected life of share
options in accordance with the simplified method provisions of ASC 718-10

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. The potentially dilutive conversion of our convertible debentures
of 7,728,740 and 1,314,636 and the exercise of options and warrants aggregating
16,718,301 and 8,112,451, respectively at September 30, 2009 and 2008, 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 do not include the underlying
shares exercisable with respect to the issuance of 2,785,522 and 177,938
warrants as of September 30, 2009 and 2008, respectively, exercisable at $0.01
per share or less in accordance with Accounting Standards Codification subtopic
260-10, Earnings Per Share (ASC 260-10).

During
the year ended December 31, 2008, the Company issued 450,000 shares held in
escrow in conjunction with the issuance of the $300,000 convertible debenture
(See Note 4). These shares were released from escrow in the three months ended
September 30, 2009, and the Company does now consider these shares as
outstanding and as such does now include them in the calculation of Earnings
per Share.

10

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 3. NOTES
PAYABLE:

On
November 30, 2007, an unaffiliated investor loaned the Company $100,000 on a
90-day short term note. The note carries 12% interest per annum, with interest
payable monthly in cash. The principal balance outstanding will be due at any
time upon 30 days written notice, subject to mandatory prepayment (without
penalty) of principal and interest, in whole or in part, from the net cash
proceeds of any public or private, equity or debt financing made by Debt
Resolve. The note matured on February 28, 2008 and was extended to July 31,
2009 for aggregate extension fees of $85,000. In conjunction with the note the
Company also issued a warrant to purchase 100,000 shares of common stock at an
exercise price of $1.25 per share with an expiration date of November 30, 2012.
The note was recorded net of a debt discount of $44,100, based on the relative
fair value of the warrant under the Black-Scholes pricing model. The debt
discount was amortized over the initial term of the note and was fully
amortized by March 2008. During the three and nine months ended September 30,
2008, the Company recorded amortization of the debt discount related to this
note of $0 and $29,400, respectively. This note is guaranteed by Mssrs. Mooney
and Burchetta, two Directors of the Company. On August 27, 2009, the Company
repaid $65,000 of the outstanding balance on this note, the $85,000 of accrued
extension fees and $19,003 in accrued interest by the issuance of 1,126,685 shares
of Company common stock that were valued at the closing market price of $0.25
per share. Based on the $281,671 value of the shares issued, the Company
recognized an $112,668 loss on extinguishment of the debt in the three months
ended September 30, 2009. As of September 30, 2009, the outstanding balance on
this note was $35,000.

On
December 21, 2007, an unaffiliated investor loaned the Company $125,000 on an
18-month note with a maturity date of June 21, 2009. The note has a provision
requiring repayment once the Company has raised an aggregate of $500,000
following issuance of this note. As a result, this note is currently in default
as it has not been repaid and the Company reached the $500,000 threshold in
September, 2008. The note carries interest at a rate of 12% per annum, with
interest accruing and payable at maturity. In conjunction with the note, the
Company granted to the investor a warrant to purchase 37,500 shares of common
stock at an exercise price of $1.07 and an expiration date of December 21,
2012. The note was recorded net of a deferred debt discount of $19,375, based
on the relative fair value of the warrant under the Black-Scholes pricing
model. Such discount is being amortized over the term of the note and was fully
amortized in 2008. During the three and nine months ended September 30, 2008,
the Company recorded amortization of the debt discount related to this note of
$12,917 and $19,375, respectively. This note is guaranteed by Mr. Burchetta. As
of September 30, 2009, this note has matured and is still outstanding and is in
default at this time. The Company is in discussions with the lender.

On
December 30, 2007, an unaffiliated investor loaned the Company $200,000 on an
18-month note with a maturity date of June 30, 2009. The note carries interest
at a rate of 12% per annum, with interest accruing and payable at maturity. In
conjunction with this note, the Company also issued a warrant to purchase
100,000 shares of common stock at an exercise price of $1.00 and an expiration
date of December 30, 2012. The note was recorded net of a deferred debt
discount of $51,600, based on the relative fair value of the warrant under the
Black-Scholes pricing model. Such discount is being amortized over the term of
the note. During the three months ended September 30, 2009 and 2008, the
Company recorded amortization of the debt discount related to this note of $0
and $8,600, respectively, and during the nine months ended September 30, 2009
and 2008, the amortization expense was $17,200 and $25,800, respectively. This
note is guaranteed by Mr. Burchetta. As of September 30, 2009, this note has
matured and is still outstanding and is in default at this time. The Company is
in discussions with the lender.

On
January 25, 2008, an unaffiliated investor loaned the Company $100,000 on an
18-month note with a maturity date of July 25, 2009. The note carries interest
at a rate of 12% interest per annum, with interest accruing and payable at
maturity. In conjunction with the note, the Company also issued a warrant to
purchase 50,000 shares of common stock at an exercise price of $1.00 and an
expiration date of January 24, 2013. The note was recorded net of a deferred
debt discount of $20,300, based on the relative fair value of the warrant under
the Black-Scholes pricing model. Such discount is being amortized over the term
of the note. During the three months ended September 30, 2009 and 2008, the
Company recorded amortization of the debt discount related to this note of
$1,128 and $3,383, respectively, and during the nine months ended September 30,
2009 and 2008, amortization was $7,894 and $9,022, respectively. As of
September 30, 2009, this note has matured and is still outstanding and is in
default at this time. The Company is in discussions with the lender.

Between
January 2008 and June 2009, an unaffiliated investor loaned the Company $79,000
on a short term basis. The interest rate is 12% per annum, and the loan is
repayable on demand. As of September 30, 2009, the remaining outstanding
balance on the loan is $23,500.

11

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 3. NOTES
PAYABLE (CONTINUED):

On
February 26, 2008, an unaffiliated investor loaned the Company an additional
$100,000 on an 18-month note with a maturity date of August 26, 2009. The note
carries interest at a rate of 12% interest per annum, with interest accruing
and payable at maturity. Terms of the loan included a $20,000 service fee on
repayment or a $45,000 service fee if repayment occurs more than 31 days after
origination. The outstanding principal and interest may be repaid, in whole or
in part, at any time without prepayment penalty. Accordingly, since the loan
remains unpaid, the Company has accrued the service fee of $45,000 as of
September 30, 2009. In conjunction with the note, the Company also issued a
warrant to purchase 175,000 shares of common stock at an exercise price of
$1.25 and an expiration date of February 26, 2013. The note was recorded net of
a deferred debt discount of $57,400, based on the relative fair value of the
warrant under the Black-Scholes pricing model. Such discount is being amortized
over the term of the note. During the three months ended September 30, 2009 and
2008, the Company recorded amortization of the debt discount related to this
note of $6,378 and $9,567, respectively, and during the nine months ended
September 30, 2009 and 2008 amortization was $25,511 and $22,322, respectively.
As of September 30, 2009, this note has matured and is still outstanding and is
in default at this time. The Company is in discussions with the lender.

On
March 7, 2008, the Company borrowed $100,000 from a bank at a variable rate equal
to the banks prime rate (currently 3.25%) for 30 days. On March 14, 2008, the
original loan was repaid, and the Company borrowed $150,000 at the prime rate
and due on April 7, 2008. On May 15, 2008, the loan was repaid and the Company
borrowed $250,000 at the prime rate and due on July 1, 2008. The note was
subsequently extended to January 1, 2010 and is outstanding as of September 30,
2009. The loan is secured by the assets of the Company and is personally
guaranteed by Mr. Mooney, a director of the Company.

On
March 27, 2008, an unaffiliated investor loaned the Company $100,000 on an
18-month note with a maturity date of September 27, 2009. The note carries
interest at a rate of 12% interest per annum, with interest accruing and
payable at maturity. The outstanding principal and interest may be repaid, in
whole or in part, at any time without prepayment penalty. In conjunction with
the note, the Company also issued a warrant to purchase 50,000 shares of common
stock at an exercise price of $1.95 and an expiration date of March 27, 2013.
The note was recorded net of a deferred debt discount of $37,900, based on the
relative fair value of the warrant under the Black-Scholes pricing model. Such
discount is being amortized over the term of the note. During the three months
ended September 30, 2009 and 2008, the Company recorded amortization of the
debt discount related to this note of $6,317, and during the nine months ended
September 30, 2009 and 2008 amortization was $18,950 and $12,633, respectively.
As of September 30, 2009, this note has matured and is still outstanding and is
in default at this time. The Company is in discussions with the lender.

On
April 10, 2008, an unaffiliated investor loaned the Company an additional
$198,000 on an amendment of the prior note with a maturity date of June 21,
2009 for the entire balance of the first note plus the amendment ($323,000
total). The note carries interest at a rate of 12% per annum, with interest
accruing and payable at maturity. The outstanding principal and interest may be
repaid, in whole or in part, at any time without prepayment penalty. In
conjunction with the note, the Company also issued a warrant to purchase 99,000
shares of common stock at an exercise price of $2.45 and an expiration date of
April 10, 2013. This warrant has a cashless exercise feature. The note was
recorded net of a deferred debt discount of $88,110, based on the relative fair
value of the warrant. The debt discount is being amortized over the term of the
note. During the three and nine months ended September 30, 2008, the Company
recorded amortization of the debt discount related to this note of $73,425 and
$88,110, with the discount being fully amortized at September 30, 2008 due to
the note being in default. This note is guaranteed by Mr. Burchetta. The
amended note maintains the provision requiring repayment of the note upon
raising gross proceeds of $500,000 subsequent the issuance of the note. At
September 30, 2008, the Company had raised in excess of $500,000 subsequent to
this amended note, and as a result, this note is in default. The Company also
issued 50,000 shares of common stock valued at $122,130 in order to induce the
investor to forbear on the note, which is included in expenses. As of September
30, 2009, this note has matured and is still outstanding and is in default at
this time. The Company is in discussions with the lender.

12

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 3. NOTES
PAYABLE (CONTINUED):

On
November 14, 2008, an unaffiliated investor loaned the Company $107,000 on
short term note with a maturity date of December 31, 2008 (the November
Note). The Company received net proceeds of $100,000, and the $7,000 was
treated as prepaid interest on the November Note to the original maturity date.
The maturity date was subsequently extended to March 30, 2009 for additional
interest on the note of $8,000, and the face amount of the November Note was now
$115,000 at maturity. Interim extensions from March 31, 2009 to July 31, 2009
are discussed in the February note discussion below. On July 31, 2009, the
maturity date was extended to August 26, 2009 and later to September 25, 2009.
The November Note carried a default rate of interest of 22% per annum after the
maturity date. The Company had a thirty (30) day grace period after the
maturity date to repay the November Note with interest. The outstanding
principal and interest may be repaid, in whole or in part, at any time without
prepayment penalty. The November Note was secured by a first lien on the assets
of the Company as evidenced by a UCC-1 filing. Arisean Capital subordinated its
first lien position on its $576,000 outstanding loan to the extent of the
November Note. In conjunction with the November Note, the Company issued a
warrant to purchase 1,000,000 shares of common stock at an exercise price of
$0.12 and an expiration date of November 14, 2013. This warrant has a
cashless exercise feature. The November Note was recorded net of a deferred
debt discount of $50,504, based on the relative fair value of the warrant and
was fully amortized in 2008 over the term of the note. On February 13, 2009, in
conjunction with the February Note discussed below, the warrant for 1,000,000
shares was cancelled and replaced by a new five year warrant to purchase
25,750,000 shares of Company common stock at a total exercise price of $1.00.
Upon repayment of amounts borrowed from the investor on or before maturity, as
extended, the Company may reduce the warrant by 23,750,000 warrants. The final
two extensions granted to the investor another 1,000,000 warrants, for an
aggregate total of 3,000,000 warrants. The Company now had the right to reduce
the 25,750,000 warrant by 22,750,000 warrants upon payment. During the three
months ended September 30, 2009, the investor exercised the first 600,000
warrants, leaving a remaining unexercised total of 2,400,000 warrants. On
September 25, 2009, the November Note was paid in full in the amount of
$115,000, and the lien on the Companys assets was released. .(if note was
repaid why are we even discussing it in this much detail on a 10=Q!!!!!!!!!!!)

On
February 26, 2009, the holder of the November Note loaned the Company an
additional $82,500 with a maturity date of March 30, 2009 (the February
Note). The Company received net proceeds of $70,000, and the $7,500 was
treated as prepaid interest on the February Note and the $5,000 was expensed as
attorneys fees. Through a series of amendments, the maturity dates of the
November Note and the February Note were extended to September 25, 2009 for
additional interest of $12,500, with the face amount of the February Note now
$95,000 at maturity. In addition, aggregate additional legal fees of $5,000
were expensed as a result of the extensions and were to be repaid at maturity,
making the total amount due to the investor $215,000. The holder received the
right, in the event of a Company default on either Note, to return to the Company
any of the holders 3,000,000 warrants not yet exercised in exchange for the
Companys cash payment equal to $0.023 per warrant share. Interest applies at a
default rate of 26% interest per annum after maturity. The February Note was
secured by a first lien on the assets of the Company as evidenced by a UCC-1
filing. Arisean Capital further subordinated its first lien position on its
$576,000 outstanding loan to the extent of the November and February Notes. On
September 25, 2009, the February Note was paid in full in the amount of
$95,000, and the lien on the Companys assets was released. The $5,000 of
accrued legal fees was also paid, for a total to the investor, including the
two notes and legal fees, of $215,000.

NOTE 4.
CONVERTIBLE DEBENTURES:

On
September 30, 2008, an unaffiliated investor loaned the Company $300,000 on a
6-month convertible debenture with a maturity date of March 31, 2009. This
convertible debenture replaced a note issued on July 31, 2008 in the same
amount of $300,000 with a maturity date of January 31, 2009. The debenture
carries interest at a rate of 15% per annum, with $22,500 (6 months) of
interest payable in advance from the proceeds of the original loan on July 31,
2008. Thereafter, interest is payable monthly in cash. The outstanding
principal and interest may be repaid, in whole or in part, at any time without
prepayment penalty. The Exchange Agreement called for the lender to receive
150,000 shares of the common stock of the company in consideration for the exchange
of the original note for the convertible debenture, which were issued during
the three months ended September 30, 2009. In accordance with Accounting
Standards Codification subtopic 470-50, Debt-Modifications and Extinguishments
(ASC 470-50), the exchange was determined to be an extinguishment of debt,
and extinguishment accounting was applied. The debenture is secured by an
escrow of 450,000 shares of the common stock of the Company, which was held in
escrow at the lenders attorneys office. These shares were released from
escrow during the three months ended September 30, 2009 in payment of the
interest accrued through July 31, 2009 and a partial payment of the principal
(see below). At any time on or after the Issue Date and prior to the time the Debenture
is paid in full in accordance with its terms (including, without limitation,
after the occurrence of an Event of Default, or, if the Debenture is not fully
paid or converted after the Maturity Date), the Holder of this Debenture is
entitled, at its option to convert this Debenture at any time into shares of
Common Stock, $0.001 par value (Common Stock), of

13

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 4. CONVERTIBLE
DEBENTURES (CONTINUED):

the Company at
the Conversion Price. Conversion Price means the (i) the average VWAP for the
20 Trading Days ending on the Trading Day immediately before the relevant
Conversion Date, multiplied by (ii) fifty percent (50%). The debenture was
recorded net of a beneficial conversion feature of $252,030, based on the
relative fair value of the conversion feature. The beneficial conversion
feature is being amortized over the term of the debenture. The debenture was
also recorded net of a deferred debt discount of $47,970 as shares to be issued
based on the relative fair value of the Exchange Shares. The deferred debt
discount is being amortized over the term of the debenture. During the three
and nine months ended September 30, 2009, the Company recorded amortization of
the beneficial conversion feature and deferred debt discount related to this
debenture of $0 and $150,000, respectively. During the three and nine months
ended September 30, 2008, the Company recorded no amortization of the
beneficial conversion feature and deferred debt discount related to this
debenture. On August 31, 2009, the Company repaid $30,950 in note principal and
$23,322 in accrued interest by the issuance of 450,000 shares of Company common
stock from treasury that were valued at the closing market price of $0.25 per
share. Based on the $112,500 value of the shares issued, the Company recognized
a $58,228 loss on extinguishment of the debt in the three months ended
September 30, 2009. As of September 30, 2009, the outstanding balance on this
convertible was $269,050. At the date of this report, the debenture is in
default, and the Company is working with the lender to restructure the
debenture.

On
July 31, 2008, the Company agreed to pay the attorney who arranged the above
financing 50,000 shares of stock in the Company for introducing the investor.
Because of a delinquent payable with the Companys stock transfer agent, the
shares were converted to a 6 month loan of $50,000 with a maturity date of
January 31, 2009. The note carried interest at a rate of 12% per annum, payable
monthly in arrears in cash. At September 30, 2008, due to the inability of the
Company to pay the interest on the note, the note was exchanged for a
convertible debenture with the same maturity date of January 31, 2009 in the
amount of $51,000. The debenture carries interest at a rate of 12% per annum,
with interest payable monthly in arrears in cash. The outstanding principal and
interest may be repaid, in whole or in part, at any time without prepayment
penalty. At any time on or after the Issue Date and prior to the time the
Debenture is paid in full in accordance with its terms (including, without
limitation, after the occurrence of an Event of Default, or, if the Debenture is
not fully paid or converted after the Maturity Date), the Holder of this
Debenture is entitled, at its option to convert this Debenture at any time into
shares of Common Stock, $0.001 par value (Common Stock), of the Company at
the Conversion Price. Conversion Price means the (i) the average of the
lowest three (3) bid prices for the Common Stock over a ten (10) Trading Day
period ending on the Trading Day immediately before the relevant Conversion
Date, multiplied by (ii) fifty percent (50%), provided that Holder shall not
receive more than 9.99% of the issued and outstanding Common Stock. The
debenture was recorded net of a beneficial conversion feature of $51,000, based
on the relative fair value of the conversion feature. The beneficial conversion
feature is being amortized over the term of the debenture. During the three and
nine months ended September 30, 2008, the Company recorded no amortization of
the beneficial conversion feature related to this debenture. During the three
and nine months ended September 30, 2009, the Company recorded amortization of
the beneficial conversion feature related to this debenture of $0 and $12,750,
respectively. As a result of the default on this debenture, the Company
negotiated a settlement with the attorney to discharge the debenture, its
accrued interest and old outstanding legal bills to the attorney for $75,000
paid $5,000 per month beginning August 1, 2009. The Company has made all
required monthly payments through the date of this report.

On
May 29, 2009, an unaffiliated investor loaned the Company $100,000 on a
three-year Convertible Debenture with an interest rate of 14%. The interest
accrues and is payable at maturity. The conversion price is set at $0.15 per
share. The Debenture carries a first lien security interest. In addition, the
investor received 1,000,000 warrants to purchase the common stock of the
Company at an exercise price of $1.00. The exercise period of the warrant is
five years. The note was recorded net of a deferred debt discount of $13,333,
based on the relative fair value of the Debt under the Black-Scholes pricing
model. The Company also fair valued the warrant under the Black- Scholes
pricing model and it value of $20,000 was treated as Derivative Liability and
charged to expenses on the date of issuance. The Company calculate the fair
value on each reporting date, as of September 30, 2009 it had $199,800. Such
discount is being amortized over the term of the note. During the three and
nine months ended September 30, 2009, the Company recorded amortization of the
debt discount related to this note of $8,333 and $11,111, respectively.

During
the three months ended September 30, 2009, unaffiliated investors loaned the
Company $780,459 on three year Convertible Debentures with an interest rate of
14%. Of this total, $105,000 was shown under undeposited under other current
assets. The interest accrues and is payable at maturity, which range in dates
from July 22, 2012 to September 29, 2012. The conversion price is set at $0.15
per share. The Debentures carry a first lien security interest. In addition,
the investors received 6,454,590 warrants to purchase the common stock of the
Company at an exercise price of $1.00. The exercise period of the warrants is
five years. The notes were recorded net of a deferred debt discount of
$645,459, based on the relative fair value of the warrants under the
Black-Scholes pricing model. Such discount is being amortized over the

14

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 4.
CONVERTIBLE DEBENTURES (CONTINUED):

term of the
notes. During the three months ended September 30, 2009, the Company recorded
amortization of the debt discount related to these notes of $21,719 on $780,459
of Convertible Note.

The
embedded conversion option related to the Convertible Debentures is accounted
for under EITF issue No. 00-19 Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock. We have
determined that the embedded conversion option is a derivative liability.
Accordingly, the embedded conversion option will be marked to market through
earnings at the end of each reporting period. The conversion option is valued
using the Black-Scholes valuation model. For the three and nine months ended
September 30, 2009, the Company reflected a loss of $2,002,206 and $2,823,873
representing the change in the value of the embedded conversion option.

NOTE 5. LINES
OF CREDIT  RELATED PARTIES:

On
May 31, 2007, the Company entered into a line of credit agreement with Arisean
Capital, Ltd. (Arisean), pursuant to which the Company may borrow from time
to time up to $500,000 from Arisean to be used by the Company to fund its
working capital needs. Borrowings under the line of credit are secured by the
assets of the Company, subject to a subordination agreement, and bear interest
at a rate of 12% per annum, with interest payable monthly in cash. The
principal balance outstanding will be due at any time upon 30 days written
notice, subject to mandatory prepayment (without penalty) of principal and
interest, in whole or in part, from the net cash proceeds of any public or
private, equity or debt financing completed by the Company. Ariseans
obligation to lend such funds to the Company is subject to a number of
conditions, including review by Arisean of the proposed use of such funds by
the Company. Arisean is controlled by Charles S. Brofman, the Co-Founder of the
Company and a former member of its Board of Directors. On February 8, 2008, in
consideration of the line of credit not being repaid with the later loan
proceeds secured subsequent to the date of the agreement, the Company granted
options to purchase 350,000 shares of the common stock of the Company at $1.25
per share to Mr. Brofman. The term of the options is three years, and they vest
immediately. The option expense of $227,500 was treated as deferred debt
discount in association with Mr. Brofmans financing during 2008 and was
expensed immediately. On September 25, 2009, the Company repaid the $576,000
outstanding balance on this line of credit and $109,456 in accrued interest by
the issuance of 4,569,706 shares of Company common stock that were valued at
the closing market price of $0.45 per share. Based on the $2,056,368 value of
the shares issued, the Company recognized a $1,370,912 loss on extinguishment
of the debt in the three months ended September 30, 2009. Also as of September
25, 2009, Arisean released its first lien on the assets of the Company, placing
the new 2009 investors in first lien position. As of September 30, 2009, the
outstanding balance on this line of credit was $10,557 in remaining accrued
interest.

On
August 10, 2007, the Company entered into a line of credit agreement with James
D. Burchetta, Debt Resolves Chairman and Founder, for up to $100,000 to be
used to fund the working capital needs of Debt Resolve and First Performance.
Borrowings under the line of credit are secured by the assets of the Company
and bear interest at a rate of 12% per annum, with interest payable monthly in
cash. The principal balance outstanding will be due at any time upon 30 days
written notice, subject to mandatory prepayment (without penalty) of principal
and interest, in whole or in part, from the net cash proceeds of any public or
private, equity or debt financing made by Debt Resolve. On August 27, 2009, the
Company repaid the $119,000 outstanding balance on this line of credit and
$23,345 in accrued interest by the issuance of 948,970 shares of Company common
stock that were valued at the closing market price of $0.25 per share. Based on
the $237,242 value of the shares issued, the Company recognized a $94,897 loss
on extinguishment of the debt in the three months ended September 30, 2009. As
of September 30, 2009, the outstanding balance on this line of credit was
$1,017 in remaining accrued interest.

On
October 17, 2007, the Company entered into a line of credit agreement with
William M. Mooney, a Director of Debt Resolve, for up to $275,000 to be used
primarily to fund the working capital needs of First Performance. Borrowings
under the line of credit bear interest at 12% per annum, with interest payable
monthly in cash. The principal balance outstanding will be due at any time upon
30 days written notice, subject to mandatory prepayment (without penalty) of
principal and interest, in whole or in part, from the net cash proceeds of any
public or private, equity or debt financing made by Debt Resolve. In
conjunction with this line of credit, the Company also issued a warrant to
purchase 137,500 shares of common stock at an exercise price of $2.00 per share
with an expiration date of October 17, 2012. The liability for borrowings under
the line of credit was recorded net of a deferred debt discount of $117,700,
based on the relative fair value of the warrant under the Black-Scholes pricing
model. The debt discount was fully amortized during the year ended December 31,
2007. Borrowings under this line of credit are guaranteed by Mr. Burchetta and
Mr. Brofman. On February 8, 2008, in consideration of the line of credit not
being repaid with the later loan proceeds secured subsequent to the date of the
agreement, the Company granted Mr. Mooney 350,000 options to purchase common
stock at $1.25 per share. This option has a term of three years and vested
immediately. The grant was valued at $227,500 under the Black-Scholes pricing

15

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 5. LINES
OF CREDIT  RELATED PARTIES (CONTINUED):

model and was
expensed immediately as amortization of the deferred debt discount. On August
27, 2009, the Company repaid $343,421 of principal on this line of credit and
$64,222 in accrued interest by the issuance of 2,717,616 shares of Company
common stock that was valued at the closing market price of $0.25 per share.
Based on the $679,404 value of the shares issued, the Company recognized a
$271,762 loss on extinguishment of the debt in the three months ended September
30, 2009. As of September 30, 2009, the outstanding balance on this line of
credit was $157,000 in principal and $3,118 in accrued interest.

On
July 1, 2008, the Company entered into a line of credit agreement with Kenneth
H. Montgomery, a former Chief Executive Officer and Director of Debt Resolve,
for up to $315,000 to be used to fund the working capital needs of Debt
Resolve. Borrowings under the line of credit will bear interest at 12% per
annum, with interest payable monthly in cash. The principal balance outstanding
will be due at any time upon 30 days written notice, subject to mandatory
prepayment (without penalty) of principal and interest, in whole or in part,
from the net cash proceeds of any public or private, equity or debt financing
made by Debt Resolve. In conjunction with this line of credit, the Company also
issued an option to purchase 350,000 shares of common stock at an exercise
price of $1.00 per share on July 15, 2008 with an expiration date of July 15,
2015. The note was recorded net of a deferred debt discount of $262,500, based
on the relative fair value of the option. The debt discount was amortized over
the term of the note. As of June 30, 2009, the Company has borrowed $158,202
under this line of credit plus $185,681 of Company expenses paid directly by
Mr. Montgomery for a total borrowed of $343,883. On August 27, 2009, the
Company repaid $158,202 of principal on this line of credit and $24,492 in
accrued interest by the issuance of 1,217,966 shares of Company common stock
that were valued at the closing market price of $0.25 per share. Based on the
$304,491 value of the shares issued, the Company recognized a $121,797 loss on
extinguishment of the debt in the three months ended September 30, 2009. As of
September 30, 2009, the outstanding balance owed to Mr. Montgomery is $185,681
plus $1,352 in accrued interest on the line of credit that was repaid and
terminated.

NOTE 6. FIRST
PERFORMANCE CORP.  DISCONTINUED OPERATIONS:

On
October 15, 2007, the Company ceased operations of DRV Capital, and EAR. On
June 30, 2008, the Company closed First Performance and First Performance Recovery.

In
accordance with Accounting Standards Codification subtopic 360-10, Property,
Plant and Equipment (ASC 360-10), the Company has reported these
subsidiaries results as of September 30, 2009 and December 31, 2008 and for
the three and nine months ended September 30, 2009 and 2008 as discontinued
operations because the operations and cash flows have been eliminated from the
Companys continuing operations.

The
consolidated liabilities of DRV Capital and EAR are as follows:

|                  |  |                          |             |                         |   |   | 
|----------------- |  | ------------------------ | ----------- | ----------------------- | - | - | 
|                  |  | As of September 30, 2009 |             | As of December 31, 2008 |  
|                  |  |                          |             |                         |  
|                  |  |                          | (unaudited) |                         |   |   | 
|Liabilities:      |  |                          |             |                         |   |   | 
|Accounts payable  |  | $                        |            |                         | $ |  | 
|                  |  |                          |             |                         |   |   | 
|Total liabilities |  | $                        | __          |                         | $ |  | 
|                  |  |                          |             |                         |   |   | 

16

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 6. FIRST
PERFORMANCE CORP.  DISCONTINUED OPERATIONS (CONTINUED):

The
consolidated assets and liabilities of First Performance and First Performance
Recovery are as follows:

|                          |  |                            |           |                           |   |           | 
|------------------------- |  | -------------------------- | --------- | ------------------------- | - | --------- | 
|                          |  | As of September 30,
  2009 |           | As of December 31,
  2008 |  
|                          |  |                            |           |                           |  
|                          |  | (unaudited)                |           |                           |  
|Assets:                   |  |                            |           |                           |   |           | 
|Cash                      |  | $                          | 204       |                           | $ | 1,301     | 
|Prepaid expenses & other  |  |                            | 4,281     |                           |   | 4,281     | 
|                          |  |                            |           |                           |   |           | 
|Total current assets      |  | $                          | 4,485     |                           | $ | 5,582     | 
|                          |  |                            |           |                           |   |           | 
|                          |  |                            |           |                           |   |           | 
|Liabilities:              |  |                            |           |                           |   |           | 
|Current liabilities:      |  |                            |           |                           |   |           | 
|Accounts payable and      |  |                            |           |                           |   |           | 
|accrued expenses          |  | $                          | 2,311,653 |                           | $ | 2,330,912 | 
|                          |  |                            |           |                           |   |           | 
|Total current liabilities |  | $                          | 2,311,653 |                           | $ | 2,330,912 | 
|                          |  |                            |           |                           |   |           | 

Components of
discontinued operations for First Performance and First Performance Recovery
are as follows:

|                                             |  |                                  |      |                    |   |         |  
|-------------------------------------------- |  | -------------------------------- | ---- | ------------------ | - | ------- | -
|                                             |  | (unaudited)
  Three Months Ended |     
|                                             |  |                                  |     
|                                             |  | September 30, 2009               |      | September 30, 2008 |  
|                                             |  |                                  |      |                    |  
|                                             |  |                                  |      |                    |   |         |  
|Revenue                                      |  | $                                |     |                    | $ | (3,026  | )
|Payroll and
  related expenses               |  |                                  |     |                    |   | 38,166  |  
|General and
  administrative expenses        |  |                                  | 164  |                    |   | 47,517  |  
|Impairments
  of goodwill and intangibles    |  |                                  |     |                    |   |        |  
|Disposal of
  fixed asset                    |  |                                  |     |                    |   |        |  
|Accrual for
  closing costs for lease        |  |                                  |     |                    |   |        |  
|Depreciation
  and amortization              |  |                                  |     |                    |   |        |  
|Total
  expenses                             |  |                                  | 164  |                    |   | 85,683  |  
|                                             |  |                                  |      |                    |   |         |  
|Loss from
  operations                       |  |                                  | (164 | )                  |   | (88,709 | )
|                                             |  |                                  |      |                    |   |         |  
|Interest
  expense                           |  |                                  |     |                    |   | (105    | )
|Other income                                 |  |                                  |     |                    |   | 3,348   |  
|                                             |  |                                  |      |                    |   |         |  
|Income
  (loss) from discontinued operations |  | $                                | (164 | )                  | $ | (85,466 | )

17

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 6. FIRST
PERFORMANCE CORP.  DISCONTINUED OPERATIONS (CONTINUED):

|                                             |  |                                 |        |                    |   |            |  
|-------------------------------------------- |  | ------------------------------- | ------ | ------------------ | - | ---------- | -
|                                             |  | (unaudited)
  Nine Months Ended |       
|                                             |  |                                 |       
|                                             |  | September 30, 2009              |        | September 30, 2008 |  
|                                             |  |                                 |        |                    |  
|Revenue                                      |  | $                               |       |                    | $ | 300,742    |  
|Payroll and
  related expenses               |  |                                 |       |                    |   | 603,924    |  
|General and
  administrative expenses        |  |                                 | 7,561  |                    |   | 732,446    |  
|Impairments
  of goodwill and intangibles    |  |                                 |       |                    |   | 176,545    |  
|Disposal of
  fixed asset                    |  |                                 |       |                    |   | 87,402     |  
|Accrual for
  closing costs for lease        |  |                                 |       |                    |   | 1,364,458  |  
|Depreciation
  and amortization              |  |                                 |       |                    |   | 70,539     |  
|Total
  expenses                             |  |                                 | 7,561  |                    |   | 3,035,314  |  
|                                             |  |                                 |        |                    |   |            |  
|Loss from
  operations                       |  |                                 | (7,561 | )                  |   | (2,734,572 | )
|                                             |  |                                 |        |                    |   |            |  
|Interest
  expense                           |  |                                 |       |                    |   | (9,200     | )
|Other income                                 |  |                                 | 10,725 |                    |   | 7,687      |  
|                                             |  |                                 |       |                    |   |            |  
|Income
  (loss) from discontinued operations |  | $                               | 3,164  |                    | $ | (2,736,085 | )

There were no
activities in DRV Capital and EAR. These entities were reflected as
discontinued operations for the three and nine months ended September 30, 2009
and 2008.

NOTE 7. STOCK
OPTIONS:

As
of September 30, 2009, the Company has one qualified stock-based employee
compensation plan. The 2005 Incentive Compensation Plan (the 2005 Plan) was
approved by the stockholders on June 14, 2005 and provides for the issuance of
options and restricted stock grants to officers, directors, key employees and
consultants of the Company to purchase up to 900,000 shares of common stock.

A
summary of option activity within the 2005 Plan during the nine months ended
September 30, 2009 is presented below:

|                                    |  |         |         |                                 |   |                                             |  |                           |           |  |   |   | 
|----------------------------------- |  | ------- | ------- | ------------------------------- | - | ------------------------------------------- |  | ------------------------- | --------- |  | - | - | 
|                                    |  | Options |         | Weighted Average Exercise Price |   | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value |          
|                                    |  |         |         |                                 |   |                                             |  |                           |          
|Outstanding
  at January 1, 2009    |  |         | 865,000 |                                 | $ | 2.99                                        |  |                           | 4.3 Years |  | $ |  | 
|Granted                             |  |         |        |                                 |   |                                            |  |                           |          |  | $ |  | 
|Exercised                           |  |         |        |                                 |   |                                            |  |                           |          |  | $ |  | 
|Forfeited or
  expired              |  |         |        |                                 |   |                                            |  |                           |          |  | $ |  | 
|Outstanding
  at September 30, 2009 |  |         | 865,000 |                                 | $ | 2.99                                        |  |                           | 3.8 Years |  | $ |  | 
|                                    |  |         |         |                                 |   |                                             |  |                           |           |  |   |   | 
|Exercisable
  at September 30, 2009 |  |         | 840,000 |                                 | $ | 3.03                                        |  |                           | 3.8 Years |  | $ |  | 
|                                    |  |         |         |                                 |   |                                             |  |                           |           |  |   |   | 

As
of September 30, 2009, the Company had 25,000 unvested options within the 2005
Plan.

18

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 7. STOCK
OPTIONS (CONTINUED):

A
summary of non-qualified stock option activity outside the 2005 Plan during the
nine months ended September 30, 2009 is presented below:

|                                    |  |         |           |                                 |   |                                              |  |                           |           |  |   |        | 
|----------------------------------- |  | ------- | --------- | ------------------------------- | - | -------------------------------------------- |  | ------------------------- | --------- |  | - | ------ | 
|                                    |  | Options |           | Weighted Average Exercise Price |   | Weighted  Average Remaining Contractual Term |  | Aggregate Intrinsic Value |          
|                                    |  |         |           |                                 |   |                                              |  |                           |          
|Outstanding
  at January 1, 2009    |  |         | 5,189,934 |                                 | $ | 2.89                                         |  |                           | 5.3 Years |  | $ |       | 
|Granted                             |  |         | 1,000,000 |                                 |   | 0.19                                         |  |                           | 6.9 Years |  | $ | 10,000 | 
|Exercised                           |  |         |          |                                 |   |                                             |  |                           |          |  | $ |       | 
|Forfeited or
  Expired              |  |         |          |                                 |   |                                             |  |                           |          |  | $ |       | 
|Outstanding
  at September 30, 2009 |  |         | 6,189,934 |                                 | $ | 2.45                                         |  |                           | 4.9 Years |  | $ | 10,000 | 
|                                    |  |         |           |                                 |   |                                              |  |                           |           |  |   |        | 
|Exercisable
  at September 30, 2009 |  |         | 6,189,934 |                                 | $ | 2.45                                         |  |                           | 4.9 Years |  | $ | 10,000 | 
|                                    |  |         |           |                                 |   |                                              |  |                           |           |  |   |        | 

As
of September 30, 2009, the Company had no unvested stock options outside the
2005 Plan.

The
Company recorded stock based compensation expense representing the amortized
amount of the fair value of options granted in prior periods in the amount of
$0 and $17,850 during the three and nine months ended September 30, 2009,
respectively.

The
Board granted stock options to purchase 1,000,000 shares of common stock of the
Company at an exercise price $0.19, the closing price on the day of grant, with
an exercise period of seven years to the President of the Company. The grant
was valued using the Black-Scholes model and had a value of $190,000, which was
fully expensed in the three and nine months ended September 30, 2009.

Stock
based compensation (including option and stock grants) for the three and nine
months ended September 30, 2009 and 2008 was recorded in the consolidated
statements of operations as follows:

|                                      |  |                                  |         |  |   |         | 
|------------------------------------- |  | -------------------------------- | ------- |  | - | ------- | 
|                                      |  | (unaudited)                      |        
|                                      |  |                                  |        
|                                      |  | Three months ended September 30, |        
|                                      |  |                                  |        
|                                      |  |                                  | 2009    |  |   | 2008    | 
|                                      |  |                                  |         |  |   |         | 
|Payroll and
  related expenses        |  | $                                | 190,000 |  | $ | 357,926 | 
|                                      |  |                                  |         |  |   |         | 
|General and
  administrative expenses |  | $                                |        |  | $ | 9,400   | 
|                                      |  |                                  |         |  |   |         | 

|                                      |  |                                 |         |  |   |           | 
|------------------------------------- |  | ------------------------------- | ------- |  | - | --------- | 
|                                      |  | (unaudited)                     |        
|                                      |  |                                 |        
|                                      |  | Nine months ended September 30, |        
|                                      |  |                                 |        
|                                      |  |                                 | 2009    |  |   | 2008      | 
|                                      |  |                                 |         |  |   |           | 
|Payroll and
  related expenses        |  | $                               | 207,850 |  | $ | 1,897,906 | 
|                                      |  |                                 |         |  |   |           | 
|General and
  administrative expenses |  | $                               |        |  | $ | 150,200   | 
|                                      |  |                                 |         |  |   |           | 

19

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 8.
WARRANTS:

A
summary of warrant outstanding as of January 1, 2009 and changes during the
nine months ended September 30, 2009 is presented below:

|                                    |  |          |            |                                 |   |                                             |  |                           |           |  |   |           | 
|----------------------------------- |  | -------- | ---------- | ------------------------------- | - | ------------------------------------------- |  | ------------------------- | --------- |  | - | --------- | 
|                                    |  | Warrants |            | Weighted Average Exercise Price |   | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value |          
|                                    |  |          |            |                                 |   |                                             |  |                           |          
|Outstanding
  at January 1, 2009    |  |          | 3,840,455  |                                 | $ | 1.23                                        |  |                           | 3.2 Years |  | $ | 34,484    | 
|Granted                             |  |          | 33,204,590 |                                 | $ | 0.22                                        |  |                           | 4.5 Years |  | $ | 2,317,499 | 
|Exercised                           |  |          | (617,417   | )                               | $ | 0.0003                                      |  |                           |          |  |   |          | 
|Forfeited or
  Expired (23,978,740) |  | $        | 0.01       |                                 |   |                                            |  |                           |          |  |   |           | 
|Outstanding
  at September 30, 2009 |  |          | 12,448,888 |                                 | $ | 0.97                                        |  |                           | 4.3 Years |  | $ | 2,351,983 | 
|                                    |  |          |            |                                 |   |                                             |  |                           |           |  |   |           | 
|Exercisable
  at September 30, 2009 |  |          | 12,048,888 |                                 | $ | 0.97                                        |  |                           | 4.3 Years |  | $ | 214,484   | 
|                                    |  |          |            |                                 |   |                                             |  |                           |           |  |   |           | 

As
of September 30, 2009, there were no unvested warrants to purchase shares of
common stock.

In
conjunction with the November Note, the Company issued a warrant to purchase
1,000,000 shares of common stock at an exercise price of $0.12 and an
expiration date of November 14, 2013. On February 13, 2009, the warrant for
1,000,000 shares was cancelled and replaced by a new five year warrant to
purchase 25,750,000 shares of Company common stock at a total exercise price of
$1.00. Upon repayment of the November and February Notes on or before maturity,
as extended to September 25, 2009, the Company may reduce the warrant by
22,750,000 shares, which were canceled on September 25, 2009 upon full
repayment of the notes. The investor retained a total of 3,000,000 warrants.
The warrant holder received the right, in the event of a Company default on
either Note, to return to the Company any of the holders 3,000,000 warrants
not yet exercised in exchange for the Companys cash payment equal to $0.023
per warrant share. This right expired upon repayment of the notes. During the
quarter 600,000 warrants were exercised.

NOTE 9.
ISSUANCE OF COMMON STOCK

During
the three months ended September 30, 2009, the Company issued 617,417 shares
upon the exercise of investor warrants.

During
the three months ended September 30, 2009, the Company issued 1,200,000 shares
of common stock as compensation for professional services rendered and 50,000
shares to a Company employee as compensation for his services.

During
the three months ended September 30, 2009, the Company issued 2,713,202 shares
of Company common stock to settle $406,980 in liabilities owed to former
employees ($190,023) and vendors ($216,957). The $762,549 value of the shares
issued, as determined by the closing prices on the dates of issuance, exceeded
the $406,980 in liabilities settled, and the Company recorded the difference as
a $359,569 loss on extinguishment of the liabilities in the three months ended
September 30, 2009. The extinguished liabilities consisted of $190,023 in
accrued payroll compensation and $216,957 in accounts payable.

During
the three months ended September 30, 2009, the Company issued 15,841,788 shares
of Company common stock to settle $2,560,868 in liabilities owed to
individuals, or an entity controlled by an individual, who were Company
officers or directors at the time of settlement. The $4,890,388 value of the
shares issued, as determined by the closing prices on the dates of issuance,
exceeded the $2,560,868 in liabilities settled, and the Company recorded the
difference as a $2,329,521 loss on extinguishment of the liabilities in the
three months ended September 30, 2009. The extinguished liabilities consisted
of $900,230 in accrued payroll compensation, $1,196,623 in loans made to the
Company and $221,515 in interest accrued thereon, $242,500 in accounts payable
for consulting services rendered.

During
the three months ended September 30, 2009, the Company issued 1,576,685 shares
of Company common stock to settle $223,275 in principal and accrued interest
owed on two notes payable. The $394,171 value of the shares issued, as
determined by the closing prices on the dates of issuance, exceeded the
$223,275 in liabilities settled, and the Company recorded the difference as a
$170,896 loss on extinguishment of the liabilities in the three months ended September
30, 2009. The extinguished liabilities consisted of $95,950 in note principal
and $127,325 in accrued interest

20

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 9. ISSUANCE
OF COMMON STOCK (CONTINUED):

and fees. Of
the 1,576,685 shares issued, 450,000 shares were release from treasury. Prior
to their release, the Company excluded the 450,000 shares from the number of
outstanding shares used to determine its net loss per share.

In
connection with the Companys sale of a $300,000 convertible debenture on
September 30, 2008, the Company was to issue 150,000 shares in compensation for
the agreement exchanging the original note dated July 31, 2008 for the convertible
debenture dated September 30, 2008. The Company issued the shares on September
15, 2009.

During
the three months ended September 30, 2009, the Company issued a total of
2,000,000 shares to four members of the Companys board of directors as compensation
for their services and issued 333,334 shares to the Companys Interim CEO and
President in satisfaction of an accrued bonus payable.

On
September 30, 2009, the Company issued 3,060 shares of Company common stock to
a convertible debenture holder in satisfaction of $459 in note principal based
on the stated conversion price of $0.15 per share.

Preferred
Stock

At
September 30, 2009 and December 31, 2008, the Company has authorized 10,000,000
shares of preferred stock, par value $0.001, of which none are issued and
outstanding.

Common
stock

At
September 30, 2009, the Company has authorized 100,000,000 shares of common
stock, par value $0.001, of which 37,214,017 are issued and outstanding.

NOTE 10. COMMITMENTS AND CONTINGENCIES:

Lawsuits
from vendors

On
July 17, 2008, Dreier LLP, a law firm, filed a complaint in the Supreme Court
of New York, County of New York, seeking damages of $311,023 plus interest for
legal services allegedly rendered to us. The complaint was answered on August
14, 2008 raising various affirmative defenses. On December 16, 2008, Dreier LLP
filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of
New York. The case has been on hold since the bankruptcy filing. On March 18,
2009, the Company filed a counterclaim in the bankruptcy court for legal
malpractice and the defenses raised in the previously filed answer. The entire
balance in dispute is in the accounts payable of the Company.

On
September 17, 2008, Computer Task Group, a vendor, filed a complaint in the
Supreme Court of New York, County of Erie, seeking damages of $24,546 plus
interest for consulting services rendered to us. On December 3, 2008, judgment
was entered in favor of Computer Task Group for $24,546 plus $2,539 in interest
and $651 in costs, or a total of $27,735. A restraining order was served on the
Companys bank account for the amount of the judgment. On March 10, 2009, a
total of $12,839 was removed from our account in partial satisfaction of the
judgment, leaving a current total now due of $14,896. This balance payable is
in the accounts payable of the Company.

On
December 1, 2008, AT&T, a vendor, filed a complaint in the Supreme Court of
New York, County of New York, seeking damages of $62,383 plus interest for
services allegedly rendered to us. The complaint was answered on February 23,
2009 raising various affirmative defenses. The action is currently in the
discovery phase. The entire amount in dispute is in the accounts payable of the
Company.

On
November 9, 2009, Patriot National Bank, a financial institution, filed a
complaint in the Supreme Court of New York, Count of Westchester, seeking
damages of $68,993.62 as a result of an overdraft in our bank account resulting
from a non-sufficient funds check received from an investor on May 22, 2009.
Our attorneys are reviewing the matter. The entire amount in dispute is in the
accounts payable of the Company.

21

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 10. COMMITMENTS AND CONTINGENCIES
(CONTINUED):

Lawsuits
from landlords

On
May 7, 2008, the Company received a three-day demand for rent due in the amount
of $72,932 for the period December 1, 2007 through May 1, 2008. On May 20,
2008, a petition for hearing was filed in the White Plains New York City Court,
County of Westchester demanding payment of $88,497. On May 27, 2008, the
Company signed a stipulation of settlement in the amount of $88,747, including
attorneys fees, with equal payments of this amount due on June 13, 2008 and
June 30, 2008. On June 11, 2008, the Company signed an amended stipulation of
settlement in the amount of $101,000, with a payment of $56,626 due on June 20,
2008 and a payment of $44,373 due on June 30, 2008. On July 16, 2008, the
Company received a five day notice to pay the agreed payments or face eviction.
On October 1, 2008, the Company was evicted from its leased premises. On
December 29, 2008, a complaint was filed in the Supreme Court of New York,
County of Nassau seeking an additional $58,346 plus interest and attorneys
fees for rent for the period August 1 to December 1, 2008, which was not part
of the previous stipulation and judgment. On December 16, 2008, a restraining
order was served on the Companys bank account for the amount of the judgment
original judgment of $101,000. On March 12, 2009, the Company signed a new
stipulation of settlement settling the matter upon completion of three events.
First, the Company immediately forfeited its security deposit of $79,800 plus
interest. Second, the Company must make an additional payment of $50,000 by
April 15, 2009. Third, the Company must then remove all of its furniture by
April 22, 2009. An amended stipulation of settlement was signed on April 15,
2009, changing the due date of the payment to May 15, 2009 and increasing the
payment by $10,000 to $60,000. The Company must then remove the furniture within
seven days of making the payment. If all three conditions are met, the parties
fully release each other from any further claims. If all three of these
conditions are not met, judgment is entered for $135,356, the amount of rent
due for the period July 1, 2008 to May 1, 2009, which is in addition to the
previous judgment for rent of $101,000 for the period December 1, 2007 to June
1, 2008. At December 31, 2008, the Company accrued the balance of its
obligation under the lease in the amount of $227,787 on the balance sheet. On
May 18, 2009, the Company paid the required $60,000 payment. The Company
subsequently removed its furniture from the premises. On June 4, 2009, the
Company received a Satisfaction of Judgment and Release from any further
liability in this matter, and it is now settled. The remaining accrual was
reversed in the second quarter of 2009 as a result of the settlement. (too much
detail for a settled claim in a 10-Q)

On
February 2, 2009, a complaint was filed in the District Court of Clark County,
Nevada against Debt Resolve, First Performance Corp. and the former owners of
First Performance, Pacific USA Holdings and Clearlight Mortgage Corp., seeking
$315,917 for unpaid rent due as of January 31, 2009. First Performance had
vacated the premises as of June 30, 2008 with the closing of its business. Debt
Resolve has been dismissed from the suit at this time, as it was not a
signatory to the lease or guarantor of the lease. The case continues against
First Performance Corp. and its former owners, with an answer due by First
Performance shortly. The entire amount of the amount in dispute is accrued on
the books of First Performance. A cross-claim was filed by the guarantor
against First Performance and Debt Resolve. Since Debt Resolve has been
dismissed from the primary suit, it is also requesting dismissal from the
cross-claim.

Lawsuits
from former employees

On
April 18, 2007, the Company received a letter from a law firm stating that a
claim with the EEOC and a lawsuit would be filed charging sexual discrimination
in the wrongful termination of a manager of the First Performance Florida
facility. The facility was subsequently closed on June 30, 2007 as a cost
reduction measure. The First Performance employment practices insurance carrier
defended the matter against the U.S. EEOC and the Broward County Civil Rights
Division. On March 18, 2008, a settlement was reached in the amount of $24,500.
However, due to First Performances financial problems which led to its closure
on June 30, 2008, the settlement was not paid. Because of the non-payment,
final judgment was entered against First Performance Recovery Corp. in the
amount of $103,005 plus $5,293 in attorneys fees on October 11, 2008. On
December 17, 2008, final judgment was entered against First Performance Corp.
and Debt Resolve in the amount of $35,287. On April 13, 2009, agreement was
reached to settle the case for $15,000 if payment is made by May 15, 2009. On
May 19, 2009, the Company made the required payment under the settlement and
received a Satisfaction of Judgment and Release on this matter, which is now
closed.

22

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 10. COMMITMENTS AND CONTINGENCIES
(CONTINUED):

Lawsuit
related to financing

On
December 24, 2008, the Company negotiated a settlement of pending litigation
with Compass Bank in Texas, from whom the Company had received a fraudulent
wire transfer letter in connection with the Harmonie International investment
that was never funded by the investor. The Company received a cash payment of
$50,000 to settle all claims against Compass Bank that was credited to legal
expense. The Company has also referred all of the matters surrounding the
Harmonie transaction to the appropriate authorities.

From
time to time, the Company is involved in various litigation matters in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Companys financial position or results of operations.

Operating
leases

On
August 1, 2005, the Company entered into a five year lease for its corporate
headquarters which includes annual escalations in rent. In accordance with
Accounting Standards Codification subtopic 840-20, Leases-Operating Leases
(ASC 840-20) 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. On October 1, 2008, the Company was evicted from its
office for non-payment of rent. An amended stipulation of settlement has been
signed to resolve the balance of the lease. At December 31, 2008, the Company
accrued the balance of its obligation under the lease in the amount of $227,787
on the balance sheet. On May 18, 2009, the Company paid a required $60,000
payment. On June 4, 2009, the Company received a Satisfaction of Judgment and
Release from any further liability in this matter, and it is now settled. The
remaining accrual was reversed in the second quarter of 2009 reflecting the
settlement. (See Lawsuits from Landlords above).

The
Companys First Performance subsidiary also leased an office in Las Vegas,
Nevada under a non-cancelable operating lease that expires July 31, 2014 and
calls for annual escalations in rent of $19,225. On June 30, 2008, First
Performance was closed, and the premises were abandoned. A complaint has been
filed against First Performance in Clark County, Nevada court. (See Lawsuits
from Landlords above).

Rent
expense for the three months ended September 30, 2009 and 2008 was
approximately $0 and $31,916, respectively, and rent expense for the nine
months ended September 30, 2009 and 2008 was ($237,392) and $1,600,886,
respectively. The credit in 2009 was due to the Company settling its rental
obligation on its corporate headquarters and reversing the accrued obligation
recorded in 2008. (See Operating leases above). The large expense in 2008 was
the result of First Performance accruing the remaining balance of $1,350,931 on
its lease obligation.

Employment
Agreements

The
Company had entered into an employment agreement with James D. Burchetta under
which he would devote substantially all of his business and professional time
to us and our business development. The employment agreement with Mr. Burchetta
was effective until January 13, 2013. The agreement provided Mr. Burchetta with
an initial annual base salary of $240,000 and contains provisions for minimum
annual increases based on changes in an applicable cost-of-living index. The
employment agreement with Mr. Burchetta contains provisions under which his
annual salary may increase to $600,000 if we achieve specified operating
milestones and also provides for additional compensation based on the value of
a transaction that results in a change of control, as that term is defined in
the agreement. In the event of a change of control, Mr. Burchetta would be
entitled to receive 25% of the sum of $250,000 plus 2.5% of the transaction
value, as that term is defined in the agreement, between $5,000,000 and
$15,000,000 plus 1% of the transaction value above $15,000,000.

23

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 10. COMMITMENTS AND CONTINGENCIES
(CONTINUED):

Employment
Agreements (continued)

The
Company amended the employment agreement with Mr. Burchetta in February 2004,
agreeing to modify his level of compensation, subject to its meeting specified
financial and performance milestones. The employment agreement, as amended,
provided that the base salary for Mr. Burchetta will be as follows: (1) if at
the date of any salary payment, the aggregate amount of our net cash on hand
provided from operating activities and net cash and/or investments on hand
provided from financing activities is sufficient to cover our projected cash
flow requirements (as established by our board of directors in good faith from
time to time) for the following 12 months (the projected cash requirement),
the annual base salary will be $150,000; and (2) if at the date of any salary
payment, our net cash on hand provided from operating activities is sufficient
to cover our projected cash requirement, the annual base salary will be
$250,000, and increased to $450,000 upon the date upon which we complete the
sale or license of our Debt Resolve system with respect to 400,000 consumer
credit accounts. Under the terms of the amended employment agreement, no salary
payments were made to Mr. Burchetta during 2004. The Company recorded
compensation expense and a capital contribution totaling $150,000 in 2004,
representing an imputed compensation expense for the minimum base salary
amounts under the agreement with Mr. Burchetta, as if we had met the condition
for paying his salary.

The
Company amended the employment agreement with Mr. Burchetta again in June 2005,
agreeing that (1) as of April 1, 2005 the Company will pay Mr. Burchetta an
annual base salary of $250,000 per year, and thereafter his base salary will
continue at that level, subject to adjustments approved by the compensation
committee of our board of directors, and (2) the employment term will extend
for five years after the final closing of our June/September 2005 private
financing. Compensation expense under the employment agreement with Mr.
Burchetta is recorded as payroll and related expenses in the unaudited
condensed consolidated statement of operations and totaled $0 and $0 for the
three months ended September 30, 2009 and 2008, respectively, and $0 and
$135,417 for the nine months ended September 30, 2009 and 2008, respectively.
On August 27, 2009, the accrued salary from 2008 was converted to stock.

On
July 15, 2008, the employment agreement was converted to a consulting agreement
with all terms otherwise unchanged, as Mr. Burchetta became non-executive
Chairman on February 16, 2008. One additional term added was that the Chairman
shall always make $25,000 more than the Chief Executive Officer and have
comparable benefits. The Board affirmed the effectiveness of the agreement to
January 13, 2013. Consulting expense under the consulting agreement with Mr.
Burchetta is recorded as general and administrative expenses in the unaudited
condensed consolidated statement of operations and totaled $40,833 and $165,833
for the three and nine months ended September 30, 2009, respectively.
Consulting expense for the three and nine months ended September 30, 2008
totaled $52,083. On August 27, 2009, the accrued consulting fees of $242,500
for the period July 2008 through July 2009 were converted to stock. On
September 29, 2009 and effective as of August 1, 2009, the Company and Mr.
Burchetta amended his consulting agreement from a full-time consulting position
to a part-time consulting position. In addition, the monthly consulting fee was
reduced from $20,833 per month to $10,000 per month. Finally, Mr. Burchetta
waived the condition that his compensation exceeds that of the CEO by at least
$25,000 per month and has comparable benefits. In return for the modifications
to the contract with a termination date of January 13, 2013, Mr. Burchetta
received 1,686,000 shares of stock, which represents the reduction in
compensation during the remaining term of the agreement.

As
of September 30, 2009, the Company owes Mr. Burchetta an aggregate of $20,000
under the consulting agreement.

On
May 1, 2007, David M. Rainey joined our company as Chief Financial Officer and
Treasurer. Mr. Rainey also became Secretary of the Company in November 2007,
President of the Company in January 2008 and Interim Chief Executive Officer on
July 15, 2009. Mr. Rainey has a one year contract that renews automatically
unless 90 days notice of intention not to renew is given by the Company. Mr.
Raineys base salary is $200,000, subject to annual increases at the discretion
of the board of directors. Mr. Rainey also received a grant of 75,000 options
to purchase the common stock of the Company, one third of which vest on the
first, second and third anniversaries of the start of employment with the
Company. Mr. Rainey is also eligible for a bonus of up to 50% of salary based
on performance objectives set by the Chairman and the Board of Directors. Mr.
Raineys contract provides for 12 months of severance for any termination
without cause with benefits. Upon a change in control, Mr. Rainey receives two
years severance and bonus with benefits and immediate vesting of all stock
options then outstanding. As of September 30, 2009, the Company owes $140,167
in salary under the agreement.

24

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 10. COMMITMENTS AND CONTINGENCIES
(CONTINUED):

Employment
Agreements (continued)

On
February 16, 2008, the Company entered into an employment agreement with Mr.
Kenneth H. Montgomery to serve as its Chief Executive Officer. The agreement
has a one year, automatically renewable term unless the Company provides 90
days written notice of its intention not to renew prior to the anniversary
date. Mr. Montgomerys salary is $225,000 annually, with a bonus of up to 75%
of salary based on performance of objectives set by the Chairman and the Board
of Directors. Mr. Montgomery also received 50,000 shares of restricted stock
and 350,000 options to purchase the common stock of the Company at an exercise
price of $0.80, the closing price on his date of approval by the Board. Mr.
Montgomerys employment ceased on July 1, 2009. On August 27, 2009, $262,500 in
accrued salary under the agreement was converted to stock.

Each
of the employment agreements with Mr. Burchetta and Mr. Rainey also
contain covenants (a) restricting the employee from engaging in any
activities competitive with our business during the term of their employment
agreements, (b) prohibiting the employee from disclosure of our confidential
information and (c) confirming that all intellectual property developed by
the employee and relating to our business constitutes our sole property. In
addition, Mr. Raineys contract provides for a one year non-compete during the
term of his severance.

NOTE 11. RECENT
ACCOUNTING PRONOUNCEMENTS:

The following
accounting guidance has been issued and will be effective for the Company in or
after fiscal year 2009:

Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles 
Overall
(ASC 105-10). ASC 105-10 establishes the FASB
Accounting Standards Codification(the Codification) as the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S.
GAAP for SEC registrants. All guidance contained in the Codification carries an
equal level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification is non-authoritative.
The FASB will not issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, it will issue
Accounting Standards Updates (ASUs). The FASB will not consider ASUs as
authoritative in their own right. ASUs will serve only to update the
Codification, provide background information about the guidance and provide the
bases for conclusions on the change(s) in the Codification. References made to
FASB guidance throughout this document have been updated for the Codification.

Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC)
820, Fair Value Measurements and Disclosures
(ASC 820 and formerly referred to as FAS-157), establishes a framework for
measuring fair value in GAAP, clarifies the definition of fair value within
that framework, and expands disclosures about the use of fair value
measurements. ASC 820 is effective for fiscal years beginning after November 15,
2007. ASC 820-10-65, Transition and Open
Effective Date Information, deferred the effective date of ASC 820,
for non-financial assets and liabilities that are not on a recurring basis
recognized or disclosed at fair value in the financial statements, to fiscal
years, and interim periods, beginning after November 15, 2008. The Company
has adopted the guidance within ASC 820 for non-financial assets and
liabilities measured at fair value on a nonrecurring basis at January 1,
2009 and will continue to apply its provisions prospectively from
January 1, 2009. The application of ASC 820 for non-financial assets and
liabilities did not have a significant impact on earnings nor the financial
position for the periods presented.

FASB
ASC 805, Business Combinations
(ASC 805 and formerly referred to as FAS-141(R)) requires the acquisition
method to be applied to all transactions and other events in which an entity
obtains control over one or more other businesses, requires the acquirer to
recognize the fair value of all assets and liabilities acquired, even if less
than one hundred percent ownership is acquired, and establishes the acquisition
date fair value as measurement date for all assets and liabilities assumed. The
guidance within ASC 805 is effective prospectively for any acquisitions made
after fiscal years beginning after December 15, 2008.

FASB
ASC 810, Consolidation (ASC
810), ASC 810-10-65, Transition and Open
Effective Date Information (ASC 810-10-65 and formerly referred to
as FAS-160) establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a

25

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

subsidiary is
an ownership interest in the consolidated financial statements. ASC 810-10-65
is effective for fiscal years beginning after December 15, 2008. The
application of ASC 810-10-65 did not have a significant impact on earnings nor
the financial position.

FASB
ASC 815, Derivatives and Hedging(ASC
815), ASC 815-10-65, Transition and Open
Effective Date Information (ASC 815-10-65and formerly referred to
as FAS-161) includes a requirement for enhanced disclosures about an entitys
derivative and hedging activities and thereby improves the transparency of
financial reporting. ASC 815 is effective prospectively for fiscal years
beginning after November 15, 2008. The application of ASC 815 expanded the
required disclosures in regards to the Companys derivative and hedging
activities.

FASB
ASC 350, Intangibles  Goodwill and Other,
ASC 350-30-65, Transition and Open Effective
Date Information (ASC 350-30-65 and formerly referred to as FSP
FAS 142-3) amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible. ASC 350-30-65 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The guidance in this ASC
350-30-65 for determining the useful life of a recognized intangible shall be
applied prospectively to intangible assets acquired after the effective date.
The disclosure requirements of ASC 350-30-65, however, shall be applied
prospectively to all intangible assets recognized in the Companys financial
statements as of the effective date. The application of ASC 350-30-65 is not
expected to have a material impact on earnings nor the financial position.

FASB
ASC 715, Compensation  Retirement Benefits,
ASC 715-20-65, Transition and Open Effective
Date Information (ASC 715-20-65 and formerly referred to as FSP
FAS-132(R)-1) provides guidance on an employers disclosures about plan assets
of a defined benefit pension or other postretirement plans. ASC 715-20-65 is
effective prospectively for fiscal years ending after December 15, 2009.
The application of ASC 715-20-65 will expand the Companys disclosures regarding
pension plan assets.

FASB
ASC 825 Financial Instruments,
ASC 825-10-65, Transition and Open Effective
Date Information (ASC 825-10-65 and formerly referred to as FSP
FAS 107-1 and APB 28-1) requires disclosures about fair value of financial
instruments for interim reporting periods as well as in annual financial
statements. This guidance also requires those disclosures in summarized
financial information at interim reporting periods. ASC 825-10-65 is effective
prospectively for interim reporting periods ending after June 15, 2009.
The application of ASC 825-10-65 expanded the Companys disclosures regarding
the use of fair value in interim periods.

FASB
ASC 855, Subsequent Events (ASC
855 and formerly referred to as FAS-165), modified the subsequent event
guidance. The three modifications to the subsequent events guidance are: 1) To
name the two types of subsequent events either as recognized or non-recognized
subsequent events, 2) To modify the definition of subsequent events to refer to
events or transactions that occur after the balance sheet date, but before the
financial statement are issued or available to be issued and 3) To require
entities to disclose the date through which an entity has evaluated subsequent
events and the basis for that date, i.e. whether that date represents the date
the financial statements were issued or were available to be issued. This
guidance is effective for interim or annual financial periods ending after June
15, 2009, and should be applied prospectively

26

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 12.
RELATED PARTY TRANSACTIONS:

During the
three months ended September 30, 2009, the Company issued 15,841,788 shares of
Company common stock to settle $2,560,868 in liabilities owed to individuals,
or an entity controlled by an individual, who were Company officers or
directors at the time of settlement. The $4,890,388 value of the shares issued,
as determined by the closing prices on the dates of issuance, exceeded the
$2,560,868 in liabilities settled, and the Company recorded the difference as a
$2,329,521 loss on extinguishment of the liabilities in the three months ended
September 30, 2009. The extinguished liabilities consisted of $900,230 in
accrued payroll compensation, $1,196,623 in loans made to the Company and
$221,515 in interest accrued thereon, and $242,500 in accounts payable for
consulting services rendered. Related party interest for the three and nine months
ended September 30, 2009 was $28,311 and $99,935.

During the
year ended December 31, 2008, an entity owned by a former Director performed
consulting services for the Company in the amount of $25,984. Such amount is
reflected in Accounts Payable and Accrued Liabilities as of September 30, 2009.

During the
three months ended September 30, 2009, the Company issued a total of 2,000,000
shares to four members of the Companys board of directors as compensation for
their services valued at $380,000. Another executive received an option grant
of 1,000,000 shares at an exercise price of $0.19 with a seven year life as
compensation for services and in recognition of a promotion valued at $190,000.

Certain
Company directors and a former officer personally guarantee the Companys notes
payable and its bank loan (Note 3).

NOTE 13. FAIR
VALUE MEASUREMENT:

The Company
adopted the provisions of Accounting Standards Codification subtopic 825-10,
Financial Instruments (ASC 825-10) on January 1, 2008. ASC 825-10
defines fair value as the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements
for assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use
when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 825-10
establishes three levels of inputs that may be used to measure fair value:

Level 1 -
Quoted prices in active markets for identical assets or liabilities.

Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of
the assets or liabilities.

Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.

To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed and is determined based on the lowest level input that
is significant to the fair value measurement.

Upon
adoption of ASC 825-10, there was no cumulative effect adjustment to the
beginning retained earnings and no impact on the consolidated financial
statements.

The
carrying value of the Companys cash and cash equivalents, accounts receivable,
accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of

27

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 13. FAIR
VALUE MEASUREMENT (CONTINUED):

their short-term maturity. All other significant financial assets,
financial liabilities and equity instruments of the Company are either
recognized or disclosed in the consolidated financial statements together with
other information relevant for making a reasonable assessment of future cash
flows, interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.

The
following table sets forth the Companys financial instruments as of September
30, 2009 which are recorded on the balance sheet at fair value on a recurring
basis by level within the fair value hierarchy. As required by SFAS No. 157,
these are classified based on the lowest level of input that is significant to
the fair value measurement:

|                                  |  |                                                             |  |                                                 |   |                                            |   |   |            |  
|--------------------------------- |  | ----------------------------------------------------------- |  | ----------------------------------------------- | - | ------------------------------------------ | - | - | ---------- | -
|                                  |  | QuotedPrices inActiveMarkets forIdenticalInstrumentsLevel 1 |  | Significant
 Other
 Observable
 Inputs
 Level 2 |   | Significant
 Unobservable
 Inputs
 Level 3 |  
|                                  |  |                                                             |  |                                                 |   |                                            |  
|Liabilities:                      |  |                                                             |  |                                                 |   |                                            |   |   |            |  
|Convertible short term notes      |  | $                                                           |  |                                                 | $ |                                            |   | $ | (320,050   | )
|Derivative liability              |  | $                                                           |  |                                                 | $ |                                            |   | $ | (3,933,934 | )
|Short term notes                  |  | $                                                           |  |                                                 | $ | (250,000                                   | ) | $ | (23,500    | )
|Long term debt                    |  | $                                                           |  |                                                 | $ |                                            |   | $ | (823,000   | )
|Lines of credit  related parties |  | $                                                           |  |                                                 | $ |                                            |   | $ | (157,000   | )
|Convertible long term notes       |  | $                                                           |  |                                                 | $ |                                            |   | $ | (104,040   | )

At
September 30, 2009, the carrying amounts of the notes payable approximate fair
value because all of the notes have been classified to current maturity.

NOTE 14. SUBSEQUENT EVENTS:

Subsequent
events have been evaluated through November 23, 2009, the date that the
financial statements were issued.

Subsequent
to September 30, 2009, unaffiliated investors loaned the Company $254,500 on
three year Convertible Debentures with an interest rate of 14%. The interest
accrues and is payable at maturity in October 2012. The conversion price is set
at $0.15 per share. The Debentures carry a first lien security interest. In
addition, the investors received 2,320,000 warrants to purchase the common
stock of the Company at an exercise price of $1.00. The exercise period of the
warrants is five years.

On October
14, 2009, 1,400,000 shares were issued to four consultants as compensation for
previous investor relations consulting activities.

On October
16, 2009, 350,000 shares were issued to another consultant as compensation for
previous investor relations consulting activities.

On October
23, 2009, a previous investor converted a $100,000 note plus accrued interest
to 684,567 shares of stock of the Company per the terms of the note.

NOTE 15. RESTATEMENT:

The
accompanying unaudited condensed consolidated statements of operations for the
three and nine month periods ended September 30, 2008 and the unaudited
condensed consolidated statement of cash flows for the nine month period ended
September 30, 2008 have been restated to correct the accounting treatment of
Company common stock issuances in the three months ended June 30, 2008,
consisting of the recording of (i) a 450,000 share issuance for
fundraising costs that was not previously recorded, (ii) the recording of a
50,000 share issuance for fundraising costs that was originally recorded in the
three months ended September 30, 2008, and (iii) the recording of a 400,000
share issuance on April 1, 2008 for fundraising costs that was originally recorded
using a valuation date of May 29, 2008.

28

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 15. RESTATEMENT (CONTINUED):

The effect
of the adjustment is an increase in net loss of $83,201 and $1,437,831 for the
three and nine months periods ended September 30, 2008, respectively. There was
no effect on cash flows from operating, investing or financing for either
period.

The
following tables summarize the effects of these adjustments on the Companys
unaudited condensed consolidated statements of operations for the three and
nine months ended September 30, 2008 and the unaudited condensed consolidated
statement of cash flows for the nine months ended September 30, 2008.

Condensed Consolidated Statement of
Operations
For the Three Months Ended September 30, 2008
(unaudited)

|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- | - | --------- | - | ----------- | - |  | - | ---------- | -
|                                                                        |  | As Previously
 Reported |            | Adjustment |   | Reference |   | As Restated |  
|                                                                        |  |                         |            |            |   |           |   |             |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Revenue                                                                 |  | $                       | 17,143     |            | $ |           |   |             |   |  | $ | 17,143     |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Costs and expenses:                                                     |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Payroll and related expenses                                            |  |                         | 583,035    |            |   |           |   |             |   |  |   | 583,035    |  
|General and administrative expenses                                     |  |                         | 430,101    |            |   | 20,000    |   |             | a |  |   | 450,101    |  
|Depreciation and amortization expense                                   |  |                         | 14,343     |            |   |           |   |             |   |  |   | 14,343     |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Total expenses                                                          |  |                         | 1,027,479  |            |   | 20,000    |   |             |   |  |   | 1,047,479  |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Loss from operations                                                    |  |                         | (1,010,336 | )          |   | (20,000   | ) |             |   |  |   | (1,030,336 | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Other (expense) income:                                                 |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Interest income                                                         |  |                         |           |            |   |           |   |             |   |  |   |           |  
|Interest expense                                                        |  |                         | (36,906    | )          |   |           |   |             |   |  |   | (36,906    | )
|Interest expense  related parties                                      |  |                         | (43,594    | )          |   |           |   |             |   |  |   | (43,594    | )
|Amortization of deferred debt discount                                  |  |                         | (114,208   | )          |   |           |   |             |   |  |   | (114,208   | )
|Loss on derivative liability                                            |  |                         |           |            |   | (63,201   | ) |             | b |  |   | (63,201    | )
|Other expense                                                           |  |                         | (2,829     | )          |   |           |   |             |   |  |   | (2,829     | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Total other expense                                                     |  |                         | (197,537   | )          |   |          |   |             |   |  |   | (260,738   | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Loss from continuing operations                                         |  |                         | (1,207,873 | )          |   | (83,201   | ) |             |   |  |   | (1,291,074 | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Loss from discontinued operations                                       |  |                         | (85,466    | )          |   |          |   |             |   |  |   | (85,466    | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Net loss                                                                |  | $                       | (1,293,339 | )          | $ | (83,201   | ) |             |   |  | $ | (1,376,540 | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Net loss per common share:                                              |  |                         |            |            |   |           |   |             |   |  |   |            |  
|basic and diluted                                                       |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Continuing operations                                                   |  | $                       | (0.13      | )          | $ | (0.00     | ) |             |   |  | $ | (0.13      | )
|Discontinued operations                                                 |  | $                       | (0.01      | )          | $ | 0.00      |   |             |   |  | $ | (0.01      | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Total                                                                   |  | $                       | (0.14      | )          | $ | (0.00     | ) |             |   |  | $ | (0.14      | )
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  
|Basic and diluted weighted average number
 of common shares outstanding |  |                         | 9,175,673  |            |   | 493,479   |   |             |   |  |   | 9,669,152  |  
|                                                                        |  |                         |            |            |   |           |   |             |   |  |   |            |  

29

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 15. RESTATEMENT (CONTINUED):

Condensed Consolidated Statement of
Operations
For the Nine Months Ended September 30, 2008
(unaudited)

|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- | - | ---------- | - | ----------- | ---- |  | - | ---------- | -
|                                                                        |  | As Previously
 Reported |            | Adjustment |   | Reference  |   | As Restated |     
|                                                                        |  |                         |            |            |   |            |   |             |     
|Revenue                                                                 |  | $                       | 148,140    |            | $ |            |   |             |      |  | $ | 148,140    |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Payroll and related expenses                                            |  |                         | 2,816,614  |            |   |            |   |             |      |  |   | 2,816,614  |  
|General and administrative expenses                                     |  |                         | 2,087,013  |            |   | 1,374,630  |   |             | a, c |  |   | 3,461,643  |  
|Depreciation and amortization expense                                   |  |                         | 43,313     |            |   |            |   |             |      |  |   | 43,313     |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Total expenses                                                          |  |                         | 4,946,940  |            |   | 1,374,630  |   |             |      |  |   | 6,321,570  |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Loss from operations                                                    |  |                         | (4,798,800 | )          |   | (1,374,630 | ) |             |      |  |   | (6,173,430 | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Other (expense) income:                                                 |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Interest income                                                         |  |                         | 190        |            |   |            |   |             |      |  |   | 190        |  
|Interest expense                                                        |  |                         | (104,509   | )          |   |            |   |             |      |  |   | (104,509   | )
|Interest expense  related parties                                      |  |                         | (99,692    | )          |   |            |   |             |      |  |   | (99,692    | )
|Amortization of deferred debt discount                                  |  |                         | (661,663   | )          |   |            |   |             |      |  |   | (661,663   | )
|Loss on derivative liability                                            |  |                         |           |            |   | (63,201    | ) |             | b    |  |   | (63,201    | )
|Other expense                                                           |  |                         | (3,166     | )          |   |            |   |             |      |  |   | (3,166     | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Total other expense                                                     |  |                         | (868,840   | )          |   | (63,201    | ) |             |      |  |   | (932,041   | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Loss from continuing operations                                         |  |                         | (5,667,640 | )          |   | (1,437,831 | ) |             |      |  |   | (7,105,471 | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Loss from discontinued operations                                       |  |                         | (2,736,085 | )          |   |           |   |             |      |  |   | (2,736,085 | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Net loss                                                                |  | $                       | (8,403,725 | )          | $ | (1,437,831 | ) |             |      |  | $ | (9,841,556 | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Net loss per common share:                                              |  |                         |            |            |   |            |   |             |      |  |   |            |  
|basic and diluted                                                       |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Continuing operations                                                   |  | $                       | (0.64      | )          | $ | (0.12      | ) |             |      |  | $ | (0.76      | )
|Discontinued operations                                                 |  | $                       | (0.30      | )          | $ | 0.01       |   |             |      |  | $ | (0.29      | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Total                                                                   |  | $                       | (0.94      | )          | $ | (0.11      | ) |             |      |  | $ | (1.05      | )
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  
|Basic and diluted weighted average number
 of common shares outstanding |  |                         | 8,905,496  |            |   | 333,542    |   |             |      |  |   | 9,329,038  |  
|                                                                        |  |                         |            |            |   |            |   |             |      |  |   |            |  

30

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 15. RESTATEMENT (CONTINUED):

Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2008
(unaudited)

|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|---------------------------------------------------------------------------- |  | ------------------------ | ---------- | ---------- | - | ---------- | - | ------------ | -------- |  | - | ---------- | -
|                                                                             |  | As
 Previously
 Reported |            | Adjustment |   | Reference  |   | As
 Restated |         
|                                                                             |  |                          |            |            |   |            |   |              |         
|Cash flows from operating activities:                                        |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Net loss                                                                     |  | $                        | (5,667,639 | )          | $ | (1,437,831 | ) |              | a,
 b, c |  | $ | (7,105,471 | )
|Adjustments to reconcile net loss to net cash used in operating
 activities: |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Non cash stock based compensation                                            |  |                          | 2,503,056  |            |   | 1,354,630  |   |              | c        |  |   | 3,857,686  |  
|Issuance of common stock for funding and services                            |  |                          | 845,500    |            |   |            |   |              |          |  |   | 845,500    |  
|Stock placed in escrow (treasury)                                            |  |                          | (450       | )          |   |            |   |              |          |  |   | (450       | )
|Amortization of deferred debt discount                                       |  |                          | 206,663    |            |   |            |   |              |          |  |   | 206,663    |  
|Loss on derivative liability                                                 |  |                          |           |            |   | 63,201     |   |              | b        |  |   | 63,201     |  
|Depreciation and amortization                                                |  |                          | 43,313     |            |   |            |   |              |          |  |   | 43,313     |  
|(Increase) decrease in:                                                      |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Accounts receivable                                                          |  |                          | 5,240      |            |   |            |   |              |          |  |   | 5,240      |  
|Prepaid expenses and other current assets                                    |  |                          | (51,876    | )          |   |            |   |              |          |  |   | (51,876    | )
|Accrued professional fees                                                    |  |                          | 208,786    |            |   |            |   |              |          |  |   | 208,786    |  
|Accounts payable and accrued expenses                                        |  |                          | 1,177,847  |            |   | 20,000     |   |              | a        |  |   | 1,197,847  |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Net cash used in operating activities                                        |  |                          | (729,560   | )          |   |           |   |              |          |  |   | (729,560   | )
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Cash flows from investing activities:                                        |  |                          |           |            |   |           |   |              |          |  |   |           |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Cash flows from financing activities:                                        |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Proceeds from other receivable                                               |  |                          | 200,000    |            |   |            |   |              |          |  |   | 200,000    |  
|Proceeds from long term loans                                                |  |                          | 498,000    |            |   |            |   |              |          |  |   | 498,000    |  
|Proceeds from issuance of short term notes                                   |  |                          | 575,000    |            |   |            |   |              |          |  |   | 575,000    |  
|Proceeds from convertible debenture                                          |  |                          | 300,000    |            |   |            |   |              |          |  |   | 300,000    |  
|Proceeds from of line of credit                                              |  |                          | 304,623    |            |   |            |   |              |          |  |   | 304,623    |  
|Repayment of short term notes                                                |  |                          | (295,000   | )          |   |            |   |              |          |  |   | (295,000   | )
|Repayment of line of credit                                                  |  |                          | (16,000    | )          |   |            |   |              |          |  |   | (16,000    | )
|Proceeds from issuance of common stock                                       |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Proceeds from exercise of warrants                                           |  |                          | 375        |            |   |            |   |              |          |  |   | 375        |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  
|Net cash provided by financing activities                                    |  |                          | 1,566,998  |            |   |           |   |              |          |  |   | 1,566,998  |  
|                                                                             |  |                          |            |            |   |            |   |              |          |  |   |            |  

31

---



DEBT RESOLVE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2009 
(Unaudited)

NOTE 15. RESTATEMENT (CONTINUED):

Condensed Consolidated Statement of Cash Flows (Continued)
For the Nine Months Ended September 30, 2008
(unaudited)

|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|------------------------------------------------------------------ |  | ------------------------ | -------- | ---------- | - | --------- |  | ------------ |  |  | - | -------- | -
|                                                                   |  | As
 Previously
 Reported |          | Adjustment |   | Reference |  | As
 Restated | 
|                                                                   |  |                          |          |            |   |           |  |              | 
|Cash flows from discontinued operations:                           |  |                          |          |            |   |           |  |              |  |  |   |          |  
|Net cash used in operating activities                              |  |                          | (733,855 | )          |   |           |  |              |  |  |   | (733,855 | )
|Net cash used in investing activities                              |  |                          | (56      | )          |   |           |  |              |  |  |   | (56      | )
|Net cash used in financing activities                              |  |                          | (101,000 | )          |   |           |  |              |  |  |   | (101,000 | )
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|Net cash used in discontinued operations                           |  |                          | (834,911 | )          |   |          |  |              |  |  |   | (834,911 | )
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|Net increase in cash and cash equivalents                          |  |                          | 2,527    |            |   |          |  |              |  |  |   | 2,527    |  
|Cash and cash equivalents at beginning of period                   |  |                          |         |            |   |          |  |              |  |  |   |         |  
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  
|Cash and cash equivalents at end of period  continuing
operations |  | $                        | 2,527    |            | $ |          |  |              |  |  | $ | 2,527    |  
|                                                                   |  |                          |          |            |   |           |  |              |  |  |   |          |  

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The issuance
 of 50,000 shares to an investor was reversed out in the amount of $30,000 per
 item (c)(ii) below (reduction of expense). Finally, a $50,000 straight note
 was added for a referral fee for a financing occurring on July 31, 2008
 (addition to expense). The net change is an $20,000 addition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (b) | To record
 the $63,201 derivative liability resulting from the embedded conversion
 option associated with a convertible debenture issued on September 30, 2008
 and from the Companys outstanding options and warrants. The embedded
 conversion option related to the convertible debenture is accounted for under
 EITF issue No. 00-19 Accounting for Derivative Financial Instruments Indexed
 to, and Potentially Settled in, a Companys Own Stock. We have determined
 that the embedded conversion option is a derivative liability and causes the
 Companys outstanding warrants and options to become derivative liabilities.
 The conversion option and the warrants and options were valued at $63,201 as
 of September 30, 2008 using the Black-Scholes valuation model.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (c) | To correct
 the accounting treatment of Company common stock issuances in the three
 months ended June 30, 2008, consisting of the recording of (i) a 450,000
 share issuance for fundraising costs that was not previously recorded
 ($1,012,500), (ii) the recording of a 50,000 share issuance for fundraising
 costs that was originally recorded in the three months ended September 30,
 2008 ($122,130), and (iii) the recording of a 450,000 share issuance on April
 1, 2008 for fundraising costs that was originally recorded using a valuation
 date of May 29, 2008 (+$220,000 additional cost).                                                                                                                                                                             

32

---



Consolidated
Balance Sheet
For the Year Ended December 31, 2008

|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | ---------- | - | --------- | - | ------------ | - |  | - | ----------- | -
|Assets                                                                                                                            |  | As
 Previously
 Reported |             | Adjustment |   | Reference |   | As
 Restated |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |  
|Current assets:                                                                                                                   |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Cash                                                                                                                              |  | $                        | 32,551      |            | $ |           |   |              |   |  | $ | 32,551      |  
|Accounts receivable                                                                                                               |  |                          | 11,582      |            |   | 11,582    |   |              |   |  |   |             |  
|Prepaid expenses and other current assets                                                                                         |  |                          | 77,220      |            |   |           |   |              |   |  |   | 77,220      |  
|Current assets of discontinued operations                                                                                         |  |                          | 5,582       |            |   |           |   |              |   |  |   | 5,582       |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Total current assets                                                                                                              |  |                          | 126,935     |            |   |           |   |              |   |  |   | 126,935     |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Fixed assets, net                                                                                                                 |  |                          | 84,271      |            |   |           |   |              |   |  |   | 84,271      |  
|Deposits and other assets                                                                                                         |  |                          | 94,855      |            |   |           |   |              |   |  |   | 94,855      |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Total assets                                                                                                                      |  |                          | 306,061     |            |   |           |   |              |   |  |   | 306,061     |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Liabilities and Shareholders Deficiency                                                                                          |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Current liabilities:                                                                                                              |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Accounts payable and accrued liabilities                                                                                          |  |                          | 3,525,849   |            |   |           |   |              |   |  |   | 3,525,849   |  
|Convertible debentures (net of deferred debt
discount of $159,562 at
 December 31, 2008)                                          |  |                          | 191,438     |            |   | (3,188    | ) |              | a |  |   | 188,250     |  
|Short term notes                                                                                                                  |  |                          | 487,000     |            |   |           |   |              |   |  |   | 487,000     |  
|Current maturities of long term debt (net of
deferred debt discount of
 $69,556 at December 31, 2008)                             |  |                          | 753,444     |            |   |           |   |              |   |  |   | 753,444     |  
|Lines of credit  related parties                                                                                                 |  |                          | 1,203,623   |            |   |           |   |              |   |  |   | 1,203,623   |  
|Derivative liability                                                                                                              |  |                          | 331,268     |            |   |           |   |              |   |  |   | 331,268     |  
|Current liabilities of discontinued
operations                                                                                    |  |                          | 2,330,912   |            |   |           |   |              |   |  |   | 2,330,912   |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Total current liabilities                                                                                                         |  |                          | 8,823,534   |            |   |           |   |              |   |  |   | 8,820,346   |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Commitments and contingencies                                                                                                     |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Stockholders deficiency:                                                                                                         |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Preferred stock, 10,000,000 shares authorized,
$0.001 par value, none
 issued and outstanding at December 31, 2008                |  |                          |            |            |   |           |   |              |   |  |   |            |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Common stock, 100,000,000 shares authorized, $0.001
par value,
 10,511,865 issued and 10,061,865 outstanding at December 31, 2008 |  |                          | 10,512      |            |   |           |   |              |   |  |   | 10,512      |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Additional paid-in capital                                                                                                        |  |                          | 47,207,568  |            |   | (350,280  | ) |              | b |  |   | 46,857,288  |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Shares held under escrow (450,000 shares)                                                                                         |  |                          | (450        | )          |   |           |   |              |   |  |   | (450        | )
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Accumulated deficit                                                                                                               |  |                          | (55,735,103 | )          |   | 350,280   |   |              | b |  |   | (55,384,823 | )
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Total stockholders deficiency                                                                                                    |  |                          | (8,517,473  | )          |   | 3,188     |   |              | a |  |   | (8,514,285  | )
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  
|Total liabilities and stockholders deficiency                                                                                    |  |                          | 306,061     |            |   |           |   |              |   |  |   | 306,061     |  
|                                                                                                                                  |  |                          |             |            |   |           |   |              |   |  |   |             |  

(a)          Correction
of amortization of deferred debt discount.

33

---



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

Overview

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

Since
completing initial product development in early 2004, our primary business has
been providing a software solution to consumer lenders or those collecting on
those loans based on our proprietary DebtResolve system, our Internet-based
bidding system that facilitates the settlement and collection of delinquent and
defaulted consumer debt via the Internet. We have marketed our service
primarily to consumer credit card issuers, collection agencies, collection law
firms and the buyers of defaulted debt in the United States, Europe and now
Asia. 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. In addition, there are
significant opportunities for us in healthcare with hospitals and large
provider groups. 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 insufficient to fund our operations. We have
financed our activities to date through our managements contributions of cash,
the forgiveness of royalty and consulting fees, the proceeds from sales of our
common stock in private placement financings, the proceeds of our convertible
promissory notes in five private financings, short-term borrowings from
previous investors or related parties and the proceeds from the sale of our
common stock in our initial public offering. In connection with our marketing
and client support goals, we expect our operating expenses to grow as we employ
additional technicians, sales people and client support representatives. We
expect that salaries and other compensation expenses will continue to be our
largest category of expense, while travel, legal, audit 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 current
and former contracts provide that we will earn revenue based on a percentage of
the amount of debt collected from accounts submitted on our DebtResolve
system, from flat fees per settlement achieved, from flat fees per account
placed on the system or a flat monthly fee. Although other revenue models have
been proposed, most revenue earned to date has been determined using these
methods, and such revenue is recognized when the settlement amount of debt is
collected by our client or at the beginning of each month. 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

34

---



and base revenue on a monthly fee, in the aggregate or per account,
with some contracts having a small transaction fee on debt settlement as well.
In addition, with respect to our DR Prevent module expected to be completed in
2010, which settles consumer debt at earlier stages, we expect that a fee per account
on our system, and/or the hybrid revenue model which will include both fees per
account and transaction fees at settlement, may become the preferred revenue
methods. As we expand our knowledge of the industry, we have become aware that
different revenue models may be more appropriate for the individual
circumstances of our potential clients, and our expanded choice of revenue
models reflects that knowledge.

In January
2007, we purchased the outstanding common stock of First Performance Corporation
and, as a result, we are no longer in the development stage as of the date of
the acquisition. First Performance Corporation and its subsidiary, First
Performance Recovery Corp., were collection agencies that represented both
regional and national credit grantors from such diverse industries as retail,
bankcard, oil cards, mortgage and auto. By entering this business directly, we
signaled our intention to become a significant player in the accounts
receivable management industry. We believed that through a mixture of both
traditional and our innovative, technologically-driven collection methods, we
could achieve superior returns. Due to the loss of four major clients at First
Performance during the first nine months of 2007, we performed two interim
impairment analyses in accordance with SFAS 142. As a result of these analyses,
we recorded impairment charges aggregating $1,206,335 during the year ended
December 31, 2007. We also recorded a charge for the disposal of the Florida
fixed assets of $68,329 upon the closure of the Florida office during the year
ended December 31, 2007. On June 30, 2008, we closed the remaining operations
of First Performance in order to focus on our core internet business and to
mitigate the continuing losses from First Performance. At that time, we took
charges for the disposal of the remaining fixed assets of $87,402 and for the
impairment of the remaining intangible assets of $176,545. The results of
operations for First Performance have been treated as discontinued operations
in the financial statements for the years ending December 31, 2008 and 2007.

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

For the
nine months ending September 30, 2009 and the year ending December 31, 2008, we
had inadequate revenues and incurred net losses of $8,750,733 and
$7,712,170 from continuing operations, respectively. Cash used in operating
activities of continuing operations was $675,364 for the nine months ended
September 30, 2009. Based upon projected operating expenses of approximately
$70,000 per month, 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.

The Company
needs to raise additional capital in order to be able to accomplish its
business plan objectives. The Company has historically satisfied its capital
needs primarily from the sale of debt and equity securities. Management of the
Company is continuing its efforts to secure additional funds through debt
and/or equity instruments. Management believes that it will be successful in
obtaining additional financing; however, no assurance can be provided that the
Company will be able to do so. There is no assurance that these funds will be
sufficient to enable the Company to attain profitable operations or continue as
a going concern. To the extent that the Company is unsuccessful, the Company
may need to curtail its operations and implement a plan to extend payables and
reduce overhead until sufficient additional capital is raised to support further
operations. In the alternative, the Company may be forced to seek bankruptcy
protection from its creditors. There can be no assurance that efforts to secure
additional funding will be successful. These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Subsequent
to September 30, 2009, the Company has secured $254,500 in additional
financing.

Results of Operations for the Three Months Ended
September 30, 2009
Compared to the Three Months Ended September 30, 2008

Revenues

Revenues
totaled $18,055 and $17,143 for the three months ended September 30, 2009 and
2008, respectively. We earned revenue during the three months ended September
30, 2009 and 2008 from contingency fee income, based on a percent of debt collected. We
earned revenue during the three and nine months ended September 30, 2008 from
contingency fee income, based on a percent of debt collected, fees per
settlement, or a flat monthly fee.

Costs and Expenses

Payroll
and related expenses. Payroll and related expenses amounted to $963,435 for the three
months ended September 30, 2009, as compared to $583,035 for the three months
ended September 30, 2008, an increase of $380,399. This increase was entirely
due to the granting of stock and options to directors and an officer during the
three months ended September 30, 2009. Salaries were $98,562 and $206,136 in
the three months ended September 30, 2009 and 2008, respectively. Employee
benefits were $19,867 and $11,912 in the three months ended September 30, 2009
and 2008, respectively, due to adding two employees to the benefit plans.
Employee stock compensation expense increased to $840,000 in the three months
ended September 30, 2009 from $357,926 in the three months ended September 30,
2008, as

35

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there were new grants in
the 2009 period. Miscellaneous related expenses were $5,005 and $7,062 during
the three months ended September 30, 2009 and 2008.

General
and administrative expenses. General and administrative expenses amounted to $890,279 for the
three months ended September 30, 2009, as compared to $450,101 for the three
months ended September 30, 2008, an increase of $440,178. This increase was due
to entirely to increases in service fees and accounting. Stock compensation to
consultants was $85,000 and $144,400 for the three months ended September 30,
2009 and 2008, respectively. Occupancy was $0 and $31,916 for the three months
ended September 30, 2009 and 2008, respectively. Telecommunications was $12,574
and $21,251 for the three months ended September 30, 2009 and 2008,
respectively, as we restructured to a lower cost system in 2009. Service fees
were $504,998 and $75,107 for the three months ended September 30, 2009 and
2008, respectively, as we incurred fundraising expense. Accounting increased to
$110,910 for the three months ended September 30, 2009 from $11,550 for the
three months ended September 30, 2008 due to filing our 2008 10-K, our 10-Q for
the three months ended March 31, 2009 and our 10-Q for the three months ended
June 30, 2009 all in the period. Travel, marketing, insurance and legal were
$504, $821, $28,259 and $137,872 in the three months ended September 30, 2009
compared with $2,556, $22,135, $33,512 and $68,771 in the three months ended
September 30, 2008 due to ongoing cost control efforts. Miscellaneous general
and administrative expenses were $9,341 and $38,903 for the three months ended
September 30, 2009 and 2008, respectively, with higher extension fees on outstanding
notes in 2008.

Depreciation
and amortization expense. For the three months ended September 30, 2009 and 2008, we
recorded depreciation expense of $10,897 and $14,343, respectively.
Depreciation expense for the three and nine months ended September 30, 2009 is
lower due to the disposal of some assets at December 31, 2008.

Interest
income (expense). We recorded interest income, interest expense and interest
expense  related parties of $0, ($57,094) and ($28,311) for the three months
ended September 30, 2009, respectively, compared to interest income, interest
expense and interest expense  related parties of $0, ($36,906) and ($43,594),
respectively, for the three months ended September 30, 2008. We incurred
decreased interest expense for the three months ended September 30, 2009 as a
result of conversion of related party and some third party investor notes to
stock during the three months ended September 30, 2009.

Amortization
of deferred debt discount.Amortization expense of $43,875 and $114,208 was incurred for the
three months ended September 30, 2009 and 2008, respectively, for the
amortization of the value of the deferred debt discount associated with certain
of our lines of credit and notes payable. Amortization expense decreased due to
certain debt discounts having been fully amortized prior to the three month
period ended September 30, 2009.

Loss
on derivative liability.We recorded a loss on derivative liability of $2,002,206 and
$63,201 for the three months ended September 30, 2009 and 2008, respectively,
for the revaluation of certain derivatives at September 30, 2009 and 2008. More
such derivatives existed during the three months ended September 30, 2009.

Other
expense.
During the three months ended September 30, 2009, $2,855,985 of loss on
conversion and extinguishment of debt was incurred as we eliminated liabilities
from our balance sheet.

Results of Operations for the Nine Months Ended
September 30, 2009
Compared to the Nine Months Ended September 30, 2008

Revenues

Revenues
totaled $56,517 and $148,140 for the nine months ended September 30, 2009 and
2008, respectively. We earned revenue during the nine months ended June 30,
2009 and 2008 from contingency fee income, based on a percent of debt collected or
fees per settlement at a lender and two banks that implemented our online
system.

Costs and Expenses

Payroll
and related expenses. Payroll and related expenses amounted to $1,338,810 for the nine
months ended September 30, 2009, as compared to $2,816,614 for the nine months
ended September 30, 2008, a decrease of $1,477,804 or 52%. This decrease was
due to across the board further headcount reductions from 2008 and fewer option
grants in the nine months ended September 30, 2009. Salaries were $418,562 and
$885,020 in the nine months ended September 30, 2009 and 2008, respectively.
Employee benefits were $52,899 and $83,982 in the nine months ended September
30, 2009 and 2008, respectively, due to lower staffing levels and the
suspension of the 401k match by the Company. Employee stock compensation
expense was reduced to $857,850 in the nine months ended September 30, 2009
from $1,897,906 in the nine months ended September 30, 2008, as there were
fewer grants in the 2009 period. Allocations were $0 and ($109,612),
respectively, in the nine months ended September 30, 2009 and 2008 as all
subsidiaries were closed in the 2009 period. Miscellaneous related expenses
were $9,498 and $59,317 during the nine months ended September 30, 2009 and
2008.

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General
and administrative expenses. General and administrative expenses amounted to $1,223,341 for
the nine months ended September 30, 2009, as compared to $3,461,643 for the
nine months ended September 30, 2008, a decrease of $2,238,302. This decrease
was due to further expense reductions. Stock-based compensation for consultants
was reduced by $2,082,700 to $115,000 from $2,197,700 for the nine months ended
September 30, 2009 and 2008, respectively. Occupancy was ($237,392) and $96,724
for the nine months ended September 30, 2009 and 2008, respectively. The credit
in 2009 was the reversal of the accrual made on eviction from our offices upon
settlement and discharge of the lease on our former corporate office. Telecommunications
was $55,322 and $60,833 for the nine months ended September 30, 2009 and 2008,
respectively, as we restructured our service in 2009 to lower costs. Service
fees were $797,270 and $480,045 for the nine months ended September 30, 2009
and 2008, respectively, due to higher fundraising costs. Accounting was reduced
to $159,910 for the nine months ended September 30, 2009 from $171,200 for the
nine months ended September 30, 2008 due to the switch in accounting firms.
Travel, marketing, insurance and legal were $4,513, $2,966, $69,595 and
$180,328 in the nine months ended September 30, 2009 compared with $58,095,
$65,680, $151,766 and $215,339 in the nine months ended September 30, 2008 due
to ongoing cost control efforts. Allocations were $0 and ($116,969) in the nine
months ended September 30, 2009 and 2008, respectively, as all subsidiaries had
been closed by 2009. Miscellaneous general and administrative expenses were
$75,830 and $141,231 for the nine months ended September 30, 2009 and 2008,
respectively, due to cost savings efforts in 2009.

Depreciation
and amortization expense. For the nine months ended September 30, 2009 and 2008, we
recorded depreciation expense of $35,406 and $43,313, respectively.
Depreciation expense for the nine months ended September 30, 2009 declined due
to the retirement of some assets that were in service during the nine months
ended September 30, 2008.

Interest
income (expense). We recorded interest income, interest expense and interest
expense  related parties of $0, ($164,763) and ($99,935) for the nine months
ended September 30, 2009, respectively, compared to interest income, interest
expense and interest expense  related parties of $190, ($104,509) and
($99,692), respectively, for the nine months ended September 30, 2008. We
incurred increased interest expense for the nine months ended September 30,
2009 as a result of carrying higher levels of borrowings on our lines of
credit, convertible debentures, investor notes and bank loans and, in certain instances,
higher interest rates.

Amortization
of deferred debt discount.Amortization expense of $265,137 and $661,663 was incurred for the
nine months ended September 30, 2009 and 2008, respectively, for the
amortization of the value of the deferred debt discount associated with certain
of our lines of credit and notes payable. Amortization expense decreased due to
certain debt discounts having been fully amortized prior to the nine month
period ended September 30, 2009.

Loss
on derivative liability.We recorded a loss on derivative liability of $2,823,873 and
$63,201 for the nine months ended September 30, 2009 and 2008, respectively,
for the revaluation of certain derivatives at September 30, 2009 and 2008.

Other
expense.
During the three months ended September 30, 2009, $2,855,985 of loss on
conversion and extinguishment of debt was incurred as we eliminated liabilities
from our balance sheet.

Liquidity and Capital Resources

As
of September 30, 2009, from continuing operations, we had a working capital
deficiency in the amount of $7,990,114 from continuing operations and cash and
cash equivalents totaling $948. We incurred a net loss of $8,750,733 from
continuing operations for the nine months ended September 30, 2009. Net cash
used in operating activities from continuing operations was $675,364 for the
nine months ended September 30, 2009. Cash flow provided by financing
activities from continuing operations was $661,959 for the nine months ended
September 30, 2009. Cash of $1,097 was used by the discontinued operations of
our former subsidiary First Performance during the nine months ended September
30, 2009. As of December 31, 2008, from continuing operations we had a working
capital deficiency in the amount of $6,371,269 and cash and cash equivalents
totaling $32,551. We incurred a net loss of $7,712,170 from continuing
operations for the year ended December 31, 2008. Net cash used in operating and
investing activities for continuing operations was $886,046 and $835,951,
respectively for the year ended December 31, 2008. Cash flow provided by
financing activities for continuing operations was $1,754,548 for the year
ended December 31, 2008. Cash of $1,301 was provided by the discontinued
operations of our former subsidiary First Performance during 2008. Our working
capital as of the date of this report is negative and is not sufficient to fund
our plan of operations for the next year. The aforementioned factors raise
substantial doubt about our ability to continue as a going concern.

37

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The
Company needs to raise additional capital in order to be able to accomplish its
business plan objectives. The Company has historically satisfied its capital
needs primarily from the sale of debt and equity securities. Management of the
Company is continuing its efforts to secure additional funds through debt
and/or equity instruments. We have also settled some of our liabilities through
issuances of our common stock, and we expect to settle additional liabilities
through discounted lump sum payments. Management believes that it will be
successful in obtaining additional financing and settling our liabilities;
however, no assurance can be provided that the Company will be able to do so.
There is no assurance that these funds will be sufficient to enable the Company
to attain profitable operations or continue as a going concern. To the extent
that the Company is unsuccessful, the Company may need to curtail its
operations and implement a plan to extend payables and reduce overhead until
sufficient additional capital is raised to support further operations. In the
alternative, the Company may have to seek protection from its creditors in
bankruptcy. There can be no assurance that efforts to raise adequate capital
will be successful. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

On October
7, 2009, an unaffiliated investor loaned the Company $50,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest. In addition, the investor
received 500,000 warrants to purchase the common stock of the Company at an
exercise price of $1.00 per share. The exercise period of the warrant is five
years.

On October
7, 2009, an unaffiliated investor loaned the Company an additional $100,000 on
a three year Convertible Debenture with an interest rate of 14%. The interest
accrues and is payable at maturity. The conversion price is set at $0.15 per
share. The Debenture carries a first lien security interest. In addition, the
investor received 1,000,000 warrants to purchase the common stock of the
Company at an exercise price of $1.00 per share. The exercise period of the
warrant is five years.

On October
8, 2009, an unaffiliated investor loaned the Company $25,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest. In addition, the investor
received 250,000 warrants to purchase the common stock of the Company at an exercise
price of $1.00 per share. The exercise period of the warrant is five years.

On October
9, 2009, an unaffiliated investor loaned the Company $29,500 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest. In addition, the investor
received 295,000 warrants to purchase the common stock of the Company at an
exercise price of $1.00 per share. The exercise period of the warrant is five
years.

On October
12, 2009, an unaffiliated investor loaned the Company $25,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest. In addition, the investor
received 250,000 warrants to purchase the common stock of the Company at an
exercise price of $1.00 per share. The exercise period of the warrant is five
years.

On October
16, 2009, an unaffiliated investor loaned the Company $25,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest. In addition, the investor
received 250,000 warrants to purchase the common stock of the Company at an
exercise price of $1.00 per share. The exercise period of the warrant is five
years.

38

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Critical Accounting Policies and Estimates

Use of
estimates

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

Stock-based
compensation

The Company
accounts for stock options issued under the recognition and measurement
principles of Accounting
Standards Codification subtopic 718-10, Compensation (ASC 718-10) .
Under the provisions of ASC 718-10, the Company is required to measure the cost
of services received in exchange for an award of equity instruments based on
the fair value of the award. For employees and directors, the award is measured
on the grant date and for non-employees, the award is generally re-measured on
interim financial reporting dates until the service period is complete, in
accordance with ASC 718-10. The fair value amount is then recognized over the
period during which services are required to be provided in exchange for the
award, usually the vesting period. Total stock-based compensation expense for
the three months ended September 30, 2009 and 2008 amounted to $925,000 and
$502,326, respectively. Total stock-based compensation expense for the nine
months ended September 30, 2009 and 2008 amounted to $1,266,414 and $4,095,606,
respectively. As of September 30, 2009, there was no unrecognized compensation
cost.

The Company
accounts for the expected life of share options in accordance with the
simplified method provisions ASC 718-10.

Recent
Accounting Pronouncements

The
following accounting guidance has been issued and will be effective for the
Company in or after fiscal year 2009:

Financial Accounting Standards Board (FASB) Accounting Standard
Codification (ASC) 820, Fair Value
Measurements and Disclosures (ASC 820 and formerly referred to as
FAS-157), establishes a framework for measuring fair value in GAAP, clarifies
the definition of fair value within that framework, and expands disclosures
about the use of fair value measurements. ASC 820 is effective for fiscal years
beginning after November 15, 2007. ASC 820-10-65, Transition and Open Effective Date Information,
deferred the effective date of ASC 820, for non-financial assets and
liabilities that are not on a recurring basis recognized or disclosed at fair
value in the financial statements, to fiscal years, and interim periods,
beginning after November 15, 2008. The Company has adopted the guidance
within ASC 820 for non-financial assets and liabilities measured at fair value
on a nonrecurring basis at January 1, 2009 and will continue to apply its
provisions prospectively from January 1, 2009. The application of ASC 820
for non-financial assets and liabilities did not have a significant impact on
earnings nor the financial position for the periods presented.

FASB ASC 805, Business Combinations
(ASC 805 and formerly referred to as FAS-141(R)) requires the acquisition
method to be applied to all transactions and other events in which an entity
obtains control over one or more other businesses, requires the acquirer to
recognize the fair value of all assets and liabilities acquired, even if less
than one hundred percent ownership is acquired, and establishes the acquisition
date fair value as measurement date for all assets and liabilities assumed. The
guidance within ASC 805 is effective prospectively for any acquisitions made
after fiscal years beginning after December 15, 2008.

FASB ASC 810, Consolidation
(ASC 810), ASC 810-10-65, Transition and
Open Effective Date Information (ASC 810-10-65 and formerly
referred to as FAS-160) establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated financial statements. ASC 810-10-65 is effective
for fiscal years beginning after December 15, 2008. The application of ASC
810-10-65 did not have a significant impact on earnings nor the financial
position.

FASB ASC 815, Derivatives and
Hedging(ASC 815), ASC 815-10-65, Transition
and Open Effective Date Information (ASC 815-10-65and formerly
referred to as FAS-161) includes a requirement for enhanced disclosures about
an entitys derivative and hedging activities and thereby improves the
transparency of financial reporting. ASC 815 is effective prospectively for
fiscal years beginning after November 15, 2008. The application of ASC 815
expanded the required disclosures in regards to the Companys derivative and
hedging activities.

39

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FASB ASC 350, Intangibles  Goodwill
and Other, ASC 350-30-65, Transition
and Open Effective Date Information (ASC 350-30-65 and formerly
referred to as FSP FAS 142-3) amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of a recognized intangible. ASC 350-30-65 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The guidance in this ASC 350-30-65 for determining the useful life of a
recognized intangible shall be applied prospectively to intangible assets
acquired after the effective date. The disclosure requirements of ASC 350-30-65,
however, shall be applied prospectively to all intangible assets recognized in
the Companys financial statements as of the effective date. The application of
ASC 350-30-65 is not expected to have a material impact on earnings nor the
financial position.

FASB ASC 715, Compensation 
Retirement Benefits, ASC 715-20-65, Transition
and Open Effective Date Information (ASC 715-20-65 and formerly
referred to as FSP FAS-132(R)-1) provides guidance on an employers disclosures
about plan assets of a defined benefit pension or other postretirement plans.
ASC 715-20-65 is effective prospectively for fiscal years ending after
December 15, 2009. The application of ASC 715-20-65 will expand the
Companys disclosures regarding pension plan assets.

FASB ASC 825 Financial Instruments,
ASC 825-10-65, Transition and Open Effective
Date Information (ASC 825-10-65 and formerly referred to as FSP
FAS 107-1 and APB 28-1) requires disclosures about fair value of financial
instruments for interim reporting periods as well as in annual financial
statements. This guidance also requires those disclosures in summarized
financial information at interim reporting periods. ASC 825-10-65 is effective
prospectively for interim reporting periods ending after June 15, 2009. The
application of ASC 825-10-65 expanded the Companys disclosures regarding the
use of fair value in interim periods.

FASB ASC 855, Subsequent Events
(ASC 855 and formerly referred to as FAS-165), modified the subsequent event
guidance. The three modifications to the subsequent events guidance are: 1) To
name the two types of subsequent events either as recognized or non-recognized
subsequent events, 2) To modify the definition of subsequent events to refer to
events or transactions that occur after the balance sheet date, but before the
financial statement are issued or available to be issued and 3) To require
entities to disclose the date through which an entity has evaluated subsequent
events and the basis for that date, i.e. whether that date represents the date
the financial statements were issued or were available to be issued. This
guidance is effective for interim or annual financial periods ending after June
15, 2009, and should be applied prospectively

Statement Relating to Forward-Looking
Statements

This
report contains forward-looking statements that are based on our beliefs as
well as assumptions and information currently available to us. When used in
this report, the words believe, expect, anticipate, estimate,
potential and similar expressions are intended to identify forward-looking
statements. These statements are subject to risks, uncertainties and
assumptions, including, without limitation, the risks and uncertainties
concerning our recent research and development activities; the risks and
uncertainties concerning acceptance of our services and products, if and when
fully developed, by our potential customers; our present financial condition
and the risks and uncertainties concerning the availability of additional
capital as and when required; the risks and uncertainties concerning the
Limited License Agreement with Messrs. Brofman and Burchetta; the risks and
uncertainties concerning our dependence on our key executives; the risks and
uncertainties concerning technological changes and the competition for our
services and products; the risks and uncertainties concerning general economic
conditions; and the
risks and uncertainties described in our Annual Report on Form 10-KSB for the
year ended December 31, 2007, filed on April 16, 2008, in the section labeled
Risk Factors.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. We caution you not to place undue
reliance on any forward-looking statements, all of which speak only as of the
date of this report.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

Not
applicable.

Item 4T. Controls and Procedures

Disclosure
Controls and Procedures

We
evaluated the design and operation of our disclosure controls and procedures to
determine whether they are effective in ensuring that we disclose required
information in a timely manner and in accordance with the Securities Exchange
Act of 1934 (the Exchange Act) and the rules and regulations promulgated by
the SEC. The executive who serves as our Interim Chief Executive Officer,
President and Chief Financial Officer has participated in such evaluation.
Management concluded, based on such review, that our disclosure controls and
procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were not
effective as of the end of the period covered by this Quarterly Report on Form
10-Q.

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The
ineffectiveness of these disclosure controls is due to the matters described
below in Internal Control over Financial Reporting.

Limitations
on the Effectiveness of Controls

We
believe that a control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. Our
disclosure controls and procedures are designed to provide a reasonable
assurance of achieving their objectives and our Interim Chief Executive
Officer, President and Chief Financial Officer has concluded that such controls
and procedures are not effective at the reasonable assurance level. The
ineffectiveness of these disclosure controls is due to the matters described
below in Internal Control over Financial Reporting.

Internal
Control over Financial Reporting

The
Companys independent registered public accounting firm has reported to our
audit committee certain matters involving internal controls that this firm
considered to be reportable conditions and a material weakness, under standards
established by Public Company Accounting Oversight Board. The reportable conditions
and material weakness relate to a limited segregation of duties at the Company.
Segregation of duties within our company is limited due to the small number of
employees that are assigned to positions that involve the processing of
financial information. Specifically, certain key financial accounting and
reporting personnel had an expansive scope of duties that allowed for the
creation, review, approval and processing of financial data without independent
review and authorization for preparation of consolidation schedules and
resulting financial statements and related disclosures. We did not maintain a
sufficient depth of personnel with an appropriate level of accounting
knowledge, experience and training in the selection and application of
Generally Accepted Accounting Principles commensurate with financial reporting
requirements. Accordingly, we place undue reliance on the finance team at
corporate headquarters, specifically the executive who is our Interim Chief
Executive Officer, President and Chief Financial Officer. Accordingly,
management has determined that this control deficiency constitutes a material
weakness. This material weakness could result in material misstatements of
significant accounts and disclosures that would result in a material misstatement
to our interim or annual consolidated financial statements that would not be
prevented or detected. In addition, due to limited staffing, the Company is not
always able to detect minor errors or omissions in reporting.

Going
forward, management anticipates that additional staff will be necessary to
mitigate these weaknesses, as well as to implement other planned improvements.
Additional staff will enable us to document and apply transactional and
periodic controls procedures, permit a better review and approval process and
improve quality of financial reporting. However, the potential addition of new
staff is contingent on obtaining additional financing, and there is no
assurance that the Company will be able to do so.

Management
believes that its financial statements for the three and nine months ended
September 30, 2009 and 2008, fairly present, in all material respects, its
financial condition and results of operations. During the three and nine months
ended September 30, 2009, there were no changes to our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

41

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Lawsuits
from vendors

On
July 17, 2008, Dreier LLP, a law firm, filed a complaint in the Supreme Court
of New York, County of New York, seeking damages of $311,023.32 plus interest
for legal services allegedly rendered to us. The complaint was answered on
August 14, 2008 raising various affirmative defenses. On December 16, 2008,
Dreier LLP filed for bankruptcy in the U.S. Bankruptcy Court for the Southern
District of New York. The case has been on hold since the bankruptcy filing. On
March 18, 2009, we filed a counterclaim in the bankruptcy court for legal
malpractice and the defenses raised in the previously filed answer. The
entire balance in dispute is in the accounts payable of the Company.

On
September 17, 2008, Computer Task Group, a vendor, filed a complaint in the
Supreme Court of New York, County of Erie, seeking damages of $24,545.69 plus
interest for consulting services rendered to us. On December 3, 2008, judgment
was entered in favor of Computer Task Group for $24,545.69 plus $2,538.54 in
interest and $651.00 in costs, or a total of $27,735.23. A restraining order
was served on our bank account for the amount of the judgment. On March 10,
2009, a total of $12,839.44 was removed from our account in partial
satisfaction of the judgment, leaving a current total now due of $14,895.79. This
balance payable is in the accounts payable of the Company.

On
December 1, 2008, AT&T, a vendor, filed a complaint in the Supreme Court of
New York, County of New York, seeking damages of $62,383.21 plus interest for
services allegedly rendered to us. The complaint was answered on February 23,
2009 raising various affirmative defenses. The action is currently in the
discovery phase. The entire amount in dispute is in the accounts payable
of the Company.

On November
9, 2009, Patriot National Bank, a financial institution, filed a complaint in
the Supreme Court of New York, Count of Westchester, seeking damages of
$68,993.62 as a result of an overdraft in our bank account resulting from a
non-sufficient funds check received from an investor on May 22, 2009. Our
attorneys are reviewing the matter. The entire amount in dispute is in the
accounts payable of the Company.

Lawsuits
from landlords

On
February 2, 2009, a complaint was filed in the District Court of Clark County,
Nevada against Debt Resolve, First Performance Corp. and the former owners of
First Performance, Pacific USA Holdings and Clearlight Mortgage Corp., seeking
$315,916.72 for unpaid rent due as of January 31, 2009. First Performance had
vacated the premises as of June 30, 2008 with the closing of its business. Debt
Resolve has been dismissed from the suit at this time, as it was not a
signatory to the lease or guarantor of the lease. The case continues against
First Performance Corp. and its former owners, with an answer due by First
Performance shortly. The entire amount of the amount in dispute is
accrued on the books of First Performance.

Lawsuits
from former employees

On
April 18, 2007, we received a letter from a law firm stating that a claim with
the EEOC and a lawsuit would be filed charging sexual discrimination in the
wrongful termination of a manager of the First Performance Florida facility.
The facility was subsequently closed on June 30, 2007 as a cost reduction
measure. The First Performance employment practices insurance carrier defended
the matter against the U.S. EEOC and the Broward County Civil Rights Division.
On March 18, 2008, a settlement was reached in the amount of $24,500. However,
due to First Performances financial problems which led to its closure on June
30, 2008, the settlement was not paid. Because of the non-payment, final
judgment was entered against First Performance Recovery Corp. in the amount of
$103,004.99 plus $5,293.00 in attorneys fees on October 11, 2008. On December
17, 2008, final judgment was entered against First Performance Corp. and Debt
Resolve in the amount of $35,286.82. On April 13, 2009, agreement was reached
to settle the case for $15,000 if payment is made by May 15, 2009. On May 19,
2009, the Company made the required payment under the settlement and received a
Satisfaction of Judgment and Release on this matter, which is now closed.

Lawsuit
related to financing

On
December 24, 2008, we negotiated a settlement of pending litigation with
Compass Bank in Texas, from whom we had received a fraudulent wire transfer
letter in connection with the Harmonie International investment that was never
funded by the investor. We received a cash payment of $50,000 to settle all
claims against Compass Bank. We have also referred all of the matters
surrounding the Harmonie transaction to the appropriate authorities.

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From
time to time, the Company is involved in various litigation in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Companys
financial position or results of operations.

Item 1A. Risk Factors

As a small reporting company as defined by Item 10 of Regulation S-K,
we are not required to provide information required by this item.

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

None

Item 3. Defaults upon Senior Securities

On December
21, 2007, an unaffiliated investor loaned the Company $125,000 on an 18-month
note with a maturity date of June 21, 2009. The note has a provision requiring
repayment once the Company has raised an aggregate of $500,000 following
issuance of this note. As a result, this note is currently in default as it has
not been repaid and the Company reached the $500,000 threshold in September,
2008. The note carries interest at a rate of 12% per annum, with interest
accruing and payable at maturity. The note is secured by the assets of the
Company. In conjunction with the note, the Company granted to the investor a
warrant to purchase 37,500 shares of common stock at an exercise price of $1.07
and an expiration date of December 21, 2012. The note was recorded net of a
deferred debt discount of $19,375, based on the relative fair value of the
warrant under the Black-Scholes pricing model. Such discount is being amortized
over the term of the note and was fully amortized in 2008. During the three and
six months ended June 30, 2008, the Company recorded amortization of the debt
discount related to this note of $3,229 and $6,458, respectively. This note is
guaranteed by Mr. Burchetta. As of June 30, 2009, this note has matured and is
still outstanding. The Company is in discussions with the lender.

On December
30, 2007, an unaffiliated investor loaned the Company $200,000 on an 18-month
note with a maturity date of June 30, 2009. The note carries interest at a rate
of 12% per annum, with interest accruing and payable at maturity. The note is
secured by the assets of the Company. In conjunction with this note, the
Company also issued a warrant to purchase 100,000 shares of common stock at an
exercise price of $1.00 and an expiration date of December 30, 2012. The note
was recorded net of a deferred debt discount of $51,600, based on the relative
fair value of the warrant under the Black-Scholes pricing model. Such discount
is being amortized over the term of the note. During the three months ended
June 30, 2009 and 2008, the Company recorded amortization of the debt discount
related to this note of $8,600 and during the six months ended June 30, 2009
and 2008, the amortization expense was $17,200. This note is guaranteed by Mr.
Burchetta. As of June 30, 2009, this note has matured and is still outstanding.
The Company is in discussions with the lender.

On February
26, 2008, an unaffiliated investor loaned the Company an additional $100,000 on
an 18-month note with a maturity date of August 26, 2009. The note carries interest
at a rate of 12% interest per annum, with interest accruing and payable at
maturity. Terms of the loan included a $20,000 service fee on repayment or a
$45,000 service fee if repayment occurs more than 31 days after origination.
The outstanding principal and interest may be repaid, in whole or in part, at
any time without prepayment penalty. Accordingly, since the loan remains
unpaid, the Company has accrued the service fee of $45,000 as of September 30,
2009. In conjunction with the note, the Company also issued a warrant to
purchase 175,000 shares of common stock at an exercise price of $1.25 and an
expiration date of February 26, 2013. The note was recorded net of a deferred
debt discount of $57,400, based on the relative fair value of the warrant under
the Black-Scholes pricing model. Such discount is being amortized over the term
of the note. During the three months ended September 30, 2009 and 2008, the
Company recorded amortization of the debt discount related to this note of
$6,378 and $9,567, respectively, and during the nine months ended September 30,
2009 and 2008 amortization was $25,511 and $22,322, respectively. As of
September 30, 2009, this note has matured and is still outstanding. The Company
is in discussions with the lender.

On March 7,
2008, the Company borrowed $100,000 from a bank at a variable rate equal to the
banks prime rate (currently 3.25%) for 30 days. On March 14, 2008, the
original loan was repaid, and the Company borrowed $150,000 at the prime rate
and due on April 7, 2008. On May 15, 2008, the loan was repaid and the Company
borrowed $250,000 at the prime rate and due on July 1, 2008. The note was
subsequently extended to January 1, 2010 and is outstanding as of September 30,
2009. The loan is secured by the assets of the Company and is personally
guaranteed by Mr. Mooney, a director of the Company.

On March
27, 2008, an unaffiliated investor loaned the Company $100,000 on an 18-month
note with a maturity date of September 27, 2009. The note carries interest at a
rate of 12% interest per annum, with interest accruing and payable at maturity.
The outstanding principal and interest may be repaid, in whole or in part, at
any time without

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prepayment penalty. In conjunction with the note, the Company also
issued a warrant to purchase 50,000 shares of common stock at an exercise price
of $1.95 and an expiration date of March 27, 2013. The note was recorded net of
a deferred debt discount of $37,900, based on the relative fair value of the
warrant under the Black-Scholes pricing model. Such discount is being amortized
over the term of the note. During the three months ended September 30, 2009 and
2008, the Company recorded amortization of the debt discount related to this
note of $6,317, and during the nine months ended September 30, 2009 and 2008
amortization was $18,950. As of September 30, 2009, this note has matured and
is still outstanding. The Company is in discussions with the lender.

On April
10, 2008, an unaffiliated investor loaned the Company an additional $198,000 on
an amendment of the prior note with a maturity date of June 21, 2009 for the
entire balance of the first note plus the amendment ($323,000 total). The note
carries interest at a rate of 12% per annum, with interest accruing and payable
at maturity. The outstanding principal and interest may be repaid, in whole or
in part, at any time without prepayment penalty. In conjunction with the note,
the Company also issued a warrant to purchase 99,000 shares of common stock at
an exercise price of $2.45 and an expiration date of April 10, 2013. This
warrant has a cashless exercise feature. The note was recorded net of a
deferred debt discount of $88,110, based on the relative fair value of the
warrant. The debt discount is being amortized over the term of the note. During
the three and nine months ended September 30, 2008, the Company recorded
amortization of the debt discount related to this note of $73,425 and 88, 110,
with the discount being fully amortized at September 30, 2008 due to the note
being in default. This note is guaranteed by Mr. Burchetta. The amended note
maintains the provision requiring repayment of the note upon raising gross
proceeds of $500,000 subsequent the issuance of the note. At September 30,
2008, the Company had raised in excess of $500,000 subsequent to this amended
note, and as a result, this note is in default. The Company also issued 50,000
shares of common stock valued at $122,130 in order to induce the investor to
forbear on the note, which is included in expenses. As of September 30, 2009,
this note has matured and is still outstanding. The Company is in discussions
with the lender.

On July 31,
2008, the Company agreed to give the attorney who arranged the above financing
50,000 shares of stock in the Company for introducing the investor. Because of
a delinquent payable with the Companys stock transfer agent, the shares were
converted to a 6 month loan of $50,000 with a maturity date of January 31,
2009. The note carried interest at a rate of 12% per annum, payable monthly in
arrears in cash. At September 30, 2008, due to the inability of the Company to
pay the interest on the note, the note was exchanged for a convertible
debenture with the same maturity date of January 31, 2009 in the amount of
$51,000. At any time on or after the Issue Date and prior to the time the
Debenture is paid in full in accordance with its terms (including, without
limitation, after the occurrence of an Event of Default, or, if the Debenture
is not fully paid or converted after the Maturity Date), the Holder of this
Debenture is entitled, at its option to convert this Debenture at any time into
shares of Common Stock, $0.001 par value (Common Stock), of the Company at
the Conversion Price. Conversion Price means the (i) the average VWAP for the
20 Trading Days ending on the Trading Day immediately before the relevant
Conversion Date, multiplied by (ii) fifty percent (50%). As a result of the
default on this debenture, the Company negotiated a settlement with the attorney
to discharge the debenture, its accrued interest and old outstanding legal
bills to the attorney for $75,000 paid $5,000 per month beginning August 1,
2009.

On
September 30, 2008, an unaffiliated investor loaned the Company $300,000 on a 6
month convertible debenture with a maturity date of March 31, 2009. This
convertible debenture replaced a note issued on July 31, 2008 in the same
amount of $300,000 with a maturity date of January 31, 2009. The debenture is
secured by an escrow of 450,000 shares of the common stock of the Company,
which is held in escrow at the lenders attorneys office. At any time on or
after the Issue Date and prior to the time the Debenture is paid in full in
accordance with its terms (including, without limitation, after the occurrence
of an Event of Default, or, if the Debenture is not fully paid or converted
after the Maturity Date), the Holder of this Debenture is entitled, at its
option to convert this Debenture at any time into shares of Common Stock,
$0.001 par value (Common Stock), of the Company at the Conversion Price.
Conversion Price means the (i) the average VWAP for the 20 Trading Days ending
on the Trading Day immediately before the relevant Conversion Date, multiplied
by (ii) fifty percent (50%). At the date of this report, the debenture is in
default, and the Company is working with the lender to restructure the
debenture.

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

None

Item 5. Other Information

None

Item 6. Exhibits and Filings on Form 8-K

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

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

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

Filing on Form 8-K dated July 20, 2009

Filing on Form 8-K dated August 19, 2009

Filing on Form 8-K dated October 8, 2009

Filing on Form 8-K dated October 21, 2009

Filing on Form 8-K dated October 30, 2009

44

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SIGNATURES

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

|                         |                     |                                                                        
|------------------------ | ------------------- | -----------------------------------------------------------------------
|Dated: November 23, 2009 |                     |                                                                        
|                         | DEBT
 RESOLVE, INC.
|                         |                    
|                         | By:                 | /s/ David
 M. Rainey                                                   
|                         |                     |                                                                        
|                         |                     | DAVID M. RAINEY                                                        
|                         |                     | Interim Chief Executive Officer, President
 and Chief Financial Officer
|                         |                     | (Principal
 executive and financial and accounting officer)            

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