**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      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 JUNE 30, 2008




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




For
      the
      Transition Period from ________ to ___________




Commission
      File No.:  0-29525




**DEBT
      RESOLVE, INC.**


(Exact
      name of registrant as specified in its charter)






**Delaware**
            
            **33-0889197**(State
                or other jurisdiction of
                incorporation
                  or organization)
            
            (I.R.S.
                Employer Identification No.)**707
                Westchester Avenue,
                Suite L7**
              **White
                Plains, New
                York**
            
            **10604**(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 oNon-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
        August 14, 2008, 9,436,864 shares
        of
        the issuer’s Common Stock were issued and outstanding.







**DEBT
      RESOLVE, INC. AND SUBSIDIARIES**


**TABLE
      OF CONTENTS**




Page**PART
                  I. Financial Information**Item
                    1.
                Condensed
                  Consolidated Financial Statements
                3Condensed
                    Consolidated Balance Sheets at June 30, 2008 (unaudited) and
                    December 31,
                    2007
                3Condensed
                    Consolidated Statements of Operations for the Three Months and
                    Six Months
                    Ended June 30, 2008 and 2007 (unaudited)
                4Condensed
                    Consolidated Statements of Cash Flows for the Six Months Ended
                    June 30,
                    2008 and 2007 (unaudited)
                5Condensed
                  Consolidated Statements of Stockholders’ Deficiency (unaudited)
                6-7Notes
                  to Condensed
                  Consolidated Financial Statements (unaudited)
                8Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                20Item
                    3.
                Quantitative
                    and Qualitative Disclosures about Market Risk
                27Item
                    4.
                Controls
                    and Procedures
                27**PART
                    II. Other Information**Item
                    1.
                Legal
                    Proceedings
                28Item
                    1A.
                Risk
                  Factors
                28Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                28Item
                    3.
                Defaults
                    Upon Senior Securities
                28Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                28Item
                    5.
                Other
                    Information
                28Item
                    6.
                Exhibits
                28Signatures
                29Certifications


2




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheets




ASSETSJune
                    30, 2008(Unaudited)
              
              December
                  31, 2007Current
                  assets:Cash
              $
              27,489
              
              $
              —Restricted
                  cash
              
              30,191
              
              
              67,818Accounts
                  receivable
              
              103,950
              
              
              84,013Other
                  receivable
              
              4,712
              
              
              200,000Prepaid
                  expenses and other current assets
              
              63,446
              
              
              108,189Total
                  current assets
              
              229,788
              
              
              460,020Fixed
                  assets, net
              
              128,487
              
              
              283,095Other
                  assets:Deposits
                  and other assets
              
              108,780
              
              
              108,780Intangible
                  assets, net
              
              —
              
              
              208,848Total
                  other assets
              
              108,780
              
              
              317,628Total
                  assets
              $
              467,055
              
              $
              1,060,743LIABILITIES
                  AND STOCKHOLDERS’ DEFICIENCYCurrent
                  liabilities:Accounts
                  payable and accrued liabilities
              $
              2,503,794
              
              $
              1,444,764Accrued
                  professional fees
              
              1,255,473
              
              
              1,003,550Accrued
                  closing costs - FPC
              
              1,364,458
              
              
              —Collections
                  payable
              
              28,960
              
              
              42,606Short
                  term notes (net of deferred debtdiscount
                  of $0 and $29,400,respectively)
              
              380,000
              
              
              70,600Short
                  term note - related party
              
              142,202
              
              
              —Lines
                  of credit - related parties
              
              1,037,121
              
              
              1,011,000Total
                  current liabilities
              
              6,712,008
              
              
              3,572,520Notes
                  payable (net of deferred debtdiscount
                  of $211,631 and $70,975,respectively)
              
              611,369
              
              
              254,025Total
                  liabilities
              
              7,323,377
              
              
              3,826,545Commitments
                  and contingenciesStockholders’
                  deficiency:Preferred
                  stock, 10,000,000 sharesauthorized,
                  $0.001 par value, none
              
              —
              
              
              —issued
                  and outstandingCommon
                  stock, 100,000,000 shares
              
              8,962
              
              
              8,474authorized,
                  $0.001 par value,8,961,864
                  and 8,474,363 shares issuedand
                  outstandingAdditional
                  paid-in capital
              
              45,521,033
              
              
              42,501,655Accumulated
                  deficit
              
              (52,386,317
              )
              
              (45,275,931
              )Total
                  stockholders’ deficiency
              
              (6,856,322
              )
              
              (2,765,802
              )Total
                  liabilities and stockholders’
                  deficiency
              $
              467,055
              
              $
              1,060,743




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 June 30,
              
              Six
                  Months Ended June 30,2008
              
              2007
              
              2008
              
              2007Revenues
              
              $46,819
              
              $12,507
              
              $130,997
              
              $33,128Costs
                  and expenses:General
                  and administrative expenses
              
              
              2,014,030
              
              
              2,930,906
              
              
              3,890,490
              
              
              4,550,123Depreciation
                  and amortization expense
              
              
              14,433
              
              
              14,380
              
              
              28,970
              
              
              28,178Total
                  expenses
              
              
              2,028,463
              
              
              2,945,286
              
              
              3,919,460
              
              
              4,578,301Loss
                  from operations
              
              
              (1,981,644
              )
              
              (2,932,779
              )
              
              (3,788,463
              )
              
              (4,545,173
              )Other
                  (expense) income:Interest
                  income
              
              
              —
              
              
              4,840
              
              
              190
              
              
              41,610Interest
                  expense
              
              
              (33,498
              )
              
              —
              
              
              (58,692
              )
              
              (70
              )Interest
                  expense - related parties
              
              
              (34,071
              )
              
              (7,633
              )
              
              (65,008
              )
              
              (7,635
              )Amortization
                  of deferred debt discount
              
              
              (45,781
              )
              
              —
              
              
              (547,454
              )
              
              —Other
                  income
              
              
              (337
              )
              
              —
              
              
              (338
              )
              
              10,080Total
                  other (expense) income
              
              
              (113,687
              )
              
              (2,793
              )
              
              (671,302
              )
              
              43,985Loss
                  from continuing operations
              
              
              (2,095,331
              )
              
              (2,935,572
              )
              
              (4,459,765
              )
              
              (4,501,188
              )Loss
                  from discontinued operations
              
              
              (2,142,817
              )
              
              (2,368,159
              )
              
              (2,650,619
              )
              
              (2,916,683
              )Net
                  loss
              
              $
              (4,238,148
              )
              $
              (5,303,731
              )
              $
              (7,110,384
              )
              $
              (7,417,871
              )Net
                  loss per common share:basic
                  and diluted (See Note 2)Continuing
                  operations
              
              $
              (0.24
              )
              $
              (0.38
              )
              $
              (0.51
              )
              $
              (0.58
              )Discontinued
                  operations
              
              $
              (0.24
              )
              $
              (0.31
              )
              $
              (0.30
              )
              $
              (0.38
              )Total
              
              $
              (0.48
              )
              $
              (0.69
              )
              $
              (0.81
              )
              $
              (0.96
              )Basic
                  and diluted weighted average number of common sharesoutstanding
                  (See Note 2)
              
              
              8,848,045
              
              
              7,707,668
              
              
              8,768,924
              
              
              7,689,168




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)




Six
                months ended June 30,2008
            
            2007**Cash
                   flows from continuing operating activities:**Net
                loss
            
            $
            (4,459,765
            )
            $
            (4,501,188
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non
                cash stock based compensation
            
            
            1,680,730
            
            
            1,968,248Amortization
                of deferred debt discount
            
            
            547,455
            
            
            —Depreciation
                and amortization
            
            
            28,970
            
            
            28,178Changes
                in operating assets & liabilitiesAccounts
                receivable
            
            
            (18,675
            )
            
            6,465Prepaid
                expenses and other current assets
            
            
            46,609
            
            
            27,288Deferred
                acquisition costs
            
            
            —
            
            
            (758,663
            )Deposits
                and other assets
            
            
            —
            
            
            (2,000
            )Accounts
                payable and accrued expenses
            
            
            812,134
            
            
            609,678Accrued
                professional fees
            
            
            240,202
            
            
            —Net
                cash provided by (used in) continuing operating
              activities
            
            
            (1,122,240
            )
            
            (2,621,994
            )**Cash
                flows from continuing investing activities:**Purchases
                of fixed assets
            
            
            —
            
            
            (34,626
            )Net
                cash used in continuing investing activities
            
            
            —
            
            
            (34,626
            )**Cash
                flows from continuing financing activities:**Proceeds
                from other receivable
            
            
            200,000
            
            
            —Proceeds
                from long term loans
            
            
            498,000
            
            
            —Proceeds
                from issuance of short term notes
            
            
            717,202
            
            
            —Proceeds
                from line of credit
            
            
            36,121
            
            
            500,000Repayment
                of short term notes
            
            
            (295,000
            )
            
            —Repayment
                of line of credit
            
            
            (10,000
            )
            
            —Proceeds
                from issuance of common stock
            
            
            680,000Proceeds
                from exercise of warrants
            
            
            375
            
            
            130,222Net
                cash provided by continuing financing
              activities
            
            
            1,826,698
            
            
            630,222**Cash
                flows of discontinued operations**Net
                cash used in operating activities
            
            
            (676,969
            )
            
            (1,908,221
            )Net
                cash used in investing activities
            
            
            —
            
            
            (1,083,850
            )Net
                cash provided by financing activities
            
            
            —
            
            
            263,780Net
                cash used in discontinued operations
            
            
            (676,969
            )
            
            (2,728,291
            )Net
                increase(decrease) in cash and cash equivalents
            
            
            27,489
            
            
            (4,754,689
            )Cash
                and cash equivalents at beginning of period
            
            
            —
            
            
            4,925,571Cash
                and cash equivalents at end of period
            
            $
            27,489
            
            $
            170,882**Supplemental
                investing and financing activities:**Current
                assets acquired
            
            
            —
            
            $
            679,734Fixed
                assets acquired
            
            
            —
            
            
            286,229Deposits
                acquired
            
            
            —
            
            
            51,999Intangible
                assets acquired
            
            
            —
            
            
            450,000Goodwill
                recognized on purchase business combination
            
            
            —
            
            
            1,026,869Accrued
                liabilities assumed in the acquisition
            
            
            —
            
            
            (1,573,252
            )Direct
                acquisition costs
            
            
            —
            
            
            (71,579
            )Non-cash
                consideration to seller
            
            
            —
            
            
            (350,000
            )Cash
                paid to acquire business
            
            $
            —
            
            $
            500,000




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




5




DEBT
        RESOLVE, INC. and SUBSIDIARIES


Consolidated
        Statements of Stockholders’ Equity (Deficiency)


For
        the
        Six Months Ended June 30, 2008 and the Years Ended December 31, 2007 and
        2006


Preferred
                  Stock
              
              
              Common
                  StockNumber
                  of
                Shares
              
              
              Amount
              
              
              Number
                      of
                    Shares
              
              
              Amount
              
              
              Deferred
                    compensation
              
              
              
              Additional
                  Paid
                    in
                  Capital
              
              
              Deficit
                    Accumulated
                    During
                      the
                    Development
                    Stage
              
              
              Total**Balance
                  at December 31, 2007**
              
              
              
              
              
              
              
              
              **8,474,363**
              
              $
              **8,474**
              
              **$**
              **0**
              
              
              **$**
              **42,501,655**
              
              **($**
              **45,275,931**
              **)**
              **$**
              **2,765,802**
              **)**Capital
                  contributed from the exerciseof
                  options and warrants
              
              
              
              
              
              
              
              
              4,167
              
              
              4
              
              
              
              
              
              
              38
              
              
              
              
              
              42Capital
                  contributed from the grant ofstock
                  options to employees
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,499,719
              
              
              
              
              
              1,499,719Capital
                  contributed from the accrual 
                  ofrestricted
                  stock to an employee
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              40,000
              
              
              
              
              
              40,000Capital
                  contributed from the grant ofstock
                  options to pay for consultingservices
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              82,650
              
              
              
              
              
              82,650Sales
                  of common stock for cash
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0
              
              
              
              
              
              0Amortization
                  of deferredcompensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0
              
              
              
              
              
              0Capital
                  contributed from deferreddebt
                  discount
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              115,600
              
              
              
              
              
              115,600Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -2,872,237
              
              
              -2,872,237**Balance
                  at March 31, 2008**
              
              
              
              
              
              
              
              
              **8,478,530**
              
              **$**
              **8,478**
              
              **$**
              **—**
              
              
              **$**
              **44,199,662**
              
              **($**
              **48,148,168**
              )
              **($**
              **3,940,028**
              )




6




Preferred
                      Stock
                  
                  
                  Common
                      StockNumber
                      of
                    Shares
                  
                  
                  Amount
                  
                  
                  Number
                        of
                      Shares
                  
                  
                  Amount
                  
                  
                  Deferred
                      compensation
                  
                  
                  
                  Additional
                      Paid
                        in
                      Capital
                  
                  
                  Deficit
                      Accumulated
                      During
                        the
                      Development
                      Stage
                  
                  
                  TotalCapital
                      contributed from the exerciseof
                      options and warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  33,334
                  
                  
                  33
                  
                  
                  
                  
                  
                  
                  300
                  
                  
                  
                  
                  
                  333Capital
                      contributed from the grant ofstock
                      options to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  495,261
                  
                  
                  
                  
                  
                  495,261Capital
                      contributed from the issuance of restricted stock to an employee
                      (reversing accrual)
                  
                  
                  
                  
                  
                  
                  
                  
                  50,000
                  
                  
                  50
                  
                  
                  
                  
                  
                  
                  -50
                  
                  
                  
                  
                  
                  0Capital
                      contributed from the grant ofstock
                      options to pay for consultingservices
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  58,150
                  
                  
                  
                  
                  
                  58,150Sales
                      of common stock for cash
                  
                  
                  
                  
                  
                  
                  
                  
                  400,000
                  
                  
                  400
                  
                  
                  
                  
                  
                  
                  679,600
                  
                  
                  
                  
                  
                  680,000Amortization
                      of deferredcompensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  0
                  
                  
                  
                  
                  
                  0Capital
                      contributed from deferreddebt
                      discount
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  88,110
                  
                  
                  
                  
                  
                  88,110Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -4,238,148
                  
                  
                  -4,238,148**Balance
                      at June 30, 2008**
                  
                  
                  
                  
                  
                  
                  
                  
                  **8,961,864**
                  
                  **$**
                  **8,962**
                  
                  **$**
                  **—**
                  
                  
                  **$**
                  **45,521,033**
                  
                  **($**
                  **52,386,316**
                  )
                  **($**
                  **6,856,322**
                  **)**




7




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




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




The
      accompanying unaudited condensed consolidated financial statements of Debt
      Resolve Inc. and subsidiaries (the “Company” or “Debt Resolve”) have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America (“GAAP”) for interim financial information. In the
      opinion of management, such statements include all adjustments (consisting
      only
      of normal recurring adjustments) necessary for the fair presentation of the
      Company’s financial position, results of operations and cash flows at the dates
      and for the periods indicated. Pursuant to the requirements of the Securities
      and Exchange Commission (the “SEC”) applicable to quarterly reports on Form
      10-Q, the accompanying financial statements do not include all the disclosures
      required by GAAP for annual financial statements. While the Company believes
      that the disclosures presented are adequate to make the information not
      misleading, these unaudited interim condensed consolidated financial statements
      should be read in conjunction with the consolidated financial statements and
      related notes included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2007. Operating results for the three and six months
      ended June 30, 2008 are not necessarily indicative of the results that may
      be
      expected for the fiscal year ending December 31, 2008, or any other interim
      period.




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




The
      Company has historically raised funds through the sale of debt and equity
      instruments. As of June 30, 2008, the Company has entered into three lines
      of
      credit with related parties with current outstanding balances of $1,037,121.
      Also as of June 30, 2008, the Company also issued notes to unaffiliated
      investors for a total of $1,095,202 and obtained bank loans of $250,000.
      Subsequent to June 30, 2008, the Company has received approximately $250,000
      in
      net cash proceeds from a loan. Also, an officer has loaned the Company
      approximately $172,732 as a result of paying certain bills on behalf of the
      Company. Management has informed these note holders that some or all of these
      loans would be re-paid at the next significant funding that the Company
      receives.




On
      March
      31, 2008, the Company entered into a private placement agreement with Harmonie
      International LLC (“Harmonie”) for the sale of 2,966,102 shares of Company
      common stock for cash proceeds of $7,000,000.  Harmonie is also to receive
      a warrant to purchase up to 3,707,627 of common stock of the Company at an
      exercise price of $2.36 per share. The warrant has a ten-year exercise period.
      On May 16, 2008, Harmonie requested an extension until May 30, 2008 by which
      to
      complete the funding. Thereafter, Harmonie requested an additional extension
      until June 20, 2008. Although the Company declined to give Harmonie any
      additional formal extensions, the agreement has not been terminated, and the
      Company is currently continuing to work with Harmonie to complete funding of
      the
      transaction. Harmonie continues to confirm their commitment to fund but has
      failed to do so, nor has it offered any proof of funds nor provided a firm
      funding date. As of August 11, 2008, the Company has received no funding from
      Harmonie and believes that it is unlikely to receive such funding. In the event
      Harmonie does not fund within a reasonable period of time, the Company intends
      to pursue legal action.




Management
      is actively pursuing additional debt and equity financing.  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. 
If the Company is unable to raise sufficient additional funds, it will have
      to
      develop and implement a plan to extend payables and reduce overhead until
      sufficient additional capital is raised to support further operations. However,
      there can be no assurance that such efforts will be successful.




8




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(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.





Stock-based
      compensation





The
      Company accounts for stock options issued under stock-based compensation plans
      under the recognition and measurement principles of SFAS No. 123(R) (“Share
      Based Payment”). The fair value of each option and warrant granted to employees
      and non-employees is estimated as of the grant date using the Black-Scholes
      pricing model. The estimated fair value of the options granted is recognized
      as
      an expense over the requisite service period of the award, which is generally
      the option vesting period. As of June 30, 2008, total unrecognized compensation
      cost amounted to $145,567, all of which is expected to be recognized in 2008
      and
      2009. Total stock-based compensation expense for the three months ended June
      30,
      2008 and 2007 amounted to $553,411 and $1,645,160, respectively, and for the
      six
      months ended June 30, 2008 and 2007 amounted to $1,680,780 and $1,968,247,
      respectively.




The
      fair
      value of share-based payment awards, including options and warrants, granted
      during the periods was estimated using the Black-Scholes pricing model with
      the
      following assumptions (including a volatility factor derived from an index
      of
      comparable public entities) and weighted average fair values as
      follows:





**Six
                months ended**
              **June
                30,****2008**
            **2007**Risk
                free interest rate range
            2.10-3.50%
            4.52-4.84%Dividend
                yield
            0%
            0%Expected
                volatility
            81.1%
            81.1%-96.7%Expected
                life in years
            3-7
            3-7





The
      Company accounts for the expected life of share options in accordance with
      the
“simplified” method provisions of Securities and Exchange Commission Staff
      Accounting Bulletin (“SAB”) No. 110 (December 2007), which enables the use of
      the simplified method for “plain vanilla” share options as defined in SAB No.
      107.




Net
      loss
      per share of common stock





Basic
      net
      loss per share excludes dilution for potentially dilutive securities and is
      computed by dividing net loss attributable to common stockholders by the
      weighted average number of common shares outstanding during the period. Diluted
      net loss per share reflects the potential dilution that could occur if
      securities or other instruments to issue common stock were exercised or
      converted into common stock. Potentially dilutive securities realizable from
      the
      exercise of options and warrants aggregating 7,698,463 and 5,045,155,
      respectively at June 30, 2008 and 2007, are excluded from the computation of
      diluted net loss per share as their inclusion would be anti-dilutive.




9




DEBT
        RESOLVE, INC. AND SUBSIDIARIES
 Notes
        to
        Condensed Consolidated Financial Statements
 June
        30,
        2008
 (Unaudited)




The
      Company’s issued and outstanding common shares do not include the underlying
      shares exercisable with respect to the issuance of 177,938 and 336,738 warrants,
      respectively, as of June 30, 2008 and 2007, exercisable at $0.01 per share
      related to a financing completed in June 2006. In accordance with SFAS No.
      128
“Earnings Per Share”, the Company has given effect to the issuance of these
      warrants in computing basic net loss per share.




NOTE
      3.  ACQUISITION
      OF FIRST PERFORMANCE CORPORATION:





On
      January 19, 2007, the Company acquired all of the outstanding capital stock
      of
      First Performance Corporation, a Nevada corporation (“First Performance”), and
      its wholly-owned subsidiary, First Performance Recovery Corporation, pursuant
      to
      a Stock Purchase Agreement. First Performance is an accounts receivable
      management agency with operations in Las Vegas, Nevada and formerly in Fort
      Lauderdale, Florida.




The
      operations of First Performance from January 19, 2007 through June 30, 2007
      are
      included in the Company’s unaudited condensed consolidated financial statements
      as discontinued operations. The following table presents the Company’s unaudited
      pro forma combined results of operations for the three and six months ended
      June
      30, 2007, as if First Performance had been acquired at the beginning of the
      period.




For
                the three months ended
              June
                30,  2007
            
            For
                the six months ended
              June
                30, 2007(unaudited)
            
            (unaudited)Revenues
            
            $
            875,210
            
            $
            2,173,233Net
                loss
            
            $
            (5,303,731
            )
            $
            (7,603,996
            )Pro-forma
                basic and diluted net loss per common share
            
            $
            (0.69
            )
            $
            (0.99
            )Weighted
                average common shares outstanding - basic and diluted
            
            
            7,707,668
            
            
            7,703,358





The
      unaudited pro forma combined results are not necessarily indicative of the
      results that actually would have occurred if the First Performance acquisition
      had been completed as of the beginning of 2007, nor are they necessarily
      indicative of future consolidated results.




First
        Performance was closed on June 30,2008. As a result, the operations of First
        Performance have been classified as discontinued operations in the accompanying
        unaudited condensed consolidated financial statements. (See Note
        6).





NOTE
      4.  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 August 31,
      2008 for aggregate extension fees of $30,000. 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. During the three
      and
      six months ended June 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, a Director and a
      Director/Officer of the Company, respectively.




10




DEBT
        RESOLVE, INC. AND SUBSIDIARIES
 Notes
        to
        Condensed Consolidated Financial Statements
 June
        30,
        2008
 (Unaudited)


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 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. 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, repectively. This note
        is
        guaranteed by Mr. Burchetta.
 
 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 and six months
        ended June 30, 2008, the Company recorded amortization of the debt discount
        related to this note of $8,600 and $17,200, respectively. This note is
        guaranteed by Mr. Burchetta.
 
 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. The note is secured by the assets of the Company. 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 and
        six
        months ended June 30, 2008, the Company recorded amortization of the debt
        discount related to this note of $3,383 and $5,639, respectively.
  Between
        January 15, 2008 and February 8, 2008, an unaffiliated investor loaned the
        Company $75,000 on a short term basis. The interest rate is 12% per annum,
        and
        the loan is repayable on demand. As of June 30, 2008, the remaining outstanding
        balance on the loan is $30,000.
  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
        June
        30, 2008. The note is secured by the assets of the Company. 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 and
        six
        months ended June 30, 2008, the Company recorded amortization of the debt
        discount related to this note of $9,567 and $12,756,
        respectively.




On
      March
      7, 2008, the Company borrowed $100,000 from a bank at a variable rate equal
      to
      the bank’s prime rate (currently 7%) 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 October 1, 2008. The loan is secured by the assets
      of
      the Company and is personally guaranteed by Mr. Montgomery and Mr. Mooney,
      a
      director.




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. The note is
        secured
        by the assets of the Company. 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 and six months ended June 30,
        2008,
        the Company recorded amortization of the debt discount related to this note
        of
        $6,317.




11




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




On
      April
      10, 2008, an unaffiliated investor loaned the Company an additional $198,000
      on
      an 18-month note with a maturity date of October 10, 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 an $18,000 service fee. The outstanding
      principal and interest may be repaid, in whole or in part, at any time without
      prepayment penalty. The note is secured by the assets of the Company. 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. The note was recorded net of a deferred debt discount of
      $88,110, 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 and six months ended June 30, 2008, the Company recorded
      amortization of the debt discount related to this note of $14,685.




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 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 member of its Board of Directors. As of June 30, 2008, the
      outstanding balance on this line of credit was $576,000. 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 vest
      immediately. The grant was valued at $227,500 under the Black-Scholes pricing
      model and was expensed immediately as amortization of the deferred debt
      discount.





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. As of June 30, 2008,
      the
      outstanding balance on this line of credit was $125,000.




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.
        As of
        June 30, 2008, the Company had $336,121 in outstanding borrowings under this
        line of credit. 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 vests immediately. The grant was valued at $227,500
        under the Black-Scholes pricing model and was expensed immediately as
        amortization of the deferred debt discount.




12




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




NOTE
      6.  DRV
      CAPITAL LLC AND FIRST PERFORMANCE CORP.– DISCONTINUED
      OPERATIONS:





On
      June
      5, 2006, the Company formed a wholly-owned subsidiary, DRV Capital LLC to
      potentially purchase portfolios of defaulted consumer debt and attempt to
      collect on that debt. In December 2006, the Company formed a wholly-owned
      subsidiary of DRV Capital, EAR Capital I, LLC, for the limited purpose of
      purchasing and holding pools of debt funded in part by borrowings from Sheridan
      Asset Management, LLC (“Sheridan”). As of October 15, 2007, the Company ceased
      operations of DRV Capital and EAR, and all remaining portfolios were sold.
      As a
      result, the operations of DRV Capital have been classified as discontinued
      operations in the accompanying unaudited condensed consolidated financial
      statements.




In
      accordance with SFAS 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (“SFAS 144”), the Company has reported these subsidiaries’
results for the three and six months ended June 30, 2007 as discontinued
      operations because the operations and cash flows have been eliminated from
      the
      Company’s continuing operations.




Components
      of discontinued operations are as follows:




Three
                  months ended
                  June
                    30, 2007
              
              Six
                  months ended
                  June
                    30, 2007Revenue
              
              $
              1,127
              
              $
              3,227Payroll
                  and related expenses
              
              
              65,855
              
              
              115,023General
                  and administrative expenses
              
              
              80,018
              
              
              125,459Total
                  expenses
              
              
              145,873
              
              
              240,482Loss
                  from operations
              
              
              (144,746
              )
              
              (237,255
              )Interest
                  expense
              
              
              (13,858
              )
              
              (29,909
              )Loss
                  from discontinued operations
              
              $
              (158,604
              )
              $
              (267,164
              )




On
      January 19, 2007, the Company acquired all of the outstanding capital stock
      of
      First Performance Corporation, a Nevada corporation (“First Performance”), and
      its wholly-owned subsidiary, First Performance Recovery Corporation, pursuant
      to
      a Stock Purchase Agreement. First Performance is an accounts receivable
      management agency with operations in Las Vegas, Nevada and formerly in Fort
      Lauderdale, Florida. First Performance was closed on June 30, 2008. As a result,
      the operations of First Performance have been classified as discontinued
      operations in the accompanying condensed consolidated financial
      statements.





In
      accordance with SFAS 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (“SFAS 144”), the Company has reported these subsidiaries’
results for the three and six months ended June 30, 2008 and 2007 as
      discontinued operations because the operations and cash flows have been
      eliminated from the Company’s continuing operations.




13




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




Components
      of discontinued operations are as follows:




Three
                    months endedJune
                    30, 2008
              
              June
                    30, 2007Revenue
              
              $
              154,798
              
              $
              861,577Payroll
                  and related expenses
              
              
              280,748
              
              
              962,569General
                  and administrative expenses
              
              
              348,153
              
              
              876,417Impairment
                  of goodwill and intangibles
              
              
              176,545
              
              
              1,179,080Disposal
                  of fixed asset
              
              
              87,402
              
              
              —Accrual
                for closing costs for lease
              
              
              1,367,558
              
              
              —Depreciation
                  and amortization
              
              
              34,563
              
              
              52,831Total
                  expenses
              
              
              2,294,969
              
              
              3,070,897Loss
                  from operations
              
              
              (2,140,171
              )
              
              (2,209,320
              )Interest
                  expense
              
              
              (5,408
              )
              
              (233
              )Other
                  income
              
              
              2,762
              
              
              —Loss
                  from discontinued operations
              
              $
              (2,142,817
              )
              $
              (2,209,553
              )
  Six months
                  endedJune
                  30, 2008
              
              
              June
                  30, 2007Revenue
              
              $
              303,768
              
              $
              1,976,711Payroll
                  and related expenses
              
              
              565,758
              
              
              1,893,380General
                  and administrative expenses
              
              
              681,829
              
              
              1,456,438Impairment
                  of goodwill and intangibles
              
              
              176,545
              
              
              1,179,080Disposal
                  of fixed asset
              
              
              87,402
              
              
              —Accrual
                  for closing costs for lease
              
              
              1,367,558
              
              
              —Depreciation
                  and amortization
              
              
              70,539
              
              
              91,819Total
                  expenses
              
              
              2,949,631
              
              
              4,620,717Loss
                  from operations
              
              
              (2,645,863
              )
              
              (2,644,006
              )Interest
                  expense
              
              
              (9,095
              )
              
              (443
              )Other
                  income (expense)
              
              
              4,339
              
              
              (5,070
              )Loss
                  from discontinued operations
              
              $
              (2,650,619
              )
              $
              (2,649,519
              )




NOTE
      7.  STOCK
      OPTIONS:




As
      of
      June 30, 2008, 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.




14




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




A
      summary
      of option activity within the 2005 Plan during the six months ended June 30,
      2008 is presented below:




2008
              
              
              Weighted
                Average
                Exercise
                Price
              
              
              Weighted
                  Average
                  Remaining
                  Contractual
                  Term
              
              
              Aggregate
                  Intrinsic
                ValueOutstanding
                  at January 1, 2008
              
              
              820,000
              
              $
              4.79
              
              
              4.2
                  Years
              
              $
              —Granted
              
              
              203,000
              
              $
              1.32
              
              
              6.7
                  Years
              
              $
              —Exercised
              
              
              —
              
              $
              —
              
              
              —
              
              $
              —Forfeited
                  or expired
              
              
              (138,000
              )
              $
              4.65
              
              
              —
              
              $
              —Outstanding
                  at June 30, 2008
              
              
              885,000
              
              $
              3.01
              
              
              4.9
                  Years
              
              $
              25,950Exercisable
                  at June 30, 2008
              
              
              717,500
              
              $
              3.26
              
              
              4.8
                  Years
              
              $
              25,950




As
      of
      June 30, 2008, the Company had 167,500 unvested options within the 2005
      Plan.





On
      February 8, 2008, the Company issued options to purchase 150,000 shares of
      its
      common stock exercisable at $1.25 per share to a current employee. The stock
      options have an exercise period of seven years and vest 33% at issuance, 33%
      at
      the employee’s first anniversary and 34% on the second anniversary of
      employment. The grant was valued at $138,000 under the Black-Scholes pricing
      model, is being expensed over the vesting period and resulted in an expense
      during the six months ended June 30, 2008 of $107,334.




On
      February 8, 2008, the Company issued options to purchase 20,000 shares of its
      common stock exercisable at $1.25 per share to a current employee. The stock
      options have an exercise period of seven years and vested immediately. The
      grant
      was valued at $18,400 under the Black-Scholes pricing model and was expensed
      immediately.




On
      February 8, 2008, the Company issued options to purchase 3,000 shares of its
      common stock exercisable at $1.25 per share to a current employee. The stock
      options have an exercise period of seven years. The grant vests on the first
      anniversary of employment of the employee, which occurred during the six months
      ended June 30, 2008. The grant was valued at $2,760 under the Black-Scholes
      pricing model and was expensed during the six months ended June 30, 2008.




On
        February 8, 2008, the Board re-priced the exercise price of outstanding options
        of all current employees from their prior grant prices ranging from $4.10
        to
        $5.00 to $1.50 per share. In connection with this re-pricing, the Company
        recorded additional stock based compensation expense of $266,765 during the
        six
        months ended June 30, 2008.


On
      June
      3, 2008, the Company issued options to purchase 10,000 shares of its common
      stock exercisable at $1.84 per share to a current employee. The stock options
      have an exercise period of seven years and vested immediately. The grant was
      valued at $13,800 under the Black-Scholes pricing model and was expensed
      immediately.




On
      June
      16, 2008, the Company issued options to purchase 20,000 shares of its common
      stock exercisable at $1.63 per share to a current employee. The stock options
      have an exercise period of seven years and vest 50% on the six month anniversary
      of the grant and 50% on the one-year anniversary of the grant. The grant was
      valued at $24,400 under the Black-Scholes pricing model and is being expensed
      over the vesting period, which resulted in an expense during the six months
      ended June 30, 2008 of $1,525.




15




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




A
      summary
      of non-qualified stock option activity outside the 2005 Plan during the six
      months ended June 30, 2008 is presented below:




2008
              
              Weighted
                    AverageExercise
                  Price
              
              Weighted
                          Average
                          Remaining
                          Contractual
                          Term
              
              Aggregate
                  Intrinsic
                      ValueOutstanding
                  at January 1, 2008
              
              
              3,033,434
              
              $
              4.97
              
              
              6.3
                  Years
              
              $
              —Granted
              
              
              1,886,500
              
              $
              1.29
              
              
              5.1
                  Years
              
              $
              —Exercised
              
              
              —
              
              $
              —
              
              
              —
              
              $
              —Forfeited
                  or Expired
              
              
              (155,000
              )
              $
              4.66
              
              
              —
              
              $
              —Outstanding
                  at June 30, 2008
              
              
              4,764,934
              
              $
              3.06
              
              
              5.7
                  Years
              
              $
              384,225Exercisable
                  at June 30, 2008
              
              
              4,589,934
              
              $
              3.15
              
              
              5.7
                  Years
              
              $
              384,225




As
      of
      June 30, 2008, the Company had 175,000 unvested stock options outside the 2005
      Plan.





On
      February 8, 2008, the Company issued options to purchase 461,500 shares of
      its
      common stock exercisable at $1.25 per share to an officer, directors and a
      former director of the Company. The stock options have an exercise periods
      ranging from five to seven years. The grants vested immediately. The grants
      were
      valued at $412,315 under the Black-Scholes pricing model and were expensed
      immediately.





On
      June
      3, 2008, the Company issued options to purchase 25,000 shares of its common
      stock exercisable at $1.84 per share to a Consultant who provides legal services
      to the Company. The stock options have an exercise period of seven years. The
      grant vested immediately. The grant was valued at $34,500 under the
      Black-Scholes pricing model and was expensed immediately.




On
      June
      12, 2008, the Company issued options to purchase 350,000 shares of its common
      stock exercisable at $1.40 per share to an employee of the Company. The stock
      options have an exercise period of seven years. The grant vested immediately.
      The grant was valued at $364,000 under the Black-Scholes pricing model and
      was
      expensed immediately.




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
      $168,697 during the six months ended June 30, 2008.




Stock
      based compensation for the three and six months ended June 30, 2008 and 2007
      was
      recorded in the consolidated statements of operations as follows:


Three
                  months ended June
                  30,2008
              
              2007Payroll
                  and related expenses
              
              $
              495,261
              
              $
              1,574,704General
                  and administrative expenses
              
              $
              58,150
              
              $
              70,456


Six
                  months ended June 302008
              
              
              2007Payroll
                  and related expenses
              
              $
              1,539,930
              
              $
              1,746,654General
                  and administrative expenses
              
              $
              140,800
              
              $
              221,594




16




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




NOTE
      8.  WARRANTS:




A
      summary
      of warrant activity as of January 1, 2008 and changes during the six months
      ended June 30, 2008 is presented below:




2008
                
                Weighted
                      AverageExercise
                    Price
                
                Weighted
                            Average
                            Remaining
                            Contractual
                            Term
                
                Aggregate
                    Intrinsic
                        Value


Outstanding
                  at January 1, 2008
              
              
              2,042,770
              
              $
              1.60
              
              
              3.0
                  Years
              
              
              —Granted
              
              
              449,000
              
              $
              1.56
              
              
              4.7
                  Years
              
              
              —Exercised
              
              
              (37,501
              )
              $
              0.01
              
              
              —
              
              
              —Forfeited
                  or Expired
              
              
              (227,802
              )
              $
              3.32
              
              
              —
              
              
              —Outstanding
                  at March 31, 2008
              
              
              2,226,467
              
              $
              1.44
              
              
              3.2
                  Years
              
              $
              463,705Exercisable
                  at March 31, 2008
              
              
              2,001,467
              
              $
              1.60
              
              
              3.6
                  Years
              
              $
              463,705





As
      of
      June 30, 2008, there were 225,000 unvested warrants to purchase shares of common
      stock.





On
      February 8, 2008, two warrants to purchase the common stock of the Company
      of
      71,250 and 3,750 shares, respectively, were granted to two individuals who
      referred the candidate who became CEO of the Company in February 2008. The
      warrants have an exercise price of $1.25 per share and a term of five years.
      The
      warrants were valued at $60,000 under the Black-Scholes pricing model and were
      expensed immediately.





During
      the six months ended June 30, 2008, warrants to purchase 37,501 shares of common
      stock were exercised for proceeds of $375.





NOTE
      9.  COMMITMENTS
      AND CONTINGENCIES :





Litigation





Our
      First
      Performance subsidiary received an action under the Texas Fair Debt Collection
      Practices Act and the Telephone Act. The plaintiff sought $10,000 in damages.
      The Company was granted summary judgment of the claim and a dismissal with
      prejudice. The Company has no liability under this action.




From
      time
      to time, the Company may be 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.




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
      SFAS
      No. 13, “Accounting for Leases,” (“SFAS 13”) the Company accounts for rent
      expense using the straight line method of accounting, accruing the difference
      between actual rent due and the straight line amount. At June 30, 2008, accrued
      rent payable totaled $13,911.





The
      Company also
      leases an office in Las Vegas, Nevada under a non-cancelable operating lease
      that expires July 31, 2014 and calls for annual escalations in rent. First
      Performance follows the requirements of SFAS 13 as does Debt Resolve. At June
      30, 2008, accrued rent payable related to this lease totaled $29,941. Following
      the closure of First Performance, the Company is working with the landlord
      to
      terminate this lease. At June 30, First Performance took a charge for the
      remaining balance due on the lease of $1,394,930 due to closing the
      business.




17




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




Rent
      expense for the three months ended June 30, 2008 and 2007 was $97,891 and
      $147,382, respectively, and rent expense for the six months ended June 30,
      2008
      and 2007 was $201,412 and $273,475, respectively.





As
      of
      June 30, 2008, future minimum rental payments under the above corporate
      headquarters non-cancelable operating lease are as follows:




For
                the Years Ending
              December
                31,
            
            Amount2008
            
            $
            64,6732009
            
            
            130,1642010
            
            
            75,929$
            270,766





Employment
      Agreement




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. The grant
      of
      options has a seven-year term and vest 50% immediately and 50% on the six-month
      anniversary of his employment. The option grant was valued at $210,000 under
      the
      Black-Scholes pricing model, and the initial vesting was expensed immediately
      and the remainder of the grant is being expensed over the vesting period. The
      restricted shares were valued at $0.80 per share, the closing price on the
      date
      of the grant. There are no restrictions on this grant of stock, except that
      the
      stock is not registered and is therefore subject to SEC rules regarding
      unregistered stock. During the six months ended June 30, 2008, the Company
      recorded an expense relating to the option grant in the amount of
      $192,500.




NOTE
      10.  RECENT
      ACCOUNTING PRONOUNCEMENTS:




In February
      2007 ,
      the
      FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
      Financial Liabilities (“SFAS 159”) including an amendment of FASB Statement No.
      115.  SFAS 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value.  The standard requires
      that unrealized gains and losses on items for which the fair value option has
      been elected be reported in earnings.  The Company adopted SFAS 159
      beginning in the first quarter of 2008, without material effect on the Company’s
      consolidated financial position or results of operations.




In February
      2008 ,
      the
      FASB issued Staff Position No. 157-2, Effective Date of FASB Statement No.
      157
      (“FSP 157-2”) that defers the effective date of applying the provisions of SFAS
      157 to the fair value measurement of non-financial assets and non-financial
      liabilities, except those that are recognized or disclosed at fair value in
      the
      financial statements on a recurring basis (or at least annually), until fiscal
      years beginning after November
      15, 2008 . 
      The
      Company is currently evaluating the effect that the adoption of FSP 157-2 will
      have on its consolidated results of operations and financial condition, but
      does
      not expect it to have a material impact.




18




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current
      conditions, the Company does not expect the adoption of SFAS 160 to have a
      significant impact on its results of operations or financial
      position.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities an amendment of FASB
      Statement No. 133 .”
This
      Statement changes the disclosure requirements for derivative instruments and
      hedging activities. Entities are required to provide enhanced disclosures about
      (a) how and why an entity uses derivative instruments, (b) how derivative
      instruments and related hedged items are accounted for under Statement 133
      and
      its related interpretations, and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance, and
      cash flows. Based on current conditions, the Company does not expect the
      adoption of SFAS 161 to have a significant impact on its results of operations
      or financial position.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This Statement identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). This Statement will not have an impact
      on the Company’s financial statements.





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB
      Statement No. 60 .”
The
      scope of this Statement is limited to financial guarantee insurance (and
      reinsurance) contracts, as described in this Statement, issued by enterprises
      included within the scope of Statement 60. Accordingly, this Statement does
      not
      apply to financial guarantee contracts issued by enterprises excluded from
      the
      scope of Statement 60 or to some insurance contracts that seem similar to
      financial guarantee insurance contracts issued by insurance enterprises (such
      as
      mortgage guaranty insurance or credit insurance on trade receivables). This
      Statement also does not apply to financial guarantee insurance contracts that
      are derivative instruments included within the scope of FASB
      Statement No. 133 ,
      “Accounting for Derivative Instruments and Hedging Activities.” This Statement
      will not have an impact on the Company’s financial statements.





NOTE
      11.  RELATED
      PARTY TRANSACTIONS:




During
      the six months ended June 30, 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 June
      30,
      2008.




Between
        February 21, 2008 and June 30, 2008, an officer of the Company loaned to
        the
        Company a total of $142,202. The interest rate is 12% per annum, and the
        loan is
        repayable on demand.


NOTE
      12.  AMERICAN
      STOCK EXCHANGE DEFICIENCY LETTER:


On
        January 7,
        2008, the Company received a deficiency letter from the American
        Stock Exchange stating that
        it
        was not in compliance with specific provisions of the American
        Stock Exchange continued listing standards. Also on January 7, 2008, the Company provided
        a
        plan of remediation to the Exchange, and the plan was accepted. The Company
        was
        given 90 days to regain compliance with listing standards by April 7, 2008.
        As a
        result of the closing of the documentation by which Harmonie International
        LLC
        committed to invest $7 million in the common stock of the Company, the Exchange
        provided an extension of the time to regain compliance. On June 10, 2008,
        and
        having not been funded by Harmonie International LLC, the Exchange informed
        the
        Company that it was going to proceed with the delisting. In accordance with
        Exchange rules, the Company requested a hearing to contest the intention
        to
        de-list the Company from the Exchange. The hearing date has been set for
        August
        27, 2008. The Company is working to complete alternate financing, which would
        provide capital to raise a defense against the de-listing petition. As of
        August
        11, 2008, Harmonie has not completed funding according to the Securities
        Purchase Agreement of March 31, 2008, and management believes that such funding
        is not likely to occur. Upon de-listing the Company would trade on the
        Over-the-counter Bulletin Board once a market maker for the Company is
        engaged.


19




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2008


(Unaudited)




NOTE
      13:  CHARGES
      RELATED TO THE CLOSURE OF FIRST PERFORMANCE




At
      June
      30, 2008, due to the closure of First Performance, the following charges were
      incurred and are reflected in the results of discontinued
      operations:




Write-off
                  of Fixed Assets
              
              $
              87,402Write-off
                  of Intangibles
              
              
              176,545Accrual
                    of final lease costs
              
              
              1,367,558Total
                  charges
              
              $
              1,631,505




NOTE
      14.  SUBSEQUENT
      EVENTS:




On
      July
      28, 2008, an unaffiliated investor loaned the Company $300,000 on a 6 month
      note
      with a maturity date of January 28, 2009. The note carries interest at a rate
      of
      15% interest per annum, with interest of $22,500 payable in advance from the
      proceeds. Terms of the loan included a $15,000 service fee. The outstanding
      principal and interest may be repaid, in whole or in part, at any time, but
      there is a 150,000 share penalty should the note be repaid prior to September
      30, 2008. The note is secured by the assets of the Company. Legal fees of
      $12,500 were also incurred with the transaction.




On
        August
        14, 2008, 475,000 shares of the Company’s common stock were issued to investors
        who supplied financing to the Company between December and April, 2008 through
        TRG,
        our
        West Coast marketing and financing partner.


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





**Overview**





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





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




20




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




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




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




In
      January 2007, we also entered into the business of purchasing and collecting
      debt. Through our subsidiary, DRV Capital LLC, and its single-purpose
      subsidiary, EAR Capital I, LLC, we bought two portfolios of charged-off debt
      at
      a significant discount to their face value and, through subcontracted, licensed
      debt collectors, attempted to collect on that debt by utilizing both our
      DebtResolve system and also traditional collection methods. On October 15,
      2007,
      we notified our debt buying business partners that we would no longer be buying
      portfolios of debt on the open market, since many of our current and future
      partners are debt buyers. We sold our remaining portfolios and repaid all
      outstanding loans. As a result, the activity for DRV Capital has been included
      in the accompanying condensed consolidated financial statements as discontinued
      operations. In the future, we may use our DRV Capital entity to participate
      with
      one or more of our debt buying customers in purchasing a percentage of their
      portfolio, for the purpose of getting a larger percentage of the portfolio
      to
      collect and to enhance the introduction our DebtResolve system to new debt
      buying clients. We have no plans at the present time to engage in this
      activity.




In
      January 2007, we purchased the outstanding common stock of First Performance.
      First Performance was a collection agency that represents both regional and
      national credit grantors from such diverse industries as retail, bankcard,
      oil
      cards, mortgage and auto. Due to the loss of four major clients at First
      Performance during 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 year ended December 31, 2007. We also
      bought First Performance to use it as a laboratory to design and develop further
      enhancements of our DebtResolve system in an active operating environment.
      This
      effort has been successful, and a number of new enhancements are now in our
      pipeline. As a result, we no longer needed First Performance for this purpose
      and decided to close it effective June 30, 2008 to concentrate fully on our
      core
      business. Final closing activities will occur by August 31, 2008. As a result,
      the activity for First Performance and First Performance Recovery has been
      included in the accompanying condensed consolidated financial statements as
      discontinued operations.




21




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.




We
      have
      historically raised funds through the sale of debt and equity instruments.
      As of
      June 30, 2008, we have entered into three lines of credit with related parties
      with current outstanding balances of $1,037,121. Also as of June 30, 2008,
      we
      also issued notes to unaffiliated investors for a total of $953,000 and obtained
      bank loans of $250,000. In addition, subsequent to June 30, 2008, we have
      received approximately $250,000 in cash proceeds from various loans. Also as
      of
      June 30, 2008, an officer has loaned us approximately $142,202. Management
      has
      informed the note holders that some or all of these loans would be re-paid
      at
      the next significant funding that the Company receives.




On
      March
      31, 2008, we entered into a private placement agreement with Harmonie
      International LLC (“Harmonie”) for the sale of 2,966,102 shares of common stock
      for cash proceeds of $7,000,000.  Harmonie is also to receive a warrant to
      purchase up to 3,707,627 of our common stock at an exercise price of $2.36
      per
      share. The warrant has a ten year exercise period. On May 16, 2008, Harmonie
      requested an extension until May 30, 2008 by which to complete the funding.
      Thereafter, Harmonie requested an additional extension until June 20, 2008.
      Although the Company declined to give Harmonie any additional formal extensions,
      the agreement has not been terminated, and the Company is currently continuing
      to work with Harmonie to complete funding of the transaction. Harmonie continues
      to confirm their commitment to fund but has failed to do so, nor has it offered
      any proof of funds nor provided a firm funding date. As of August 11, 2008,
      the
      Company has received no funding from Harmonie and believes that it is unlikely
      to receive such funding. In the event Harmonie does not fund within a reasonable
      period of time, the Company intends to pursue legal action.




We
      are
      actively pursuing additional debt/equity financing.  We believe that
      we will be successful in obtaining additional financing, however
      no assurance can be provided that we will be able to do so.  If we are
      unable to raise sufficient additional funds, we will have to develop and
      implement a plan to extend payables and reduce overhead until sufficient
      additional capital is raised to support further operations. However, there
      can
      be no assurance that our efforts at raising additional financing will be
      successful.




**Results
      of Operations for the Three Months Ended June 30, 2008 Compared to the Three
      Months Ended June 30, 2007**




***Revenues***




Revenues
      totaled $46,819 and $12,507 for the three months ended June 30, 2008 and 2007,
      respectively. We earned revenue during the three months ended June 30, 2008
      from
      a percent of debt collected, flat settlement fee or monthly license fee at
      collection agencies, a lender and two banks that implemented our online system.
      We earned revenue during the three months ended June 30, 2007 from contingency
      fee income, based on a percentage of the amount of debt collected, start up
      fees
      or fees per settlement from accounts placed on our online system.




***Costs
      and Expenses***




**General
        and administrative expenses** . General
        and administrative expenses amounted to $2,014,030 for the three months ended
        June 30, 2008, as compared to $2,930,906 for the three months ended June
        30,
        2007, a decrease of $916,876 or 31%. This decrease was primarily due to a
        decrease in employee stock based compensation expense and headcount reductions.
        Non-cash stock based compensation expense was $495,261 and $1,574,704 for
        the
        three months ended June 30, 2008 and 2007, respectively. Salary expenses
        were
        $371,970 for the three months ended June 30, 2008, a decrease of $170,162
        over
        salary expenses of $542,132 for the three months ended June 30, 2007 due
        to
        downsizing later in 2007 and 2008. Payroll tax expense of $8,380 for the
        three
        months ended June 30, 2008 represented a decrease of $38,282 over payroll
        tax
        expense of $46,661 for the three months ended June 30, 2007 due to accrual
        of
        payrolls instead of payment in 2008 due to lack of funding. The expenses
        for the
        three months ended June 30, 2008 for benefits, severance and miscellaneous
        were
        $42,034, $2,083 and 8,187, respectively versus expenses of $61,765, $11,666
        and
        $24, respectively, for the three months ended June 30, 2007. Allocations
        of
        salaries and benefits to subsidiaries was ($55,332) and ($172,370) for the
        three
        months ended June 30, 2008 and 2007, respectively, with lower allocations
        in
        2008 due to lower corporate headcount and the 2007 closure of DRV Capital.
        These
        allocations are eliminated in consolidation, but the amounts for DRV Capital
        and
        First Performance are in discontinued operations rather than payroll and
        related
        expense.




22


The
        expense for stock based compensation for stock options granted to consultants
        for the three months ended June 30, 2008 was $738,150, as compared with stock
        based compensation in the amount of $70,456 for the three months ended June
        30,
        2007 due to the stock grants to TRG investors in three months ended June
        30,
        2008. Also, for the three months ended June 30, 2008 consulting fees totaled
        $106,267, as compared with $267,299 in consulting fees for the three months
        ended June 30, 2007, a decrease of $161,033, primarily related to the
        elimination of consultants to control costs. Legal fees increased by $2,503
        to
        $82,424 for the three months ended June 30, 2008 from $79,921 for the three
        months ended June 30, 2007. The expenses for occupancy, telecommunications,
        travel and office supplies for the three months ended June 30, 2008 were
        $31,139, $20,115, $10,453 and $1,851, respectively, as compared with expenses
        of
        $30,823, $63,139, $89,997 and $12,357 for occupancy, telecommunications,
        travel
        and office supplies, respectively, for the three months ended June 30, 2007,
        all
        due to cost control efforts in the second half of 2007 and the three months
        ended March 31, 2008. Marketing expenses decreased by $85,154 to $24,110
        for the
        three months ended June 30, 2008 from $109,264 for the three months ended
        June
        30, 2007, primarily due to the elimination of marketing consultants after
        March
        31, 2007. Other general operating costs for the three months ended June 30,
        2008, including insurance and accounting expenses, amounted to $85,288, as
        compared with $74,876 for the three months ended June 30, 2007. As with payroll
        expenses, allocations of general and administrative expense to subsidiaries
        was
        ($67,999) and ($28,287) for the three months ended June 30, 2008 and 2007,
        respectively, with higher allocations in 2008 due to higher audit and legal
        expenses allocable to First Performance in 2008. These allocations are
        eliminated in consolidation, but the amounts for DRV Capital and First
        Performance are in discontinued operations rather than general and
        administrative expense.




**Depreciation
      and amortization expense** .
      For the
      three months ended June 30, 2008 and 2007, we recorded depreciation expense
      of
      $14,433 and $14,380, respectively.




**Interest
      income (expense).** We
      recorded interest income, interest expense and interest expense - related
      parties of $0, ($33,498) and ($34,071) for the three months ended June 30,
      2008,
      respectively, compared to interest income, interest expense and interest expense
      - related parties of $4,840, $0 and ($7,633), respectively, for the three months
      ended June 30, 2007. Interest expense for the three months ended June 30, 2008
      includes interest accrued on our lines of credit, investor notes and bank
      loans.




**Amortization
      of deferred debt discount.** Amortization
      expense of $45,781 was incurred for the three months ended June 30, 2008 for
      the
      amortization of the value of the deferred debt discount associated with our
      lines of credit and short term notes.




**Results
      of Operations for the Six Months Ended June 30, 2008 Compared to the Six Months
      Ended June 30, 2007**




***Revenues***




Revenues
      totaled $130,997 and $33,128 for the six months ended June 30, 2008 and 2007,
      respectively. We earned revenue during the six months ended June 30, 2008 from
      a
      percent of debt collected, flat settlement fee, flat placement fee or monthly
      license fee at collection agencies, a lender and two banks that implemented
      our
      online system. We earned revenue during the six months ended June 30, 2007
      from
      contingency fee income, based on a percentage of the amount of debt collected,
      start up fees or fees per settlement from accounts placed on our online
      system.




***Costs
      and Expenses***


**General
        and administrative expenses** .
        General
        and administrative expenses amounted to $3,890,490 for the six months ended
        June
        30, 2008, as compared to $4,549,390 for the six months ended June 30, 2007,
        a
        decrease of $658,900 or 14%. This decrease was primarily due to a decrease
        in
        employee stock based compensation expense and headcount reductions. Non-cash
        stock based compensation expense was $1,539,980 and $1,731,218 for the six
        months ended June 30, 2008 and 2007, respectively. Salary expenses were $678,883
        for the six months ended June 30, 2008, a decrease of $330,594 or 33% over
        salary expenses of $1,009,477 for the six months ended June 30, 2007 due
        to
        downsizing later in 2007 and 2008. Payroll tax expense of $37,280 for the
        six
        months ended June 30, 2008 represented a decrease of $56,488 over payroll
        tax
        expense of $93,767 for the six months ended June 30, 2007 due to accrual
        of
        payrolls instead of payment in 2008 due to lack of funding and headcount
        reductions from 2007. The expenses for the six months ended June 30, 2008
        for
        benefits, severance and miscellaneous were $72,071, $2,083 and 12,893,
        respectively versus expenses of $108,787, $39,249 and $12,088, respectively,
        for
        the six months ended June 30, 2007. Allocations of salaries and benefits
        to
        subsidiaries was ($109,612) and ($262,391) for the six months ended June
        30,
        2008 and 2007, respectively, with lower allocations in 2008 due to lower
        corporate headcount and the 2007 closure of DRV Capital. These allocations
        are
        eliminated in consolidation, but the amounts for DRV Capital and First
        Performance are in discontinued operations rather than payroll and related
        expense.


23


The
        expense for stock based compensation for stock options granted to consultants
        for the six months ended June 30, 2008 was $820,800, as compared with stock
        based compensation in the amount of $237,030 for the six months ended June
        30,
        2007 due to the stock grants to TRG investors in six months ended June 30,
        2008.
        Also, for the six months ended June 30, 2008 consulting fees totaled $222,809,
        as compared with $444,093 in consulting fees for the six months ended June
        30,
        2007, a decrease of $221,285, primarily related to the elimination of
        consultants to control costs. Legal fees decreased by $207,934 to $146,568
        for
        the six months ended June 30, 2008 from $354,502 for the six months ended
        June
        30, 2007 due to strong cost control. The expenses for occupancy,
        telecommunications, travel and office supplies for the six months ended June
        30,
        2008 were $64,808, $39,581, $55,539 and $2,258, respectively, as compared
        with
        expenses of $61,645, $124,034, $165,267 and $29,738 for occupancy,
        telecommunications, travel and office supplies, respectively, for the six
        months
        ended June 30, 2007, all due to cost control efforts in the second half of
        2007
        and the three months ended March 31, 2008. Marketing expenses decreased by
        $174,491 to $43,545 for the six months ended June 30, 2008 from $218,036
        for the
        six months ended June 30, 2007, primarily due to the elimination of marketing
        consultants after March 31, 2007. Other general operating costs for the six
        months ended June 30, 2008, including insurance and accounting expenses,
        amounted to $218,322, as compared with $156,560 for the six months ended
        June
        30, 2007. As with payroll expense, allocation of general and administrative
        expense to subsidiaries was ($116,969) and ($122,889) for the six months
        ended
        June 30, 2008 and 2007, respectively. These allocations are eliminated in
        consolidation, but the amounts for DRV Capital and First Performance are
        in
        discontinued operations rather than general and administrative
        expense.


**Depreciation
      and amortization expense** .
      For the
      six months ended June 30, 2008 and 2007, we recorded depreciation expense of
      $28,970 and $28,178, respectively.




**Interest
      income (expense).** We
      recorded interest income, interest expense and interest expense - related
      parties of $190, ($58,692) and ($65,008) for the six months ended June 30,
      2008, respectively, compared to interest income, interest expense and interest
      expense - related parties of $41,610, ($70) and ($7,633), respectively, for
      the
      six months ended June 30, 2007. Interest expense for the six months ended June
      30, 2008 includes interest accrued on our lines of credit, investor notes and
      bank loans.




**Amortization
      of deferred debt discount.** Amortization
      expense of $547,454 was incurred for the six months ended June 30, 2008 for
      the
      amortization of the value of the deferred debt discount associated with our
      lines of credit and short term notes.




**Liquidity
      and Capital Resources**





During
      the six months ended June 30, 2008, the largest items affecting operating cash
      were the adjustments for non-cash stock based compensation and the amortization
      of deferred debt discount, as well as the accrual of payables not able to be
      paid due to insufficient cash on hand during the period. For the six months
      ended June 30, 2007, both non-cash stock based compensation and the accrual
      of
      unpaid payables were also significant adjustments to operating cash, as well
      as
      the expenses incurred during the Creditors Interchange transaction under
“Deferred acquisition costs”.




Significantly
      more financing activity occurred during the six months ended June 30, 2008
      because there was cash still on hand from the IPO during the six months ended
      June 30, 2007.




During
      the six months ended June 30, 2007, significant cash resources were used for
      the
      purchase and operation of First Performance and the start-up and operation
      of
      DRV Capital. Cash used for operating activities in discontinued operations
      for
      the six months ended June 30, 2008 related to the operations of First
      Performance.




We
      have
      historically raised funds through the sale of debt and equity instruments.
      As of
      June 30, 2008, we have entered into three lines of credit with related parties
      with current outstanding balances of $1,037,121. Also as of June 30, 2008,
      we
      also issued notes to unaffiliated investors for a total of $953,000 and obtained
      bank loans of $250,000. In addition, subsequent to June 30, 2008, we have
      received approximately $250,000 in cash proceeds from a loan. Also, an officer
      has loaned us approximately $142,202 as of June 30, 2008. Management has
      informed these note holders that some or all of these loans would be re-paid
      at
      the next significant funding that the Company receives. On March 31, 2008,
      we
      entered into a private placement agreement with Harmonie International LLC
      (“Harmonie”) for the sale of 2,966,102 shares of common stock for cash proceeds
      of $7,000,000.  Harmonie is also to receive a warrant to purchase up to
      3,707,627 of our common stock at an exercise price of $2.36 per share. The
      warrant has a ten year exercise period. On May 16, 2008, Harmonie requested
      an
      extension until May 30, 2008 by which to complete the funding. Thereafter,
      Harmonie requested an additional extension until June 20, 2008. Although the
      Company declined to give Harmonie any additional formal extensions, the
      agreement has not been terminated, and the Company is currently continuing
      to
      work with Harmonie to complete funding of the transaction. Harmonie continues
      to
      confirm their commitment to fund but has failed to do so, nor has it offered
      any
      proof of funds nor provided a firm funding date. As of August 11, 2008, the
      Company has received no funding from Harmonie and believes that it is unlikely
      to receive such funding. In the event Harmonie does not fund within a reasonable
      period of time, the Company intends to pursue legal action.




24




We
      are
      actively pursuing additional debt/equity financing.  We believe that
      we will be successful in obtaining additional financing, however
      no assurance can be provided that we will be able to do so.  If we are
      unable to raise sufficient additional funds, we will have to develop and
      implement a plan to extend payables and reduce overhead until sufficient
      additional capital is raised to support further operations. However, there
      can
      be no assurance that our efforts will be successful.




**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.




Accounts
      Receivable




The
      Company extends credit to large and mid-size companies for collection services.
      The Company has concentrations of credit risk as 91% of the balance of accounts
      receivable at June 30, 2008 consists of only two customers. At June 30, 2008,
      accounts receivable from the two largest accounts amounted to approximately
      $19,625 (52%) and $14,741 (39%), respectively. The Company does not generally
      require collateral or other security to support customer receivables. Accounts
      receivable are carried at their estimated collectible amounts. Accounts
      receivable are periodically evaluated for collectibility and the allowance
      for
      doubtful accounts is adjusted accordingly. Management determines collectibility
      based on their experience and knowledge of the customers.




Stock-based
      compensation




The
      Company accounts for stock options and warrants issued under stock-based
      compensation plans under the recognition and measurement principles of SFAS
      No.
      123(R) (“Share Based Payment”). Total stock-based compensation expense for the
      three months ended June 30, 2008 and 2007 amounted to $553,411 and $1,645,160,
      respectively. Total stock-based compensation expense for the six months ended
      June 30, 2008 and 2007 amounted to $1,680,780 and $1,968,247, respectively.




The
      fair
      value of each option and warrant granted to employees and non-employees is
      estimated as of the grant date using the Black-Scholes pricing model. The
      estimated fair value of the options granted is recognized as an expense over
      the
      requisite service period of the award, which is generally the option vesting
      period. As of June 30, 2008, total unrecognized compensation cost amounted
      to
      $145,567, all of which is expected to be recognized in 2008 and
      2009.




The
      Company accounts for the expected life of share options in accordance with
      the
“simplified” method provisions of Securities and Exchange Commission Staff
      Accounting Bulletin (“SAB”) No. 110 (December 2007), which enables the use of
      the simplified method for “plain vanilla” share options as defined in SAB No.
      107.




25




Charges
      related to closure of First Performance




At
      June
      30, 2008, due to the closure of First Performance, the following charges were
      incurred and are reflected in the results of discontinued
      operations:


Write-off
                  of Fixed Assets
              
              $
              87,402Write-off
                  of Intangibles
              
              
              176,545Accrual
                  of final lease costs
              
              
              1,367,558Total
                  charges
              
              $
              1,631,505


**Recent
      Accounting Pronouncements**




In February
      2007 ,
      the
      FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
      Financial Liabilities (“SFAS 159”) including an amendment of FASB Statement No.
      115.  SFAS 159 permits companies to choose to measure certain financial
      instruments and certain other items at fair value.  The standard requires
      that unrealized gains and losses on items for which the fair value option has
      been elected be reported in earnings.  The Company adopted SFAS 159
      beginning in the first quarter of 2008, without material effect on the Company’s
      consolidated financial position or results of operations.




In February
      2008 ,
      the
      FASB issued Staff Position No. 157-2, Effective Date of FASB Statement No.
      157
      (“FSP 157-2”) that defers the effective date of applying the provisions of SFAS
      157 to the fair value measurement of non-financial assets and non-financial
      liabilities, except those that are recognized or disclosed at fair value in
      the
      financial statements on a recurring basis (or at least annually), until fiscal
      years beginning after November
      15, 2008 . 
      The Company is currently evaluating the effect that the adoption of FSP 157-2
      will have on its consolidated results of operations and financial condition,
      but
      does not expect it to have a material impact.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  This statement clarifies that a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  Based on current conditions, the Company does not
      expect the adoption of SFAS 160 to have a significant impact on its results
      of
      operations or financial position.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities an amendment of FASB
      Statement No. 133 .”
This
      Statement changes the disclosure requirements for derivative instruments and
      hedging activities. Entities are required to provide enhanced disclosures about
      (a) how and why an entity uses derivative instruments, (b) how derivative
      instruments and related hedged items are accounted for under Statement 133
      and
      its related interpretations, and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance, and
      cash flows. Based on current conditions, the Company does not expect the
      adoption of SFAS 161 to have a significant impact on its results of operations
      or financial position.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This Statement identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). This Statement will not have an impact
      on the Company’s financial statements.




26




In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB
      Statement No. 60 .”
The
      scope of this Statement is limited to financial guarantee insurance (and
      reinsurance) contracts, as described in this Statement, issued by enterprises
      included within the scope of Statement 60. Accordingly, this Statement does
      not
      apply to financial guarantee contracts issued by enterprises excluded from
      the
      scope of Statement 60 or to some insurance contracts that seem similar to
      financial guarantee insurance contracts issued by insurance enterprises (such
      as
      mortgage guaranty insurance or credit insurance on trade receivables). This
      Statement also does not apply to financial guarantee insurance contracts that
      are derivative instruments included within the scope of FASB
      Statement No. 133 ,
      “Accounting for Derivative Instruments and Hedging Activities.” This Statement
      will not have an impact on the Company’s financial statements.




**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**





None




**Item
      4. 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. Management, including our President and Chief Financial Officer and
      our
      Chief Executive Officer supervised and 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. 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 President and Chief Financial
      Officer and Chief Executive Officer have 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 the American Institute of Certified Public Accountants. 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 GAAP
      commensurate with financial reporting requirements. Accordingly, we place undue
      reliance on the finance team at corporate headquarters, specifically our
      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.




27




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 six months ended June
      30, 2008 and 2007, fairly present, in all material respects, its financial
      condition and results of operations. During
      the three and six months ended June 30, 2008, 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.




**CEO
      and CFO Certifications**




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




**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





None




**Item
      1A. Risk Factors**





Not
      applicable




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




None





**Item
      3. Defaults upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None





**Item
      6. Exhibits and 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 January 7, 2008.


Filing
      on
      Form 8-K dated January 14, 2008.


Filing
      on
      Form 8-K dated January 29, 2008.


Filing
      on
      Form 8-K dated January 30, 2008.


Filing
      on
      Form 8-K dated April 4, 2008.


Filing
      on
      Form 8-K dated May 16, 2008.


Filing
      on
      Form 8-K dated May 30, 2008.


Filing
      on
      Form 8-K dated June 10, 2008.


Filing
      on
      Form 8-K dated June 23, 2008.


Filing
      on
      Form 8-K dated August 8, 2008.




28




**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:
      August 15, 2008


**DEBT
                RESOLVE, INC.**By:
                  /s/ KENNETH H. MONTGOMERY
                  Kenneth
                    H. Montgomery
                  Chief
                    Executive Officer
                  (principal
                    executive officerBy:
                  /s/ DAVID M. RAINEY
                  David
                    M. Rainey
                  President
                    and Chief Financial Officer
                  (principal
                    financial and accounting officer)







29