U.S.
        SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 
 FORM
        10-QSB
 
 [X]
                  QUARTERLY
                      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES
 EXCHANGE ACT OF
                    1934
  For
        the
        quarterly period ended September 30, 2005
 
 Commission
        File Number 0-29525
  DEBT
                    RESOLVE, INC.(Exact
                    name of small business issuer as
                    specified in its charter)
  
 Delaware
                
                33-0889197(State
                    of incorporation)
                
                (I.R.S
                    Employer ID No.)707
                    Westchester Avenue, Suite L7,
                  White
                    Plains, New York 10604(Address
                    of principal executive offices)(914)
                    949-5500(Issuer's
                    telephone number)
 Check
          whether the issuer (1) filed all reports required to be filed by Section 13
          or
          15(d) of the Exchange Act during the past 12 months (or for such shorter period
          that the registrant was required to file such reports), and (2) has been subject
          to such filing requirements for the past 90 days. Yes [X] No [ 
          ]
 
 As
          of
          November 14, 2005, the Company had 29,703,900 shares of common stock, par
          value $.001
          per
          share, issued and outstanding.
 
 Transitional
          Small Business Disclosure Format. Yes [  ] No [X]
  
 
 
 DEBT
        RESOLVE, INC.
 (a
        Development Stage Company)
  INDEX
 
 PagePART
                    I. Financial InformationItem
                    1. Condensed Financial Statements (Unaudited)Condensed
                    Balance Sheet at September 30, 2005
                3Condensed
                    Statements of Operations for the Three Months and Nine Months
                    Ended
                    September 30, 2004 and 2005 andCumulative
                    from Inception (April 21, 1997) to September 30, 2005
                4Condensed
                    Statements of Cash Flows for the Nine Months Ended September
                    30, 2004 and
                    2005 and Cumulative from Inception (April 21, 1997) to September
                    30, 2005
                5Notes
                    to Condensed Financial Statements
                6Item
                    2. Management's Discussion and Analysis or Plan of Operation
                15Item
                    3. Controls and Procedures
                20PART
                    II. Other InformationItem
                    1. Legal Proceedings
                22Item
                    2. Unregistered Sales of Equity Securities
                22Item
                    3. Defaults Upon Senior Securities
                22Item
                    4. Submission of Matters to a Vote of Security Holders
                22Item
                    5. Other Information
                22Item
                    6. Exhibits and Reports on Form 8-K
                22Signatures
                23Certifications
                24
 
 2
  PART
        I.
        FINANCIAL INFORMATION
 
 Item
        1.
        Condensed Financial Statements (Unaudited)
 
 DEBT
        RESOLVE, INC.
 (A
        Development Stage Company)
 Condensed
        Balance Sheet
 September
        30, 2005
 (Unaudited)
 **ASSETS**Current
                    assets:Cash
                  
                  $
                  639,214Accounts
                      receivable, net
                  
                  
                  7,216Prepaid
                      expenses and other current assets
                  
                  
                  81,845Total
                      current assets
                  
                  
                  728,275Fixed
                      assets, net
                  
                  
                  159,043Other
                      assets:Deferred
                      offering costs
                  
                  
                  516,397Deferred
                      financing costs
                  
                  
                  207,698Deposits
                      and other assets
                  
                  
                  93,605Total
                      other assets
                  
                  
                  817,700Total
                      assets
                  
                  $
                  1,705,018**LIABILITIES
                      AND STOCKHOLDERS’
                      DEFICIENCY**
  Current
                          liabilities:Accounts
                          payable
                      
                      $
                      343,213Accrued
                          expenses
                      
                      
                      124,219Convertible
                          notes, net of deferred debt discount of $913,577
                      
                      
                      1,781,423Total
                          liabilities
                      
                      
                      2,248,855Commitments
                          and contingenciesStockholders’
                          deficiency:Preferred
                          stock, 10,000,000 shares authorized, $.001 par value,
                          none issued and
                          outstanding
                      
                      
                      --Common
                          stock, 50,000,000 shares authorized, $.001 par value, 29,703,900
                          shares
                          issued and outstanding
                      
                      
                      29,704Additional
                          paid-in capital
                      
                      
                      6,260,417Deficit
                          accumulated during the development stage
                      
                      
                      (6,833,958
                      )Total
                          stockholders’ deficiency
                      
                      
                      (543,837
                      )Total
                          liabilities and stockholders’ deficiency
                      
                      $
                      1,705,018The
                          accompanying notes are an integral part of these condensed
                          financial
                          statements.
 
  3
  DEBT
        RESOLVE, INC.
 (A
        Development Stage Company)
 Condensed
        Statements of Operations
 (Unaudited)
  Three
                  months
                endedSeptember
                  30,
              
              Nine
                  months
                ended
                  September 30,
              
              Cumulative
                  from Inception(April
                  21, 1997)to
                  September 30,2004
              
              2005
              
              2004
              
              2005
              
              2005(restated)
              
              
              
              (restated)Revenues
              
              $
              2,088
              
              $
              7,306
              
              $
              2,088
              
              $
              9,833
              
              $
              12,620Costs
                  and expenses:Payroll
                  and related expenses
              
              $
              249,576
              
              $
              405,658
              
              $
              681,854
              
              $
              942,785
              
              $
              2,592,067General
                  and administrative expenses (1)
              
              
              220,039
              
              
              345,131
              
              
              690,755
              
              
              857,141
              
              
              2,648,850Waived
                  royalty fees -related parties
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              600,000Research
                  and development expenses
              
              
              --
              
              
              --
              
              
              46,022
              
              
              --
              
              
              499,323Depreciation
                  and amortization expenses
              
              
              11,231
              
              
              10,855
              
              
              33,051
              
              
              25,794
              
              
              77,672Total
                  expenses
              
              
              480,846
              
              
              761,644
              
              
              1,451,682
              
              
              1,825,720
              
              
              6,417,912Loss
                  from Operations
              
              
              (478,758
              )
              
              (754,338
              )
              
              (1,449,594
              )
              
              (1,815,887
              )
              
              (6,405,292
              )Interest
                  Income (expense) (2)
              
              
              938
              
              
              (344,468
              )
              
              4,483
              
              
              (438,489
              )
              
              (438,489
              )Other
                  income
              
              
              --
              
              
              1,000
              
              
              --
              
              
              1,000
              
              
              9,823Total
                  other income (expense)
              
              
              938
              
              
              (343,468
              )
              
              4,483
              
              
              (437,489
              )
              
              (428,666
              )Net
                  loss
              
              
              (477,820
              )
              
              (1,097,806
              )
              
              (1,445,111
              )
              
              (2,253,376
              )
              
              (6,833,958
              )Per
                  share data:Basic
                  and diluted net loss per common share
              
              $
              (0.02
              )
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.08
              )Basic
                  and diluted weighted average number of common shares
                  outstanding
              
              
              29,107,261
              
              
              29,703,900
              
              
              29,060,248
              
              
              29,653,096
 
 (1)
        Stock
        based compensation totaled $0 and $26,143 in the three and nine months ended
        September 30, 2004 and $0 and $93,722 in the three and nine months ended
        September 30, 2005, respectively,  and
        $432,851 since inception.
  (2)
        Included in interest expense is the amortization of the value of the beneficial
        conversion feature of the convertible notes and the deferred debt discount
        recorded on those notes, which was $257,961 and $322,310 in the three and
        nine
        months ended September 30, 2005, respectively, and $322,310 since
        inception.
  The
        accompanying notes are an integral part of these condensed financial
        statements.
  4
  DEBT
        RESOLVE, INC.
 (A
        Development Stage Company)
 Condensed
        Statements of Cash Flows
 (Unaudited)
  Nine
                  months
                ended
                  September 30,
              
              Cumulative
                  from Inception (April 21, 1997) to September
                  30,2004
              
              2005
              
              2005(restated)Cash
                  flows from operating activities:Net
                  loss
              
              $
              (1,445,111
              )
              $
              (2,253,376
              )
              $
              (6,833,958
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Non
                  cash stock based compensation
              
              
              26,143
              
              
              93,722
              
              
              432,851Capital
                  contribution from waived and imputed compensation and royalty
                  fees
              
              
              337,500
              
              
              112,500
              
              
              1,983,809Amortization
                  of deferred debt discount
              
              
              --
              
              
              322,310
              
              
              322,310Amortization
                  of deferred financing costs
              
              
              --
              
              
              51,858
              
              
              51,858Depreciation
                  and amortization
              
              
              33,050
              
              
              25,794
              
              
              77,672Loss
                  on disposal of fixed assets
              
              
              --
              
              
              14,954
              
              
              14,954Changes
                  in operating assets & liabilities:Accounts
                  receivable
              
              
              (2,088
              )
              
              (5,997
              )
              
              (7,216
              )Prepaid
                  expenses and other current assets
              
              
              (30,604
              )
              
              (6,495
              )
              
              (56,845
              )Deposits
                  and other assets
              
              
              --
              
              
              (93,605
              )
              
              (93,605
              )Accounts
                  payable
              
              
              42,811
              
              
              263,192
              
              
              343,213Accrued
                  expenses
              
              
              42,962
              
              
              43,414
              
              
              208,219Net
                  cash used in operating activities
              
              
              (995,337
              )
              
              (1,431,729
              )
              
              (3,556,738
              )Cash
                  flows from investing activities:Purchases
                  of fixed assets
              
              
              (9,995
              )
              
              (137,291
              )
              
              (251,669
              )Net
                  cash used in investing activities
              
              
              (9,995
              )
              
              (137,291
              )
              
              (251,669
              )Cash
                  flows from financing activities:Proceeds
                  from issuance of convertible notes
              
              
              --
              
              
              2,695,000
              
              
              2,695,000Repayment
                  of loans payable to stockholders, net
              
              
              --
              
              
              (10,000
              )
              
              (10,000
              )Proceeds
                  from issuance of common stock, net of costs
              
              
              234,000
              
              
              224,900
              
              
              2,432,574Proceeds
                  from stockholders’ loans
              
              
              -
              
              
              -
              
              
              110,000Stock
                  offering costs
              
              
              (43,540
              )
              
              (517,063
              )
              
              (560,603
              )Deferred
                  financing costs
              
              
              --
              
              
              (219,350
              )
              
              (219,350
              )Net
                  cash provided by financing activities
              
              
              190,460
              
              
              2,173,487
              
              
              4,447,621Net
                  (decrease) increase in cash
              
              
              (814,872
              )
              
              604,467
              
              
              639,214Cash
                  at beginning of period
              
              
              1,040,210
              
              
              34,747
              
              
              --Cash
                  at end of period
              
              $
              225,338
              
              $
              639,214
              
              $
              639,214Non
                  cash investing and financing activities:Conversion
                  of stockholder’s loan to common stock
              
              $
              100,000
              
              $
              --
              
              $
              100,000Issuance
                  of common stock for accrued compensation
              
              $
              --
              
              $
              84,000
              
              $
              84,000Issuance
                  of warrants for deferred financing fees
              
              $
              --
              
              $
              40,207
              
              $
              40,207Capital
                  contribution from waived royalty fees
              
              $
              --
              
              $
              --
              
              $
              600,000Capital
                  contribution from waived and imputed compensation
              
              $
              337,500
              
              $
              112,500
              
              $
              1,383,809The
                  accompanying notes are an integral part of these condensed financial
                  statements.
 
  5
  NOTE
        1.  DESCRIPTION
        OF BUSINESS, ORGANIZATION AND DEVELOPMENT STAGE ACTIVITIES:
  Description
        of business
  Debt
        Resolve, Inc. (“Debt Resolve” or the “Company”), is a Delaware corporation
        formed on April 21, 1997. The Company provides banks, lenders, credit card
        issuers, third party collection agencies and purchasers of charged-off debt
        an
        Internet-based online system (“the Debt Resolve system”) for the collection of
        past due consumer debt. The Company offers its service as an Application
        Service
        Provider (“ASP”) model, enabling clients to introduce this collection option
        with no modifications to their existing collections computer systems. Its
        products capitalize on using the Internet as a tool for communication,
        resolution, settlement and payment of delinquent debts. The Debt Resolve
        system
        features, at its core, a patented online bidding system.
  Organization
  Until
        February 24, 2003, the Company, formerly named Lombardia Acquisition Corp.,
        was
        inactive and had no significant assets, liabilities or operations. On February
        24, 2003, James D. Burchetta, Charles S. Brofman, and Michael S. Harris
        (collectively, the “Principal Stockholders”) purchased 22,500,000 newly-issued
        shares of the Company’s common stock, representing 84.6% of the then outstanding
        shares, pursuant to a Stock Purchase Agreement effective January 13, 2003
        between the Company and each of the Principal Stockholders. The Company received
        an aggregate cash payment of $22,500 in consideration for the sale of such
        shares to the Principal Stockholders. The Board of Directors was then
        reconstituted. On May 7, 2003, following approvals by the Board of Directors
        and
        holders of a majority of the Company’s common stock, the Company’s Certificate
        of Incorporation was amended to change the Company’s corporate name to Debt
        Resolve, Inc. and increase the number of the Company’s authorized shares of
        common stock from 20,000,000 to 50,000,000 shares.
  Development
        stage activities
  In
        accordance with Statement of Financial Accounting Standards No. 7, Accounting
        and Reporting by Development Stage Enterprises, the Company is considered
        to be
        in the development stage since it is devoting substantially all of its efforts
        to establishing a new business and its planned principal operations have
        not
        produced any significant revenues. Since February 24, 2003, the Company has
        devoted substantially all of its efforts to planning and budgeting, research
        and
        product development, and raising capital. In January 2004, the Company
        substantially completed the development of its online system for the settlement
        of credit card and other consumer debt and began marketing to banks, collection
        agencies, debt buyers and other creditors. In February 2004, the Company
        implemented its online system, on a test basis, with a collection agency
        and
        completed a successful systems test. Since that time, the Company has continued
        to devote substantial time and assets on marketing its product to credit
        card
        companies, collection agencies, and other holders of delinquent consumer
        debt.
        As of September 30, 2005, the Debt Resolve system is being used by five clients,
        consisting of three lenders and two collection agencies on certain limited
        portfolios, and has begun to generate some revenue for the Company.
  NOTE
        2.  SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES:
  Going
        concern
 The
          accompanying 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. As of September
          30,
          2005 the Company’s working capital is not sufficient to fund its plan of
          operations beyond the end of November 2005. The
          Company is currently negotiating with current shareholders and other qualified
          investors to arrange a private debt financing of up to $1,000,000. If the
          Company is unable to raise sufficient additional capital before the end
          of
          November 2005, it will have to develop and implement a plan to eliminate
          staff
          and overhead until sufficient additional capital is raised to support further
          operations. There can be no assurance that such a plan will be
          successful. In
          separate financing transactions in April and June/September of 2005, the
          Company
          received proceeds from the issuance of 7% convertible promissory notes
          in the
          total aggregate principal amount of $2,695,000 (see Note 5). In addition,
          the
          Company has entered into a non-binding letter of intent with an investment
          banking firm to explore the possibility of raising additional capital in
          the
          public equity markets and filed with the Securities and Exchange Commission
          on
          Form SB-2 with that intention (see Note 4). However, there can be no assurance
          that the Company will be able to raise sufficient additional capital as
          needed
          to execute its business plan. The Company continues to experience losses,
          recording losses of $1,097,806 and $2,253,376 for the three and nine months
          ended September 30, 2005. As of that date, it has incurred an accumulated
          deficit of $6,833,958, and it has still not recorded any significant revenue. The
          aforementioned factors raise substantial doubt about the Company’s ability to
          continue as a going concern.
  6
  Interim
        periods
  The
        accompanying unaudited condensed financial statements have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America for interim financial information. Accordingly, they do not include
        all
        of the information required by accounting principles generally accepted in
        the
        United States of America for complete financial statements. In the opinion
        of
        management, all adjustments (consisting of normal recurring adjustments)
        considered necessary for a fair presentation have been included. Operating
        results for the three and nine months ended September 30, 2005 are not
        necessarily indicative of the results that may be expected for the year ending
        December 31, 2005 or for any other interim period. On August 19, 2005 the
        Company filed a report on Form 8-K with the Securities and Exchange Commission
        disclosing that the Company will restate previously issued financial statements
        for the years ended December 31, 2004 and 2003 and the three months ended
        March
        31, 2005. In conjunction with the re-audit of Debt Resolve’s financial
        statements for the years ended December 31, 2003 and December 31, 2004 and
        a
        review of the quarter ended March 31, 2005 by the Company’s independent
        registered public accounting firm, the Company determined that adjustments
        were
        necessary to recognize the cumulative impact of correcting its computation
        for
        stock-based compensation to consultants and advisory board members.
        Specifically, it was determined that Debt Resolve should have recorded an
        expense for stock-based compensation to consultants and advisory board members
        during those accounting periods. The Company had disclosed these costs on
        a pro
        forma basis, only. Based on the reclassification of employee and consultant
        status for stock-based compensation to these persons, Debt Resolve has restated
        the periods impacted by these adjustments. The restatement adjustments related
        to computation for stock-based compensation to consultants and advisory board
        members increased net loss by $26,143 for the three and nine months ended
        September 30, 2004 and $31,756 for the year ended December 31, 2004and increased
        net loss by $109,491 for the year ended December 31, 2003. The adjustments
        did
        not change net loss per share for the three and nine months ended September
        30,
        2004 or for the year ended December 31, 2004, but increased net loss per
        share
        by $0.01 to ($0.10) for the year ended December 31, 2003. These adjustments
        also
        increased the beginning accumulated deficit and additional paid-in capital
        by
        $141,247 as of January 1, 2005. In addition, the Company recorded an increase
        in
        net loss for the quarter ended March 31, 2005 of $97,136 and an increase
        in net
        loss per share of $0.01 to ($0.02) related to stock-based compensation and
        deferred offering costs.
  Reclassifications
  Certain
        amounts in the financial statements for the three and nine months ended
        September 30, 2004 have been reclassified for comparative purposes to conform
        to
        the presentation in the financial statements for the three and nine months
        ended
        September 30, 2005.
  Cash
  For
        purposes of the condensed statements of cash flows, the Company considers
        all
        highly liquid debt instruments with original maturities of three months or
        less
        to be cash equivalents. From time to time, the Company has balances in excess
        of
        federally insured limits.
  Use
        of
        estimates
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the amounts reported in the financial
        statements and the accompanying notes. These estimates and assumptions are
        based
        on management’s judgment and available information and, consequently, actual
        results could be different from these estimates.
  Revenue
        recognition
  The
        Company earned revenue during the three and nine months ended September 30,
        2005
        from five clients, consisting of three lenders and two collection agencies
        that
        have implemented the Company’s online system. The Company’s preliminary
        contracts provide for revenue based on a percentage of the amount of debt
        collected from accounts submitted on the DebtResolve system. Although other
        revenue models have been proposed, all revenue earned to date has been
        determined using this method, and such revenue is recognized when the settlement
        amount of debt is collected by the client. For the early adopters of the
        Company’s product, the Company waived set-up fees and other transactional fees
        that the Company anticipates charging in the future. While the percent of
        debt
        collected will continue to be a revenue recognition method going forward,
        other
        payment models are also being offered to clients and may possibly become
        our
        preferred revenue model. Dependent on the structure of future contracts,
        revenue
        may be derived from set up fees or monthly licensing fees with transaction
        fees
        upon debt settlement.
  
 7
  Imputed
        salary expense
  Under
        the
        terms of employment agreements (see Note 9) the Company has had with its
        Co-chairman and CEO and with its general counsel during the three and nine
        months ended September 30, 2004 and until April 1, 2005 and July 1, 2005,
        respectively, the Company did not pay these officers a salary, due to certain
        conditions as specified in the agreements. The Company recorded compensation
        expense and a capital contribution in an amount equal to the salary that
        would
        have been paid during those periods, representing an imputed compensation
        expense for the minimum base salary amounts under the agreement with them,
        as if
        the Company had met the condition for paying their salaries. As of April
        1,
        2005, pursuant to a decision made by the Board of Directors of the Company
        and a
        revised employment agreement, the Company began to pay the Co-Chairman and
        Chief
        Executive Officer a salary of $250,000 per year. As of June 30, 2005, the
        Company’s general counsel resigned his position.
  Research
        and development
  Research
        and development expenses in the nine months ended September 30, 2004 consisted
        primarily of payroll and related expenses and consulting fees incurred in
        connection with employees and consultants involved in the development of
        the
        Company’s online software product. The Company follows the guidelines of
        Statement of Financial Accounting Standards No. 86, Accounting for the Costs
        of
        Computer Software to be Sold, Leased, or Otherwise Marketed, and Statement
        of
        Financial Accounting Standards No. 2, Accounting for Research and Development
        Costs. Since the Company intended and has begun to market its online product,
        these costs were charged to expense as incurred and classified as research
        and
        development expenses. In January 2004, the Company substantially completed
        the
        development of and began marketing its online product. Commencing February
        2004,
        and for the three and nine months ended September 30, 2005, costs incurred
        in
        connection with the operation, maintenance, modification, and customization
        of
        the Company’s product have been charged to expense as incurred, and are not
        classified as research and development expenses.
  Fixed
        Assets
  Fixed
        assets are stated at cost, less accumulated depreciation. Depreciation is
        provided over the estimated useful life of each class of assets using the
        straight-line method. Expenditures for maintenance and repairs are charged
        to
        expense as incurred. Additions and betterments that substantially extend
        the
        useful life of the asset are capitalized. Upon the sale, retirement, or other
        disposition of property and equipment, the cost and related accumulated
        depreciation are removed from the balance sheet, and any gain or loss on
        the
        transaction is included in the statement of operations.
  Income
        taxes
  In
        accordance with Statement of Financial Accounting Standards No. 109, Accounting
        for Income Taxes, the Company uses an asset and liability approach for financial
        accounting and reporting for income taxes. The basic principles of accounting
        for income taxes are: (a) a current tax liability or asset is recognized
        for the
        estimated taxes payable or refundable on tax returns for the current year;
        (b) a
        deferred tax liability or asset is recognized for the estimated future tax
        effects attributable to temporary differences and carryforwards; (c) the
        measurement of current and deferred tax liabilities and assets is based on
        provisions of the enacted tax law and the effects of future changes in tax
        laws
        or rates are not anticipated; and (d) the measurement of deferred tax assets
        is
        reduced, if necessary, by the amount of any tax benefits that, based on
        available evidence, are not expected to be realized. The Company has had
        net
        losses since inception and the resulting deferred tax asset is offset by
        a
        corresponding valuation allowance.
  Stock-based
        compensation
  Stock
        options issued under stock-based compensation plans are accounted for under
        the
        recognition and measurement principles of Accounting Principles Board Opinion
        No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
        No stock-based employee compensation cost is reflected in the net loss, as
        all
        options granted under these plans had an exercise price equal to the market
        value of the underlying common stock, as determined by the board of directors,
        on the date of grant. Statement of Financial Accounting Standards No. 148,
        Accounting for Stock-Based Compensation-Transition and Disclosure — an Amendment
        of FASB Statement No. 123, requires the disclosure of the effect on net loss
        and
        loss per share had the Company applied the minimum value recognition provisions
        of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
        stock-based employee compensation. The minimum value of each option granted
        is
        estimated as of the grant date using the Black-Scholes option pricing model
        with
        the following assumptions: dividend yield of 0%, expected volatility of 0%,
        risk-free interest rates for individual options ranging from 1.66% to 4.12%,
        and
        an expected life of each option, ranging from three to ten years. Since there
        is
        no public market for the Company’s stock, the Company does not consider
        volatility in estimating the value of each option; the Company follows the
        minimum value method. The estimated minimum value of the options granted
        is
        amortized to expense over the option vesting periods.
  8
  As
        of
        September 30, 2005, the weighted average exercise price and the weighted
        average
        expected life of the stock options granted to employees were $0.62 and 5.48
        years, respectively.
  The
        following table illustrates the pro forma effects on net loss and net loss
        per
        common share for the three and nine months ended September 30, 2004 and 2005
        and
        the period cumulative from inception as if the Company had applied the fair
        value recognition provisions of FASB Statement No. 123 to stock-based
        compensation.
  Three
                    months ended
                  September
                    30,
                
                Nine
                    months ended
                  September
                    30,
                
                Cumulative
                  from
                    Inception (April 21, 1997)
                  to
                    September 30,2004
                
                2005
                
                2004
                
                2005
                
                2005(restated)
                
                
                
                (restated)Net
                    loss - as reported
                
                $
                (477,820
                )
                $
                (1,097,806
                )
                $
                (1,445,111
                )
                $
                (2,253,376
                )
                $
                (6,833,958
                )Deduct:
                    Stock based employee compensation determined under minimum
                    value
                    method.
                
                
                25,832
                
                
                --
                
                
                149,962
                
                
                1,842
                
                
                589,220Net
                    Loss - pro forma
                
                $
                (503,652
                )
                $
                (1,097,806
                )
                $
                (1,595,073
                )
                $
                (2,255,218
                )
                $
                (7,423,178
                )Basic
                    and diluted net loss per common share - as reported
                
                $
                (0.02
                )
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.08
                )Basic
                    and diluted net loss common share - pro forma
                
                $
                (0.02
                )
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.08
                )
 
 
 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, warrants and convertible notes of 8,633,333, 4,506,593,
        and
        6,341,177, respectively, at September 30, 2005 and 5,333,333, 0 and 0,
        respectively at September 30, 2004 are excluded from the computation of diluted
        net loss per share as their inclusion would be antidilutive. The potentially
        dilutive securities noted above exclude options to be issued under the amended
        and restated licensing agreement (see Note 8) or options relating to the
        anti
        dilution provision (see Note 4).
  NOTE
        3.  FIXED
        ASSETS:
  Fixed
        assets as of September 30, 2005 are summarized as follows:
  Useful
                  lifeComputer
                  equipment
              
              
              3
                  years
              
              $
              84,236Computer
                  software
              
              
              3
                  years
              
              
              1,919Telecommunication
                  Equipment
              
              
              5
                  years
              
              
              2,685Office
                  equipment
              
              
              3
                  years
              
              
              2,192Furniture
                  and fixtures
              
              
              5
                  years
              
              
              103,355Leasehold
                  improvements
              
              
              Lease
                  term
              
              
              17,986212,373Less:
                  accumulated depreciation
              
              
              
              
              
              (53,330
              )$
              159,043
 
  9
  Concurrent
        with the Company’s move to new premises on July 29, 2005, certain assets were
        taken out of service and the original cost and related accumulated depreciation
        were removed from the balance sheet. Removing the original cost of $39,296
        and
        the related accumulated depreciation of $24,342 resulted in a net charge
        of
        $14,954 to the September 30, 2005 Statement of Operations. Depreciation expense
        totaled $11,231 and $33,051 for the three and nine months ended September
        30,
        2004 and $10,855 and $25,794 for the three and nine months ended September
        30,
        2005, respectively, and $77,672 since inception.
  NOTE
        4.  LETTER
        OF
        INTENT AND REGISTRATION STATEMENT ON FORM SB-2:
  On
        March
        4, 2005, the Company entered into a non-binding letter of intent with an
        investment banking firm to explore the possibility of raising additional
        capital
        in the public equity markets. The Company has not entered into any definitive
        agreements to raise capital in the public equity markets as a result of this
        letter of intent, but is exploring the possibility of doing so. On September
        30,
        2005, the Company filed a Registration Statement on Form SB-2 with the
        Securities and Exchange Commission. The Company anticipates that it will
        issue
        2,400,000 shares of common stock in a proposed public offering. However,
        there
        can be no assurance that the Company will be able to raise additional capital
        in
        the public equity markets as a result of this letter of intent or any other
        agreements the Company may enter into. In connection with this letter of
        intent,
        the Company has incurred deferred offering costs of $516,397 as of September
        30,
        2005. Also in connection with this non-binding letter of intent, and in the
        event of a decrease in stockholder value resulting from a lower per share
        offering price at the time of a public offering of the Company’s common stock,
        the Company intends to issue to investors who had participated in its private
        placement of stock at $1.00 per share in 2003 and 2004, warrants to purchase
        common stock in a quantity sufficient to restore some portion of their
        pre-offering value, and has entered into a non-binding agreement to that
        effect.
        The Company also intends to issue stock options to purchase common stock
        to
        certain employees and consultants of the Company for the same purpose. These
        “make-whole” warrants and stock options are anticipated to be exercisable from
        three to five years at the same price as the per share offering price at
        the
        time of a public offering.
  NOTE
        5.  CONVERTIBLE
        NOTES:
  On
        April
        21, 2005, in a private financing that involved the issuance of 7% senior
        convertible promissory notes due one year from the date of issuance, the
        company
        received proceeds of $800,000, initially convertible into 1,882,352 shares
        of
        common stock. As part of the private financing, the Company issued to the
        investors warrants to purchase 941,176 warrants to purchase common stock,
        exercisable for a period of three years at $0.425 per share.
  On
        June
        28, 2005, the Company received proceeds from an additional private financing
        of
        7% senior convertible promissory notes in the aggregate principal amount
        of
        $1,250,000, due one year from the date of issuance, convertible into 2,941,176
        shares of common stock. As part of the private financing, the Company issued
        to
        the investors warrants to purchase 1,470,590 shares of common stock, exercisable
        for a period of five years at $0.425 per share. The terms of the notes and
        warrants issued in the Junel 2005 private financing were substantially identical
        to those issued in the April 2005 private financing, except with respect
        to the
        conversion provision for the notes and the exercise period of the warrants.
  On
        September 6, 2005, the Company received proceeds from an additional private
        financing of 7% senior convertible promissory notes in the aggregate principal
        amount of $645,000, due one year from the date of issuance, initially
        convertible into 1,517,649 shares of common stock. As part of this private
        financing, the Company issued to the investors warrants to purchase 758,827
        shares of common stock exercisable for a period of five years at $0.425 per
        share. The terms of the notes and warrants issued in the September 2005 private
        financing were identical to those issued in the June 2005 private
        financing,
  The
        principal amount and accrued interest under the April and the June/September
        notes are convertible into shares of common stock at any time at the option
        of
        the holder, and automatically, in the case of a public offering of the Company’s
        common stock, in which case (i) for the April 2005 notes, all of the outstanding
        principal amount and accrued interest under the notes will be converted into
        shares of common stock, and (ii) for the June and September 2005 notes, 50%
        of
        the outstanding principal amount and accrued interest under the notes will
        be
        converted into shares of common stock, and the remaining 50% of the outstanding
        principal amount and accrued interest under the notes will be repaid to the
        holders from the proceeds of such public offering.
  In
        accordance with Emerging Issues Task Force (“EITF”) 98-5 and EITF 00-27, the
        convertible notes are considered to have an embedded beneficial conversion
        feature because the conversion price is less than the fair market value at
        the
        issuance date and the contingent conversion price will be less than the initial
        public offering price. The Company has recorded a beneficial conversion feature
        and a deferred debt discount in connection with the value of the notes and
        related investor warrants of $1,235,887, and this amount is being amortized
        over
        the life of the notes. Amortization of the beneficial conversion feature
        and
        deferred debt discount totaled $257,961 and $322,310 for the three and nine
        months ended September 30, 2005, respectively and $322,310 since
        inception.
  10
  Maxim
        Group LLC acted as the placement agent in the June/September 2005 private
        financing and received placement fees of $142,800 and non-accountable expenses
        of $53,550. In addition, Maxim Group received warrants to purchase 336,000
        shares of common stock, valued at $40,207, exercisable for a period of three
        years at $0.425 per share. Total cash fees associated with this offering
        were
        $219,350, including the above-mentioned fees paid to Maxim Group and also
        including other fees of $23,000, paid to underwriter’s attorneys and a stock
        transfer agent. The total of fees and the value of the warrants have been
        recorded as deferred financing costs and will be amortized over the life
        of the
        notes. Amortization of deferred financing costs totaled $50,864 and $51,858
        for
        the three and nine months ended September 30, 2005, respectively and $51,858
        since inception.
  NOTE
        6.  ACCRUED
        COMPENSATION EXPENSE AND LOANS PAYABLE TO STOCKHOLDERS:
  As
        of
        June 30, 2005, the Company resolved an outstanding debt owed to a former
        employee. Danilo Cacciamatta, the Company’s former CFO, accepted payments of
        options to purchase 700,000 shares of common stock, exercisable at $0.425
        per
        share, valued at $84,000, as well as cash payments of $38,400, as part of
        a
        package resolution of unpaid compensation of $95,677, a $10,000 loan, and
        interest owed on these balances. These options are exercisable for three
        years
        from the date of grant and vested upon issuance.
  NOTE
        7.  STOCKHOLDERS’
        EQUITY:
  During
        the nine months ended September 30, 2005, the Company issued 224,900 shares
        of
        common stock through a private placement for a total of $224,900 and incurred
        expenses of the private placement of $19,206. In connection with this private
        placement, the Company issued warrants to purchase 1,000,000 shares of common
        stock to one investor, exercisable at $0.425 per share. These warrants are
        exercisable for three years from the date of grant and vested upon issuance.
  During
        the nine months ended September 30, 2005, the Company recorded imputed
        compensation expense of $112,500 related to salaries for the CEO and the
        General
        Counsel of the Company as if the Company had met the terms for the payment
        of
        their salaries as stipulated in their employment agreements, and recorded
        the
        waived salary as a contribution to paid-in capital.
  During
        the nine months ended September 30, 2005, the Company issued options to purchase
        600,000 shares of common stock, exercisable at $1.00 per share, to a board
        member as consideration for consulting services, valued at $66,000. These
        options are exercisable for three years from the date of grant and vested
        upon
        issuance.
  During
        the nine months ended September 30, 2005, the Company issued options to purchase
        200,000 shares of common stock, exercisable at $1.00 per share, to a consultant
        as consideration for services as an advisory board member valued at $19,000.
        These options are exercisable for three years from the date of grant and
        vested
        upon issuance.
  During
        the nine months ended September 30, 2005, the Company recorded an expense
        of
        $8,722 for options to purchase 200,000 shares of common stock, exercisable
        at
        $1.00 per share, granted to an advisory board member in 2004, vesting during
        the
        nine-month period. These options are exercisable for three years from the
        date
        of grant, and 100,000 vested on each of March 31, 2005 and June 30, 2005.
  During
        the nine months ended September 30, 2005, two stockholders reimbursed the
        Company for $25,000 of deferred offering costs. Such amount has been credited
        to
        additional paid-in capital.
  During
        the nine months ended September 30, 2005, effective as of the date the Company’s
        proposed public stock offering is declared effective and assuming a proposed
        1-for-10 reverse stock split, the Company granted its Senior Vice President
        and
        Chief Technology Officer and its Chief Financial Officer, Treasurer and
        Secretary options to purchase 230,000 and 100,000 shares, respectively, of
        Company common stock. These stock options are exercisable at $5.00 per share
        (subject to adjustment), will have a term of five years from their date of
        grant
        and will vest immediately upon the proposed public stock offering. The initial
        number of shares and the exercise price per share thereof subject to each
        option
        assume that the Company completes a proposed 1-for-10 reverse stock split
        of its
        outstanding shares of common stock prior to the date of grant, and in the
        event
        the stock split actually effected by the Company is in a different ratio
        than
        1-for-10, the number of shares and the exercise price per share thereof subject
        to each option will automatically be adjusted accordingly. These stock options
        will be fair valued at the date the proposed public stock offering is declared
        effective. In the event the Company’s proposed public stock offering does not
        take place by March 31, 2006, the options terminate and become null and void.
  11
  NOTE
        8.  RELATED
        PARTY TRANSACTIONS:
  a)
        License Agreement
  The
        Company originally entered into a license agreement in February 2003 with
        Messrs. Burchetta and Brofman for the licensed usage of the intellectual
        property rights relating to U.S. Patent No. 6,330,551 issued by the U.S.
        Patent
        and Trademark Office on December 11, 2001 for “Computerized Dispute and
        Resolution System and Method” worldwide. In June 2005, subsequent to an interim
        amendment in February 2004, the Company amended and restated the license
        agreement in its entirety. The licensed usage is limited to the creation
        of
        software and other code enabling an automated system used solely for the
        settlement and collection of credit card receivables and other consumer debt
        and
        specifically excludes the settlement and collection of insurance claims,
        tax and
        other municipal fees of all types. The license usage also includes the creation,
        distribution and sale of software products or solutions for the same aim
        as
        above and with the same exclusions. In lieu of cash royalty fees, Messrs.
        Burchetta and Brofman have agreed to accept stock options for the Company’s
        common stock as follows:
  On
        June
        29, 2005, the Company granted to each of Messrs. Burchetta and Brofman a
        stock
        option for up to such number of shares of common stock such that the stock
        option, when added to the number of shares of common stock owned by each
        of
        Messrs. Burchetta and Brofman, and in combination with any shares owned by
        any
        of their respective immediate family members and affiliates, will equal 14.6%
        of
        the total number of outstanding shares of common stock on a fully-diluted
        basis
        as of the closing of a potential public offering of the Company’s common stock,
        assuming the exercise of such stock option. The value of these options will
        be
        recorded as a prepaid royalty and classified as contra-equity once the number
        of
        options has been determined, and will be amortized over the life of the
        underlying patent.
  If,
        and
        upon, the Company reaching (in combination with any subsidiaries and other
        sub-licensees) $10,000,000, $15,000,000, and $20,000,000 in gross revenues
        derived from the licensed usage in any given fiscal year, the Company will
        grant
        each of Messrs. Burchetta and Brofman such additional number of stock options
        as
        will equal 1%, 1.5%, and 2%, respectively, of the total number of outstanding
        shares of common stock on a fully-diluted basis at such time.
  The
        stock
        options granted to Messrs. Burchetta and Brofman pursuant to the license
        agreement will have an exercise price equal to the offering price per share
        in
        such potential public offering of the Company’s common stock and are exercisable
        for ten years from the date of grant.
  The
        term
        of the license agreement extends until the expiration of the last-to-expire
        patents licensed thereunder and is not terminable by Messrs. Burchetta and
        Brofman, the licensors. The license agreement also provides that the Company
        will have the right to control the ability to enforce the patent rights licensed
        to the Company against infringers and defend against any third-party
        infringement actions brought with respect to the patent rights licensed to
        the
        Company, subject, in the case of pleadings and settlements, to the reasonable
        consent of Messrs. Burchetta and Brofman.
  b)
        Sublease
  On
        August
        1, 2005, the Company entered into a sublease agreement with a company owned
        by
        the CEO and Co-Chairmen. The President of this company is the son of the
        CEO and
        Co-Chairman of Debt Resolve. The agreement calls for payments of $500 per
        month
        and requires the sublessee to supply its own equipment and utilities such
        as
        phone service. The agreement provides that Debt Resolve may cancel the sublease
        at anytime on 30 days notice.
  NOTE
        9.  EMPLOYMENT
        AGREEMENTS:
  The
        Co-Chairman and Chief Executive Officer has an employment agreement with
        the
        Company, and under the terms of this employment agreement, no salary payments
        were made to him during the three months ended March 31, 2005. The Company
        recorded compensation expense and a capital contribution of $37,500 during
        that
        period, representing an imputed compensation expense for the minimum base
        salary
        amounts under the agreement with him, as if the Company had met the condition
        for paying his salary. As of April 1, 2005, pursuant to a decision made by
        the
        Board of Directors of the Company, the Company began to pay the Co-Chairman
        and
        Chief Executive Officer a salary of $250,000 per year. On June 6, 2005, the
        Company entered into a revised employment agreement with him. The employment
        agreement with the Co-Chairman and Chief Executive Officer is effective through
        July 2008. The agreement provides him with an initial annual compensation
        of
        $250,000 and contains provisions for annual increases based on ‘cost-of-living’
        changes. The employment agreement with him contains provisions under which
        his
        annual compensation may increase to $600,000 if the Company achieves specified
        operating milestones and also provides for additional compensation based
        on the
        value of a transaction that results in a change of control, as that term
        is
        defined in the agreement.
   12
  The
        Company recorded compensation expense and a capital contribution totaling
        $75,000 in the nine months ended September 30, 2004, representing an imputed
        compensation expense for the minimum base salary amounts under the agreement
        with the Co-Chairman and Chief Executive Officer, as if the Company had met
        the
        condition for paying his salary. Under the terms of his employment agreement,
        no
        cash payments for salary were made to the Co-Chairman and Chief Executive
        Officer during the nine months ended September 30, 2004.
  NOTE
        10.  OFFICE
        LEASE:
  Prior
        to
        July 31, 2005, the Company had leased its office facilities under a
        non-cancelable operating lease through July 2005. Beginning August 1, 2005,
        the
        Company entered into a five year lease which includes annual escalations
        in
        rent. Since that date, in accordance with SFAS No. 13, “Accounting for Leases,”
        the Company accounts for rent expense using the straight line method of
        accounting, accruing the difference between actual rent due and average rent
        to
        be paid. Rent expense for the three and nine months ended September 30, 2005
        was
        $26,498 and $51,696. Rent expense for the three and nine months ended September
        30, 2004 was $15,119 and $50,396, and has been $154,282 since inception.
        Future
        aggregate minimum lease payments over the remaining 58 months of the lease
        period is $595,904, of which $80,000 has been prepaid as a deposit.
  NOTE
        11.  WEB
        HOSTING COMMITMENT
  On
        October 31, 2003, the Company entered into a two year web hosting agreement
        with
        AT&T Corporation. The agreement became effective in April, 2004, when the
        Company began to service their first customer, and provided for the purchase
        of
        certain equipment and start up charges at the time of the agreement and a
        combination of monthly variable expenses, dependent on volumes, going forward.
        Expenses for web hosting services totaled $45,950 and $75,606 for the three
        and
        nine months ended September 30, 2004, and $49,576 and $129,324 for the three
        and
        nine months ended September 30, 2005, respectively, and $268,100 since
        inception. The agreement is in effect until April 2006, and based on current
        volumes, the Company expects to incur expenses of from $15,000 to $18,000
        per
        month going forward.
  NOTE
        12.  RECENTLY
        ISSUED AND PROPOSED ACCOUNTING PRONOUNCEMENTS:
  In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
        Payment (“SFAS 123 -Revised”). SFAS 123 - Revised is a revision of SFAS 123,
        Accounting For Stock-Based Compensation (“SFAS 123”), and supersedes APB Opinion
        No. 25, Accounting For Stock Issued To Employees (“APB 25”), and its related
        implementation guidance. SFAS 123 — Revised establishes accounting standards for
        recording any transaction in which an entity exchanges its equity instrument
        for
        goods or services. It also addresses transactions in which an entity incurs
        liabilities in exchange for goods or services that are based on the fair
        value
        of the entity’s equity instruments or that may be settled by the issuance of
        those equity instruments. It does not change the accounting guidance for
        share-based payment transactions with parties other than employees provided
        in
        SFAS 123 as originally issued and EITF Issue No. 96-18, Accounting For Equity
        Instruments That Are Issued To Other Than Employees For Acquiring, Or In
        Conjunction With Selling, Goods Or Services. SFAS 123- Revised requires a
        public
        entity to measure the cost of employee services received in exchange for
        an
        award of equity instruments based on the grant-date fair value of the award.
        That cost will be recognized over the period during which an employee is
        required to provide service in exchange for the award (usually the vesting
        period). The grant-date fair value of employee stock options and similar
        instruments will be estimated using option-pricing models adjusted for the
        unique characteristics of those instruments (unless observable market prices
        for
        the same or similar instruments are available). SFAS 123 - Revised eliminates
        the alternative to use APB 25’s intrinsic value method of accounting that was
        provided in SFAS 123 as originally issued. Under APB 25, issuing stock options
        to employees generally resulted in recognition of no compensation cost. SFAS
        123
        - Revised requires entities to recognize the cost of employee services received
        in exchange for awards of equity instruments based on the grant-date fair
        value
        of those awards. SFAS 123 - Revised is effective for public entities that
        file
        as small business issuers as of the beginning of the first interim or annual
        reporting period that begins after December 15, 2005.
  Currently,
        the Company accounts for stock options issued under stock-based compensation
        plans under the recognition and measurement principles of APB 25. No stock-based
        employee compensation cost is reflected in the net loss, as all options granted
        under these plans had an exercise price equal to the market value of the
        underlying common stock, as determined by the board of directors, on the
        date of
        grant. Statement of Financial Accounting Standards No. 148, Accounting for
        Stock-Based Compensation- Transition and Disclosure - an Amendment of FASB
        Statement No. 123, requires the disclosure of the effect on net loss and
        loss
        per share had the Company applied the fair value recognition provisions of
        SFAS
        123 to stock-based employee compensation.
  13
  The
        Company will evaluate the requirements of SFAS 123 - Revised and plans to
        adopt
        its provisions as soon as practicable. The Company believes that the effect
        of
        implementing SFAS 123 - Revised will result in the recording of additional
        stock
        compensation expense.
  In
        December 2004, the FASB issued Statement of Financial Accounting Standards
        No.
        153, Exchanges Of Non-monetary Assets - An Amendment Of APB No. 29 (“SFAS 153”).
        SFAS 153 amends APB No. 29 to eliminate the exception of non-monetary exchanges
        of similar productive assets and replaces it with a general exception for
        exchanges of non-monetary assets that do not have commercial substance. A
        non-monetary exchange has commercial substance if the future cash flows of
        the
        entity are expect to change significantly as a result of the exchange. SFAS
        153
        and APB No. 29 do not apply to the acquisition of non-monetary assets or
        services on issuance of the capital stock of an entity. Currently, the Company
        has not had any exchanges of non-monetary assets within the meaning of SFAS
        153
        and adoption of SFAS 153 has had no effect on the Company’s financial position
        or results of operations.
  In
        October 2004, the FASB ratified the consensus reached in EITF Issue No. 04-8,
        “The Effect of Contingently Convertible Instruments on Diluted Earnings per
        Share.” The EITF reached a consensus that contingently convertible instruments,
        such as contingently convertible debt, contingently convertible preferred
        stock,
        and other such securities should be included in diluted earnings per share
        (if
        dilutive) regardless of whether the market price trigger has been met. The
        consensus became effective for reporting periods ending after December 15,
        2004.
        The adoption of this pronouncement did not have a material effect on the
        Company’s financial statements.
  On
        September 28, 2005, the FASB ratified the following consensus reached in
        EITF
        Issue 05-8 (“Income Tax Consequences of Issuing Convertible Debt with a
        Beneficial Conversion Feature”):  a)  The issuance of convertible debt
        with a beneficial conversion feature results in a basis difference in applying
        FASB Statement of Financial Accounting Standards SFAS
        No.
        109 ,*Accounting
        for Income Taxes*.
        Recognition of such a feature effectively creates a debt instrument and a
        separate equity instrument for book purposes, whereas the convertible debt
        is
        treated entirely as a debt instrument for income tax purposes.  b) 
        The resulting basis difference should be deemed a temporary difference because
        it will result in a taxable amount when the recorded amount of the liability
        is
        recovered or settled.  c)  Recognition of deferred taxes for
        the
        temporary difference should be reported as an adjustment to additional paid-in
        capital. This consensus is effective in the first interim or annual reporting
        period commencing after December 15, 2005, with early application permitted.
        The
        effect of applying the consensus should be accounted for retroactively to
        all
        debt instruments containing a beneficial conversion feature that are subject
        to EITF
        Issue 00-27 ,
        “Application of Issue No. 98-5 to Certain Convertible Debt Instruments” (and
        thus is applicable to debt instruments converted or extinguished in prior
        periods but which are still presented in the financial statements). The adoption of this pronouncement is not expected to have a material impact
        on the Company's financial statements.
  In
        May
        2005, SFAS No. 154, "Accounting Changes and Error Corrections, a replacement
        of
        APB Opinion No. 20, Accounting Changes and FASB Statement No. 3" was issued
        which, among other things, changes the accounting and reporting requirements
        for
        a change in accounting principle and provides guidance on error corrections.
        SFAS No. 154 requires retrospective application to prior period financial
        statements of a voluntary change in accounting principle unless impracticable
        to
        determine the period-specific effects or cumulative effect of the change,
        and
        restatement with respect to the reporting of error corrections. SFAS No.
        154
        applies to all voluntary changes in accounting principles, and to changes
        required by an accounting pronouncement in the unusual instance that the
        pronouncement does not include specific transition provisions. SFAS No. 154
        also
        requires that a change in method of depreciation or amortization for long-lived,
        non-financial assets be accounted for as a change in accounting estimate
        that is
        effected by a change in accounting principle. SFAS No. 154 is effective for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. At this time, adoption of SFAS No. 154 is not expected
        to significantly impact the Company's financial statements or future results
        of
        operations.
  14
  **MANAGEMENT** **’S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
  **Overview**
  We
        are a
        development stage company. Since our inception, we have devoted substantially
        all of our efforts to planning, research and development activities, and
        raising
        capital. In February 2004, we implemented the DebtResolve system on a test
        basis
        with a collection agency. In June and November 2004, we implemented our system
        with our second and third clients, respectively, and began generating nominal
        revenue based on a percentage of the amount of debt collected by these clients.
        To date, we have eight clients under contract, five of which are
        operational.
  Since
        completing initial product development in early 2004, we have marketed our
        service primarily to consumer credit card issuers, collection agencies and
        the
        buyers of defaulted debt in the United States and Europe. We intend to market
        our service to other segments served by the collections industry worldwide.
        The
        Company has prepared for its entry into the European marketplace by hiring
        an
        established UK legal firm to review the Company’s mode of business and modify
        the Company’s contracts to comply with appropriate governmental regulations. The
        Company has a received an opinion letter from this firm attesting that the
        Company complies with privacy, debtor protection and other regulations. We
        expect that initially, our expense associated with servicing our EU and UK
        clients will be minimal, consisting primarily of travel expense to meet with
        those clients and additional legal fees, as our EU and UK contracts, although
        already written to conform to EU and UK regulations may require customization.
        The Company has begun investigation of and negotiations with companies who
        may
        provide local, outsourced customer service support for us on an as needed
        basis,
        the expense of which will be variable with the level of business activity.
        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.
  Our
        revenues to date have been insignificant. We have financed our activities
        to
        date through our management’s contributions of cash, the proceeds from sales of
        our common stock in private placement financings and the proceeds of our
        7%
        convertible promissory notes in two private financings.
  Our
        preliminary contracts provide that we will earn revenue based on a percentage
        of
        the amount of debt collected from accounts submitted on our DebtResolve system.
        Revenue is earned and recognized when the settlement amount of debt is collected
        by our client. While the percent of debt collected will continue to be one
        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 base revenue on a monthly licensing fee per
        account with a small transaction fee on settlement. As we release our earlier
        stage DR PreventTM module, we expect that a licensing fee per account on our
        system will become the revenue method for that product.
  **Liquidity
        and Capital Resources**
  Our
        financial statements were prepared using principles applicable to a going
        concern, which contemplates the realization of assets and liquidation of
        liabilities in the normal course of business. We had $639,214 in cash at
        September 30, 2005. Our working capital deficit at September 30, 2005 was
        $1,520,580. We believe that our working capital as of the date of this report
        on
        Form 10 Q-SB is not sufficient to fund our plan of operations beyond the
        end of
        November 2005. While revenues and cash from revenues may increase during
        the
        remaining months of 2005, we do not expect this growth to be sufficient to
        alleviate our funding issues going forward. The company’s cash needs will grow,
        as we meet our compensation obligations for sales, accounting and customer
        support staff hired in September and October, combined with the expense of
        additional staff hired going forward. Of the anticipated $900,000 to $950,000
        in
        operating expenses that we expect to incur per quarter for the year following
        our proposed public offering, more than half will be salary and compensation
        expense. Also significant will be the expense of legal, audit and consulting
        services to meet the requirements of Sarbanes Oxley legislation and other
        expenses of being a publicly traded company. As our client base grows, while
        the
        Company’s web hosting arrangements include significant excess capacity, we may
        need to add additional web space to accommodate this growth, and incur
        corresponding expense. We anticipate additional costs associated with the
        start
        up of our planned-for debt buying subsidiary, as well. While the two primary
        employees for this subsidiary are already on staff, we will incur some legal,
        filing fees and other start up costs associated with establishing this line
        of
        business before we begin to recognize revenue. In addition, the Company will
        incur additional sales and marketing expense to grow its customer base as
        well
        as travel and other expenses to service its customer base. Our working capital
        is insufficient to fund our operations beyond the end of November 2005. These
        factors raise substantial doubt as to our ability to continue as a going
        concern. While we are currently negotiating with current shareholders and
        other
        qualified investors to arrange a private debt financing of up to $1,000,000,
        we
        may not be successful. The financial statements do not include adjustments
        to
        the value or classification of our assets and liabilities that we may need
        to
        make if we are unable to continue operating as a going concern.
  15
  **Plan** **of
        Operation**
  ***Three
        Months ended September 30, 2005 Compared to Three Months ended September
        30,
        2004***
  **Revenues**
  Revenue
        totaled $7,306 and $2,088 for the three months ended September 30, 2005 and
        2004, respectively. We earned revenue during the three months ended September
        30, 2005 from five clients consisting of three lenders, and two collection
        agencies that implemented our online system on selected portfolios. Revenue
        was
        earned based on a percentage of the amount of debt collected from accounts
        placed on our online system.
  **Costs
        and Expenses**
  **Payroll
        and related expenses** .
        Payroll
        and related expenses totaled $405,658 for the three months ended September
        30,
        2005, an increase of $156,082 over payroll and related expenses of $249,576
        for
        the three months ended September 30, 2004 due primarily to an increase in
        staffing. We employed 15 people, including IT, accounting, and sales staff
        at
        September 30, 2005, compared to seven people at September 30, 2004, as we
        offer
        our services to more clients. For the three months ended September 30, 2004,
        these expenses included $112,500 of imputed compensation expense for the
        minimum
        base salary amounts under the employment agreements with Messrs. Burchetta
        Harris and Silberstein in 2004, as if we had met the condition for paying
        the
        salaries. The employment agreements contained provisions regarding minimum
        revenues and available working capital before any salaries could be paid.
        No
        salary payments were made to Messrs. Burchetta, Harris and Silberstein during
        the three months ended September 30, 2004, and we recorded the imputed
        compensation as a capital contribution. Beginning April 1, 2005, we began
        to pay
        Mr. Burchetta a salary, in accordance with a revised employment agreement
        entered into during the period. Mr. Silberstein and Mr. Harris left employment
        with the company in October 2004 and June 2005, respectively. As a result,
        the
        three months ended September 30, 2005 did not include imputed
        compensation.
  **General
        and administrative expenses.** General
        and administrative expenses totaled $345,131 for the three months ended
        September 30, 2005, an increase of $125,092 over general and administrative
        expenses of $220,039 for the three months ended September 30, 2004. For the
        three months ended September 30, 2005, these expenses consist primarily of
        $54,632 for telecommunication costs, including website hosting, $86,454 for
        audit and legal fees, $30,218 for travel and entertainment costs, $35,058
        for
        insurance, $27,562 for consulting fees, and $23,242 for marketing and promotion
        costs. Other general expenses consisted primarily of equipment and software
        expense, office supplies and occupancy costs. We incurred no stock-based
        compensation expense in the three months ended September 30, 2005.
  For
        the
        three months ended September 30, 2004, general
        and administrative expenses
        consisted primarily of $52,670 for telecommunication costs, including website
        hosting, $35,065 for legal and consulting fees, $41,023 for marketing and
        promotion costs and $65,138 for other general expenses primarily consisting
        of
        software consulting fees, insurance, occupancy costs and travel related
        expenses. Also
        included in this category in the three months ended September 30, 2004 was
        $26,143 in stock-based compensation expense.
  **Research
        and development expenses** .
        We did
        not incur research and development expenses for the three months ended September
        30, 2005 or 2004. Commencing February 2004, costs incurred in connection
        with
        the operation, maintenance, modification, and customization of our online
        product have been charged to expense as incurred, but are not classified
        as
        research and development expenses.
  **Other
        income (expense).** Other
        expenses totaled $343,468 for the months ended September 30, 2005, consisting
        primarily of $38,966 in accrued interest expense on convertible notes, $257,961
        for the amortization of the beneficial conversion feature and deferred debt
        discount related to convertible notes issued in April and June/September
        of
        2005, and $50,864 in amortization of deferred financing costs related to
        those
        financing arrangements, net of $3,340 in interest income on cash and $1,000
        of
        sublet income. During the three months ended September 30, 2004, we earned
        $938
        in interest income on cash held in a bank money market account.
  16
 
 ***Nine
        Months ended September 30, 2005 Compared to Nine Months ended September 30,
        2004***
  **Revenues**
 Revenue
        totaled $9,833 and $2,088 for the nine months ended September 30, 2005 and
        2004,
        respectively. We earned revenue during the nine months ended September 30,
        2005
        from five clients, consisting of three lenders and two collection agencies
        that
        implemented our online system on selected portfolios. Revenue was earned
        based
        on a percentage of the amount of debt collected from accounts placed on our
        online system.
  **Costs
        and Expenses**
 
 **Payroll
        and related expenses** .
        Payroll
        and related expenses totaled $942,785 for the nine months ended September
        30,
        2005, an increase of $260,931 over payroll and related expenses of $681,854
        for
        the nine months ended September 30, 2004 due primarily to an increase in
        staffing as well as to the change in accounting for salaries and expenses
        of our
        technical staff which were charged to research and development for a portion
        of
        2004. For the nine months ended September 30, 2005 and September 30, 2004,
        these
        expenses include $112,500 and $337,500, respectively, of imputed compensation
        expense for the minimum base salary amounts under the employment agreements
        with
        Messrs. Burchetta and Harris in 2005, and with Messrs. Burchetta, Harris
        and
        Silberstein in 2004, as if we had met the condition for paying the salaries.
        The
        employment agreements contained provisions regarding minimum revenues and
        available working capital before any salaries could be paid. No salary payments
        were made to Messrs. Burchetta, Harris and Silberstein during the first three
        months of 2005 or the nine months ended September 30, 2004, and we recorded
        the
        imputed compensation as a capital contribution. Beginning April 1, 2005,
        we
        began to pay Mr. Burchetta a salary, in accordance with a revised employment
        agreement entered into during the period. The 2005 period also includes salaries
        for finance and accounting, information technology, administrative and marketing
        staff who were not yet employed in 2004. Mr. Silberstein and Mr. Harris left
        employment with the company in October 2004 and September 2005,
        respectively.
  **General
        and administrative expenses.** General
        and administrative expenses totaled $857,141 for the months ended September
        30,
        2005, an increase of $166,386 over general and administrative expenses of
        $690,755 for the nine months ended September 30, 2004. For the nine months
        ended
        September 30, 2005 telecommunication costs, including website hosting were
        $149,225, an increase of $45,704 over telecommunication expenses of $103,522
        for
        the nine months ended September 30, 2004, as the Company has increased its
        website hosting capacity to prepare for higher volumes and has added security
        and backup features to its site. Audit fees totaled $109,935 for the nine
        months
        ended September 30, 2005, an increase of $61,078 over audit fees of $43,857
        for
        the nine months ended September 30, 2004, as in 2005 the Company employed
        the
        services of a new audit firm to re-audit its prior year financial statements.
        Insurance expense totaled $78,404 for the nine months ended September 30,
        2005,
        an increase of $39,718 over insurance expense of $38,686 for the nine months
        ended September 30, 2004, as in 2005 the Company increased its directors
        and
        officers liability coverage in preparation for its proposed public offering
        and
        other coverages saw increased rates. Consulting fees, including legal fees
        declined to $163,145 for the nine months ended September 30, 2005, a decrease
        of
        $90,688 from consulting fees of $253,833 for the nine months ended September
        30,
        2004, as in 2004 the Company employed a greater number of consultants to
        help in
        the preparation of its business plan and strategic positioning, while in
        the
        current year employees perform these services. In addition, for the nine
        months
        ended September 30, 2005 the Company incurred $80,339 for travel and
        entertainment costs, $50,929 for marketing and promotion costs and $93,722
        in
        stock-based compensation expense. For
        the
        nine months ended September 30, 2004, general and administrative expenses
        also
        included $94,950 for marketing and promotion costs, $58,362 for travel and
        entertainment costs, and $27,146 for fundraising costs. The remaining general
        and administrative expenses for both periods consisted primarily of tax
        preparation fees, office supplies and occupancy costs.
  **Research
        and development expenses** .
        We did
        not incur research and development expenses for the nine months ended September
        30, 2005. These expenses totaled $46,022 for the nine months ended September
        30,
        2004. In January 2004, we substantially completed the development of and
        began
        marketing its online product. Commencing February 2004, costs incurred in
        connection with the operation, maintenance, modification, and customization
        of
        our online product have been charged to expense as incurred, but are not
        classified as research and development expenses.
  17
  **Other
        income (expense).** Other
        expenses totaled $437,489 for the nine months ended September 30, 2005,
        consisting primarily of $500 in interest income on cash, $50,885 in accrued
        interest expense on convertible notes, $322,310 for the amortization of the
        beneficial conversion feature and deferred debt discount related to convertible
        notes issued in April and June/September of 2005, and $51,858 for the
        amortization of financing costs associated with the debt offerings. During
        the
        nine months ended September 30, 2004, we earned $4,483 in interest income
        on
        cash held in a bank money market account.
  **** **Critical
        Accounting Policies**
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the amounts reported in the financial statements
        and
        the accompanying notes. These estimates and assumptions are based on
        management's judgment and available information and, consequently, actual
        results could be different from these estimates. The significant accounting
        policies that involve management judgment and which we believe to be the
        most
        critical to aid in fully understanding and evaluating our reported financial
        results are as follows:
 
 *Going
        concern*
  The
        accompanying 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. In separate
        financing transactions in April and June/September of 2005, the Company received
        proceeds from the issuance of 7% convertible promissory notes in the total
        aggregate principal amount of $2,695,000. In addition, the Company has entered
        into a non-binding letter of intent with an investment banking firm to explore
        the possibility of raising additional capital in the public equity markets.
        On
        September 30, 2005, the Company filed a Registration Statement on Form SB-2
        with
        the Securities and Exchange Commission. The Company anticipates that it will
        issue 2,400,000 shares of common stock in a proposed public offering. However,
        there can be no assurance that the Company will be able to raise additional
        capital in the public equity markets as a result of this letter of intent
        or any
        other agreements the Company may enter into. (Note that this report on Form
        10Q-SB shall not constitute an offer to sell or the solicitation of an offer
        to
        buy nor shall there by any sale of these securities in any state in which
        such
        offer, solicitation or sale would be unlawful prior to registration or
        qualification under securities laws of any such state.) As of September 30,
        2005
        the Company’s working capital is not sufficient to fund its plan of operations
        beyond the end of November 2005. While the Company is currently negotiating
        with
        current shareholders and other qualified investors to arrange a private debt
        financing of up to $1,000,000, there is no guarantee that this effort will
        be
        successful. This factor raises substantial doubt about the Company’s ability to
        continue as a going concern.
 
 The
        Company has continued to experience losses, recording a loss of $1,097,806
        for
        the three months ended September 30, 2005, $2,253,376 for the nine months
        ended
        September 30, 2005 and an accumulated deficit since inception of $6,833,958,
        and
        it has not recorded any significant revenue. If the Company is unable to
        raise
        sufficient additional capital before the end of November 2005, it will have
        to
        develop and implement a plan to eliminate staff and overhead until sufficient
        additional capital is raised to support further operations. There can be
        no
        assurance that such a plan will be successful.
 
 *Imputed
        salary expense*
  Under
        the
        terms of employment agreements, the Company has had with its Co-chairman
        and
        CEO, general counsel, and chief operating officer during the nine months
        ended
        September 30, 2004 and with its Co-chairman and CEO and general counsel during
        the nine months ended September 30, 2005, the Company did not pay these officers
        a salary, due to certain conditions as specified in the agreements. The Company
        recorded compensation expense and a capital contribution in an amount equal
        to
        the salary that would have been paid during those periods, representing an
        imputed compensation expense for the minimum base salary amounts under the
        agreement with them, as if the Company had met the condition for paying their
        salaries. As of April 1, 2005, pursuant to a decision made by the Board of
        Directors of the Company, the Company began to pay the Co-Chairman and Chief
        Executive Officer a salary of $250,000 per year. On June 6, 2005, the Company
        entered into a revised employment agreement with him to that effect, and
        no
        additional imputed compensation expense recorded.
  *Research
        and development*
  The
        Company follows the guidelines of Statement of Financial Accounting Standards
        No. 86, Accounting for the Costs of Computer Software to be Sold, Leased,
        or
        Otherwise Marketed, and Statement of Financial Accounting Standards No. 2,
        Accounting for Research and Development Costs. Research and development expenses
        in the three months ended March 31, 2004 and in the period since inception
        consisted primarily of payroll and related expenses and consulting fees incurred
        in connection with employees and consultants involved in the development
        of the
        Company’s online software product prior to establishing technological
        feasibility. In January 2004, the Company substantially completed the
        development of and began marketing its online product. In management’s opinion,
        the product became available for general release concurrent with the completion
        of development and establishment of technological feasibility. As a result,
        no
        software development costs have been capitalized. Commencing February 2004,
        including the nine months ended September 30, 2004 and 2005, costs incurred
        in
        connection with the operation, maintenance, modification, and customization
        of
        the Company’s product have been charged to expense as incurred, and are not
        classified as research and development expenses.
  18
  *Fixed
        assets*
  Fixed
        assets are stated at cost, less accumulated depreciation. Depreciation is
        provided over the estimated useful life of each class of assets using the
        straight-line method. Expenditures for maintenance and repairs are charged
        to
        expense as incurred. Additions and betterments that in managements’ judgment
        substantially extend the useful life of the asset are capitalized. Upon the
        sale, retirement, or other disposition of property and equipment, the cost
        and
        related accumulated depreciation are removed from the balance sheet, and
        any
        gain or loss on the transaction is included in the statement of
        operations.
  *Income
        taxes*
  In
        accordance with Statement of Financial Accounting Standards No. 109, Accounting
        for Income Taxes, the Company uses an asset and liability approach for financial
        accounting and reporting for income taxes. The basic principles of accounting
        for income taxes are: (a) a current tax liability or asset is recognized
        for the
        estimated taxes payable or refundable on tax returns for the current year;
        (b) a
        deferred tax liability or asset is recognized for the estimated future tax
        effects attributable to temporary differences and carry forwards; (c) the
        measurement of current and deferred tax liabilities and assets is based on
        provisions of the enacted tax law and the effects of future changes in tax
        laws
        or rates are not anticipated; and (d) the measurement of deferred tax assets
        is
        reduced, if necessary, by the amount of any tax benefits that, based on
        available evidence, are not expected to be realized. Because the Company
        has had
        net losses since inception, management has determined that the resulting
        deferred tax asset should be offset by a corresponding valuation
        allowance.
  *Stock-based
        compensation*
  Stock
        options issued under stock-based compensation plans are accounted for under
        the
        recognition and measurement principles of Accounting Principles Board Opinion
        No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
        No stock-based employee compensation cost is reflected in the net loss, as
        all
        options granted under these plans had an exercise price equal to the market
        value of the underlying common stock, as determined by the board of directors,
        on the date of grant. Statement of Financial Accounting Standards No. 148,
        Accounting for Stock-Based Compensation-Transition and Disclosure — an Amendment
        of FASB Statement No. 123, requires the disclosure of the effect on net loss
        and
        loss per share had the Company applied the minimum value recognition provisions
        of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
        stock-based employee compensation. The minimum value of each option granted
        is
        estimated as of the grant date using the Black-Scholes option pricing model
        with
        the following assumptions: dividend yield of 0%, expected volatility of 0%,
        risk-free interest rates for individual options ranging from 1.66% to 4.12%,
        and
        an expected life of each option, ranging from three to ten years. Since there
        is
        no public market for the Company’s stock, the Company does not consider
        volatility in estimating the value of each option; the Company follows the
        minimum value method. The estimated minimum value of the options granted
        is
        amortized to expense over the option vesting periods.
  **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.
        Burchetta and Brofman; the risks and uncertainties concerning the Company's
        dependence on its key executives; the risks and uncertainties concerning
        technological changes and the competition for our services and products;
        and the
        risks and uncertainties concerning general economic conditions. 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.
  19
  **Item
        3. CONTROLS AND PROCEDURES**
  **Evaluation
        of the Company’s Disclosure Controls**
  As
        of the
        end of the period covered by this report, the company has evaluated the
        effectiveness of the design and operation of its disclosure controls and
        procedures (“disclosure controls”). This evaluation (the “controls evaluation”)
        was done under the supervision and participation of the company’s management,
        including its chief executive officer (the “CEO”) and chief financial officer
        (the “CFO”). Rules adopted by the Securities and Exchange Commission require
        that in this section of the report the Company present the conclusions of
        its
        CEO and CFO about the effectiveness of the Company’s disclosure controls based
        on and as of the date of the controls evaluation.
  **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”).
  **Disclosure
        Controls**
  Disclosure
        controls are procedures that are designed with the objective of ensuring
        that
        information required to be disclosed in the Company’s reports filed under the
        Securities Exchange Act, such as this report, is recorded, processed, summarized
        and reported within the time periods specified in the Securities and Exchange
        Commission’s rules and forms. Disclosure controls are also designed with the
        objective of ensuring that such information is accumulated and communicated
        to
        the Company’s management, including, without limitation, the CEO and CFO, as
        appropriate to allow timely decisions regarding required
        disclosure.
  **Limitations
        on the Effectiveness of Controls**
  The
        Company’s management, including, without limitation, the CEO and CFO, does not
        expect that the Company’s disclosure controls will prevent all error and fraud.
        A control system no matter how well conceived and operated can provide only
        reasonable, not absolute assurance that the objectives of the control system
        are
        met. Further, the design of a control system must reflect the fact that there
        are resource constraints and the benefits of controls must be considered
        relative to their costs. Because of the inherent limitations of all control
        systems, no evaluation of controls can provide absolute assurance that all
        control issues and instances of fraud, if any, within the Company have been
        detected.
  **Scope
        of Evaluation**
  The
        CEO/CFO evaluation of the Company’s disclosure controls included a review of the
        controls’ objective and design, the controls’ implementation by the Company and
        the effect of the controls on the information generated for use in this report.
        In the course of the controls evaluation, management sought to identify data
        errors, controls problems or acts of fraud and to confirm that appropriate
        corrective action, including process movements, were being undertaken. This
        type
        of evaluation will be done on a quarterly basis so that the conclusions
        concerning controls effectiveness can be reported in the Company’s quarterly
        reports on Form 10-QSB and annual report on Form 10-KSB. The overall goals
        of
        these various review and evaluation activities are to monitor the Company’s
        disclosure controls and to make modifications as necessary. In this regard,
        the
        Company’s intent is that the disclosure controls will be maintained as dynamic
        controls systems that change (including improvements and corrections) as
        conditions warrant.
  20
  **Internal
        Controls** **and Internal Controls over Financial Reporting**
 
 Effective
        internal controls are necessary for us to provide reliable financial reports
        and
        effectively prevent fraud. If we cannot provide reliable financial reports
        or
        prevent fraud, our operating results could be harmed.
  We
        maintain a system of internal controls designed to provide reasonable assurance
        that transactions are executed in accordance with management's general or
        specific authorization; transactions are recorded as necessary to (1) permit
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America, and (2) maintain
        accountability for assets. The Company maintains accounting records that in reasonable detail accurately and fairly reflect
        the
        transactions and dispositions of the Company’s assets.
        We have also established policies and procedures, including access controls, to p rovide
        reasonable assurance that transactions are recorded only as necessary to
        permit
        preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures are made only in
        accordance with authorizations of management and directors. Access
        to
        assets is permitted only in accordance with management's general or specific
        authorization. In addition, the recorded accountability for assets is compared
        with the existing assets at reasonable intervals and appropriate action is
        taken
        with respect to any differences.
  As
        of the
        date of this report, t here
        have
        been certain positive changes in the Company’s internal control procedures that
        have improved those controls and related material weaknesses. Recently
        we hired two additional, experienced accounting staff and enlisted the services
        of an experienced accounting consultant to assist with financial reporting
        issues. We have also begun to document and apply transactional and periodic
        controls procedures, including periodic closing check lists and sign-offs,
        permitting a better review and approval process and improved quality of
        accounting reports. We have also begun to prepare to meet the more rigid
        requirements of the Sarbanes-Oxley Act of 2002, performing research and analysis
        of the controls over expenditures and revenue recognition.
  It
        is the
        responsibility of our management to establish and maintain adequate internal
        control over financial reporting. However, due to our small size and limited
        financial resources our Chief Executive Officer, or CEO, and Chief Financial
        Officer, or CFO, have been the only employees principally involved in accounting
        and financial reporting. At the  time
        of
        the noted material weakness, both the bookkeeper and the CFO worked
        independently, from their homes and there was limited opportunity for a review
        and approval process. Our audit committee has recognized that, as a result,
        there was inadequate segregation of duties within the accounting function,
        leaving most aspects of financial reporting in the hands of the CEO and
        CFO .
        Although we have recently hired two experienced employees to help with
        accounting duties, they are new to the firm and have taken on only limited
        duties. They provide some degree of segregation of duties over cash, however,
        and have begun to help write and implement documented control procedures.
        Combined with procedures already in place, and the infor mation
        that except for the items noted below, no other material errors or
        irregularities were noted during repeated re-reviews, our audit committee
        has
        had confidence that there have been no irregularities in our financial reporting
        or in the protection of our assets.
  Our
        independent auditors have reported to our audit committee certain matters
        involving internal controls that our independent auditors 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 the March 31, 2005, December 31,
        2004
        and 2003 financial close process and inadequate reviews and approvals of
        transactions and accounting entries as well as errors, related primarily
        to the
        accounting for stock options granted to consultants and advisory board members
        in lieu of compensation, which resulted in financial reports that will be
        restated for these periods. During those time periods, only a part-time CFO
        and
        bookkeeper provided the bulk of accounting controls and reports, with inadequate
        review and advisement concerning advanced accounting topics. The combination
        of
        this absence of a review and approval process combined with the reporting
        errors
        were sufficient to be deemed a material weakness. The adjustments related
        to
        these matters have been made by us in connection with the restatement of
        the
        audited financial statements for the year ended December 31, 2004 and 2003
        and
        the quarterly statements for the period ended March 31, 2005. Although
        management has demonstrated certain improvements in controls over the
        preparation of its financial reports, as described above, these reported
        conditions and material weaknesses still existed as of September 30, 2005,
        as
        the additional staff has only recently been hired, and new review procedures
        are
        incomplete and not all have been fully implemented. Management
        expects that most issues will be resolved by the time of the financial close
        process related to the filing of the Company’s Report on Form 10 K-SB for the
        year ended December 31, 2005.
  Given
        these reportable conditions and material weaknesses, our management has devoted
        additional resources to resolving questions that arose during the audit review
        described above ,
        and the
        CEO & CFO are confident that these supervisory, supplemental disclosure
        controls and procedures were effective at a reasonable assurance level. Our
        management believes that the reportable conditions noted above stem from
        our
        operational growth, and has committed to work closely with our audit committee
        to develop improved internal controls. Beginning over the summer of 2005,
        management committed to working with its audit committee to develop improved
        internal controls, including hiring additional accounting staff and documenting
        accounting control procedures in writing. We have also begun to prepare to
        meet
        the more rigid requirements of the Sarbanes-Oxley Act of 2002, performing
        analysis of the controls over expenditures and revenue recognition. Going
        forward, management is confident that the changes already begun, as well
        as
        other anticipated improvements, will correct any material issues. The costs
        associated with these efforts, primarily salaries and consulting fees, while
        material now, are not anticipated to be material to the Company when it achieves
        its anticipated revenue volumes in the coming years. Recently we hired two
        additional accounting staff, and we have begun to document and apply
        transactional and periodic controls procedures, permitting a better review
        and
        approval process and improved quality of accounting reports. Our management
        believes that this new infrastructure will assist in alleviating control
        weaknesses going forward. As a result, we are confident that our **** financial
        statements for the three and nine months ended September 30, 2005 and 2004,
        fairly present, in all material respects, our **** financial
        condition and results of operations.
  21
  Commencing
        July 15, 2007, we will be required to document and test our internal control
        procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley
        Act of 2002, which requires annual management assessments of the effectiveness
        of our internal controls over financial reporting and a report by our
        independent registered public accounting firm addressing these assessments.
        Our
        accounting staff is small, and although we have recently begun to augment
        our
        internal controls procedures and expand our accounting staff, there is no
        guarantee that this effort will be adequate. During the course of our testing,
        we may identify deficiencies which we may not be able to remediate in time
        to
        meet the deadline imposed by the Sarbanes-Oxley
        Act for compliance with the requirements of Section 404. In addition, if
        we fail
        to maintain the adequacy of our internal accounting controls, as such standards
        are modified, supplemented or amended from time to time, we may not be able
        to
        ensure that we can conclude on an ongoing basis that we have effective internal
        controls over financial reporting in accordance with Section 404. Failure
        to
        achieve and maintain an effective internal control environment could also
        cause
        investors to lose confidence in our reported financial
        information.
  **PART
        II. OTHER INFORMATION**
 
 Item
        1.
        Legal Proceedings
 
 None
 
 Item
        2.
        Unregistered Sales of Equity Securities
 
 During
        the nine months ended September 30, 2005, the Company issued a total of 224,900
        shares of our common stock in private placement sales at a price of $1.00
        per
        share. These issuances were exempt from registration pursuant to Section
        4(2) of
        the Securities Act.
 
 Item
        3.
        Defaults upon Senior Securities
 
 None
 
 Item
        4.
        Submission of Matters to a Vote of Security Holders
 
 None
 
 Item
        5.
        Other Information
 
 None
 
 Item
        6.
        Exhibits and Reports on Form 8-K
 
 (a)
        Exhibits
 
 31.1
                Certification
                    of Chief Executive Officer required by Rule
                    13(a)-14(a).
  31.2
              Certification
                  of Chief Financial Officer required by Rule
                  13(a)-14(a).
  32.1
              Certifications
                  required by Rule 13(a)-14(b) and 18 U.S.C. Section
                  1350.
   22
  (b)
        Reports on Form 8-K
  Current
        Report on Form 8-K filed on July 7, 2005, reporting the Company’s April and
        September 2005 private financings.
 Current
        Report on Form 8-K filed on August 22, 2005, reporting the Company’s restatement
        of prior period financial statements.
   SIGNATURES
 
 
 In
        accordance with the requirements of the Securities Exchange Act of 1934,
        the registrant
        has caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.


**DEBT
                  RESOLVE, INC.**Date: November
                  14, 2005
                By:
                /s/ James
                  D. BurchettaJames
                    D. Burchetta
                  Chief
                    Executive Officer
                  (principal
                    executive officer)
  Date: November
                  14, 2005
                By:
                /s/ Katherine
                  A. DeringKatherine
                    A. Dering
                  Chief
                    Financial Officer
                  (principal
                    accounting
                  and
                    financial officer)
 
 23