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|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549            
|                                  
|FORM 10-Q                         

(Mark One)

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2009

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

For the Transition Period from ________ to
___________

Commission File No.: 1-33110

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

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

| |                                           |                             |            | 
| | ----------------------------------------- | --------------------------- | ---------- | 
| | 150 White Plains Road, Suite 108          |                             |            | 
| | Tarrytown, New York                       |                             | 10591      | 
| |                                           |                             |            | 
| | (Address of
 principal executive offices) |                             | (Zip Code) | 
| |                                           |                             |            | 
| |                                           | (914) 949-5500              |            | 
| |                                           |                             |            | 
| |                                           | (Issuers telephone number) |            | 

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

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

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

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

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


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


As of August
19, 2009, 10,061,865 shares of the issuers Common Stock were outstanding.

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DEBT
RESOLVE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

|                              |                                                                                                                         |  |     
|----------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |                                                                                                                         |  | Page
|                              |                                                                                                                         |  |     
|                              |                                                                                                                         |  |     
|PART I. Financial Information |                                                                                                                         | 
|                              |                                                                                                                         |  |     
|                              | Item 1. Financial Statements                                                                                            |  |     
|                              |                                                                                                                         |  |     
|                              | Condensed
 Consolidated Balance Sheets at June 30, 2009 (unaudited) and December 31,
 2008                              |  | 3   
|                              |                                                                                                                         |  |     
|                              | Condensed
 Consolidated Statements of Operations for the Three and Six Months Ended June
 30, 2009 and 2008 (unaudited) |  | 4   
|                              |                                                                                                                         |  |     
|                              | Condensed
 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009
 and 2008 (unaudited)           |  | 5   
|                              |                                                                                                                         |  |     
|                              | Condensed
 Consolidated Statements of Stockholders Deficiency from January 1, 2009
 through June 30, 2009 (unaudited)  |  | 6   
|                              |                                                                                                                         |  |     
|                              | Notes to
 Condensed Consolidated Financial Statements (unaudited)                                                       |  | 7   
|                              |                                                                                                                         |  |     
|                              | Item 2.
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations                         |  | 33  
|                              |                                                                                                                         |  |     
|                              | Item 3.
 Quantitative and Qualitative Disclosures about Market Risk                                                     |  | 41  
|                              |                                                                                                                         |  |     
|                              | Item 4T.
 Controls and Procedures                                                                                       |  | 41  
|                              |                                                                                                                         |  |     
|PART II. Other
Information    |                                                                                                                         | 
|                              |                                                                                                                         | 
|                              | Item 1.
 Legal Proceedings                                                                                              |  | 43  
|                              |                                                                                                                         |  |     
|                              | Item 1A.
 Risk Factors                                                                                                  |  | 44  
|                              |                                                                                                                         |  |     
|                              | Item 2.
 Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 44  
|                              |                                                                                                                         |  |     
|                              | Item 3.
 Defaults Upon Senior Securities                                                                                |  | 44  
|                              |                                                                                                                         |  |     
|                              | Item 4.
 Submission of Matters to a Vote of Security Holders                                                            |  | 45  
|                              |                                                                                                                         |  |     
|                              | Item 5.
 Other Information                                                                                              |  | 45  
|                              |                                                                                                                         |  |     
|                              | Item 6.
 Exhibits                                                                                                       |  | 45  
|                              |                                                                                                                         |  |     
|                              | Signature                                                                                                               |  | 46  
|                              |                                                                                                                         |  |     
|                              | Certifications                                                                                                          |  | 47  

| 
|-
| 
|2

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DEBT RESOLVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

|                                                                                                                                                        |  |               |             |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ----------------- | - | ----------- | -
|                                                                                                                                                        |  | June 30, 2009 |             | December 31, 2008 |  
|                                                                                                                                                        |  |               |             |                   |  
|                                                                                                                                                        |  | (Unaudited)   |             |                   |  
|ASSETS                                                                                                                                                 
|Current assets:                                                                                                                                         |  |               |             |                   |   |             |  
|Cash                                                                                                                                                    |  | $             | 412         |                   | $ | 32,551      |  
|Accounts receivable                                                                                                                                     |  |               | 8,807       |                   |   | 11,582      |  
|Prepaid expenses and other current
assets                                                                                                               |  |               | 45,578      |                   |   | 77,220      |  
|Current assets of discontinued
operations                                                                                                               |  |               | 4,493       |                   |   | 5,582       |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total current assets                                                                                                                                    |  |               | 59,290      |                   |   | 126,935     |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Fixed assets, net                                                                                                                                       |  |               | 59,762      |                   |   | 84,271      |  
|Deposits and other assets                                                                                                                               |  |               | 13,805      |                   |   | 94,855      |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total assets                                                                                                                                            |  | $             | 132,857     |                   | $ | 306,061     |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                                                                                               
|Current liabilities:                                                                                                                                    |  |               |             |                   |   |             |  
|Accounts payable and accrued
liabilities                                                                                                                |  | $             | 3,862,559   |                   | $ | 3,525,849   |  
|Convertible debentures (net of
deferred
 debt discount of $16,236 and $159,562 as of June 30, 2009 and December 31,
 2008, respectively)                |  |               | 434,764     |                   |   | 191,438     |  
|Short-term notes                                                                                                                                        |  |               | 594,000     |                   |   | 487,000     |  
|Current maturities of long-term
debt (net
 of deferred debt discount of $13,822 and $69,556 as of June 30, 2009 and
 December 31, 2008, respectively)   |  |               | 809,177     |                   |   | 753,444     |  
|Lines of credit  related
parties                                                                                                                       |  |               | 1,208,723   |                   |   | 1,203,623   |  
|Derivative liability                                                                                                                                    |  |               | 1,286,269   |                   |   | 331,268     |  
|Current liabilities of discontinued
 operations                                                                                                         |  |               | 2,311,496   |                   |   | 2,330,912   |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total current liabilities                                                                                                                               |  |               | 10,506,988  |                   |   | 8,823,534   |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total liabilities                                                                                                                                       |  |               | 10,506,988  |                   |   | 8,823,534   |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Commitments and contingencies                                                                                                                           |  |               |             |                   |   |             |  
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Stockholders deficiency:                                                                                                                               |  |               |             |                   |   |             |  
|Preferred stock, 10,000,000 shares
authorized,
 $0.001 par value, none issued and outstanding as of June 30, 2009 and
 December 31, 2008                |  |               |            |                   |   |            |  
|Common stock, 100,000,000 shares
 authorized, $0.001 par value, 10,511,865 issued and 10,061,865 outstanding as
 of June 30, 2009 and December 31, 2008 |  |               | 10,512      |                   |   | 10,512      |  
|Additional paid-in
capital                                                                                                                              |  |               | 47,287,329  |                   |   | 47,207,568  |  
|Shares held under escrow (450,000
shares)                                                                                                               |  |               | (450        | )                 |   | (450        | )
|Accumulated deficit                                                                                                                                     |  |               | (57,671,522 | )                 |   | (55,735,103 | )
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total stockholders
deficiency                                                                                                                          |  |               | (10,374,131 | )                 |   | (8,517,473  | )
|                                                                                                                                                        |  |               |             |                   |   |             |  
|Total liabilities and
stockholders
 deficiency                                                                                                         |  | $             | 132,857     |                   | $ | 306,061     |  
|                                                                                                                                                        |  |               |             |                   |   |             |  

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

| 
|-
| 
| 
|3

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

|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | ------------------------ | - | ---------- | - | ------------------- | ---------- | - | - | ---------- | -
|                                                                                     |  | Three Months Ended June 30, |            | Six Months Ended June 30 |  
|                                                                                     |  |                             |            |                          |  
|                                                                                     |  | 2009                        |            | 2008                     |   | 2009       |   | 2008                |           
|                                                                                     |  |                             |            |                          |   |            |   |                     |           
|                                                                                     |  |                             |            | (restated; Note 15)      |   |            |   | (restated; Note 15) |           
|                                                                                    
|Revenues                                                                             |  | $                           | 13,967     |                          | $ | 46,819     |   | $                   | 38,462     |   | $ | 130,997    |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Costs and expenses:                                                                  |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Payroll and related expenses                                                         |  |                             | 183,134    |                          |   | 872,583    |   |                     | 375,375    |   |   | 2,233,579  |  
|General and administrative expenses                                                  |  |                             | 5,089      |                          |   | 2,496,077  |   |                     | 183,062    |   |   | 3,011,541  |  
|Depreciation and amortization expense                                                |  |                             | 12,230     |                          |   | 14,433     |   |                     | 24,509     |   |   | 28,970     |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Total expenses                                                                       |  |                             | 200,453    |                          |   | 3,383,093  |   |                     | 582,946    |   |   | 5,274,090  |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Loss from operations                                                                 |  |                             | (186,486   | )                        |   | (3,336,274 | ) |                     | (544,484   | ) |   | (5,143,093 | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Other (expense) income:                                                              |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Interest income                                                                      |  |                             |           |                          |   |           |   |                     |           |   |   | 190        |  
|Interest expense                                                                     |  |                             | (50,735    | )                        |   | (33,498    | ) |                     | (107,669   | ) |   | (58,692    | )
|Interest expense  related parties                                                   |  |                             | (36,010    | )                        |   | (34,071    | ) |                     | (71,624    | ) |   | (65,008    | )
|Amortization of deferred debt discount                                               |  |                             | (28,331    | )                        |   | (45,781    | ) |                     | (260,969   | ) |   | (547,454   | )
|Loss on derivative liability                                                         |  |                             | (923,410   | )                        |   |           |   |                     | (955,001   | ) |   |           |  
|Other expenses                                                                       |  |                             |           |                          |   | (337       | ) |                     |           |   |   | (338       | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Total other (expense)                                                                |  |                             | (1,038,486 | )                        |   | (113,687   | ) |                     | (1,395,263 | ) |   | (671,302   | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Loss from continuing operations                                                      |  |                             | (1,224,972 | )                        |   | (3,449,961 | ) |                     | (1,939,747 | ) |   | (5,814,395 | )
|Income (loss) from discontinued operations                                           |  |                             | 3,328      |                          |   | (2,142,817 | ) |                     | 3,328      |   |   | (2,650,619 | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Net loss                                                                             |  | $                           | (1,221,644 | )                        | $ | (5,592,778 | ) | $                   | (1,936,419 | ) | $ | (8,465,014 | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Net income (loss) per common share:                                                  |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|basic and diluted (See Note 2)                                                       |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Continuing operations                                                                |  | $                           | (0.10      | )                        | $ | (0.35      | ) | $                   | (0.16      | ) | $ | (0.63      | )
|Discontinued operations                                                              |  | $                           |           |                          | $ | (0.22      | ) | $                   |           |   | $ | (0.29      | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Total                                                                                |  | $                           | (0.10      | )                        | $ | (0.57      | ) | $                   | (0.16      | ) | $ | (0.92      | )
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  
|Basic and diluted weighted average number of common
shares outstanding
 (See Note 2) |  |                             | 12,464,804 |                          |   | 9,748,045  |   |                     | 11,978,616 |   |   | 9,213,979  |  
|                                                                                     |  |                             |            |                          |   |            |   |                     |            |   |   |            |  

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

| 
|-
| 
|4

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

|                                                                             |  |                            |            |                      |   |            |  
|---------------------------------------------------------------------------- |  | -------------------------- | ---------- | -------------------- | - | ---------- | -
|                                                                             |  | Six
 months ended June 30, |           
|                                                                             |  |                            |           
|                                                                             |  | 2009                       |            | 2008                 |  
|                                                                             |  |                            |            |                      |  
|                                                                             |  |                            |            | (restated;
 note 15) |  
|                                                                             |  |                            |           
|Cash flows
 from continuing operating activities:                            |  |                            |            |                      |   |            |  
|Net loss                                                                     |  | $                          | (1,939,747 | )                    | $ | (5,814,395 | )
|Adjustments to reconcile
 net loss to net cash used in operating activities: |  |                            |            |                      |   |            |  
|Non cash stock based compensation                                            |  |                            | 17,850     |                      |   | 3,035,360  |  
|Derivative liability                                                         |  |                            | 955,001    |                      |   |           |  
|Amortization of deferred debt discount                                       |  |                            | 260,970    |                      |   | 547,455    |  
|Depreciation and amortization                                                |  |                            | 24,509     |                      |   | 28,970     |  
|Legal fees paid directly from short term note
proceeds                       |  |                            | 5,000      |                      |   |           |  
|Interest paid directly from short term note
proceeds                         |  |                            | 32,000     |                      |   |           |  
|Changes in operating assets
 & liabilities Accounts receivable               |  |                            | 2,775      |                      |   | (18,675    | )
|Prepaid expenses and other current assets                                    |  |                            | 31,642     |                      |   | 46,609     |  
|Deposits and other assets                                                    |  |                            | 81,050     |                      |   |           |  
|Accounts payable and accrued expenses                                        |  |                            | 336,710    |                      |   | 1,052,436  |  
|                                                                             |  |                            |            |                      |   |            |  
|Net cash used in continuing operating
activities                             |  |                            | (192,240   | )                    |   | (1,122,240 | )
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Cash flows
 from continuing investing activities:                            |  |                            |           |                      |   |           |  
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Cash flows
 from continuing financing activities:                            |  |                            |            |                      |   |            |  
|Proceeds from other receivable                                               |  |                            |           |                      |   | 200,000    |  
|Proceeds from long term loans                                                |  |                            |           |                      |   | 498,000    |  
|Proceeds from convertible loans                                              |  |                            | 100,000    |                      |   |           |  
|Proceeds from issuance of short term notes                                   |  |                            | 70,000     |                      |   | 717,202    |  
|Proceeds from line of credit                                                 |  |                            | 5,100      |                      |   | 36,121     |  
|Repayment of short term notes                                                |  |                            |           |                      |   | (295,000   | )
|Repayment of line of credit                                                  |  |                            |           |                      |   | (10,000    | )
|Proceeds from issuance of common stock                                       |  |                            |           |                      |   | 680,000    |  
|Proceeds from exercise of warrants                                           |  |                            |           |                      |   | 375        |  
|                                                                             |  |                            |            |                      |   |            |  
|Net cash provided by continuing financing
activities                         |  |                            | 175,100    |                      |   | 1,826,698  |  
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Cash flows
 from discontinued operations                                     |  |                            |            |                      |   |            |  
|Net cash used in operating activities                                        |  |                            | (14,999    | )                    |   | (674,895   | )
|                                                                             |  |                            |            |                      |   |            |  
|Net cash used in discontinued operations                                     |  |                            | (14,999    | )                    |   | (674,895   | )
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Net (decrease) increase in
 cash and cash equivalents                        |  |                            | (32,139    | )                    |   | 29,563     |  
|                                                                             |  |                            |            |                      |   |            |  
|Cash and cash equivalents
 at beginning of period                            |  |                            | 32,551     |                      |   |           |  
|                                                                             |  |                            |            |                      |   |            |  
|Cash and cash equivalents
 at end of period  continuing operations          |  | $                          | 412        |                      | $ | 29,563     |  
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Supplemental
 disclosures of cash flow information:                          |  |                            |            |                      |   |            |  
|Cash paid during the period for:                                             |  |                            |            |                      |   |            |  
|Income taxes                                                                 |  | $                          |           |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  
|Interest                                                                     |  | $                          |           |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  
|                                                                             |  |                            |            |                      |   |            |  
|Non-cash financing activities:                                               |  |                            |            |                      |   |            |  
|Conversion of accounts payable to short term
note                            |  | $                          | 9,000      |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  
|Issuance of unfunded short term note                                         |  | $                          | 7,500      |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  
|Legal fees paid directly from short term note
proceeds                       |  | $                          | 5,000      |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  
|Interest paid directly from short term note
proceeds                         |  | $                          | 15,500     |                      | $ |           |  
|                                                                             |  |                            |            |                      |   |            |  

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

| 
|-
| 
|5

---



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

|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  
|---------------------------------------------------------------- |  | ----------------- | - | ------------ | - | ----------------- |  | ------ | ---------- | ---------------------------- | - | -------------------------- |  | -------------------- | ---------- | ----- | - | ---- | - | - | ----------- | - | - | ----------- | -
|                                                                 |  | Preferred Stock   |   | Common Stock |   |                   |  |        |            |                              |   |                            | 
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            | 
|                                                                 |  | Number of
 Shares |   | Amount       |   | Number of
 Shares |  | Amount |            | Additional
 Paid in
 Capital |   | Shares Held
 Under
 Escrow |  | Accumulated
 Deficit |            | Total |  
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |  
|Balance at December 31, 2008                                     |  |                   |  |              | $ |                  |  |        | 10,061,865 |                              | $ | 10,512                     |  | $                    | 47,207,568 |       | $ | (450 | ) | $ | (55,735,103 | ) | $ | (8,517,473  | )
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  
|Capital contributed from the grant of stock options
to employees |  |                   |  |              |   |                  |  |        |           |                              |   |                           |  |                      | 17,850     |       |   |     |   |   |            |   |   | 17,850      |  
|Capital contributed from the deferred debt discount
of notes     |  |                   |  |              |   |                  |  |        |           |                              |   |                           |  |                      | 61,911     |       |   |     |   |   |            |   |   | 61,911      |  
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  
|Net loss                                                         |  |                   |  |              |   |                  |  |        |           |                              |   |                           |  |                      |           |       |   |     |   |   | (1,936,419  | ) |   | (1,936,419  | )
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  
|Balance at June 30, 2009                                         |  |                   |  |              | $ |                  |  |        | 10,061,865 |                              | $ | 10,512                     |  | $                    | 47,287,329 |       | $ | (450 | ) | $ | (57,671,522 | ) | $ | (10,374,131 | )
|                                                                 |  |                   |   |              |   |                   |  |        |            |                              |   |                            |  |                      |            |       |   |      |   |   |             |   |   |             |  

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

| 
|-
| 
|6

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

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

The
accompanying unaudited condensed consolidated financial statements of Debt
Resolve, Inc. and subsidiaries (the Company or Debt Resolve, we, us,
our) have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial
information. In the opinion of management, such statements include all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair presentation of the Companys financial position, results of operations
and cash flows at the dates and for the periods indicated. Pursuant to the
requirements of the Securities and Exchange Commission (the SEC) applicable
to quarterly reports on Form 10-Q, the accompanying unaudited condensed
consolidated financial statements do not include all the disclosures required
by GAAP for annual financial statements. While the Company believes that the
disclosures presented are adequate to make the information not misleading, these
unaudited interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008. Operating results for the three and six months ended June
30, 2009 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2009, or any other interim period.

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

The
accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating to
the recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. For the six months ended June 30, 2009, the Company
incurred a net loss of $1,939,747 from continuing
operations. Cash used in operating and investing activities from continuing
operations was $192,240 for the six months ended June 30, 2009. In addition,
the Company had a working capital deficiency of $8,140,695 from continuing
operations as of June 30, 2009. Based upon projected operating expenses, the
Company believes that its working capital as of the date of this report is not
sufficient to fund its plan of operations for the next twelve months. The
aforementioned factors raise substantial doubt about the Companys ability to
continue as a going concern.
          The Company needs to raise additional capital in
order to be able to accomplish its business plan objectives. The Company has
historically satisfied its capital needs primarily from the sale of debt and
equity securities. Management of the Company is continuing its efforts to
secure additional funds through debt and/or equity instruments. Management
believes that it will be successful in obtaining additional financing; however,
no assurance can be provided that the Company will be able to do so. There is
no assurance that these funds will be sufficient to enable the Company to
attain profitable operations or continue as a going concern. To the extent that
the Company is unsuccessful, the Company may need to curtail its operations and
implement a plan to extend payables and reduce overhead until sufficient
additional capital is raised to support further operations. There can be no
assurance that such a plan will be successful. In the alternative, the Company
may be required to file for bankruptcy. These unaudited condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

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

| 
|-
| 
|7

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

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles
of Consolidation

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

Reclassifications

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

Revenue
Recognition

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

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

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

Cash
and Cash Equivalents

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

Accounts
Receivable

We
extend credit to large, mid-size and small companies for collection services.
We have a concentration of credit risk as 100% of the balance of accounts
receivable at June 30, 2009 and almost 100% of the revenues for the three and six months ended June 30, 2009 consists of only one customer. We do not generally
require collateral or other security to support customer receivables. Accounts
receivable are carried at their estimated collectible amounts. Accounts
receivable are periodically evaluated for collectibility and the allowance for
doubtful accounts is adjusted accordingly. Our management determines
collectibility based on their experience and knowledge of the customers. As of
June 30, 2009, no allowance for doubtful accounts has been booked.

| 
|-
| 
|8

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

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

Accounts
Payable and Accrued Liabilities

Included
in accounts payable and accrued liabilities as of June 30, 2009 are accrued
professional fees of $1,185,414, accrued closing costs for First Performance
of $1,350,931 and cash disbursed in excess of available balance of $96,653. The Company owed 34 vendors a total of $2,895,916 at June 30,
2009, each of whom was individually owed in excess of 10% of total Company
assets.

Derivative
Financial Instruments

The
Companys derivative financial instruments consist of embedded derivatives
related to Convertible Debentures. These embedded derivatives include certain
conversion features. The accounting treatment of derivative financial
instruments requires that the Company records the derivatives and related
warrants at their fair values as of the inception date of the Convertible
Debenture Agreement and at fair value as of each subsequent balance sheet date.
In addition, under the provisions of EITF Issue No. 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, as a result of entering into the Debentures, the Company
is required to classify all other non-employee stock options and warrants as
derivative liabilities and mark them to market at each reporting date. Any
change in fair value inclusive of modifications of terms will be recorded as non-operating,
non-cash income or expense at each reporting date. If the fair value of the
derivatives is higher at the subsequent balance sheet date, the Company will
record a non-operating, non-cash charge. If the fair value of the derivatives
is lower at the subsequent balance sheet date, the Company will record
non-operating, non-cash income. As of June 30, 2009, conversion-related
derivatives and the warrants were valued using the Black Scholes Option Pricing
Model with the following assumptions: dividend yield of 0%; annual volatility
of 471%; and risk free interest rate from 0.19% to 3.19%. The derivatives are
classified as short term liabilities.

Stock-Based
Compensation

The
Company accounts for stock options issued under the recognition and measurement
principles of Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment (SFAS 123(R)). Under the provisions of SFAS
123(R), the Company is required to measure the cost of services received in exchange
for an award of equity instruments based on the fair value of the award. For
employees and directors, the award is measured on the grant date and for
non-employees, the award is generally remeasured on interim financial reporting
dates until the service period is complete, in accordance with 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.
The fair value amount is then recognized over the period during which services
are required to be provided in exchange for the award, usually the vesting
period. As of June 30, 2009, there was no unrecognized compensation cost. Total
stock-based compensation expense for the three months ended June 30, 2009 and
2008 amounted to $5,350 and $1,908,041, respectively, and for the six months
ended June 30, 2009 and 2008 amounted to $17,850 and $3,035,360, respectively.

| 
|-
| 
|9

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

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

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

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

Until
such time as the Company had sufficient relevant trading history to compute the
historical volatility of its common stock, the Company utilized an expected
volatility figure derived from the historical volatilities of an index of
comparable public entities. The Company accounts for the expected life of share
options in accordance with the simplified method provisions of Securities and
Exchange Commission Staff Accounting Bulletin (SAB) No. 110 (December 2007),
which enables the use of the simplified method for plain vanilla share
options as defined in SAB No. 107.

Net
Loss Per Share of Common Stock

Basic
net loss per share excludes dilution for potentially dilutive securities and is
computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share reflects the potential dilution that could occur if
securities or other instruments to issue common stock were exercised or
converted into common stock. Potentially dilutive shares of common stock
realizable from the fulfillment of a share issuance commitment of 150,000 and
0, conversion of our convertible debentures of 8,507,449 and 0, and the
exercise of options and warrants aggregating 33,242,450 and 7,698,463,
respectively at June 30, 2009 and 2008, are excluded from the computation of
diluted net loss per share as their inclusion would be anti-dilutive.

The
Companys issued and outstanding common shares do not include the underlying
shares exercisable with respect to the issuance of 2,402,938 and 177,938
warrants as of June 30, 2009 and 2008, respectively, exercisable at $0.01 per
share or less. In accordance with SFAS No. 128 Earnings Per Share, the
Company has given effect to the issuance of these warrants in computing basic
net loss per share. The Company excludes from the computation of basic net loss
per share 23,750,000 shares from a contingent warrant that is exercisable at
$0.00000004 per share in the event that the Company does not repay certain
notes payable upon maturity.

During
the year ended December 31, 2008, the Company issued 450,000 shares held in
escrow in conjunction with the issuance of the $300,000 convertible debenture
(See Note 4). The Company does not consider these shares as outstanding and as
such does not include them in the calculation of Earnings per Share.

|  
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|  
|10

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

|        |                
|------- | ---------------
|NOTE 3. | NOTES
 PAYABLE:

On November
30, 2007, an unaffiliated investor loaned the Company $100,000 on a 90-day
short term note. The note carries 12% interest per annum, with interest payable
monthly in cash. The principal balance outstanding will be due at any time upon
30 days written notice, subject to mandatory prepayment (without penalty) of
principal and interest, in whole or in part, from the net cash proceeds of any
public or private, equity or debt financing made by Debt Resolve. The note
matured on February 28, 2008 and was extended to June 30, 2009 for aggregate
extension fees of $80,000. In conjunction with the note the Company also issued
a warrant to purchase 100,000 shares of common stock at an exercise price of
$1.25 per share with an expiration date of November 30, 2012. The note was
recorded net of a debt discount of $44,100, based on the relative fair value of
the warrant under the Black-Scholes pricing model. The debt discount was
amortized over the initial term of the note and was fully amortized by March
2008. During the three and six months ended June 30, 2008, the Company recorded
amortization of the debt discount related to this note of $0 and $29,400,
respectively. This note is guaranteed by Mssrs. Mooney and Burchetta, two
Directors of the Company.

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

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

On January
25, 2008, an unaffiliated investor loaned the Company $100,000 on an 18-month
note with a maturity date of July 25, 2009. The note carries interest at a rate
of 12% interest per annum, with interest accruing and payable at maturity. The
note is secured by the assets of the Company. In conjunction with the note, the
Company also issued a warrant to purchase 50,000 shares of common stock at an
exercise price of $1.00 and an expiration date of January 24, 2013. The note
was recorded net of a deferred debt discount of $20,300, based on the relative
fair value of the warrant under the Black-Scholes pricing model. Such discount
is being amortized over the term of the note. During the three months ended
June 30, 2009 and 2008, the Company recorded amortization of the debt discount
related to this note of $3,383 each period, and during the six months ended June 30, 2009
and 2008, amortization was $6,766 and $5,639, respectively.

Between
January 2008 and June 2009, an unaffiliated investor loaned the Company $79,000
on a short term basis. The interest rate is 12% per annum, and the loan is
repayable on demand. As of August 12, 2009, the remaining outstanding balance
on the loan is $22,500.

|  
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|  
|11

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

|        |                            
|------- | ---------------------------
|NOTE 3. | NOTES
 PAYABLE (CONTINUED):

On February
26, 2008, an unaffiliated investor loaned the Company an additional $100,000 on
an 18-month note with a maturity date of August 26, 2009. The note carries
interest at a rate of 12% interest per annum, with interest accruing and
payable at maturity. Terms of the loan included a $20,000 service fee on
repayment or a $45,000 service fee if repayment occurs more than 31 days after
origination. The outstanding principal and interest may be repaid, in whole or
in part, at any time without prepayment penalty. Accordingly, since the loan
remains unpaid, the Company has accrued the service fee of $45,000 as of June
30, 2009. The note is secured by the assets of the Company. In conjunction with
the note, the Company also issued a warrant to purchase 175,000 shares of
common stock at an exercise price of $1.25 and an expiration date of February
26, 2013. The note was recorded net of a deferred debt discount of $57,400,
based on the relative fair value of the warrant under the Black-Scholes pricing
model. Such discount is being amortized over the term of the note. During the
three months ended June 30, 2009 and 2008, the Company recorded amortization of
the debt discount related to this note of $9,567 and during the six months
ended June 30, 2009 and 2008 amortization was $19,132 and $12,756,
respectively.

On March 7,
2008, the Company borrowed $100,000 from a bank at a variable rate equal to the
banks prime rate (currently 6%) for 30 days. On March 14, 2008, the original
loan was repaid, and the Company borrowed $150,000 at the prime rate and due on
April 7, 2008. On May 15, 2008, the loan was repaid and the Company borrowed
$250,000 at the prime rate and due on July 1, 2008. The note was subsequently
extended to January 1, 2009 and is outstanding as of June 30, 2009. The loan is
secured by the assets of the Company and is personally guaranteed by Mr.
Montgomery and Mr. Mooney, an officer/director and a director, respectively.

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

On April
10, 2008, an unaffiliated investor loaned the Company an additional $198,000 on
an amendment of the prior note with a maturity date of June 21, 2009 for the
entire balance of the first note plus the amendment ($323,000 total). The note
carries interest at a rate of 12% per annum, with interest accruing and payable
at maturity. The outstanding principal and interest may be repaid, in whole or
in part, at any time without prepayment penalty. The note is secured by the
assets of the Company. In conjunction with the note, the Company also issued a
warrant to purchase 99,000 shares of common stock at an exercise price of $2.45
and an expiration date of April 10, 2013. This warrant has a cashless
exercise feature. The note was recorded net of a deferred debt discount of
$88,110, based on the relative fair value of the warrant. The debt discount is
being amortized over the term of the note. During the year ended December 31,
2008, the Company recorded amortization of the debt discount related to this
note of $88,110 due to the note being in default. This note is guaranteed by
Mr. Burchetta. The amended note maintains the provision requiring repayment of
the note upon raising gross proceeds of $500,000 subsequent the issuance of the
note. At December 31, 2008, the Company had raised in excess of $500,000
subsequent to this amended note, and as a result, this note is in default. The
Company also issued 50,000 shares of common stock valued at $122,130 in order to
induce the investor to forbear on the note, which is included in expenses. The
note holder has requested repayment of the note, but the note is still
outstanding.

|  
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|  
|12

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

|        |                            
|------- | ---------------------------
|NOTE 3. | NOTES
 PAYABLE (CONTINUED):

On November
14, 2008, an unaffiliated investor loaned the Company $107,000 on short term
note with a maturity date of December 31, 2008 (the November Note). The
Company received net proceeds of $100,000, and the $7,000 was treated as
prepaid interest on the November Note to the original maturity date. The
maturity date was subsequently extended to March 31, 2009 for additional
interest on the note of $8,000, and the face amount of the November is now
$115,000 at maturity. On July 31, 2009, the maturity date was extended to
August 26, 2009. The November Note carries a default rate of interest of 22%
per annum after the maturity date. The Company has a thirty (30) day grace
period after the maturity date to repay the November Note with interest. The
outstanding principal and interest may be repaid, in whole or in part, at any
time without prepayment penalty. The November Note is secured by a first lien
on the assets of the Company as evidenced by a UCC-1 filing. Arisean Capital
subordinated its first lien position on its $576,000 outstanding loan to the
extent of the November Note. In conjunction with the November Note, the Company
issued a warrant to purchase 1,000,000 shares of common stock at an exercise
price of $0.12 and an expiration date of November 14, 2013. This warrant has a
cashless exercise feature. The November Note was recorded net of a deferred
debt discount of $50,504, based on the relative fair value of the warrant and
was fully amortized in 2008 over the term of the note. On February 13, 2009,
the warrant for 1,000,000 shares was cancelled and replaced by a new five year
warrant to purchase 25,750,000 shares of Company common stock at a total
exercise price of $1.00. Upon repayment of amounts borrowed from the investor
on or before maturity, as extended, the Company may reduce the warrant by
23,750,000 shares.

On February
26, 2009, the holder of the November Note loaned the Company an additional
$82,500 with a maturity date of March 30, 2009 (the February Note). The
Company received net proceeds of $70,000, and the $7,500 was treated as prepaid
interest on the February Note and the $5,000 was expensed as attorneys fees.
Through a series of amendments, the maturity date of the November Note and the
February Note was extended to August 26, 2009 for additional interest of
$12,500, with the face amount of the February Note is now $95,000 at maturity.
The holder received the right, in the event of a Company default on either
Note, to return to the Company any of the holders 2,000,000 warrants not yet
exercised in exchange for the Companys cash payment equal to $0.023 per
warrant share. Interest applies at a default rate of 26% interest per annum
after maturity. The February Note is secured by a first lien on the assets of
the Company as evidenced by a UCC-1 filing. Arisean Capital further
subordinated its first lien position on its $576,000 outstanding loan to the
extent of the November and February Notes.

|        |                         
|------- | ------------------------
|NOTE 4. | CONVERTIBLE
 DEBENTURES:

On
September 30, 2008, an unaffiliated investor loaned the Company $300,000 on a 6
month convertible debenture with a maturity date of March 31, 2009. This
convertible debenture replaced a note issued on July 31, 2008 in the same
amount of $300,000 with a maturity date of January 31, 2009. The debenture
carries interest at a rate of 15% per annum, with $22,500 (6 months) of
interest payable in advance from the proceeds of the original loan on July 31,
2008. Thereafter, interest is payable monthly in cash. The outstanding
principal and interest may be repaid, in whole or in part, at any time without
prepayment penalty. The Exchange Agreement calls for the lender to receive 150,000
shares of the common stock of the company in consideration for the exchange of
the original note for the convertible debenture. As of the date of this report,
the shares have not been issued. In accordance with EITF 96-19, the exchange was determined to be an extinguishment
of debt, and extinguishment accounting was applied. A loss on extinguishment of $60,000 was booked to general and
administrative expense. The debenture is secured by an escrow of
450,000 shares of the common stock of the Company, which is held in escrow at
the lenders attorneys office. At any time on or after the Issue Date and
prior to the time the Debenture is paid in full in accordance with its terms
(including, without limitation, after the occurrence of an Event of Default,
or, if the Debenture is not fully paid or converted after the Maturity Date),
the Holder of this Debenture is entitled, at its option to convert this
Debenture at any time into shares of Common Stock, $0.001 par value (Common
Stock), of the Company at the Conversion Price. Conversion Price means the
(i) the average VWAP for the 20 Trading Days ending on the Trading Day
immediately before the relevant Conversion Date, multiplied by (ii) fifty
percent (50%). The debenture was recorded net of a beneficial conversion
feature of $300,000, based on the relative fair value of the conversion
feature. The beneficial conversion feature is being amortized over the term of
the debenture. During the three and six months ended June 30, 2009, the Company
recorded amortization of the beneficial conversion feature related to this
debenture of $0 and $150,000, respectively. At the date of this report, the
debenture is in default, and the Company is working with the lender to
restructure the debenture.

|  
|--
|  
|13

---



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

|        |                                     
|------- | ------------------------------------
|NOTE 4. | CONVERTIBLE
 DEBENTURES (CONTINUED):

On July 31,
2008, the Company agreed to pay the attorney who arranged the above financing
50,000 shares of stock in the Company for introducing the investor. Because of
a delinquent payable with the Companys stock transfer agent, the shares were
converted to a 6 month loan of $50,000 with a maturity date of January 31,
2009. The note carried interest at a rate of 12% per annum, payable monthly in
arrears in cash. At September 30, 2008, due to the inability of the Company to
pay the interest on the note, the note was exchanged for a convertible
debenture with the same maturity date of January 31, 2009 in the amount of
$51,000. The debenture carries interest at a rate of 12% per annum, with
interest payable monthly in arrears in cash. The outstanding principal and
interest may be repaid, in whole or in part, at any time without prepayment
penalty. At any time on or after the Issue Date and prior to the time the
Debenture is paid in full in accordance with its terms (including, without
limitation, after the occurrence of an Event of Default, or, if the Debenture
is not fully paid or converted after the Maturity Date), the Holder of this
Debenture is entitled, at its option to convert this Debenture at any time into
shares of Common Stock, $0.001 par value (Common Stock), of the Company at
the Conversion Price. Conversion Price means the (i) the average VWAP for the
20 Trading Days ending on the Trading Day immediately before the relevant
Conversion Date, multiplied by (ii) fifty percent (50%). The debenture was
recorded net of a beneficial conversion feature of $38,250, based on the
relative fair value of the conversion feature. The beneficial conversion
feature is being amortized over the term of the debenture. During the three and
six months ended June 30, 2009, the Company recorded amortization of the
beneficial conversion feature related to this debenture of $0 and $9,562,
respectively. As a result of the default on this debenture, the Company
negotiated a settlement with the attorney to discharge the debenture, its
accrued interest and old outstanding legal bills to the attorney for $75,000
paid $5,000 per month beginning August 1, 2009.

On May 29,
2009, an unaffiliated investor loaned the Company $100,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 1,000,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00. The
exercise period of the warrant is five years. The note was recorded net of a
deferred debt discount of $16,700, based on the relative fair value of the
warrant under the Black-Scholes pricing model. Such discount is being amortized
over the term of the note. During the three and six months ended June 30, 2009,
the Company recorded amortization of the debt discount related to this note of
$464.

The
embedded conversion option related to the Convertible Debentures is accounted
for under EITF issue No. 00-19 Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock. We have
determined that the embedded conversion option is a derivative liability.
Accordingly, the embedded conversion option will be marked to market through
earnings at the end of each reporting period. The conversion option is valued
using the Black-Scholes valuation model. For the three and six months ended
June 30, 2009, the Company reflected a loss of $923,410 and $955,001
representing the change in the value of the embedded conversion option.

|        |                                    
|------- | -----------------------------------
|NOTE 5. | LINES OF
 CREDIT  RELATED PARTIES:

On May 31,
2007, the Company entered into a line of credit agreement with Arisean Capital,
Ltd. (Arisean), pursuant to which the Company may borrow from time to time up
to $500,000 from Arisean to be used by the Company to fund its working capital
needs. Borrowings under the line of credit are secured by the assets of the
Company, subject to a subordination agreement and bear interest at a rate of
12% per annum, with interest payable monthly in cash. The principal balance
outstanding will be due at any time upon 30 days written notice, subject to
mandatory prepayment (without penalty) of principal and interest, in whole or
in part, from the net cash proceeds of any public or private, equity or debt
financing completed by the Company. Ariseans obligation to lend such funds to
the Company is subject to a number of conditions, including review by Arisean
of the proposed use of such funds by the Company. Arisean is controlled by
Charles S. Brofman, the Co-Founder of the Company and a member of its Board of
Directors. As of June 30, 2009, the outstanding balance on this line of credit
was $576,000. On February 8, 2008, in consideration of the line of credit not
being repaid with the later loan proceeds secured subsequent to the date of the
agreement, the Company granted options to purchase 350,000 shares of the common
stock of the Company at $1.25 per share to Mr. Brofman. The term of the options
is three years and they vest immediately. The option expense of $227,500 was
treated as deferred debt discount in association with Mr. Brofmans financing
during 2008 and was expensed immediately.

|  
|--
|  
|14

---



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

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

On August
10, 2007, the Company entered into a line of credit agreement with James D.
Burchetta, Debt Resolves Chairman and Founder, for up to $100,000 to be used
to fund the working capital needs of Debt Resolve and First Performance.
Borrowings under the line of credit are secured by the assets of the Company
and bear interest at a rate of 12% per annum, with interest payable monthly in
cash. The principal balance outstanding will be due at any time upon 30 days
written notice, subject to mandatory prepayment (without penalty) of principal
and interest, in whole or in part, from the net cash proceeds of any public or
private, equity or debt financing made by Debt Resolve. As of June 30, 2009,
the outstanding balance on this line of credit was $119,000.

On October
17, 2007, the Company entered into a line of credit agreement with William M.
Mooney, a Director of Debt Resolve, for up to $275,000 to be used primarily to
fund the working capital needs of First Performance. Borrowings under the line
of credit bear interest at 12% per annum, with interest payable monthly in
cash. The principal balance outstanding will be due at any time upon 30 days
written notice, subject to mandatory prepayment (without penalty) of principal
and interest, in whole or in part, from the net cash proceeds of any public or
private, equity or debt financing made by Debt Resolve. In conjunction with
this line of credit, the Company also issued a warrant to purchase 137,500
shares of common stock at an exercise price of $2.00 per share with an
expiration date of October 17, 2012. The liability for borrowings under the
line of credit was recorded net of a deferred debt discount of $117,700, based
on the relative fair value of the warrant under the Black-Scholes pricing
model. The debt discount was fully amortized during the year ended December 31,
2007. As of June 30, 2009, the Company had $355,521 in outstanding borrowings
under this line of credit. Borrowings under this line of credit are guaranteed
by Mr. Burchetta and Mr. Brofman. On February 8, 2008, in consideration of the
line of credit not being repaid with the later loan proceeds secured subsequent
to the date of the agreement, the Company granted Mr. Mooney 350,000 options to
purchase common stock at $1.25 per share. This option has a term of three years
and vests immediately. The grant was valued at $227,500 under the Black-Scholes
pricing model and was expensed immediately as amortization of the deferred debt
discount.

On July 1,
2008, the Company entered into a line of credit agreement with Kenneth H.
Montgomery, a former Chief Executive Officer and Director of Debt Resolve, for
up to $315,000 to be used to fund the working capital needs of Debt Resolve.
Borrowings under the line of credit will bear interest at 12% per annum, with
interest payable monthly in cash. The principal balance outstanding will be due
at any time upon 30 days written notice, subject to mandatory prepayment
(without penalty) of principal and interest, in whole or in part, from the net
cash proceeds of any public or private, equity or debt financing made by Debt
Resolve. In conjunction with this line of credit, the Company also issued an
option to purchase 350,000 shares of common stock at an exercise price of $1.00
per share on July 15, 2008 with an expiration date of July 15, 2015. The note
was recorded net of a deferred debt discount of $262,500, based on the relative
fair value of the option. The debt discount was amortized over the term of the
note. As of June 30, 2009, the Company has borrowed $158,202 under this line of
credit plus $185,681 of Company expenses paid directly by Mr. Montgomery for a
total borrowed of $343,883. The Company accrued $22,880 in interest related to
this line of credit, including $4,733 and $9,414 during the three and six
months ended June 30, 2009, respectively.

|        |                                                    
|------- | ---------------------------------------------------
|NOTE 6. | FIRST
 PERFORMANCE CORP.  DISCONTINUED OPERATIONS:

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

In
accordance with SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), the Company has reported these subsidiaries
results as of June 30, 2009 and December 31, 2008 and for the three and six
months ended June 30, 2009 and 2008 as discontinued operations because the
operations and cash flows have been eliminated from the Companys continuing
operations.

|  
|--
|  
|15

---



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

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

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

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

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

|                                      |  |                      |             |                          |   |           | 
|------------------------------------- |  | -------------------- | ----------- | ------------------------ | - | --------- | 
|                                      |  | As of June 30,
 2009 |             | As of December 31,
 2008 |  
|                                      |  |                      |             |                          |  
|                                      |  |                      | (unaudited) |                          |   |           | 
|Assets:                               |  |                      |             |                          |   |           | 
|Cash                                  |  | $                    | 212         |                          | $ | 1,301     | 
|Prepaid expenses & other              |  |                      | 4,281       |                          |   | 4,281     | 
|                                      |  |                      |             |                          |   |           | 
|Total current assets                  |  | $                    | 4,493       |                          | $ | 5,582     | 
|                                      |  |                      |             |                          |   |           | 
|Liabilities:                          |  |                      |             |                          |   |           | 
|Current liabilities:                  |  |                      |             |                          |   |           | 
|Accounts payable and accrued expenses |  | $                    | 2,311,496   |                          | $ | 2,330,912 | 
|                                      |  |                      |             |                          |   |           | 
|Total current liabilities             |  | $                    | 2,311,496   |                          | $ | 2,330,912 | 
|                                      |  |                      |             |                          |   |           | 
|                                      |  |                      |             |                          |   |           | 

|  
|--
|  
|16

---



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

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

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

|                                            |  |                                |        |               |   |            |  
|------------------------------------------- |  | ------------------------------ | ------ | ------------- | - | ---------- | -
|                                            |  | Three Months Ended (unaudited) |       
|                                            |  |                                |        |               |   |            |  
|                                            |  | June 30, 2009                  |        | June 30, 2008 |  
|                                            |  |                                |        |               |  
|                                            |  |                                |        |               |   |            |  
|Revenue                                     |  | $                              |       |               | $ | 154,798    |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Payroll and
 related expenses               |  |                                |       |               |   | 280,748    |  
|General and
 administrative expenses        |  |                                | 7,397  |               |   | 348,153    |  
|Impairments
 of goodwill and intangibles    |  |                                |       |               |   | 176,545    |  
|Disposal of
 fixed asset                    |  |                                |       |               |   | 87,402     |  
|Accrual for
 closing costs for lease        |  |                                |       |               |   | 1,367,558  |  
|Depreciation
 and amortization              |  |                                |       |               |   | 34,563     |  
|                                            |  |                                |        |               |   |            |  
|Total
 expenses                             |  |                                | 7,397  |               |   | 2,294,969  |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Loss from
 operations                       |  |                                |       |               |   | (2,140,171 | )
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Interest
 expense                           |  |                                |       |               |   | (5,408     | )
|Other income                                |  |                                | 10,725 |               |   | 2,762      |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Income
 (loss) from discontinued operations |  | $                              | 3,328  |               | $ | (2,142,817 | )
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|                                            |  | Six Months Ended (unaudited)   |       
|                                            |  |                                |        |               |   |            |  
|                                            |  | June 30, 2009                  |        | June 30, 2008 |  
|                                            |  |                                |        |               |  
|                                            |  |                                |        |               |   |            |  
|Revenue                                     |  | $                              |       |               | $ | 303,768    |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Payroll and
 related expenses               |  |                                |       |               |   | 565,758    |  
|General and
 administrative expenses        |  |                                | 7,397  |               |   | 681,829    |  
|Impairments
 of goodwill and intangibles    |  |                                |       |               |   | 176,545    |  
|Disposal of
 fixed asset                    |  |                                |       |               |   | 87,402     |  
|Accrual for
 closing costs for lease        |  |                                |       |               |   | 1,367,558  |  
|Depreciation
 and amortization              |  |                                |       |               |   | 70,539     |  
|                                            |  |                                |        |               |   |            |  
|Total
 expenses                             |  |                                | 7,397  |               |   | 2,949,631  |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Loss from
 operations                       |  |                                |       |               |   | (2,645,863 | )
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Interest
 expense                           |  |                                |       |               |   | (9,095     | )
|Other income                                |  |                                | 10,725 |               |   | 4,339      |  
|                                            |  |                                |        |               |   |            |  
|                                            |  |                                |        |               |   |            |  
|Income
 (loss) from discontinued operations |  | $                              | 3,328  |               | $ | (2,650,619 | )
|                                            |  |                                |        |               |   |            |  

|  
|--
|  
|17

---



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

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

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

|        |                
|------- | ---------------
|NOTE 7. | STOCK
 OPTIONS:

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

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

|                                |  |         |         |                                    |   |                                                 |  |                             |           |  |   |   | 
|------------------------------- |  | ------- | ------- | ---------------------------------- | - | ----------------------------------------------- |  | --------------------------- | --------- |  | - | - | 
|                                |  | Options |         | Weighted
 Average
 Exercise
 Price |   | Weighted
 Average
 Remaining
 Contractual
 Term |  | Aggregate
 Intrinsic
 Value |          
|                                |  |         |         |                                    |   |                                                 |  |                             |          
|Outstanding
 at January 1, 2009 |  |         | 865,000 |                                    | $ | 2.99                                            |  |                             | 4.3 Years |  | $ |  | 
|Granted                         |  |         |        |                                    |   |                                                |  |                             |          |  | $ |  | 
|Exercised                       |  |         |        |                                    |   |                                                |  |                             |          |  | $ |  | 
|Forfeited or
 expired           |  |         |        |                                    |   |                                                |  |                             |          |  | $ |  | 
|                                |  |         |         |                                    |   |                                                 |  |                             |           |  |   |   | 
|Outstanding
 at June 30, 2009   |  |         | 865,000 |                                    | $ | 2.99                                            |  |                             | 4.0 Years |  | $ |  | 
|                                |  |         |         |                                    |   |                                                 |  |                             |           |  |   |   | 
|Exercisable
 at June 30, 2009   |  |         | 840,000 |                                    | $ | 3.03                                            |  |                             | 4.0 Years |  | $ |  | 
|                                |  |         |         |                                    |   |                                                 |  |                             |           |  |   |   | 

|  
|--
|  
|18

---



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

|        |                            
|------- | ---------------------------
|NOTE 7. | STOCK
 OPTIONS (CONTINUED):

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

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

|                                |  |         |           |                                    |   |                                                 |  |                             |           |  |   |   | 
|------------------------------- |  | ------- | --------- | ---------------------------------- | - | ----------------------------------------------- |  | --------------------------- | --------- |  | - | - | 
|                                |  | Options |           | Weighted
 Average
 Exercise
 Price |   | Weighted
 Average
 Remaining
 Contractual
 Term |  | Aggregate
 Intrinsic
 Value |          
|                                |  |         |           |                                    |   |                                                 |  |                             |          
|Outstanding
 at January 1, 2009 |  |         | 5,189,934 |                                    | $ | 2.89                                            |  |                             | 5.3 Years |  | $ |  | 
|Granted                         |  |         |          |                                    |   |                                                |  |                             |          |  | $ |  | 
|Exercised                       |  |         |          |                                    |   |                                                |  |                             |          |  | $ |  | 
|Forfeited or
 Expired           |  |         |          |                                    |   |                                                |  |                             |          |  | $ |  | 
|                                |  |         |           |                                    |   |                                                 |  |                             |           |  |   |   | 
|Outstanding
 at June 30, 2009   |  |         | 5,189,934 |                                    | $ | 2.89                                            |  |                             | 4.8 Years |  | $ |  | 
|                                |  |         |           |                                    |   |                                                 |  |                             |           |  |   |   | 
|Exercisable
 at June 30, 2009   |  |         | 5,189,934 |                                    | $ | 2.89                                            |  |                             | 4.8 Years |  | $ |  | 
|                                |  |         |           |                                    |   |                                                 |  |                             |           |  |   |   | 

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

The
Company recorded stock based compensation expense representing the amortized
amount of the fair value of options granted in prior periods in the amount of
$5,350 and $17,850 during the three and six months ended June 30, 2009,
respectively.

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

|                                     |  |                                        |        |      |   |           | 
|------------------------------------ |  | -------------------------------------- | ------ | ---- | - | --------- | 
|                                     |  | (unaudited)Three months ended June 30, |       
|                                     |  | 2009                                   |        | 2008 |  
|                                     |  |                                        |        |      |  
|                                     |  |                                        |        |      |   |           | 
|Payroll and
 related expenses        |  | $                                      | 5,350  |      | $ | 495,211   | 
|                                     |  |                                        |        |      |   |           | 
|General and
 administrative expenses |  | $                                      |       |      | $ | 1,412,780 | 
|                                     |  |                                        |        |      |   |           | 
|                                     |  |                                        |       
|                                     |  | (unaudited)Six months ended June 30,   |       
|                                     |  | 2009                                   |        | 2008 |  
|                                     |  |                                        |        |      |  
|                                     |  |                                        |        |      |   |           | 
|Payroll and
 related expenses        |  | $                                      | 17,850 |      | $ | 1,539,930 | 
|                                     |  |                                        |        |      |   |           | 
|General and
 administrative expenses |  | $                                      |       |      | $ | 1,495,430 | 
|                                     |  |                                        |        |      |   |           | 

|        |          
|------- | ---------
|NOTE 8. | WARRANTS:

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

|                                |  |          |            |                                    |   |                                                 |  |                             |           |  |   |           | 
|------------------------------- |  | -------- | ---------- | ---------------------------------- | - | ----------------------------------------------- |  | --------------------------- | --------- |  | - | --------- | 
|                                |  | Warrants |            | Weighted
 Average
 Exercise
 Price |   | Weighted
 Average
 Remaining
 Contractual
 Term |  | Aggregate
 Intrinsic
 Value |          
|                                |  |          |            |                                    |   |                                                 |  |                             |          
|Outstanding
 at January 1, 2009 |  |          | 3,840,455  |                                    | $ | 1.23                                            |  |                             | 3.2 Years |  | $ | 34,484    | 
|Granted                         |  |          | 26,750,000 |                                    | $ | 0.04                                            |  |                             | 4.6 Years |  | $ | 2,317,499 | 
|Exercised                       |  |          |           |                                    |   |                                                |  |                             |          |  |   |          | 
|Forfeited or
 Expired           |  |          | (1,000,000 | )                                  | $ | 0.12                                            |  |                             | 4.4 Years |  |   |          | 
|                                |  |          |            |                                    |   |                                                 |  |                             |           |  |   |           | 
|Outstanding
 at June 30, 2009   |  |          | 29,590,455 |                                    | $ | 0.19                                            |  |                             | 4.5 Years |  | $ | 2,351,983 | 
|                                |  |          |            |                                    |   |                                                 |  |                             |           |  |   |           | 
|Exercisable
 at June 30, 2009   |  |          | 5,840,455  |                                    | $ | 0.96                                            |  |                             | 3.8 Years |  | $ | 214,484   | 
|                                |  |          |            |                                    |   |                                                 |  |                             |           |  |   |           | 

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

|  
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|  
|19

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

|        |                       
|------- | ----------------------
|NOTE 8. | WARRANTS
 (CONTINUED):

In
conjunction with the November Note, the Company issued a warrant to purchase
1,000,000 shares of common stock at an exercise price of $0.12 and an
expiration date of November 14, 2013. On February 13, 2009, the warrant for
1,000,000 shares was cancelled and replaced by a new five year warrant to
purchase 25,750,000 shares of Company common stock at a total exercise price of
$1.00. Upon repayment of the November and February Notes on or before maturity,
as extended to August 26, 2009, the Company may reduce the warrant by
23,750,000 shares. The warrant holder received the right, in the event of a
Company default on either Note, to return to the Company any of the holders
2,000,000 warrants not yet exercised in exchange for the Companys cash payment
equal to $0.023 per warrant share.

|        |                         
|------- | ------------------------
|NOTE 9. | ISSUANCE OF COMMON STOCK

In
connection with the Companys sale of a $300,000 convertible debenture on
September 30, 2008, the Company issued 450,000 common shares as restricted
stock and granted a security interest in the shares to the debenture holder.
The Company excludes the restricted shares from the number of outstanding
shares used to determine its net loss per share.

Also in
connection, with the Companys sale of a $300,000 convertible debenture on
September 30, 2008, the Company was to issue 150,000 shares in compensation for
the agreement exchanging the original note dated July 31, 2008 for the
convertible debenture dated September 30, 2008. As of the date of this report,
the shares have not been issued.

Preferred
Stock

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

Common
stock

At June 30,
2009 and December 31, 2008, the Company has authorized 100,000,000 shares of
common stock, par value $0.001, of which 10,511,865 are issued and 10,061,865
are outstanding as 450,000 shares are held in escrow as restricted shares as
security for the $300,000 convertible debenture.

|         |                               
|-------- | ------------------------------
|NOTE 10. | COMMITMENTS AND CONTINGENCIES:

Lawsuits
from vendors

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

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

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

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|  
|20

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

|         |                                            
|-------- | -------------------------------------------
|NOTE 10. | COMMITMENTS
 AND CONTINGENCIES (CONTINUED):

Lawsuits
from landlords

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

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

Lawsuits
from former employees

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

|  
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|  
|21

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

|         |                                            
|-------- | -------------------------------------------
|NOTE 10. | COMMITMENTS
 AND CONTINGENCIES (CONTINUED):

Lawsuit
related to financing

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

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

Operating
leases

On August
1, 2005, the Company entered into a five year lease for its corporate
headquarters which includes annual escalations in rent. In accordance with SFAS
No. 13, Accounting for Leases, (SFAS 13) the Company accounts for rent
expense using the straight line method of accounting, accruing the difference
between actual rent due and the straight line amount. On October 1, 2008, the
Company was evicted from its office for non-payment of rent. An amended
stipulation of settlement has been signed to resolve the balance of the lease.
At December 31, 2008, the Company accrued the balance of its obligation under
the lease in the amount of $227,787 on the balance sheet. On May 18, 2009, the
Company paid a required $60,000 payment. On June 4, 2009, the Company received
a Satisfaction of Judgment and Release from any further liability in this
matter, and it is now settled. The remaining accrual was reversed in the second
quarter of 2009 reflecting the settlement. (See Lawsuits from Landlords above).

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

Rent
expense for the three months ended June 30, 2009 and 2008 was approximately
($237,000) and $98,000, respectively, and rent expense for the six months ended
June 30, 2009 and 2008 was approximately ($237,000) and $201,000, respectively.
The credit in 2009 was due to the Company settling its rental obligation on its
corporate headquarters and reversing the accrued obligation recorded in 2008.
(See Operating leases above)

Employment
Agreements

The Company
has entered into an employment agreement with James D. Burchetta under which he
will devote substantially all of his business and professional time to us and
our business development. The employment agreement with Mr. Burchetta is
effective until January 13, 2013. The agreement provided Mr. Burchetta with an
initial annual base salary of $240,000 and contains provisions for minimum
annual increases based on changes in an applicable cost-of-living index. The
employment agreement with Mr. Burchetta contains provisions under which his
annual salary may increase to $600,000 if we achieve specified operating
milestones and also provides for additional compensation based on the value of
a transaction that results in a change of control, as that term is defined in
the agreement. In the event of a change of control, Mr. Burchetta would be
entitled to receive 25% of the sum of $250,000 plus 2.5% of the transaction
value, as that term is defined in the agreement, between $5,000,000 and
$15,000,000 plus 1% of the transaction value above $15,000,000. Compensation
expense under the employment agreement with Mr. Burchetta is recorded as
payroll and related expenses in the unaudited condensed consolidated statement
of operations and totaled $0 and $62,500 for the three months ended June 30,
2009 and 2008 and $0 and $125,000 for the six months ended June 30, 2009 and
2008, respectively.

|  
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|  
|22

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

|         |                                            
|-------- | -------------------------------------------
|NOTE 10. | COMMITMENTS
 AND CONTINGENCIES (CONTINUED):

Employment
Agreements (continued)

The Company
amended the employment agreement with Mr. Burchetta in February 2004, agreeing
to modify his level of compensation, subject to its meeting specified financial
and performance milestones. The employment agreement, as amended, provided that
the base salary for Mr. Burchetta will be as follows: (1) if at the date of any
salary payment, the aggregate amount of our net cash on hand provided from
operating activities and net cash and/or investments on hand provided from
financing activities is sufficient to cover our projected cash flow requirements
(as established by our board of directors in good faith from time to time) for
the following 12 months (the projected cash requirement), the annual base
salary will be $150,000; and (2) if at the date of any salary payment, our net
cash on hand provided from operating activities is sufficient to cover our
projected cash requirement, the annual base salary will be $250,000, and
increased to $450,000 upon the date upon which we complete the sale or license
of our Debt Resolve system with respect to 400,000 consumer credit accounts.
Under the terms of the amended employment agreement, no salary payments were
made to Mr. Burchetta during 2004. The Company recorded compensation expense
and a capital contribution totaling $150,000 in 2004, representing an imputed
compensation expense for the minimum base salary amounts under the agreement
with Mr. Burchetta, as if we had met the condition for paying his salary.
          The
Company amended the employment agreement with Mr. Burchetta again in June 2005,
agreeing that (1) as of April 1, 2005 we will pay Mr. Burchetta an annual base
salary of $250,000 per year, and thereafter his base salary will continue at
that level, subject to adjustments approved by the compensation committee of
our board of directors, and (2) the employment term will extend for five years
after the final closing of our June/September 2005 private financing.

On July 15,
2008, the employment agreement was converted to a consulting agreement with all
terms otherwise unchanged, as Mr. Burchetta became non-executive Chairman on
February 16, 2008. One additional term added was that the Chairman shall always
make $25,000 more than the Chief Executive Officer and have comparable
benefits. The Board affirmed the effectiveness of the agreement to January 13,
2013. Consulting expense under the consulting agreement with Mr. Burchetta is
recorded as general and administrative expenses in the unaudited condensed
consolidated statement of operations and totaled $62,500 and $125,000 for the
three and six months ended June 30, 2009, respectively

As of June
30, 2009, the Company owes Mr. Burchetta an aggregate of $341,083 under the
employment and consulting agreements.

On May 1,
2007, David M. Rainey joined our company as Chief Financial Officer and
Treasurer on the planned retirement of Katherine A. Dering. Mr. Rainey also
became Secretary of the Company in November 2007, President of the Company in
January 2008 and Interim Chief Executive Officer on July 15, 2009. Mr. Rainey
has a one year contract that renews automatically unless 90 days notice of
intention not to renew is given by the Company. Mr. Raineys base salary is
$200,000, subject to annual increases at the discretion of the board of directors.
Mr. Rainey also received a grant of 75,000 options to purchase the common stock
of the Company, one third of which vest on the first, second and third
anniversaries of the start of employment with the Company. Mr. Rainey is also
eligible for a bonus of up to 50% of salary based on performance objectives set
by the Chairman and the Board of Directors. Mr. Raineys contract provides for
12 months of severance for any termination without cause with benefits. Upon a
change in control, Mr. Rainey receives two years severance and bonus with
benefits and immediate vesting of all stock options then outstanding. As of
June 30, 2009, the Company owes $175,000 in salary under the agreement.

On February
16, 2008, the Company entered into an employment agreement with Mr. Kenneth H.
Montgomery to serve as its Chief Executive Officer. The agreement has a one
year, automatically renewable term unless the Company provides 90 days written
notice of its intention not to renew prior to the anniversary date. Mr. Montgomerys
salary is $225,000 annually, with a bonus of up to 75% of salary based on
performance of objectives set by the Chairman and the Board of Directors. Mr.
Montgomery also received 50,000 shares of restricted stock and 350,000 options
to purchase the common stock of the Company at an exercise price of $0.80, the
closing price on his date of approval by the Board. Mr. Montgomerys employment
ceased on July 1, 2009. As of June 30, 2009, the Company owes $262,500 in
salary under the agreement.

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

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|23

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

|         |                                   
|-------- | ----------------------------------
|NOTE 11. | RECENT
 ACCOUNTING PRONOUNCEMENTS:

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

In December
2007, the FASB issued SFAS No. 141(R),Business Combinations (SFAS No.
141(R)), which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in an acquiree,
including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141(R) is effective as of the beginning of
the first fiscal year beginning on or after December 15, 2008. SFAS 141R would
only have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, which is an amendment of Accounting Research Bulletin
(ARB) No. 51. This statement clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement
changes the way the consolidated income statement is presented, thus requiring
consolidated net income to be reported at amounts that include the amounts
attributable to both parent and the noncontrolling interest. We adopted SFAS
No. 160 effective January 1, 2009 and the statement had no impact on the
Companys consolidated financial position, results of operations or cash flows.

In December
2007, the FASB ratified the consensus in EITF Issue No. 07-1, Accounting for
Collaborative Arrangements (EITF 07-1). EITF 07-1 defines collaborative
arrangements and requires collaborators to present the result of activities for
which they act as the principal on a gross basis and report any payments received
from (made to) the other collaborators based on other applicable authoritative
accounting literature, and in the absence of other applicable authoritative
literature, on a reasonable, rational and consistent accounting policy is to be
elected. EITF 07-1 also provides for disclosures regarding the nature and
purpose of the arrangement, the entitys rights and obligations, the accounting
policy for the arrangement and the income statement classification and amounts
arising from the agreement. EITF No. 07-1 is effective for collaborative
arrangements that exist on January 1, 2009 and application is
retrospective. We adopted EITF No. 07-1 effective January 1, 2009 and the
adoption had no material effect on our financial position or results of operations.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133. This Statement
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
We adopted SFAS No. 161 effective January 1, 2009 and addressed the
relevant disclosures accordingly.

In April
2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. The Company is required to adopt FSP 142-3 on January 1,
2009. The guidance in FSP 142-3 for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible assets acquired
after adoption, and the disclosure requirements shall be applied prospectively
to all intangible assets recognized as of, and subsequent to, adoption. The
adoption of FSP 142-3 is not expected to have a material impact on the Companys
consolidated financial position, results of operations or cash flows.

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

|  
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|  
|24

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

|         |                                               
|-------- | ----------------------------------------------
|NOTE 11. | RECENT
 ACCOUNTING PRONOUNCEMENTS (CONTINUED):

In May
2008, the FASB issued FSP Accounting Principles Board (APB) 14-1 Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuers non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The adoption of FSP APB 14-1 is not expected to have a material impact
on the Companys consolidated financial position, results of operations or cash
flows.

In June
2008, the FASB ratified EITF No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF No. 07-5).
EITF No. 07-5 provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instruments contingent
exercise and settlement provisions. It also clarifies the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal
years beginning after December 15, 2008. We adopted EITF No. 07-5
effective on January 1, 2009 and the adoption had no material effect on
our consolidated financial position, results of operations or cash flows.

Recently
Issued Accounting Standards

In January
2009, the FASB issued Financial Statement of Position (FSP) Issue
No. EITF No. 99-20-1, Amendments to the Impairment Guidance of EITF
Issue No. 99-20 (FSP EITF No. 99-20-1). FSP EITF No. 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests that Continue to be Held by a Transferor in Securitized Financial
Assets to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF
No. 99-20-1 and it did not have a material impact on the unaudited
condensed consolidated financial statements.

In April
2009, the Financial Accounting Standards Board (FASB) issued the following
new accounting standards:

FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, provides guidelines for making fair value measurements
more consistent with the principles presented in FASB Statement No. 157
(SFAS 157), Fair Value Measurements. FSP FAS 157-4 reaffirms what SFAS 157
states is the objective of fair value measurement, to reflect how much an asset
would be sold for in an orderly transaction at the date of the financial
statements under current market conditions. Specifically, it reaffirms the need
to use judgment to ascertain if a formerly active market has become inactive
and in determining fair values when markets have become inactive. The Company
does not expect this pronouncement to have a material impact on its
consolidated results of operations, financial position, or cash flows

FSP FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. This relates to fair value disclosures for
any financial instruments that are not currently reflected on the consolidated
balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair
value disclosures be made on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. The Company does
not expect this pronouncement to have a material impact on its consolidated
results of operations, financial position, or cash flows.

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|25

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

|         |                                               
|-------- | ----------------------------------------------
|NOTE 11. | RECENT
 ACCOUNTING PRONOUNCEMENTS (CONTINUED):

FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, provides additional guidance designed to create greater clarity
and consistency in accounting for and presenting impairment losses on securities.
This FSP is intended to bring greater consistency to the timing of impairment
recognition and to provide greater clarity to investors about the credit and
noncredit components of impaired debt securities that are not expected to be
sold. This FSP also requires increased and timelier disclosures sought by
investors regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. The Company does not expect this
pronouncement to have a material impact on its consolidated results of
operations, financial position, or cash flows.

These
standards are effective for periods ending after June 15, 2009. We are
evaluating the impact that these standards will have on our consolidated
financial statements.

In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165),
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The Company is required to adopt
SFAS 165 prospectively to both interim and annual financial periods ending
after June 15, 2009. Adoption of SFAS 165 did not have a material
impact on the Companys consolidated financial position, results of operations
or cash flows.

In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles (SFAS
168). SFAS 168 establishes the FASB Accounting Standards Codification, (Codification) as
the single source of authoritative GAAP to be applied by nongovernmental
entities, except for the rules and interpretive releases of the SEC under
authority of federal securities laws, which are sources of authoritative
GAAP for SEC registrants. All guidance contained in the Codification
carries an equal level of authority. SFAS 168 is effective for interim and
annual periods ending after September 15, 2009. Adoption of SFAS 168 is not
expected to have a material impact on the Companys consolidated financial
position, results of operations or cash flows.

Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Companys present or future
consolidated financial statements.

|         |                             
|-------- | ----------------------------
|NOTE 12. | RELATED
 PARTY TRANSACTIONS:

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

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

|         |                         
|-------- | ------------------------
|NOTE 13. | FAIR VALUE
 MEASUREMENT:

The Company
adopted the provisions of SFAS No. 157, Fair Value Measurements on January 1,
2008. SFAS No. 157 defines fair value as the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required or permitted to be
recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact and considers assumptions that
market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions, and risk of nonperformance. SFAS
No. 157 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. SFAS No. 157 establishes three levels of
inputs that may be used to measure fair value:

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

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

|  
|--
|  
|26

---



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

|         |                                     
|-------- | ------------------------------------
|NOTE 13. | FAIR VALUE
 MEASUREMENT (CONTINUED):

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

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

Upon
adoption of SFAS No. 157, there was no cumulative effect adjustment to the
beginning retained earnings and no impact on the consolidated financial statements.

The
carrying value of the Companys cash and cash equivalents, accounts receivable,
accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of their
short-term maturity. All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.

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

|                       |  |                                                                         |  |                                                 |   |                                            |  |                       |            |   |   |            |  
|---------------------- |  | ----------------------------------------------------------------------- |  | ----------------------------------------------- | - | ------------------------------------------ |  | --------------------- | ---------- | - | - | ---------- | -
|                       |  | Quoted
 Prices in
 Active
 Markets for
 Identical
 Instruments
 Level 1 |  | Significant
 Other
 Observable
 Inputs
 Level 2 |   | Significant
 Unobservable
 Inputs
 Level 3 |  | Assets at
 Fair Value |           
|                       |  |                                                                         |  |                                                 |   |                                            |  |                       |           
|Liabilities:           |  |                                                                         |  |                                                 |   |                                            |  |                       |            |   |   |            |  
|Convertible debentures |  | $                                                                       |  |                                                 | $ |                                            |  | $                     | (434,764   | ) | $ | (434,764   | )
|Derivative liability   |  | $                                                                       |  |                                                 | $ |                                            |  | $                     | (1,286,269 | ) | $ | (1,286,269 | )
|Short term notes       |  | $                                                                       |  |                                                 | $ |                                            |  | $                     | (594,000   | ) | $ | (594,000   | )
|Long term notes        |  | $                                                                       |  |                                                 | $ |                                            |  | $                     | (809,197   | ) | $ | (809,197   | )
|Lines of credit        |  | $                                                                       |  |                                                 | $ |                                            |  | $                     | (1,208,723 | ) | $ | (1,208,723 | )

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

|         |                    
|-------- | -------------------
|NOTE 14. | SUBSEQUENT
 EVENTS:

The
employment of Mr. Kenneth H. Montgomery, the Companys former CEO, ceased on
July 1, 2009. Mr. David M. Rainey became Interim Chief Executive Officer effective
July 15, 2009.

On July 22,
2009, an unaffiliated investor loaned the Company $75,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 750,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On July 29,
2009, an unaffiliated investor loaned the Company an additional $25,000 on a
three year Convertible Debenture with an interest rate of 14%. The interest
accrues and is payable at maturity. The conversion price is set at $0.15 per
share. The Debenture carries a first lien security interest following the
discharge of the $210,000 note above. In addition, the investor received
250,000 warrants to purchase the common stock of the Company at an exercise
price of $1.00 per share. The exercise period of the warrant is five years.

|  
|--
|  
|27

---



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

|         |                                
|-------- | -------------------------------
|NOTE 14. | SUBSEQUENT
 EVENTS (CONTINUED):

On July 31,
2009, the maturity dates of the November and February Note were extended to
August 26, 2009.

On August
4, 2009, an unaffiliated investor loaned the Company $100,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 1,000,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
7, 2009, the Board of Directors at its regular meeting awarded each of the four
Directors who were active as of December 31, 2008 restricted shares of 500,000
each at the closing price of trading on that day, which was $0.19. The shares
were granted in recognition of service from January 1, 2008 to June 30, 2009,
for the Board members agreeing to convert over $2 million of their notes,
accrued interest and accrued payroll to stock at a conversion rate of $0.15 per
share, and for the considerable risks and challenges which the Company faced
during the period referenced above. In addition, the Board awarded the new
Interim CEO 1,000,000 options to purchase the stock of the Company at the same
closing price of $0.19 per share. The options were granted in recognition of
the very demanding workload placed in the past and in the future on the Interim
CEO as the Company restructures. The options have a seven year exercise period.
Finally, the Board authorized the re-pricing of the options of all directors
and employees who were active as of December 31, 2008 to the closing price of
the stock that day, or $0.19. In total, seven employees were affected. The
re-pricing was done due to the need by the Company to accrue most pay during
the second half of 2008 and during 2009, a period during which the employees
were largely not getting paid.

On August
7, 2009, an unaffiliated investor loaned the Company $5,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 50,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
7, 2009, an unaffiliated investor loaned the Company $12,500 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The Debenture
carries a first lien security interest following the discharge of the $210,000
note above. In addition, the investor received 125,000 warrants to purchase the
common stock of the Company at an exercise price of $1.00 per share. The
exercise period of the warrant is five years.

On August
7, 2009, an unaffiliated investor loaned the Company $12,500 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 125,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
14, 2009, an unaffiliated investor loaned the Company $100,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 1,000,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

|         |             
|-------- | ------------
|NOTE 15. | RESTATEMENT:

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

|  
|--
|  
|28

---



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

|         |                          
|-------- | -------------------------
|NOTE 15. | RESTATEMENT
 (CONTINUED):

The effect of the adjustment is an increase in net loss of $1,354,630
for the three and six months periods ended June 30, 2008. There was no effect
on cash flows from operating, investing or financing for either period.

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

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

|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- | - | ---------- | - | ----------- | - |  | - | ---------- | -
|                                                                        |  | As Previously
 Reported |            | Adjustment |   | Reference  |   | As Restated |  
|                                                                        |  |                         |            |            |   |            |   |             |  
|                                                                       
|Revenue                                                                 |  | $                       | 46,819     |            | $ |            |   |             |   |  | $ | 46,819     |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Costs and expenses:                                                     |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Payroll and related expenses                                            |  |                         | 872,583    |            |   |            |   |             |   |  |   | 872,583    |  
|General and administrative expenses                                     |  |                         | 1,141,447  |            |   | 1,354,630  |   |             | a |  |   | 2,496,077  |  
|Depreciation and amortization expense                                   |  |                         | 14,433     |            |   |            |   |             |   |  |   | 14,433     |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total expenses                                                          |  |                         | 2,028,463  |            |   | 1,354,630  |   |             |   |  |   | 3,383,093  |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Loss from operations                                                    |  |                         | (1,981,644 | )          |   | (1,354,630 | ) |             |   |  |   | (3,336,274 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Other (expense) income:                                                 |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Interest income                                                         |  |                         |           |            |   |            |   |             |   |  |   |           |  
|Interest expense                                                        |  |                         | (33,498    | )          |   |            |   |             |   |  |   | (33,498    | )
|Interest expense  related parties                                      |  |                         | (34,071    | )          |   |            |   |             |   |  |   | (34,071    | )
|Amortization of deferred debt discount                                  |  |                         | (45,781    | )          |   |            |   |             |   |  |   | (45,781    | )
|Other expense                                                           |  |                         | (337       | )          |   |            |   |             |   |  |   | (337       | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total other expense                                                     |  |                         | (113,687   | )          |   |           |   |             |   |  |   | (113,687   | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                       
|Loss from continuing operations                                         |  |                         | (2,095,331 | )          |   | (1,354,630 | ) |             |   |  |   | (3,449,961 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Loss from discontinued operations                                       |  |                         | (2,142,817 | )          |   |           |   |             |   |  |   | (2,142,817 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Net loss                                                                |  | $                       | (4,238,148 | )          | $ | (1,354,630 | ) |             |   |  | $ | (5,592,778 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Net loss per common share:                                              |  |                         |            |            |   |            |   |             |   |  |   |            |  
|basic and diluted                                                       |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Continuing operations                                                   |  | $                       | (0.24      | )          | $ | (0.11      | ) |             |   |  | $ | (0.35      | )
|Discontinued operations                                                 |  | $                       | (0.24      | )          | $ | 0.02       |   |             |   |  | $ | (0.22      | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total                                                                   |  | $                       | (0.48      | )          | $ | (0.09      | ) |             |   |  | $ | (0.57      | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Basic and diluted weighted average number
 of common shares outstanding |  |                         | 8,848,045  |            |   | 900,000    |   |             |   |  |   | 9,748,045  |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  

|  
|--
|  
|29

---



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

|         |                          
|-------- | -------------------------
|NOTE 15. | RESTATEMENT
 (CONTINUED):

Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 2008
(unaudited)

|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- | - | ---------- | - | ----------- | - |  | - | ---------- | -
|                                                                        |  | As Previously
 Reported |            | Adjustment |   | Reference  |   | As Restated |  
|                                                                        |  |                         |            |            |   |            |   |             |  
|                                                                       
|Revenue                                                                 |  | $                       | 130,997    |            | $ |            |   |             |   |  | $ | 130,997    |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Payroll and related expenses                                            |  |                         | 2,233,579  |            |   |            |   |             |   |  |   | 2,233,579  |  
|General and administrative expenses                                     |  |                         | 1,656,911  |            |   | 1,354,630  |   |             | a |  |   | 3,011,541  |  
|Depreciation and amortization expense                                   |  |                         | 28,970     |            |   |            |   |             |   |  |   | 28,970     |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total expenses                                                          |  |                         | 3,919,460  |            |   | 1,354,630  |   |             |   |  |   | 5,274,090  |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Loss from operations                                                    |  |                         | (3,788,463 | )          |   | (1,354,630 | ) |             |   |  |   | (5,143,093 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Other (expense) income:                                                 |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Interest income                                                         |  |                         | 190        |            |   |            |   |             |   |  |   | 190        |  
|Interest expense                                                        |  |                         | (58,692    | )          |   |            |   |             |   |  |   | (58,692    | )
|Interest expense  related parties                                      |  |                         | (65,008    | )          |   |            |   |             |   |  |   | (65,008    | )
|Amortization of deferred debt discount                                  |  |                         | (547,454   | )          |   |            |   |             |   |  |   | (547,454   | )
|Other expense                                                           |  |                         | (338       | )          |   |            |   |             |   |  |   | (338       | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total other expense                                                     |  |                         | (671,302   | )          |   |           |   |             |   |  |   | (671,302   | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                       
|Loss from continuing operations                                         |  |                         | (4,459,765 | )          |   | (1,354,630 | ) |             |   |  |   | (5,814,395 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Loss from discontinued operations                                       |  |                         | (2,650,619 | )          |   |           |   |             |   |  |   | (2,650,619 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Net loss                                                                |  | $                       | (7,110,384 | )          | $ | (1,354,630 | ) |             |   |  | $ | (8,465,014 | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Net loss per common share:                                              |  |                         |            |            |   |            |   |             |   |  |   |            |  
|basic and diluted                                                       |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Continuing operations                                                   |  | $                       | (0.51      | )          | $ | (0.12      | ) |             |   |  | $ | (0.63      | )
|Discontinued operations                                                 |  | $                       | (0.30      | )          | $ | 0.01       |   |             |   |  | $ | (0.29      | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Total                                                                   |  | $                       | (0.81      | )          | $ | (0.11      | ) |             |   |  | $ | (0.92      | )
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  
|Basic and diluted weighted average number
 of common shares outstanding |  |                         | 8,768,924  |            |   | 445,055    |   |             |   |  |   | 9,213,979  |  
|                                                                        |  |                         |            |            |   |            |   |             |   |  |   |            |  

|  
|--
|  
|30

---



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

|         |                          
|-------- | -------------------------
|NOTE 15. | RESTATEMENT
 (CONTINUED):

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

|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|---------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------- | - | ---------- | - | ----------- |  | - | ---------- | -
|                                                                             |  | As Previously
 Reported |            | Adjustment |   | Reference  |   | As Restated | 
|                                                                             |  |                         |            |            |   |            |   |             | 
|Cash flows from operating
 activities:                                       |  |                         |            |            |   |            |   |             |  |   |            |  
|Net loss                                                                     |  | $                       | (4,459,765 | )          | $ | (1,354,630 | ) | a           |  | $ | (5,814,395 | )
|Adjustments to reconcile
 net loss to net cash used in operating activities: |  |                         |            |            |   |            |   |             |  |   |            |  
|Non cash stock based
 compensation                                           |  |                         | 1,680,730  |            |   | 1,354,630  |   | a           |  |   | 3,035,360  |  
|Amortization of deferred
 debt discount                                      |  |                         | 547,455    |            |   |            |   |             |  |   | 547,455    |  
|Depreciation and
 amortization                                               |  |                         | 28,970     |            |   |            |   |             |  |   | 28,970     |  
|(Increase) decrease in:                                                      |  |                         |            |            |   |            |   |             |  |   |            |  
|Accounts receivable                                                          |  |                         | (18,675    | )          |   |            |   |             |  |   | (18,675    | )
|Prepaid expenses and other
 current assets                                   |  |                         | 46,609     |            |   |            |   |             |  |   | 46,609     |  
|Accounts payable and
 accrued expenses                                       |  |                         | 1,052,436  |            |   |            |   |             |  |   | 1,052,436  |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|Net cash used in operating
 activities                                       |  |                         | (1,122,240 | )          |   |           |   |             |  |   | (1,122,240 | )
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|Cash flows from investing
 activities:                                       |  |                         |           |            |   |           |   |             |  |   |           |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|Cash flows from financing
 activities:                                       |  |                         |            |            |   |            |   |             |  |   |            |  
|Proceeds from other
 receivable                                              |  |                         | 200,000    |            |   |            |   |             |  |   | 200,000    |  
|Proceeds from long term
 loans                                               |  |                         | 498,000    |            |   |            |   |             |  |   | 498,000    |  
|Proceeds from issuance of
 short term notes                                  |  |                         | 717,202    |            |   |            |   |             |  |   | 717,202    |  
|Proceeds from of line of
 credit                                             |  |                         | 36,121     |            |   |            |   |             |  |   | 36,121     |  
|Repayment of short term
 notes                                               |  |                         | (295,000   | )          |   |            |   |             |  |   | (295,000   | )
|Repayment of line of credit                                                  |  |                         | (10,000    | )          |   |            |   |             |  |   | (10,000    | )
|Proceeds from issuance of
 common stock                                      |  |                         | 680,000    |            |   |            |   |             |  |   | 680,000    |  
|Proceeds from exercise of
 warrants                                          |  |                         | 375        |            |   |            |   |             |  |   | 375        |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  
|Net cash provided by
 financing activities                                   |  |                         | 1,826,698  |            |   |           |   |             |  |   | 1,826,698  |  
|                                                                             |  |                         |            |            |   |            |   |             |  |   |            |  

|  
|--
|  
|31

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

|         |                          
|-------- | -------------------------
|NOTE 15. | RESTATEMENT
 (CONTINUED):

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

|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|------------------------------------------------------------------- |  | ----------------------- | -------- | ---------- | - | --------- |  | ----------- |  | - | -------- | -
|                                                                    |  | As Previously
 Reported |          | Adjustment |   | Reference |  | As Restated | 
|                                                                    |  |                         |          |            |   |           |  |             | 
|Cash flows from
 discontinued operations:                           |  |                         |          |            |   |           |  |             |  |   |          |  
|Net cash used in operating
 activities                              |  |                         | (674,895 | )          |   |           |  |             |  |   | (674,895 | )
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|Net cash used in
 discontinued operations                           |  |                         | (674,895 | )          |   |          |  |             |  |   | (674,895 | )
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|Net increase in cash and
 cash equivalents                          |  |                         | 29,563   |            |   |          |  |             |  |   | 29,563   |  
|Cash and cash equivalents
 at beginning of period                   |  |                         |         |            |   |          |  |             |  |   |         |  
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  
|Cash and cash equivalents
 at end of period  continuing operations |  | $                       | 29,563   |            | $ |          |  |             |  | $ | 29,563   |  
|                                                                    |  |                         |          |            |   |           |  |             |  |   |          |  

(a) To correct
the accounting treatment of Company common stock issuances in the three months
ended June 30, 2008, consisting of the recording of (i) a 450,000 share
issuance for fundraising costs that was not previously recorded, (ii) the
recording of a 50,000 share issuance for fundraising costs that was originally
recorded in the three months ended September 30, 2008, and (iii) the recording
of a 450,000 share issuance on April 1, 2008 for fundraising costs that was
originally recorded using a valuation date of May 29, 2008.

|  
|--
|  
|32

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

Overview

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

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

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

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

Our
current and former contracts provide that we will earn revenue based on a
percentage of the amount of debt collected from accounts submitted on our
DebtResolve system, from flat fees per settlement achieved or a flat monthly
fee. Although other revenue models have been proposed, most revenue earned to
date has been determined using these methods, and such revenue is recognized
when the settlement amount of debt is collected by our client or at the
beginning of each month. For the early adopters of our system, we waived set-up
fees and other transactional fees that we anticipate charging on a going-forward
basis. While the percent of debt collected will continue to be a revenue
recognition method going forward, other payment models are also being offered
to clients and may possibly become our preferred revenue model. Most contracts
currently in process include provisions for set up fees and base revenue on a
monthly fee, in the aggregate or per account, with some contracts having a
small transaction fee on debt settlement as well. In addition, with respect to
our DR Prevent  module expected to be completed in 2009, which settles
consumer debt at earlier stages, we expect that a fee per account on our
system, and/or the hybrid revenue model which will include both fees per
account and transaction fees at settlement, may become the preferred revenue
methods. As we expand our knowledge of the industry, we have become aware that
different revenue models may be more appropriate for the individual
circumstances of our potential clients, and our expanded choice of revenue
models reflects that knowledge.

|  
|--
|  
|33

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In
January 2007, we purchased the outstanding common stock of First Performance
Corporation and, as a result, we are no longer in the development stage as of
the date of the acquisition.. First Performance Corporation and its subsidiary,
First Performance Recovery Corp., were collection agencies that represented
both regional and national credit grantors from such diverse industries as
retail, bankcard, oil cards, mortgage and auto. By entering this business
directly, we signaled our intention to become a significant player in the
accounts receivable management industry. We believed that through a mixture of
both traditional and our innovative, technologically-driven collection methods,
we could achieve superior returns. Due to the loss of four major clients at
First Performance during the first nine months of 2007, we performed two
interim impairment analyses in accordance with SFAS 142. As a result of these
analyses, we recorded impairment charges aggregating $1,206,335 during the year
ended December 31, 2007. We also recorded a charge for the disposal of the
Florida fixed assets of $68,329 upon the closure of the Florida office during
the year ended December 31, 2007.

Revenue
streams associated with this business included contingency fee revenue on
recovery of past due consumer debt and non-sufficient funds fees on returned
checks. On June 30, 2008, we closed the remaining operations of First
Performance in order to focus on our core internet business and to mitigate the
continuing losses from First Performance. At that time, we took charges for the
disposal of the remaining fixed assets of $87,402 and for the impairment of the
remaining intangible assets of $176,545. The results of operations for First
Performance have been treated as discontinued operations in the financial
statements for the years ending December 31, 2008 and 2007.

For
the six months ending June 30, 2009 and the year ending December 31, 2008, we
had inadequate revenues and incurred net losses of $1,939,747 and $7,712,170
from continuing operations, respectively. Cash used in operating and investing
activities of continuing operations was $192,240 and $0, respectively for the
six months ended June 30, 2009. Cash used in operating and investing activities
of continuing operations was $886,045 and $835,951, respectively for the year
ended December 31, 2008. Based upon projected operating expenses, we believe
that our working capital as of the date of this report may not be sufficient to
fund our plan of operations for the next twelve months. The aforementioned
factors raise substantial doubt about our ability to continue as a going
concern.

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

Subsequent
to June 30, 2009, the Company has secured $330,000 in additional financing.

| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Results
 of Operations for the Three Months Ended June 30, 2009 Compared to the Three
 Months Ended June 30, 2008

Revenues

Revenues
totaled $13,967 and $46,189 for the three months ended June 30, 2009 and 2008,
respectively. We earned revenue during the three months ended June 30, 2009 and
2008 from contingency fee income, based on a percent of debt collected. We
earned revenue during the three and six months ended June 30, 2008 from
contingency fee income, based on a percent of debt collected, fees per
settlement, or a flat monthly fee.

Costs and Expenses

Payroll and
related expenses. Payroll and related expenses amounted to $183,134 for the three
months ended June 30, 2009, as compared to $872,583 for the three months ended
June 30, 2008, a decrease of $689,449 or 73%. This decrease was due to across
the board further headcount reductions from 2008 and the absence of option
grants in the three months ended June 30, 2009. Salaries were $160,000 and
$371,970 in the three months ended June 30, 2009 and 2008, respectively.
Employee benefits were $15,890 and $40,889 in the three months ended June 30,
2009 and 2008, respectively, due to lower staffing levels and the suspension of
the 401k match by the Company. Employee stock compensation expense was reduced
to $5,350 in the three months ended June 30, 2009 from $495,261 in the three
months ended June 30, 2008, as there were no grants in the 2009 period.
Allocations were $0 and ($55,332), respectively, in the three months ended June
30, 2009 and 2008 as all subsidiaries were closed in the 2009 period.
Miscellaneous related expenses were $1,895 and $20,796 during the three months
ended June 30, 2009 and 2008.

|  
|--
|  
|34

---



General and
administrative expenses. General and administrative expenses amounted to $5,089 for the
three months ended June 30, 2009, as compared to $2,496,077 for the three
months ended June 30, 2008, a decrease of $2,490,988 or 100%. This decrease was
due to decreases in almost every expense category due to headcount reductions,
office space settlements and reductions, cost containment and a $1,902,641
reduction in non-cash stock based compensation for employees and consultants
that was $5,350 and $1,907,991 for the three months ended June 30, 2009 and
2008, respectively. Occupancy was ($235,674) and $31,139 for the three months
ended June 30, 2009 and 2008, respectively. The credit in 2009 was the reversal
of the accrual made on eviction from our offices upon settlement and discharge
of the lease on our former corporate office. Telecommunications was $22,587 and
$20,115 for the three months ended June 30, 2009 and 2008, respectively, as
there were annual cost increases in 2009. Service fees were $100,479 and
$228,397 for the three months ended June 30, 2009 and 2008, respectively, as we
further reduced consultant use. Accounting was reduced to $49,000 for the three
months ended June 30, 2009 from $109,650 for the three months ended June 30,
2008 due to the switch in accounting firms. Travel, marketing, insurance and
legal were $3,043, $872, $13,553 and $9,191 in the three months ended June 30,
2009 compared with $10,453, $24,110, $51,972 and $82,424 in the three months
ended June 30, 2008 due to ongoing cost control efforts. Allocations were $0
and ($67,999) in the three months ended June 30, 2009 and 2008, respectively,
as all subsidiaries had been closed by 2009. Miscellaneous general and
administrative expenses were $42,346 and $35,167 for the three months ended
June 30, 2009 and 2008, respectively, with higher extension fees on outstanding
notes in 2009.

Depreciation
and amortization expense. For the three months ended June 30, 2009 and 2008, we recorded
depreciation expense of $12,230 and $14,433, respectively. Depreciation expense
for the three and six months ended June 30, 2009 is lower due to the disposal
of some assets at December 31, 2008.

Interest
income (expense). We recorded interest income, interest expense and interest
expense  related parties of $0, ($50,735) and ($36,010) for the three months
ended June 30, 2009, respectively, compared to interest income, interest
expense and interest expense  related parties of $0, ($33,498) and ($34,071),
respectively, for the three months ended June 30, 2008. We incurred increased
interest expense for the three months ended June 30, 2009 as a result of carrying
higher levels of borrowings on our lines of credit, convertible debentures,
investor notes and bank loans and, in certain instances, higher interest rates.

Amortization
of deferred debt discount.Amortization expense of $28,331 and $45,781 was incurred for the
three months ended June 30, 2009 and 2008, respectively, for the amortization
of the value of the deferred debt discount associated with certain of our lines
of credit and notes payable. Amortization expense decreased due to certain debt
discounts having been fully amortized prior to the three month period ended
June 30, 2009.

Loss on
derivative liability.We recorded a loss on derivative liability of $923,410 and $0 for
the three months ended June 30, 2009 and 2008, respectively, for the
revaluation of certain derivatives at June 30, 2009. No such derivatives
existed during the three months ended June 30, 2008.

| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Results
 of Operations for the Six Months Ended June 30, 2009 Compared to the Six
 Months Ended June 30, 2008

Revenues

Revenues
totaled $38,462 and $130,997 for the six months ended June 30, 2009 and 2008,
respectively. We earned revenue during the six months ended June 30, 2009 and
2008 from contingency fee income, based on a percent of debt collected or
fees per settlement at a lender and two banks that implemented our online
system.

Costs and Expenses

Payroll and
related expenses. Payroll and related expenses amounted to $375,375 for the six
months ended June 30, 2009, as compared to $2,233,579 for the six months ended
June 30, 2008, a decrease of $1,858,204 or 68%. This decrease was due to across
the board further headcount reductions from 2008 and the absence of option
grants in the six months ended June 30, 2009. Salaries were $320,000 and $678,883
in the six months ended June 30, 2009 and 2008, respectively. Employee benefits
were $33,032 and $72,071 in the six months ended June 30, 2009 and 2008,
respectively, due to lower staffing levels and the suspension of the 401k match
by the Company. Employee stock compensation expense was reduced to $17,850 in
the six months ended June 30, 2009 from $1,539,980 in the six months ended June
30, 2008, as there were no grants in the 2009 period. Allocations were $0 and
($109,612), respectively, in the six months ended June 30, 2009 and 2008 as all
subsidiaries were closed in the 2009 period. Miscellaneous related expenses
were $4,493 and $52,256 during the six months ended June 30, 2009 and 2008.

|  
|--
|  
|35

---



General and administrative expenses. General and administrative
expenses amounted to $183,062 for the six months ended June 30, 2009, as
compared to $3,011,541 for the six months ended June 30, 2008, a decrease of
$2,828,479 or 94%. This decrease was due to decreases in almost every expense
category due to headcount reductions, office space settlements and reductions,
cost containment and a $2,053,300 reduction in non-cash stock based
compensation for consultants that was $0 and $2,053,300 for the six months
ended June 30, 2009 and 2008, respectively. Occupancy was ($237,392) and
$64,808 for the six months ended June 30, 2009 and 2008, respectively. The
credit in 2009 was the reversal of the accrual made on eviction from our
offices upon settlement and discharge of the lease on our former corporate
office. Telecommunications was $42,748 and $39,581 for the six months ended
June 30, 2009 and 2008, respectively, as there were annual cost increases in
2009. Service fees were $172,272 and $344,939 for the six months ended June 30,
2009 and 2008, respectively, as we further reduced consultant use. Accounting
was reduced to $49,000 for the six months ended June 30, 2009 from $159,650 for
the six months ended June 30, 2008 due to the switch in accounting firms.
Travel, marketing, insurance and legal were $4,009, $2,144, $41,336 and $42,456
in the six months ended June 30, 2009 compared with $55,539, $43,545, $118,253
and $146,568 in the six months ended June 30, 2008 due to ongoing cost control
efforts. Allocations were $0 and ($116,969) in the six months ended June 30,
2009 and 2008, respectively, as all subsidiaries had been closed by 2009.
Miscellaneous general and administrative expenses were $66,489 and $102,327 for
the six months ended June 30, 2009 and 2008, respectively, due to cost savings
efforts in 2009.

Depreciation
and amortization expense. For the six months ended June 30, 2009 and 2008, we recorded
depreciation expense of $24,509 and $28,970, respectively. Depreciation expense
for the six months ended June 30, 2009 relates to our fixed assets used by our
Debt Resolve business that were not in service during the six months ended June
30, 2008.

Interest
income (expense). We recorded interest income, interest expense and interest
expense  related parties of $0, ($107,669) and ($71,624) for the six months
ended June 30, 2009, respectively, compared to interest income, interest
expense and interest expense  related parties of $190, ($58,692) and
($65,008), respectively, for the six months ended June 30, 2008. We incurred
increased interest expense for the six months ended June 30, 2009 as a result
of carrying higher levels of borrowings on our lines of credit, convertible
debentures, investor notes and bank loans and, in certain instances, higher
interest rates.

Amortization
of deferred debt discount.Amortization expense of $260,969 and $547,454 was incurred for the
six months ended June 30, 2009 and 2008, respectively, for the amortization of
the value of the deferred debt discount associated with certain of our lines of
credit and notes payable. Amortization expense decreased due to certain debt
discounts having been fully amortized prior to the six month period ended June
30, 2009.

Loss on
derivative liability.We recorded a loss on derivative liability of $955,001 and $0 for
the six months ended June 30, 2009 and 2008, respectively, for the revaluation
of certain derivatives at June 30, 2009. No such derivatives existed during the
six months ended June 30, 2008.

Liquidity and Capital Resources

As
of June 30, 2009, from continuing operations, we had a working capital
deficiency in the amount of $8,140,695 and cash and cash equivalents totaling
$412. We incurred a net loss of $1,939,747 from continuing operations for the
six months ended June 30, 2009. Net cash used in operating and investing
activities from continuing operations was $192,240 and $0, respectively for the
six months ended June 30, 2009. Cash flow provided by financing activities from
continuing operations was $175,100 for the six months ended June 30, 2009. Cash
of $14,999 was used by the discontinued operations of our former subsidiary
First Performance during the six months ended June 30, 2009. As of December 31,
2008, from continuing operations we had a working capital deficiency in the
amount of $6,371,269 and cash and cash equivalents totaling $32,551. We
incurred a net loss of $7,712,170 from continuing operations for the year ended
December 31, 2008. Net cash used in operating and investing activities for
continuing operations was $886,046 and $835,951, respectively for the year
ended December 31, 2008. Cash flow provided by financing activities for
continuing operations was $1,754,548 for the year ended December 31, 2008. Cash
of $1,301 was provided by the discontinued operations of our former subsidiary
First Performance during 2008. Our working capital as of the date of this
report is negative and is not sufficient to fund our plan of operations for the
next year. The aforementioned factors raise substantial doubt about our ability
to continue as a going concern.

|  
|--
|  
|36

---



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

On July 22,
2009, an unaffiliated investor loaned the Company $75,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 750,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On July 29,
2009, an unaffiliated investor loaned the Company an additional $25,000 on a
three year Convertible Debenture with an interest rate of 14%. The interest
accrues and is payable at maturity. The conversion price is set at $0.15 per
share. The Debenture carries a first lien security interest following the
discharge of the $210,000 note above. In addition, the investor received
250,000 warrants to purchase the common stock of the Company at an exercise
price of $1.00 per share. The exercise period of the warrant is five years.

On August
4, 2009, an unaffiliated investor loaned the Company $100,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 1,000,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
7, 2009, an unaffiliated investor loaned the Company $5,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 50,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
7, 2009, an unaffiliated investor loaned the Company $12,500 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 125,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
7, 2009, an unaffiliated investor loaned the Company $12,500 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 125,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

On August
14, 2009, an unaffiliated investor loaned the Company $100,000 on a three year
Convertible Debenture with an interest rate of 14%. The interest accrues and is
payable at maturity. The conversion price is set at $0.15 per share. The
Debenture carries a first lien security interest following the discharge of the
$210,000 note above. In addition, the investor received 1,000,000 warrants to
purchase the common stock of the Company at an exercise price of $1.00 per
share. The exercise period of the warrant is five years.

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Critical
Accounting Policies and Estimates

Use
of estimates

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

Stock-based
compensation

The Company
accounts for stock options issued under the recognition and measurement
principles of Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment (SFAS 123(R)). Under the provisions of SFAS
123(R), the Company is required to measure the cost of services received in
exchange for an award of equity instruments based on the fair value of the
award. For employees and directors, the award is measured on the grant date and
for non-employees, the award is generally remeasured on interim financial
reporting dates until the service period is complete, in accordance with 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. The fair value amount is then recognized over the period during
which services are required to be provided in exchange for the award, usually
the vesting period. Total stock-based compensation expense for the three months
ended June 30, 2009 and 2008 amounted to $5,350 and $1,907,991, respectively.
Total stock-based compensation expense for the six months ended June 30, 2009
and 2008 amounted to $17,850 and $3,035,360, respectively. As of June 30, 2009,
there was no unrecognized compensation cost.

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

Recent Accounting Pronouncements

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

In
December 2007, the FASB issued SFAS No. 141(R),Business Combinations (SFAS
No. 141(R)), which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141(R) is effective as of the beginning of
the first fiscal year beginning on or after December 15, 2008. SFAS 141R would
only have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, which is an amendment of Accounting Research Bulletin
(ARB) No. 51. This statement clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement
changes the way the consolidated income statement is presented, thus requiring
consolidated net income to be reported at amounts that include the amounts
attributable to both parent and the noncontrolling interest. We adopted SFAS
No. 160 effective January 1, 2009 and the statement had no impact on the
Companys consolidated financial position, results of operations or cash flows.

In December
2007, the FASB ratified the consensus in EITF Issue No. 07-1, Accounting for
Collaborative Arrangements (EITF 07-1). EITF 07-1 defines collaborative
arrangements and requires collaborators to present the result of activities for
which they act as the principal on a gross basis and report any payments
received from (made to) the other collaborators based on other applicable
authoritative accounting literature, and in the absence of other applicable
authoritative literature, on a reasonable, rational and consistent accounting
policy is to be elected. EITF 07-1 also provides for disclosures regarding the
nature and purpose of the arrangement, the entitys rights and obligations, the
accounting policy for the arrangement and the income statement classification
and amounts arising from the agreement. EITF No. 07-1 is effective for
collaborative arrangements that exist on January 1, 2009 and application
is retrospective. We adopted EITF No. 07-1 effective January 1, 2009 and
the adoption had no material effect on our financial position or results of operations.

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In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133. This Statement
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
We adopted SFAS No. 161 effective January 1, 2009 and addressed the
relevant disclosures accordingly.

In April
2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. The Company is required to adopt FSP 142-3 on January 1,
2009. The guidance in FSP 142-3 for determining the useful life of a recognized
intangible asset shall be applied prospectively to intangible assets acquired
after adoption, and the disclosure requirements shall be applied prospectively
to all intangible assets recognized as of, and subsequent to, adoption. The
adoption of FSP 142-3 is not expected to have a material impact on the
Companys consolidated financial position, results of operations or cash flows.

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

In May
2008, the FASB issued FSP Accounting Principles Board (APB) 14-1 Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires
the issuer of certain convertible debt instruments that may be settled in cash
(or other assets) on conversion to separately account for the liability (debt)
and equity (conversion option) components of the instrument in a manner that
reflects the issuers non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The adoption of FSP APB 14-1 is not expected to have a material impact
on the Companys consolidated financial position, results of operations or cash
flows.

In June
2008, the FASB ratified EITF No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF No. 07-5).
EITF No. 07-5 provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instruments contingent
exercise and settlement provisions. It also clarifies the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal
years beginning after December 15, 2008. We adopted EITF No. 07-5
effective on January 1, 2009 and the adoption had no material effect on
our consolidated financial position, results of operations or cash flows.

Recently
Issued Accounting Standards

In January
2009, the FASB issued Financial Statement of Position (FSP) Issue
No. EITF No. 99-20-1, Amendments to the Impairment Guidance of EITF
Issue No. 99-20 (FSP EITF No. 99-20-1). FSP EITF No. 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests that Continue to be Held by a Transferor in Securitized Financial
Assets to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF
No. 99-20-1 and it did not have a material impact on the unaudited
condensed consolidated financial statements.

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In April
2009, the Financial Accounting Standards Board (FASB) issued the following
new accounting standards:

FSP FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, provides guidelines for making fair value measurements
more consistent with the principles presented in FASB Statement No. 157
(SFAS 157), Fair Value Measurements. FSP FAS 157-4 reaffirms what SFAS 157
states is the objective of fair value measurement, to reflect how much an asset
would be sold for in an orderly transaction at the date of the financial
statements under current market conditions. Specifically, it reaffirms the need
to use judgment to ascertain if a formerly active market has become inactive
and in determining fair values when markets have become inactive. The Company
does not expect this pronouncement to have a material impact on its
consolidated results of operations, financial position, or cash flows

FSP FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. This relates to fair value disclosures for
any financial instruments that are not currently reflected on the consolidated
balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair
value disclosures be made on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. The Company does
not expect this pronouncement to have a material impact on its consolidated
results of operations, financial position, or cash flows.

FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, provides additional guidance designed to create greater clarity
and consistency in accounting for and presenting impairment losses on
securities. This FSP is intended to bring greater consistency to the timing of
impairment recognition and to provide greater clarity to investors about the
credit and noncredit components of impaired debt securities that are not
expected to be sold. This FSP also requires increased and timelier disclosures
sought by investors regarding expected cash flows, credit losses, and an aging
of securities with unrealized losses. The Company does not expect this
pronouncement to have a material impact on its consolidated results of
operations, financial position, or cash flows.

These
standards are effective for periods ending after June 15, 2009. We are
evaluating the impact that these standards will have on our consolidated
financial statements.

In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165),
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The Company is required to adopt
SFAS 165 prospectively to both interim and annual financial periods ending
after June 15, 2009. Adoption of SFAS 165 did not have a material
impact on the Companys consolidated financial position, results of operations
or cash flows.

In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles (SFAS
168). SFAS 168 establishes the FASB Accounting Standards
Codification, (Codification) as the single source of authoritative GAAP
to be applied by nongovernmental entities, except for the rules
and interpretive releases of the SEC under authority of federal securities
laws, which are sources of authoritative GAAP for SEC registrants. All
guidance contained in the Codification carries an equal level of
authority. SFAS 168 is effective for interim and annual periods ending
after September 15, 2009. Adoption of SFAS 168 is not expected to have a
material impact on the Companys consolidated financial position, results of
operations or cash flows.

Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Companys present or future consolidated
financial statements.

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Statement
Relating to Forward-Looking Statements

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

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Not
applicable.

Item 4T.
Controls and Procedures

Disclosure Controls and Procedures

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

Limitations on the Effectiveness of Controls

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

Internal Control over Financial Reporting

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

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

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

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PART II.
OTHER INFORMATION

Item 1.
Legal Proceedings

Lawsuits from vendors

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

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

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

Lawsuits from landlords

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

Lawsuits from former employees

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

Lawsuit related to financing

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

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

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Item 1A.
Risk Factors

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

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

None

Item 3.
Defaults upon Senior Securities

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

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

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

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

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

None

Item 5.
Other Information

None

Item 6.
Exhibits and Filings on Form 8-K

|     |                                                                         
|---- | ------------------------------------------------------------------------
|31.1 | Certification of Chief Executive Officer
 required by Rule 13(a)-14(a). 
|    
|31.2 | Certification of Chief Financial Officer
 required by Rule 13(a)-14(a). 
|    
|32.1 | Certifications required by Rule 13(a)-14(b)
 and 18 U.S.C. Section 1350.

Filing on Form
8-K dated July 20, 2009

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SIGNATURES

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

Dated: August 19, 2009

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

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