**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-Q**




(Mark
      One)




x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
                For the quarterly period ended MARCH 31,
                2008




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




For
      the
      Transition Period from ________ to ___________




Commission
      File No.:  0-29525




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





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





**707
                Westchester Avenue, Suite L7**
              **White
                Plains, New York**
            
            **10604**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(914)
                949-5500**(Issuer’s
                telephone number)


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





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





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o
            Smaller
                reporting company x





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





APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS:




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




As
      of May
      16, 2008, 8,478,530 shares of the issuer’s Common Stock were issued and
      outstanding.












**DEBT
      RESOLVE, INC. AND SUBSIDIARIES**


**TABLE
      OF CONTENTS**




Page**PART
                I. Financial Information**Item
                1. Condensed Consolidated Financial StatementsCondensed
                Consolidated Balance Sheets at March 31, 2008 (unaudited) and December
                31,
                2007
            3Condensed
                Consolidated Statements of Operations for the Three Months Ended
                March 31,
                2008 and 2007 (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the Three Months Ended
                March 31,
                2008 and 2007 (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            17Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            22Item
                4. Controls and Procedures
            23**PART
                II. Other Information**Item
                1. Legal Proceedings
            24Item
                1A. Risk Factors
            24Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            24Item
                3. Defaults Upon Senior Securities
            24Item
                4. Submission of Matters to a Vote of Security Holders
            24Item
                5. Other Information
            24Item
                6. Exhibits
            24Signatures
            25Certifications
            26




2




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheets





ASSETSMarch
                31, 2008(Unaudited)
            
            December
                31, 2007Current
                assets:Restricted
                cash
            
            $
            35,757
            
            $
            67,818Accounts
                receivable
            
            
            144,943
            
            
            84,013Other
                receivable
            
            
            --
            
            
            200,000Prepaid
                expenses and other current assets
            
            
            93,696
            
            
            108,189Total
                current assets
            
            
            274,396
            
            
            460,020Fixed
                assets, net
            
            
            248,734
            
            
            283,095Other
                assets:Deposits
                and other assets
            
            
            108,780
            
            
            108,780Intangible
                assets, net
            
            
            192,696
            
            
            208,848Total
                other assets
            
            
            301,476
            
            
            317,628Total
                assets
            
            $
            824,606
            
            $
            1,060,743LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCYCurrent
                liabilities:Accounts
                  payable and accrued liabiliti
            
            $
            1,755,404
            
            $
            1,444,764Accrued
                professional fees
            
            
            1,145,193
            
            
            1,003,550Collections
                payable
            
            
            35,337
            
            
            42,606Short
                term notes (net of deferred debtdiscount
                of $29,400 at December 31,2007)
            
            
            367,000
            
            
            70,600Lines
                of credit - related parties
            
            
            1,006,000
            
            
            1,011,000Total
                current liabilities
            
            
            4,308,934
            
            
            3,572,520Notes
                payable (net of deferred debtdiscount
                of $169,301 and $70,975,respectively)
            
            
            455,699
            
            
            254,025Total
                liabilities
            
            
            4,764,633
            
            
            3,826,545Commitments
                and contingenciesStockholders’
                deficiency:Preferred
                stock, 10,000,000 shares authorized,
                $0.001 par value, none issued and outstanding
            
            
            --
            
            
            --Common
                stock, 100,000,000 shares authorized, $0.001 par value, 8,478,530
                and
                8,474,363 shares issued and outstanding
            
            
            8,479
            
            
            8,474Additional
                paid-in capital
            
            
            44,199,662
            
            
            42,501,655Accumulated
                deficit
            
            
            (48,148,168
            )
            
            (45,275,931
            )Total
                stockholders’ deficiency
            
            
            (3,940,027
            )
            
            (2,765,802
            )Total
                liabilities and stockholders’ deficiency
            
            $
            824,606
            
            $
            1,060,743




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3


DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Operations


(Unaudited)




Three
                Months Ended March 31,2008
            
            2007Revenues
            
            $
            233,148
            
            $
            1,135,754Costs
                and expenses:Payroll
                and related expenses
            
            
            1,,646,006
            
            
            1,598,424General
                and administrative expenses
            
            
            849,140
            
            
            1,531,625Depreciation
                and amortization expense
            
            
            50,513
            
            
            52,785Total
                operating expenses
            
            
            2,545,659
            
            
            3,182,834Loss
                from operations
            
            
            (2,312,511
            )
            
            (2,047,080
            )Other
                income (expense):Interest
                income
            
            
            190
            
            
            36,770Interest
                expense
            
            
            (29,388
            )
            
            (282
            )Interest
                expense - related party
            
            
            (30,431
            )
            
            --Amortization
                of deferred debt discount
            
            
            (501,674
            )
            
            --Other
                income
            
            
            1,577
            
            
            5,010Total
                other (expense) income
            
            
            (559,726
            )
            
            41,498Loss
                from continuing operations
            
            
            (2,872,237
            )
            
            (2,005,582
            )Loss
                from discontinued operations
            
            
            --
            
            
            (108,560
            )Net
                loss
            
            $
            (2,872,237
            )
            $
            (2,114,142
            )Net
                loss per common share:basic
                and diluted (See Note 2)Continuing
                operations
            
            $
            (0.33
            )
            $
            (0.26
            )Discontinued
                operations
            
            $
            --
            
            $
            (0.02
            )Total
            
            $
            (0.33
            )
            $
            (0.28
            )Basic
                and diluted weighted average number of common shares outstanding
                (See Note
                2)
            
            
            8,689,803
            
            
            7,670,462


.





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





4


DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Three
                months ended March 31,2008
            
            2007**Cash
                flows from continuing operating activities:**Net
                loss
            
            $
            (2,872,237
            )
            $
            (2,005,582
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non
                cash stock based compensation
            
            
            1,127,369
            
            
            323,088Accrued
                rent
            
            
            491
            
            
            1,351Amortization
                of deferred debt discount
            
            
            501,674
            
            
            --Depreciation
                and amortization
            
            
            50,513
            
            
            52,785Changes
                in operating assets & liabilitiesRestricted
                cash
            
            
            32,061
            
            
            (129,755
            )Accounts
                receivable
            
            
            (60,931
            )
            
            (116,934
            )Prepaid
                debt collection payments
            
            
            --
            
            
            (125,794
            )Prepaid
                expenses and other current assets
            
            
            14,493
            
            
            4,745Deferred
                acquisition costs
            
            
            --
            
            
            (150,535
            )Deposits
                and other assets
            
            
            --
            
            
            (615
            )Accounts
                payable and accrued expenses
            
            
            310,151
            
            
            (600,993
            )Accrued
                professional fees
            
            
            141,643
            
            
            190,586Collections
                payable
            
            
            (7,269
            )
            
            129,755Net
                cash used in continuing operating activities
            
            
            (762,042
            )
            
            (2,427,898
            )**Cash
                flows from continuing investing activities:**Purchase
                of First Performance Corporation
            
            
            --
            
            
            (571,579
            )Purchases
                of fixed assets
            
            
            --
            
            
            (28,234
            )Net
                cash used in continuing investing activities
            
            
            --
            
            
            (599,813
            )**Cash
                flows from continuing financing activities:**Proceeds
                from other receivable
            
            
            200,000
            
            
            --Proceeds
                from long term loans
            
            
            300,000
            
            
            --Proceeds
                from issuance of short term notes
            
            
            412,000
            
            
            --Repayment
                of short term notes
            
            
            (145,000
            )Repayment
                of line of credit
            
            
            (5,000
            )
            
            (150,000
            )Proceeds
                from exercise of warrants
            
            
            42
            
            
            823Net
                cash provided by (used in) continuing financingactivities
            
            
            762,042
            
            
            (149,177
            )**Cash
                flows of discontinued operations**Net
                cash used in operating activities
            
            
            --
            
            
            (98,849
            )Net
                cash used in investing activities
            
            
            --
            
            
            (570,866
            )Net
                cash provided by financing activities
            
            
            --
            
            
            533,105Net
                cash used in discontinued operations
            
            
            --
            
            
            (136,610
            )Net
                decrease in cash and cash equivalents
            
            
            --
            
            
            (3,313,498
            )Cash
                and cash equivalents at beginning of period
            
            
            --
            
            
            4,925,571Cash
                and cash equivalents at end of period
            
            $
            --
            
            $
            1,612,073**Supplemental
                investing and financing activities:**Current
                assets acquired
            
            
            --
            
            $
            679,734Property
                and equipment acquired
            
            
            --
            
            
            286,229Security
                deposits acquired
            
            
            --
            
            
            51,999Intangible
                assets acquired
            
            
            --
            
            
            450,000Goodwill
                recognized on purchase business combination
            
            
            --
            
            
            1,026,869Accrued
                liabilities assumed in the acquisition
            
            
            --
            
            
            (1,573,252
            )Direct
                acquisition costs
            
            
            --
            
            
            (71,579
            )Non-cash
                consideration to seller
            
            
            --
            
            
            (350,000
            )Cash
                paid to acquire business
            
            $
            --
            
            $
            500,000




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


5




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


March
      31,
      2008


(Unaudited)




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




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




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




The
        Company has historically raised funds through the sale of debt and equity
        instruments. As of March 31, 2008, the Company has entered into three lines
        of
        credit with related parties with current outstanding balances of $1,006,000.
        Also as of March 31, 2008, the Company also issued notes to unaffiliated
        investors for a total of $842,000 and obtained bank loans of $150,000. In
        addition, subsequent to March 31, 2008, the Company has received approximately
        $298,000 in cash proceeds from various loans. Also, an officer has loaned
        the
        Company approximately $96,000 subsequent to March 31, 2008. Management has
        informed these note holders that some or all of these loans would be re-paid
        at
        the next significant funding that the Company receives. On March 31, 2008,
        the
        Company entered into a private placement agreement with Harmonie International
        LLC (“Harmonie”) for the sale of 2,966,102 shares of common stock for cash
        proceeds of $7,000,000.  Harmonie is also to receive a warrant to purchase
        up to 3,707,627 of common stock of the Company at an exercise price of $2.36
        per
        share. The warrant has a ten year exercise period. On May 16, 2008, Harmonie
        has
        requested an extension of time to complete funding by May 30, 2008. As of
        May
        19, 2008, funds under this agreement have not been received and there is
        no
        assurance that the Company will receive such proceeds.
  Management
        is actively pursuing additional debt/equity financing.  Management
        believes that it will be successful in obtaining additional financing and
        that
        it will successfully integrate the Company’s subsidiaries to a level of
        profitability, however it has not yet achieved profitability, and
        no assurance can be provided that the Company will be able to do so. 
If the Company is unable to raise sufficient additional funds or integrate
        the
        Company’s subsidiaries to a level of profitability, it will have to develop and
        implement a plan to extend payables and reduce overhead until sufficient
        additional capital is raised to support further operations. However, there
        can
        be no assurance that its efforts will be successful.


6




NOTE
      2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:




Principles
      of Consolidation





The
      accompanying 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 DRV Capital and
      EAR are shown as discontinued operations in the financial statements. All
      material inter-company balances and transactions have been eliminated in
      consolidation.





Reclassifications





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





Stock-based
      compensation





The
      Company accounts for stock options issued under stock-based compensation plans
      under the recognition and measurement principles of SFAS No. 123(R) (“Share
      Based Payment”). The fair value of each option and warrant granted to employees
      and non-employees is estimated as of the grant date using the Black-Scholes
      pricing model. The estimated fair value of the options granted is recognized
      as
      an expense over the requisite service period of the award, which is generally
      the option vesting period. As of March 31, 2008, total unrecognized compensation
      cost amounted to $283,646, all of which is expected to be recognized in 2008
      and
      2009. Total stock-based compensation expense for the three months ended March
      31, 2008 and 2007 amounted to $1,127,369 and $323,088,
      respectively.




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





**Three
                months ended**
              **March
                31,****2008**
            **2007**Risk
                free interest rate range
            2.10-3.21%
            4.52-4.84%Dividend
                yield
            0%
            0%Expected
                volatility
            81.1%-
            81.1%-96.7%Expected
                life in years
            3-7
            3-7





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




Net
      loss
      per share of common stock


Basic
        net
        loss per share excludes dilution for potentially dilutive securities and
        is
        computed by dividing net loss attributable to common stockholders by the
        weighted average number of common shares outstanding during the period. Diluted
        net loss per share reflects the potential dilution that could occur if
        securities or other instruments to issue common stock were exercised or
        converted into common stock. Potentially dilutive securities realizable from
        the
        exercise of options and warrants aggregating 7,631,037 and 4,542,604,
        respectively at March 31, 2008 and 2007, are excluded from the computation
        of
        diluted net loss per share as their inclusion would be anti-dilutive.




7




The
      Company’s issued and outstanding common shares do not include the underlying
      shares exercisable with respect to the issuance of 211,273 and 1,024,720
      warrants, respectively, as of March 31, 2008 and 2007, exercisable at $0.01
      per
      share related to a financing completed in June 2006. In accordance with SFAS
      No.
      128 “Earnings Per Share”, the Company has given effect to the issuance of these
      warrants in computing basic net loss per share.




NOTE
      3.  ACQUISITION
      OF FIRST PERFORMANCE CORPORATION:





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




The
      operations of First Performance from January 19, 2007 through March 31, 2007
      are
      included in the Company’s condensed consolidated financial statements. The
      following table presents the Company’s unaudited pro forma combined results of
      operations for the three months ended March 31, 2007, as if First Performance
      had been acquired at the beginning of the period.







Three
                MonthsEnded
                March 31,2007(unaudited)Revenues
            
            $
            1,298,022Net
                loss
            
            $
            (2,300,266
            )Pro-forma
                basic and diluted net loss per common share
            
            $
            (0.30
            )Weighted
                average common shares outstanding - basic and diluted
            
            
            7,698,999




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





NOTE
      4.  NOTES
      PAYABLE:




On
      November 30, 2007, an unaffiliated investor loaned the Company $100,000 on
      a
      90-day short term note. The note carries 12% interest per annum, with interest
      payable monthly in cash. The principal balance outstanding will be due at any
      time upon 30 days written notice, subject to mandatory prepayment (without
      penalty) of principal and interest, in whole or in part, from the net cash
      proceeds of any public or private, equity or debt financing made by Debt
      Resolve. The note matured on February 28, 2008 and was extended to May 31,
      2008
      for aggregate extension fees of $15,000. In conjunction with the note the
      Company also issued a warrant to purchase 100,000 shares of common stock at
      an
      exercise price of $1.25 per share with an expiration date of November 30, 2012.
      The note was recorded net of a debt discount of $44,100, based on the relative
      fair value of the warrant under the Black-Scholes pricing model. The debt
      discount was amortized over the initial term of the note. During the three
      months ended March 31, 2008, the Company recorded amortization of the debt
      discount related to this note of $29,400. This note is guaranteed by Mssrs.
      Mooney and Burchetta, a Director and a Director/Officer of the Company,
      respectively.





On
      December 21, 2007, an unaffiliated investor loaned the Company $125,000 on
      an 18
      month note with a maturity date of June 21, 2009. The note carries interest
      at a
      rate of 12% per annum, with interest accruing and payable at maturity. The
      note
      is secured by the assets of the Company. In conjunction with the note, the
      Company granted to the investor a warrant to purchase 37,500 shares of common
      stock at an exercise price of $1.07 and an expiration date of December 21,
      2012.
      The note was recorded net of a deferred debt discount of $19,375, based on
      the
      relative fair value of the warrant under the Black-Scholes pricing model. Such
      discount is being amortized over the term of the note. During the three months
      ended March 31, 2008, the Company recorded amortization of the debt discount
      related to this note of $3,229. This note is guaranteed by Mr.
      Burchetta.




8




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
      March 31, 2008, the Company recorded amortization of the debt discount related
      to this note of $8,600. This note is guaranteed by Mr. Burchetta.





On
      January 25, 2008, an unaffiliated investor loaned the Company $100,000 on an
      18
      month note with a maturity date of July 25, 2009. The note carries interest
      at a
      rate of 12% interest per annum, with interest accruing and payable at maturity.
      The note is secured by the assets of the Company. In conjunction with the note,
      the Company also issued a warrant to purchase 50,000 shares of common stock
      at
      an exercise price of $1.00 and an expiration date of January 24, 2013. The
      note
      was recorded net of a deferred debt discount of $20,300, based on the relative
      fair value of the warrant under the Black-Scholes pricing model. Such discount
      is being amortized over the term of the note. During the three months ended
      March 31, 2008, the Company recorded amortization of the debt discount related
      to this note of $2,256.




Between
      January 15, 2008 and February 8, 2008, an unaffiliated investor loaned the
      Company $75,000 on a short term basis. The interest rate is 12% per annum,
      and
      the loan is repayable on demand. As of March 31, 2008, the remaining outstanding
      balance on the loan is $30,000.




Between
      February 21, 2008 and March 24, 2008, an officer of the Company loaned to the
      Company a total of $87,000. The interest rate is 12% per annum, and the loan
      is
      repayable on demand.




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 31+ days after
      origination and a maturity period of 18 months. 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 March 31, 2008. The note is secured by the assets
      of the Company. In conjunction with the note, the Company also issued a warrant
      to purchase 175,000 shares of common stock at an exercise price of $1.25 and
      an
      expiration date of February 26, 2013. The note was recorded net of a deferred
      debt discount of $57,400, based on the relative fair value of the warrant under
      the Black-Scholes pricing model. Such discount is being amortized over the
      term
      of the note. During the three months ended March 31, 2008, the Company recorded
      amortization of the debt discount related to this note of $3,189.




On
      March
      7, 2008, the Company borrowed $100,000 from a bank at the prime rate (currently
      7%) for 30 days. On March 14, 2008, the original loan was repaid, and the
      Company borrowed $150,000 at the prime rate and due on April 7, 2008. The note
      was subsequently extended to June 1, 2008.




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.




NOTE
      5.  LINES
      OF
      CREDIT:





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




9




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 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. As of March
      31, 2008, the outstanding balance on this line of credit was $130,000.





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 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 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 note 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 is being
      amortized over the term of the note. During the year ended December 31, 2007,
      the Company recorded amortization of $117,700 of the debt discount related
      to
      this note. As of March 31, 2008, the Company has borrowed $300,000 under this
      line of credit. This note is 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.





NOTE
      6.  DRV
      CAPITAL LLC - DISCONTINUED OPERATIONS:





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




In
      accordance with SFAS 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (“SFAS 144”), the Company has reported these subsidiaries’
results for the three months ended March 31, 2007 as discontinued operations
      because the operations and cash flows have been eliminated from the Company’s
      continuing operations.




10




Components
      of discontinued operations are as follows:


Three
                  months ended March 31,2007Revenue
              
              $
              2,100Payroll
                  and related expenses
              
              
              49,168General
                  and administrative expenses
              
              
              45,441Total
                  expenses
              
              
              94,609Loss
                  from operations
              
              
              (92,509
              )Interest
                  expense
              
              
              (16,051
              )Loss
                  from discontinued operations
              
              $
              (108,560
              )




NOTE
      7.  STOCK
      OPTIONS:




As
      of
      March 31, 2008, the Company has one stock-based employee compensation
      plan.  The 2005 Incentive Compensation Plan (the “2005 Plan”) was approved
      by the stockholders on June 14, 2005 and provides for the issuance of options
      and restricted stock grants to officers, directors, key employees and
      consultants of the Company to purchase up to 900,000 shares of common
      stock.





A
      summary
      of option activity within the 2005 Plan during the three months ended March
      31,
      2008 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2008
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2008
              
              
              820,000
              
              $
              4.79
              
              
              4.2
                  Years
              
              $
              --Granted
              
              
              173,000
              
              $
              1.25
              
              
              6.9
                  Years
              
              $
              --Exercised
              
              
              --
              
              $
              --
              
              
              --
              
              $
              --Forfeited
                  or expired
              
              
              (135,500
              )
              $
              4.63
              
              
              --
              
              $
              --Outstanding
                  at March 31, 2008
              
              
              857,500
              
              $
              3.06
              
              
              4.7
                  Years
              
              $
              432,210Exercisable
                  at March 31, 2008
              
              
              626,500
              
              $
              3.49
              
              
              4.9
                  Years
              
              $
              432,210


As
      of
      March 31, 2008, the Company had 231,000 unvested options within the 2005
      Plan.





On
      February 8, 2008, the Company issued options to purchase 150,000 shares of
      its
      common stock exercisable at $1.25 per share to a current employee. The stock
      options have an exercise period of seven years and vest 33% at issuance, 33%
      at
      the employee’s first anniversary and 34% on the second anniversary of
      employment. The grant was valued at $138,000 under the Black-Scholes pricing
      model, is being expensed over the vesting period and resulted in an expense
      during the three months ended March 31, 2008 of $86,000.




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




On
      February 8, 2008, the Company issued options to purchase 3,000 shares of its
      common stock exercisable at $1.25 per share to a current employee. The stock
      options have an exercise period of seven years. The grant vests on the first
      anniversary of employment of the employee, which occurred during the three
      months ended March 31, 2008. The grant was valued at $2,760 under the
      Black-Scholes pricing model and was expensed during the three months ended
      March
      31, 2008.




11




On
      February 8, 2008, the Board re-priced the exercise price of outstanding options
      of all current employees from their prior grant prices ranging from $4.10 to
      $5.00 to $1.50 per share. In connection with this re-pricing, the Company
      recorded additional stock based compensation expense of $266,765 during the
      three months ended March 31, 2008.




A
      summary
      of stock option activity outside the 2005 Plan during the three months ended
      March 31, 2008 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2008
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2008
              
              
              3,033,434
              
              $
              4.97
              
              
              6.3
                  Years
              
              $
              --Granted
              
              
              1,511,500
              
              $
              1.25
              
              
              4.9
                  Years
              
              $
              --Exercised
              
              
              --
              
              $
              --
              
              
              --
              
              $
              --Forfeited
                  or Expired
              
              
              (60,000
              )
              $
              5.00
              
              
              --
              
              $
              --Outstanding
                  at March 31, 2008
              
              
              4,484,934
              
              $
              3.23
              
              
              5.7
                  Years
              
              $
              2,252,275Exercisable
                  at March 31, 2008
              
              
              4,309,934
              
              $
              3.33
              
              
              5.7
                  Years
              
              $
              2,252,275




As
      of
      March 31, 2008, the Company had 175,000 unvested stock options outside the
      2005
      Plan.





On
      February 8, 2008, the Company issued options to purchase 1,000 shares of its
      common stock exercisable at $1.25 per share to a director of the Company. The
      stock options have an exercise period of five years. The grant vested
      immediately. The grant was valued at $810 under the Black-Scholes pricing model
      and was expensed immediately.





On
      February 8, 2008, the Company issued options to purchase 350,000 shares of
      its
      common stock exercisable at $1.25 per share to an officer of the Company. The
      stock options have an exercise period of seven years. The grant vested
      immediately. The grant was valued at $322,000 under the Black-Scholes pricing
      model and was expensed immediately.





On
      February 8, 2008, the Company issued options to purchase 30,500 shares of its
      common stock exercisable at $1.25 per share to a director of the Company. The
      stock options have an exercise period of five years. The grant vested
      immediately. The grant was valued at $24,705 under the Black-Scholes pricing
      model and was expensed immediately.





On
      February 8, 2008, the Company issued options to purchase 30,000 shares of its
      common stock exercisable at $1.25 per share to a director of the Company. The
      stock options have an exercise period of five years. The grant vested
      immediately. The grant was valued at $24,300 under the Black-Scholes pricing
      model and was expensed immediately.





On
      February 8, 2008, the Company issued options to purchase 50,000 shares of its
      common stock exercisable at $1.25 per share to a former director of the Company.
      The stock options have an exercise period of five years. The grant vested
      immediately. The grant was valued at $40,500 under the Black-Scholes pricing
      model and was expensed immediately.





The
      Company recorded stock based compensation expense representing the amortized
      amount of the fair value of options granted in prior periods in the amount
      of
      $111,621 during the three months ended March 31, 2008.




Stock
      based compensation for the three months ended March 31, 2008 and 2007 was
      recorded in the consolidated statements of operations as follows:


2008
              
              2007Payroll
                  and related expenses
              
              $
              1,044,719
              
              $
              156,514General
                  and administrative expenses
              
              $
              82,650
              
              $
              166,574




12




NOTE
      8.  WARRANTS:




A
      summary
      of warrant activity as of January 1, 2008 and changes during the three months
      ended March 31, 2008 is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              Intrinsic2008
              
              Price
              
              Term
              
              ValueOutstanding
                  at January 1, 2008
              
              
              2,042,770
              
              $
              1.60
              
              
              3.0
                  Years
              
              
              --Granted
              
              
              350,000
              
              $
              1.31
              
              
              4.9
                  Years
              
              
              --Exercised
              
              
              (4,167
              )
              $
              0.01
              
              
              --
              
              
              --Forfeited
                  or Expired
              
              
              (100,000
              )
              $
              4.25
              
              
              --
              
              
              --Outstanding
                  at March 31, 2008
              
              
              2,288,603
              
              $
              1.44
              
              
              3.2
                  Years
              
              $
              1,742,391Exercisable
                  at March 31, 2008
              
              
              2,063,603
              
              $
              1.60
              
              
              3.6
                  Years
              
              $
              1,742,391




As
      of
      March 31, 2008, there were 225,000 unvested warrants to purchase shares of
      common stock.





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





During
      the three months ended March 31, 2008, warrants to purchase 4,167 shares of
      common stock were exercised for proceeds of $42.





NOTE
      9.  LITIGATION :





Our
      First
      Performance subsidiary received an action under the Texas Fair Debt Collection
      Practices Act and the Telephone Act. The plaintiff is seeking $10,000 in
      damages. The Company is vigorously defending this matter as it believes that
      the
      claim has no merit. A hearing on a motion for summary judgment initiated by
      First Performance will be held on May 30, 2008.




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.




NOTE
      10.  OPERATING
      LEASES:




On
      August
      1, 2005, the Company entered into a five year lease for its corporate
      headquarters which includes annual escalations in rent. In accordance with
      SFAS
      No. 13, “Accounting for Leases,” (“SFAS 13”) the Company accounts for rent
      expense using the straight line method of accounting, accruing the difference
      between actual rent due and the straight line amount. At March 31, 2008, accrued
      rent payable totaled $14,402.





The
      Company also
      leases an office in Las Vegas, Nevada under a non-cancelable operating lease
      that expires July 31, 2014 and calls for annual escalations in rent. First
      Performance follows the requirements of SFAS 13 as does Debt Resolve. At March
      31, 2008, accrued rent payable related to this lease totaled
      $25,822.





Rent
      expense for the three months ended March 31, 2008 and 2007 was $103,521 and
      $68,415, respectively.





13




As
      of
      March 31, 2008, future minimum rental payments under the above non-cancelable
      operating leases are as follows:




For
                the Years Ending
              December
                31,
            
            Amount2008
            
            $
            296,1602009
            
            
            403,5022010
            
            
            357,4672011
            
            
            289,9842012
            
            
            298,683Thereafter
            
            
            437,404$
            2,083,200





NOTE
      11.  EMPLOYMENT
      AGREEMENT:


On
        February 16, 2008, the Company entered into an employment agreement with
        Mr.
        Kenneth H. Montgomery to serve as its Chief Executive Officer. The agreement
        has
        a one year, automatically renewable term unless the Company provides 90 days
        written notice of its intention not to renew prior to the anniversary date.
        Mr.
        Montgomery’s salary is $225,000 annually, with a bonus of up to 75% of salary
        based on performance of objectives set by the Chairman and the Board of
        Directors. Mr. Montgomery also received 50,000 shares of restricted stock
        and
        350,000 options to purchase the common stock of the Company at an exercise
        price
        of $0.80, the closing price on his date of approval by the Board. The grant
        of
        options has a seven year term and vest 50% immediately and 50% on the six
        month
        anniversary of his employment. The option grant was valued at $210,000 under
        the
        Black-Scholes pricing model, and the initial vesting was expensed immediately
        and the remainder of the grant is being expensed over the vesting period.
        These
        restricted shares have not been issued as of May 19, 2008. The restricted
        shares
        were valued at $0.80 per share, the closing price on the date of the grant.
        The
        total expense of $40,000 was credited to Additional Paid-in Capital. There
        are
        no restrictions on this grant of stock, except that the stock is not registered
        and is therefore subject to SEC rules regarding unregistered stock. During
        the
        three months ended March 31, 2008, the Company recorded an expense relating
        to
        the option grant in the amount of $140,000.


NOTE
      12.  SEGMENT
      DATA:




Prior
      to January
      2007 ,
      the
      Company had minimal revenue through the DebtResolve System.  As discussed
      in Note 1, on January
      19, 2007 ,
      the
      Company acquired First Performance, an accounts receivable management
      agency.  Also, in January
      2007 ,
      the
      Company initiated operations of its debt buying subsidiary.  Accordingly,
      as of January
      2007 ,
      the
      Company is no longer considered a development stage entity, and operated in
      three segments:  Internet Services (internet debt resolution software and
      services offered to creditors and collection agencies), Debt Buying (defaulted
      consumer debt buying), and a Collection Agency (consumer debt
      collections).  On October
      15, 2007 ,
      the
      Company ceased its operations of the Debt Buying segment (Note 6) and now
      operates its Internet Services and Collection Agency segments. 
Accordingly, the following table summarizes financial information about the
      Company’s business segments as of March
      31,
      2008 :





**Three
      Months Ended March 31, 2008**





**Internet****Services**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            84,178
            
            $
            148,970
            
            $
            --
            
            $
            233,148Loss
                from operations
            
            $
            (2,041,443
            )
            $
            (505,692
            )
            $
            (220,376
            )
            $
            (2,767,511
            )Depreciation
                and amortization
            
            $
            14,537
            
            $
            35,976
            
            $
            --
            
            $
            50,513Interest
                income
            
            $
            190
            
            $
            --
            
            $
            --
            
            $
            190Interest
                expense
            
            $
            (28,741
            )
            $
            (647
            )
            $
            --
            
            $
            (29,388
            )Interest
                expense - related parties
            
            $
            (27,391
            )
            $
            (3,040
            )
            $
            --
            
            $
            (30,431
            )Total
                assets
            
            $
            412,477
            
            $
            412,129
            
            $
            --
            
            $
            824,606





14




**Three
      Months Ended March 31, 2007**





**Internet****Services**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            20,620
            
            $
            1,115,134
            
            $
            --
            
            $
            1,135,754Loss
                from operations
            
            $
            (1,384,055
            )
            $
            (434,686
            )
            $
            (228,340
            )
            $
            (2,047,081
            )Depreciation
                and amortization
            
            $
            13,797
            
            $
            38,988
            
            $
            --
            
            $
            52,785Interest
                income
            
            $
            36,770
            
            $
            --
            
            $
            --
            
            $
            36,770Interest
                expense
            
            $
            (71
            )
            $
            (210
            )
            $
            --
            
            $
            (281
            )Capital
                expenditures
            
            $
            28,234
            
            $
            --
            
            $
            --
            
            $
            28,234Total
                assets
            
            $
            2,049,863
            
            $
            2,889,623
            
            $
            --
            
            $
            4,939,486Goodwill
            
            $
            --
            
            $
            1,026,869
            
            $
            --
            
            $
            1,026,869




NOTE
      13.  RECENT
      ACCOUNTING PRONOUNCEMENTS:




In September
      2006 ,
      the
      FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157
      provides guidance for using fair value to measure assets and liabilities. 
It also responds to investors’ requests for expanded information about the
      extent to which companies measure assets and liabilities at fair value, the
      information used to measure fair value, and the effect of fair value
      measurements on earnings.  SFAS 157 applies whenever other standards
      require (or permit) assets or liabilities to be measured at fair value, and
      does
      not expand the use of fair value in any new circumstances.  SFAS 157 is
      effective for financial statements issued for fiscal years beginning after November
      15, 2007 and has
      been adopted by the Company in 2008 without material effect on the Company’s
      consolidated financial position or results of operations.





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




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





NOTE
      14.  RELATED
      PARTY TRANSACTIONS:




a.  Consulting
      fees





During
      the three months ended March 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 March
      31,
      2008.




NOTE
      15.  AMERICAN
      STOCK EXCHANGE DEFICIENCY LETTER:





On
      January 7, 2008, the Company received a deficiency letter from the American
      Stock Exchange stating that
      it
      was not in compliance with specific provisions of the American
      Stock Exchange continued listing standards. Also on January 7, 2008, the Company provided
      a
      plan of remediation to the Exchange, and the plan was accepted. The Company
      was
      given 90 days to regain compliance with listing standards by April 7, 2008.
      As a
      result of the closing of the documentation by which Harmonie International LLC
      committed to invest $7 million in the common stock of the Company, the Exchange
      provided an extension of the time to regain compliance. At this time, the
      Exchange is requesting proof of funding by Harmonie. As of May 19, 2008, no
      funds have been received.




15




The
      Exchange has notified the Company that additional information is required at
      this time to make a further determination about the Company’s listing status.
      The information requested specifically concerns the cause of the delay in
      funding. The Company is in the process of preparing a response to the Exchange
      at this time.




NOTE
      16.  SUBSEQUENT
      EVENTS:




On
      April
      10, 2008, an unaffiliated investor loaned the Company an additional $198,000
      on
      an 18 month note with a maturity date of October 10, 2008. 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 99,000 shares of common stock at an exercise price of $2.45
      and an expiration date of April 10, 2013. The note was recorded net of a
      deferred debt discount of $88,110, based on the relative fair value of the
      warrant and will be amortized over the term of the note.




On
      May
      15, 2008, a local bank loaned the Company an additional $100,000 at the prime
      rate of 7% due on July 1, 2008, with interest payable monthly in
      cash.





Subsequent
      to March 31, 2008, an officer loaned the Company approximately $96,000 to be
      used for working capital purposes.





16




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





**Overview**





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





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




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




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




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




17




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




In
      January 2007, we purchased the outstanding common stock of First Performance.
      First Performance is a collection agency that represents both regional and
      national credit grantors from such diverse industries as retail, bankcard,
      oil
      cards, mortgage and auto. By entering this business directly, we have signaled
      our intention to become a significant player in the accounts receivable
      management industry. We believe that through a mixture of both traditional
      and
      our innovative, technologically-driven collection methods, we can achieve
      superior returns. Due to the loss of four major clients at First Performance
      during 2007, we performed two interim impairment analyses in accordance with
      SFAS 142. As a result of these analyses, we recorded impairment charges
      aggregating $1,206,335 during year ended December 31, 2007.





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


We
        have
        historically raised funds through the sale of debt and equity instruments.
        As of
        March 31, 2008, we have entered into three lines of credit with related parties
        with current outstanding balances of $1,006,000. Also as of March 31, 2008,
        we
        also issued notes to unaffiliated investors for a total of $842,000 and obtained
        bank loans of $150,000. In addition, subsequent to March 31, 2008, we have
        received approximately $298,000 in cash proceeds from various loans. Also,
        an
        officer has loaned us approximately $96,000 subsequent to March 31, 2008.
        Management has informed these note holders that some or all of these loans
        would
        be re-paid at the next significant funding that the Company receives. On
        March
        31, 2008, we entered into a private placement agreement with Harmonie
        International LLC (“Harmonie”) for the sale of 2,966,102 shares of common stock
        for cash proceeds of $7,000,000.  Harmonie is also to receive a warrant to
        purchase up to 3,707,627 of our common stock at an exercise price of $2.36
        per
        share. The warrant has a ten year exercise period. On May 16, 2008, Harmonie
        has
        requested an extension of time to complete funding by May 30, 2008. As of
        May
        19, 2008, funds under this agreement have not been received and there is
        no
        assurance that we will receive such proceeds.


We
      are
      actively pursuing additional debt/equity financing.  We believe that
      we will be successful in obtaining additional financing and that we will
      successfully integrate our subsidiaries to a level of profitability, however
      we
      have not yet achieved profitability, and no assurance can be provided that
      we will be able to do so.  If we are unable to raise sufficient additional
      funds or integrate our subsidiaries to a level of profitability, we will have
      to
      develop and implement a plan to extend payables and reduce overhead until
      sufficient additional capital is raised to support further operations. However,
      there can be no assurance that our efforts will be successful.




**Results
      of Operations for the Three Months Ended March 31, 2008 Compared to the Three
      Months Ended March 31, 2007**




***Revenues***




Revenues
      totaled $233,148 and $1,135,755 for the three months ended March 31, 2008 and
      2007, respectively. We earned revenue during the three months ended March 31,
      2008 from fees earned on debt collected by our collection agency, and as a
      percent of debt collected, flat settlement fee or monthly license fee at
      collection agencies, law firms, a lender and two banks that implemented our
      online system. Of the revenue earned during the three months ended March 31,
      2008, $148,970 was earned as fees on debt collected at our collection agency
      and
      $84,178 was contingency fee income, based on a percentage of the amount of
      debt
      collected, monthly license fees or fees per settlement from accounts placed
      on
      our online system. Of the revenue earned during the three months ended March
      31,
      2007, $1,115,134 was earned as fees on debt collected at our collection agency
      and $20,620 was contingency fee income, based on a percentage of the amount
      of
      debt collected, monthly license fees or fees per settlement from accounts placed
      on our online system. The decline in revenue at First Performance is the result
      of the loss of four major clients during 2007. Such clients generated revenue
      of
      $991,153 and $2,098,303 for the three months ended March 31, 2008 and the year
      ended December 31, 2007, respectively.




18




***Costs
      and Expenses***


**Payroll
        and related expenses** .
        Payroll
        and related expenses totaled $1,646,006 for the three months ended March
        31,
        2008, an increase of $47,582 over payroll and related expenses of $1,598,424
        for
        the three months ended March 31, 2007. This increase was due to an increase
        in
        employee stock based compensation expense. Non-cash stock based compensation
        expense was $1,127,369 and $156,514 for the three months ended March 31,
        2008
        and 2007, respectively. Salary expenses were $497,908 for the three months
        ended
        March 31, 2008, a decrease of $613,960 over salary expenses of $1,111,868
        for
        the three months ended March 31, 2007 due to the closure of the First
        Performance Florida office and significant downsizing in 2007. Payroll tax
        expense of $48,223 for the three months ended March 31, 2008 represented
        a
        decrease of $75,109 over payroll tax expense of $123,332 for the three months
        ended March 31, 2007, also due to downsizing. The expenses for the three
        months
        ended March 31, 2008 for benefits, severance and miscellaneous were $48,733,
        $0
        and 6,423, respectively versus expenses of $100,587, $27,583 and $78,540,
        respectively, for the three months ended March 31, 2007.




**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $849,140 for the three months ended
      March 31, 2008, as compared to $1,531,625 for the three months ended March
      31,
      2007, a decrease of $682,485. Direct collection costs at First Performance
      decreased by $86,989 to $39,186 from $126,175 in the three months ended March
      31, 2008 and 2007, respectively. The expense for stock based compensation for
      stock options granted to consultants for the three months ended March 31, 2008
      was $82,650, as compared with stock based compensation in the amount of $166,574
      for the three months ended March 31, 2007. Also, for the three months ended
      March 31, 2008 consulting fees totaled $124,241, as compared with $201,794
      in
      consulting fees for the three months ended March 31, 2007, a decrease of
      $77,553, primarily related to the elimination of consultants to control costs.
      Legal fees decreased by $178,678 to $115,768 for the three months ended March
      31, 2008 from $294,446 for the three months ended March 31, 2007, primarily
      due
      to the conclusion of the patent litigation against Apollo Enterprise Solutions
      in 2007. The expenses for occupancy, telecommunications, travel and office
      supplies for the three months ended March 31, 2008 were $103,521, $44,597,
      $46,138 and $25,938, respectively, as compared with expenses of $126,094,
      $141,481, $96,035 and $71,382 for occupancy, telecommunications, travel and
      office supplies, respectively, for the three months ended March 31, 2007, all
      due to strong costs control efforts in the second half of 2007 and the three
      months ended March 31, 2008. Marketing expenses decreased by $89,337 to $19,435
      for the three months ended March 31, 2008 from $108,772 for the three months
      ended March 31, 2007, primarily due to the elimination of marketing consultants
      after March 31, 2007. Other general operating costs for the three months ended
      March 31, 2008, including insurance and accounting expenses, amounted to
      $247,667, as compared with $198,873 for the three months ended March 31,
      2007.




**Depreciation
      and amortization expense** .
      For the
      three months ended March 31, 2008, we recorded depreciation expense of $34,361
      and an expense of $16,152 for the amortization of intangibles recorded in
      connection with the acquisition of First Performance Corporation in January
      2007. Depreciation expense and the amortization of intangibles for the three
      months ended March 31, 2007 was $35,535 and $17,250, respectively.




**Interest
      income (expense).** We
      recorded interest income, interest expense and interest expense - related
      parties of $190, ($29,388) and ($30,431) for the three months ended March 31,
      2008, respectively, compared to interest income and interest expense of $36,770
      and ($281), respectively, for the three months ended March 31, 2007. Interest
      expense for the three months ended March 31, 2008 includes interest accrued
      on
      our lines of credit, investor notes and bank loans.




**Amortization
      of deferred debt discount.** Amortization
      expense of $501,674 was incurred for the three months ended March 31, 2008
      for
      the amortization of the value of the deferred debt discount associated with
      our
      lines of credit and short term notes.




19




**Liquidity
      and Capital Resources**


We
        have
        historically raised funds through the sale of debt and equity instruments.
        As of
        March 31, 2008, we have entered into three lines of credit with related parties
        with current outstanding balances of $1,006,000. Also as of March 31, 2008,
        we
        also issued notes to unaffiliated investors for a total of $842,000 and obtained
        bank loans of $150,000. In addition, subsequent to March 31, 2008, we have
        received approximately $298,000 in cash proceeds from various loans. Also,
        an
        officer has loaned us approximately $96,000 subsequent to March 31, 2008.
        Management has informed these note holders that some or all of these loans
        would
        be re-paid at the next significant funding that the Company receives. On
        March
        31, 2008, we entered into a private placement agreement with Harmonie
        International LLC (“Harmonie”) for the sale of 2,966,102 shares of common stock
        for cash proceeds of $7,000,000.  Harmonie is also to receive a warrant to
        purchase up to 3,707,627 of our common stock at an exercise price of $2.36
        per
        share. The warrant has a ten year exercise period. On May 16, 2008, Harmonie
        has
        requested an extension of time to complete funding by May 30, 2008. As of
        May
        19, 2008, funds under this agreement have not been received and there is
        no
        assurance that we will receive such proceeds.


We
      are
      actively pursuing additional debt/equity financing.  We believe that
      we will be successful in obtaining additional financing and that we will
      successfully integrate First Performance to a level of profitability, however
      it
      has not yet achieved profitability, and no assurance can be provided that
      we will be able to do so.  If we are unable to raise sufficient additional
      funds or integrate our subsidiaries to a level of profitability, we will have
      to
      develop and implement a plan to extend payables and reduce overhead until
      sufficient additional capital is raised to support further operations. However,
      there can be no assurance that our efforts will be successful.




**Critical
      Accounting Policies and Estimates**




Use
      of
      estimates




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




Accounts
      Receivable




The
      Company extends credit to large and mid-size companies for collection services.
      The Company has concentrations of credit risk as 68% of the balance of accounts
      receivable at March 31, 2008 consists of only three customers. At March 31,
      2008, accounts receivable from the three largest accounts amounted to
      approximately $39,600 (27%), $38,027 (26%) and $21,108 (15%), respectively.
      The
      Company does not generally require collateral or other security to support
      customer receivables. Accounts receivable are carried at their estimated
      collectible amounts. Accounts receivable are periodically evaluated for
      collectibility and the allowance for doubtful accounts is adjusted accordingly.
      Management determines collectibility based on their experience and knowledge
      of
      the customers.




Goodwill
      and Intangible Assets




The
      Company accounts for goodwill and intangible assets in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
      142”). Under SFAS 142, goodwill and intangibles that are deemed to have
      indefinite lives are no longer amortized but, instead, are to be reviewed at
      least annually for impairment. Application of the goodwill impairment test
      requires judgment, including the identification of reporting units, assigning
      assets and liabilities to reporting units, assigning goodwill to reporting
      units, and determining the fair value. Significant judgments required to
      estimate the fair value of reporting units include estimating future cash flows,
      determining appropriate discount rates and other assumptions. Changes in these
      estimates and assumptions could materially affect the determination of fair
      value and/or goodwill impairment for each reporting unit. Intangible assets
      will
      be amortized over their estimated useful lives. As
      of
      March 31, 2008, there were no circumstances which would have necessitated an
      interim analysis of its goodwill and intangible assets in accordance with SFAS
      142.




20




Income
      Taxes





In
      accordance with Statement of Financial Accounting Standards No. 109, Accounting
      for Income Taxes, the Company uses an asset and liability approach for financial
      accounting and reporting for income taxes. The basic principles of accounting
      for income taxes are: (a) a current tax liability or asset is recognized for
      the
      estimated taxes payable or refundable on tax returns for the current year;
      (b) a
      deferred tax liability or asset is recognized for the estimated future tax
      effects attributable to temporary differences and carryforwards; (c) the
      measurement of current and deferred tax liabilities and assets is based on
      provisions of the enacted tax law and the effects of future changes in tax
      laws
      or rates are not anticipated; and (d) the measurement of deferred tax assets
      is
      reduced, if necessary, by the amount of any tax benefits that, based on
      available evidence, are not expected to be realized.




Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of
      FASB Statement No. 109,” (“FIN 48”). FIN 48 prescribes a recognition threshold
      and a measurement attribute for the financial statement recognition and
      measurement of tax positions taken or expected to be taken in a tax return.
      For
      those benefits to be recognized, a tax position must be more likely than not
      to
      be sustained upon examination by taxing authorities. Differences between tax
      positions taken or expected to be taken in a tax return and the benefit
      recognized and measured pursuant to the interpretation are referred to as
“unrecognized benefits”. A liability is recognized (or amount of net operating
      loss carry forward or amount of tax refundable is reduced) for an unrecognized
      tax benefit because it represents an enterprise’s potential future obligation to
      the taxing authority for a tax position that was not recognized as a result
      of
      applying the provisions of FIN 48.





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified as “Interest
      expense” in the consolidated statements of operations. Penalties would be
      recognized as a component of “General and administrative expenses.”





In
      many
      cases, the Company’s tax positions are related to tax years that remain subject
      to examination by relevant tax authorities. The Company files income tax returns
      in the United States (federal) and in various state and local jurisdictions.
      In
      most instances, the Company is not subject to federal, state and local income
      tax examinations by tax authorities for years prior to 2004.





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company’s consolidated financial position and results of operations. As of
      December 31, 2007, no liability for unrecognized tax benefits was required
      to be
      recorded.




The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      become deductible. The Company considers projected future taxable income and
      tax
      planning strategies in making this assessment. At present, the Company does
      not
      have a sufficient history of income to conclude that it is more likely than
      not
      that the Company will be able to realize all of its tax benefits in the near
      future and therefore a valuation allowance was established for the full value
      of
      the deferred tax asset.




At
      March 31,
      2008 ,
      the
      Company had federal net operating loss (“NOL”) carry forwards for income tax
      purposes of approximately $21,000,000. These NOL carry forwards expire through
      2027 but are limited due to section 382 of the Internal Revenue Code (the “382
      Limitation”) which states that the NOL of any corporation for any year after a
      greater than 50% change in control has occurred shall not exceed certain
      prescribed limitations. As a result of the Initial Public Offering described
      in
      Note 3 Debt Resolve’s NOL carry forwards are subject to the 382 Limitation which
      limits the utilization of those NOL carry forwards to approximately $650,000
      per
      year. The remaining federal NOL carry forwards may be used by the Company to
      offset future taxable income prior to their expiration. For First Performance,
      Section 382 will limit their pre-acquisition NOL’s to approximately $35,000 per
      year, due to the acquisition described in Note 5.  The remaining federal
      NOL carry forwards may be used by the Company to offset future taxable income
      prior to their expiration.  For the year ended December 31, 2007 the
      difference between the Federal statutory rate and the effective rate was due
      primarily to State taxes, non-deductibility of goodwill from the First
      Performance acquisition and change in the valuation allowance of approximately
      $4.2 million.




A
      valuation allowance will be maintained until sufficient positive evidence exists
      to support the reversal of any portion or all of the valuation allowance net
      of
      appropriate reserves. Should the Company continue to be profitable in future
      periods with a supportable trend, the valuation allowance will be reversed
      accordingly.




Stock-based
      compensation




The
      Company accounts for stock options and warrants issued under stock-based
      compensation plans under the recognition and measurement principles of SFAS
      No.
      123(R) (“Share Based Payment”). Total stock-based compensation expense for the
      three months ended March 31, 2008 and 2007 amounted to $1,127,369 and $323,088,
      respectively.




21




The
      fair
      value of each option and warrant granted to employees and non-employees is
      estimated as of the grant date using the Black-Scholes pricing model. The
      estimated fair value of the options granted is recognized as an expense over
      the
      requisite service period of the award, which is generally the option vesting
      period. As of March 31, 2008, total unrecognized compensation cost amounted
      to
      $283,646, all of which is expected to be recognized in 2008 and
      2009.




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




**Recent
      Accounting Pronouncements**




In September
      2006 ,
      the
      FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157
      provides guidance for using fair value to measure assets and liabilities. 
It also responds to investors’ requests for expanded information about the
      extent to which companies measure assets and liabilities at fair value, the
      information used to measure fair value, and the effect of fair value
      measurements on earnings.  SFAS 157 applies whenever other standards
      require (or permit) assets or liabilities to be measured at fair value, and
      does
      not expand the use of fair value in any new circumstances.  SFAS 157 is
      effective for financial statements issued for fiscal years beginning after November
      15, 2007 and has
      been adopted by the Company in 2008 without material effect on the Company’s
      consolidated financial position or results of operations.





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




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




**Statement
      Relating to Forward-Looking Statements**




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




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





None




22




**Item
      4. Controls and Procedures**





Disclosure
      Controls and Procedures





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





Limitations
      on the Effectiveness of Controls





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





Internal
      Control over Financial Reporting




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




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 months ended March 31,
      2008
      and 2007, fairly present, in all material respects, its financial condition
      and
      results of operations. During
      the three months ended March 31, 2008, there were no changes to our internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




**CEO
      and CFO Certifications**




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




23




**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





None


**Item
        1A. Risk Factors**
 
 Not
        applicable


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





None





**Item
      3. Defaults upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None





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





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


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


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





Filing
      on
      Form 8-K dated January 7, 2008.


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


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


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


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


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





24




**SIGNATURES**




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







Dated:
      May 20, 2008


**DEBT
                RESOLVE, INC.**By:
            /s/ Kenneth
              H. MontgomeryKenneth
                H. Montgomery
              Chief
                Executive Officer
              (principal
                executive officer) By:
              /s/ David
                M. RaineyDavid
                  M. Rainey
                President
                  and Chief Financial Officer
                (principal
                  financial and accounting officer)
  25