UNITED STATESSECURITIES 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, 2010 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 For the Transition Period from ________ to ___________ Commission File No.: 1-33110 DEBT RESOLVE, INC. (Exact name of registrant as specified in its charter) Delaware
                           
                           
                           
                           
                           
                           33-0889197(State or other jurisdiction of incorporation or organization)
                           
                           
                           
                           
                           
                           (I.R.S. Employer Identification No.)150 White Plains Road, Suite 108Tarrytown, New York
                           
                           
                           
                           
                           
                           10591(Address of principal executive offices)
                           
                           
                           
                           
                           
                           (Zip Code)(914) 949-5500(Issuer's telephone number) Indicate by check mark whether the registrant (1) has filed all
                     reports required to be filed by Section 13 or 15(d) of the Exchange
                     Act during the preceding 12 months (or for such shorter period that
                     the registrant was required to file such reports), and (2) has been
                     subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is a large accelerated
                     filer, an accelerated filer, a non-accelerated filer, or a smaller
                     reporting company. See the definitions of "large accelerated filer",
                     "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
                     the Exchange Act. Large accelerated filer o
                           
                           
                           Accelerated filer 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 BANKRUPTCYPROCEEDINGS 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 24, 2010, 51,253,071 shares of the issuer's Common Stock
                     were outstanding.
 1


DEBT RESOLVE, INC. TABLE OF CONTENTS PagePART I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2010 (unaudited)
                              and December 31, 2009
                           
                           
                           
                           
                           
                           3Condensed Consolidated Statements of Operations for the Three Months
                              Ended March 31, 2010 and 2009 (unaudited)
                           
                           
                           
                           
                           
                           4Condensed Consolidated Statements of Stockholders' Deficiency from
                              January 1, 2009 through March 31, 2010 (unaudited)
                           
                           
                           
                           
                           
                           5Condensed Consolidated Statements of Cash Flows for the Three Months
                              Ended March 31, 2010 and 2009 (unaudited)
                           
                           
                           
                           
                           
                           6Notes to Condensed Consolidated Financial Statements (unaudited)
                           
                           
                           
                           
                           
                           7Item 2. Management's Discussion and Analysis of Financial Condition
                              and Results of Operations
                           
                           
                           
                           
                           
                           30Item 3. Quantitative and Qualitative Disclosures about Market Risk
                           
                           
                           
                           
                           
                           37Item 4T. Controls and Procedures
                           
                           
                           
                           
                           
                           37PART II. Other InformationItem 1. Legal Proceedings
                           
                           
                           
                           
                           
                           38Item 1A. Risk Factors
                           
                           
                           
                           
                           
                           39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
                           
                           
                           
                           
                           
                           39Item 3. Defaults Upon Senior Securities
                           
                           
                           
                           
                           
                           39Item 4. Submission of Matters to a Vote of Security Holders
                           
                           
                           
                           
                           
                           39Item 5. Other Information
                           
                           
                           
                           
                           
                           40Item 6. Exhibits
                           
                           
                           
                           
                           
                           40Signature
                           
                           
                           
                           
                           
                           41Certifications
                           
                           
                           
                           
                           
                           42
 2


PART I.FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS DEBT RESOLVE, INC.CONDENSED CONSOLIDATED BALANCE SHEETS March 31,2010
                           
                           
                           December 31,2009ASSETS
                           
                           
                           (unaudited)Current assets:Cash
                           
                           $
                           81,400
                           
                           $
                           -Accounts receivable, net
                           
                           
                           26,107
                           
                           
                           11,253Prepaid and other current assets
                           
                           
                           153,239
                           
                           
                           187,562Total current assets
                           
                           
                           260,746
                           
                           
                           198,815Fixed assets, net
                           
                           
                           27,690
                           
                           
                           37,968Deposits and other assets
                           
                           
                           -
                           
                           
                           35,000Total assets
                           
                           $
                           288,436
                           
                           $
                           271,783LIABILITIES AND STOCKHOLDERS' DEFICIENCYCurrent liabilities:Bank overdraft
                           
                           $
                           48,517
                           
                           $
                           62,306Accounts payable and other accrued liabilities
                           
                           
                           2,641,908
                           
                           
                           2,761,556Convertible debentures
                           
                           
                           311,000
                           
                           
                           320,050Short term notes, net of unamortized deferred debt discount of
                              $20,000 and $-0- as of March 31, 2010 and December 31, 2009,
                              respectively
                           
                           
                           385,820
                           
                           
                           304,225Current maturities on long-term debt
                           
                           
                           657,867
                           
                           
                           823,000Lines of credit, related parties
                           
                           
                           157,000
                           
                           
                           157,000Total current liabilities
                           
                           
                           4,202,112
                           
                           
                           4,428,137Long term debt:Convertible long-term notes, net of unamortized deferred debt
                              discount of $879,170 and $714,940 as of March 31, 2010 and December
                              31, 2009, respectively
                           
                           
                           132,834
                           
                           
                           169,560Derivative liability
                           
                           
                           9,779,387
                           
                           
                           7,518,056Total liabilities
                           
                           
                           14,114,333
                           
                           
                           12,115,753COMMITMENTS AND CONTINGENCIESStockholders' deficiency:Preferred stock, $0.001 par value; 10,000,000 shares authorized, none
                              issued and outstanding
                           
                           
                           -
                           
                           
                           -Common stock, $0.001 par value, 100,000,000 shares authorized;
                              45,474,375 and 39,898,584 shares issued and outstanding as of March
                              31, 2010 and December 31, 2009, respectively
                           
                           
                           45,474
                           
                           
                           39,899Additional paid in capital
                           
                           
                           57,921,635
                           
                           
                           56,610,021Accumulated deficit
                           
                           
                           (71,793,006
                           )
                           
                           (68,493,890
                           )Total stockholders' deficiency
                           
                           
                           (13,825,897
                           )
                           
                           (11,843,970
                           )Total liabilities and stockholders' deficiency
                           
                           $
                           288,436
                           
                           $
                           271,783The accompanying notes are an integral part of these unaudited
                              condensed consolidated financial statements
 3


DEBT RESOLVE, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited) Three months ended March 31,2010
                           
                           
                           2009(restated)REVENUES:
                           
                           $
                           29,826
                           
                           $
                           24,495Costs and expenses:Payroll and related expenses
                           
                           
                           137,346
                           
                           
                           192,241Selling, general and administrative expenses
                           
                           
                           1,470,524
                           
                           
                           277,973Depreciation and amortization
                           
                           
                           10,279
                           
                           
                           12,279Total costs and expenses
                           
                           
                           1,618,149
                           
                           
                           482,493Net loss from operations
                           
                           
                           (1,588,323
                           )
                           
                           (457,998
                           )Other income (expense):Interest expense
                           
                           
                           (71,079
                           )
                           
                           (92,548
                           )Amortization of debt discounts
                           
                           
                           (389,524
                           )
                           
                           (190,616
                           )(Loss) gain on change in fair value of derivative liability
                           
                           
                           (1,262,671
                           )
                           
                           68,409Other income (expense):
                           
                           
                           12,481
                           
                           
                           -Net loss before provision for income taxes
                           
                           
                           (3,299,116
                           )
                           
                           (672,753
                           )Income tax (benefit)
                           
                           
                           -
                           
                           
                           -Net loss
                           
                           $
                           (3,299,116
                           )
                           $
                           (672,753
                           )Net loss per common share (basic and diluted)
                           
                           $
                           (0.08
                           )
                           $
                           (0.06
                           )Weighted average number of common shares outstanding, basic and diluted
                           
                           
                           42,268,577
                           
                           
                           11,487,026The accompanying notes are an integral part of these unaudited
                              condensed consolidated financial statements
 4


DEBT RESOLVE, INC.CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY|FROM JANUARY 1, 2009 THROUGH MARCH 31, 2010(unaudited) Preferred stock
                           
                           
                           Common stock
                           
                           
                           AdditionalPaid In
                           
                           
                           Common Stock to
                           
                           
                           Shares HeldUnder
                           
                           
                           AccumulatedShares
                           
                           
                           Amount
                           
                           
                           Shares
                           
                           
                           Amount
                           
                           
                           Capital
                           
                           
                           be issued
                           
                           
                           Escrow
                           
                           
                           Deficit
                           
                           
                           TotalBalance, January 1, 2009
                           
                           
                           -
                           
                           $
                           -
                           
                           
                           10,061,865
                           
                           $
                           10,512
                           
                           $
                           46,809,318
                           
                           $
                           47,970
                           
                           $
                           (450
                           )
                           $
                           (55,381,635
                           )
                           $
                           (8,514,285
                           )Capital contributed from the grant of stock and options to employees
                           
                           
                           -
                           
                           
                           -
                           
                           
                           50,000
                           
                           
                           50
                           
                           
                           230,300
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           230,350Common stock issued for services rendered
                           
                           
                           -
                           
                           
                           -
                           
                           
                           5,950,000
                           
                           
                           5,950
                           
                           
                           461,550
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           467,500Common stock issued to employees and directors to convert notes and
                              accrued interest and payroll
                           
                           
                           -
                           
                           
                           -
                           
                           
                           15,462,830
                           
                           
                           15,463
                           
                           
                           4,764,185
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           4,779,648Common stock issued to vendors for accrued payables
                           
                           
                           -
                           
                           
                           -
                           
                           
                           1,406,160
                           
                           
                           1,406
                           
                           
                           434,382
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           435,788Common stock issued in settlement of convertible notes and accrued interest
                           
                           
                           -
                           
                           
                           -
                           
                           
                           1,814,312
                           
                           
                           1,815
                           
                           
                           417,383
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           419,198Common stock issued to directors for services rendered and for a
                              director consultant contract modification
                           
                           
                           -
                           
                           
                           -
                           
                           
                           3,936,000
                           
                           
                           3,936
                           
                           
                           846,314
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           850,250Issuance of 150,000 shares accrued in 2008
                           
                           
                           -
                           
                           
                           -
                           
                           
                           150,000
                           
                           
                           150
                           
                           
                           47,820
                           
                           
                           (47,970
                           )
                           
                           -
                           
                           
                           -
                           
                           
                           -Issuance of common stock in exchange for options and warrants exercised
                           
                           
                           -
                           
                           
                           -
                           
                           
                           617,417
                           
                           
                           617
                           
                           
                           179,557
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           180,174Release of shares held in escrow
                           
                           
                           -
                           
                           
                           -
                           
                           
                           450,000
                           
                           
                           -
                           
                           
                           112,050
                           
                           
                           -
                           
                           
                           450
                           
                           
                           -
                           
                           
                           112,500De-incorporation of discounted operations
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           2,307,162
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           2,307,162Net loss
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -
                           
                           
                           (13,112,255
                           )
                           
                           (13,112,255
                           )
 5


Preferred stock
                        
                        
                        Common stock
                        
                        
                        AdditionalPaid In
                        
                        
                        Common Stock to
                        
                        
                        Shares HeldUnder
                        
                        
                        AccumulatedShares
                        
                        
                        Amount
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        be issued
                        
                        
                        Escrow
                        
                        
                        Deficit
                        
                        
                        TotalBalance, December 31, 2009
                        
                        
                        -
                        
                        $
                        -
                        
                        
                        39,898,584
                        
                        $
                        39,899
                        
                        $
                        56,610,021
                        
                        $
                        -
                        
                        $
                        -
                        
                        $
                        (68,493,890
                        )
                        $
                        (11,843,970
                        )Common stock issued for exercise of warrants cashless basis
                        
                        
                        -
                        
                        
                        -
                        
                        
                        224,997
                        
                        
                        225
                        
                        
                        (225
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Common stock issued for services rendered
                        
                        
                        -
                        
                        
                        -
                        
                        
                        300,000
                        
                        
                        300
                        
                        
                        83,100
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        83,400Common stock issued in settlement of convertible notes and accrued interest
                        
                        
                        -
                        
                        
                        -
                        
                        
                        4,170,794
                        
                        
                        4,170
                        
                        
                        941,129
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        945,299Common stock issued for anti dilution relating to convertible notes
                        
                        
                        -
                        
                        
                        -
                        
                        
                        880,000
                        
                        
                        880
                        
                        
                        261,360
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        262,240Fair value of options issued to employees for services
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        26,250
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        26,250Net loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (3,299,116
                        )
                        
                        (3,299,116
                        )Balance, March 31, 2010
                        
                        
                        -
                        
                        $
                        -
                        
                        
                        45,474,375
                        
                        $
                        45,474
                        
                        $
                        57,921,635
                        
                        $
                        -
                        
                        $
                        -
                        
                        $
                        (71,793,006
                        )
                        $
                        (13,825,897
                        )The accompanying notes are an integral part of these unaudited
                           condensed consolidated financial statements
 6


DEBT RESOLVE, INC.CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited) Three months ended March 31,2010
                           
                           
                           2009
                              (restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss from continuing operations
                           
                           $
                           (3,299,116
                           )
                           $
                           (672,753
                           )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
                           
                           
                           10,279
                           
                           
                           12,279Amortization of debt discounts
                           
                           
                           389,524
                           
                           
                           190,616Fair value of options issued for services
                           
                           
                           26,250
                           
                           
                           -Fair value of warrants issued for services
                           
                           
                           424,910
                           
                           
                           -Loss on debt conversion on extinguishment of debt
                           
                           
                           355,705
                           
                           
                           -Common stock issued for services rendered
                           
                           
                           345,640
                           
                           
                           12,500Loss (gain) in change in fair value of derivative liability
                           
                           
                           1,262,671
                           
                           
                           31,591Note payable issued for services rendered
                           
                           
                           20,000
                           
                           
                           -Net (increase) decrease in:Accounts receivable
                           
                           
                           (14,854
                           )
                           
                           (4,981
                           )Prepaid and other assets
                           
                           
                           69,323
                           
                           
                           116,538Net increase (decrease) in:Accounts payable and accrued expenses
                           
                           
                           35,763
                           
                           
                           190,521Bank overdraft
                           
                           
                           (13,790
                           )
                           
                           -Net cash used in continuing operations
                           
                           
                           (387,695
                           )
                           
                           (123,689
                           )Net cash provided by discontinued operations
                           
                           
                           -
                           
                           
                           1,071Net cash used in operating activities
                           
                           
                           (387,695
                           )
                           
                           (122,618
                           )CASH FLOWS FROM INVESTING ACTIVITIES:Investment in subsidiaries
                           
                           
                           -
                           
                           
                           -Net cash used in continuing investing activities
                           
                           
                           -
                           
                           
                           -Net cash provided by discontinued investing activities
                           
                           
                           -
                           
                           
                           -Net cash used in investing activities
                           
                           
                           -
                           
                           
                           -CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of convertible notes
                           
                           
                           -
                           
                           
                           -Proceeds from issuance of notes payable
                           
                           
                           -
                           
                           
                           90,500Proceeds from issuance of short term notes
                           
                           
                           100,000
                           
                           
                           -Repayment of short term notes
                           
                           
                           (18,405
                           )
                           
                           -Proceeds from long term notes
                           
                           
                           387,500
                           
                           
                           -Proceeds from lines of credit, related parties
                           
                           
                           -
                           
                           
                           -Repayment of lines of credit, related parties
                           
                           
                           -
                           
                           
                           -Proceeds from sale of common stock
                           
                           
                           -
                           
                           
                           -Proceeds from exercise of options and warrants
                           
                           
                           -
                           
                           
                           -Stock placed in escrow
                           
                           
                           -
                           
                           
                           -Net cash provided by financing operations
                           
                           
                           469,095
                           
                           
                           90,500Net (decrease) increase in cash and cash equivalents
                           
                           
                           81,400
                           
                           
                           (32,118
                           )Cash and cash equivalents at beginning of period
                           
                           
                           -
                           
                           
                           32,551Cash and cash equivalents at end of period
                           
                           $
                           81,400
                           
                           $
                           433Supplemental Disclosures of Cash Flow Information:Cash paid during period for interest
                           
                           $
                           -
                           
                           $
                           -Cash paid during period for taxes
                           
                           $
                           -
                           
                           $
                           -Non-cash transactions:Equity based compensation
                           
                           $
                           345,640
                           
                           $
                           12,500The accompanying notes are an integral part of these unaudited
                              condensed consolidated financial statements
 7


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 1  BASIS AND BUSINESS PRESENTATION A summary of the significant accounting policies applied in the
                     presentation of the accompanying unaudited condensed consolidated
                     financial statements follows: General The accompanying unaudited condensed consolidated financial
                     statements of Debt Resolve, Inc., (the "Company"), have been prepared
                     in accordance with accounting principles generally accepted in the
                     United States of America for interim financial information and with
                     the instructions to Form 10-Q. Accordingly, they do not include all
                     of the information and footnotes required by generally accepted
                     accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal
                     recurring accruals) considered necessary for a fair presentation have
                     been included. The results from operations for the three month period
                     ended March 31, 2010, are not necessarily indicative of the results
                     that may be expected for the year ended December 31, 2010. The
                     unaudited condensed consolidated financial statements should be read
                     in conjunction with the consolidated December 31, 2009 financial
                     statements and footnotes thereto included in the Company's SEC
                     Form 10-K. Basis of presentation The unaudited condensed consolidated financial statements include the
                     accounts of the Company, including DRV Capital LLC, its wholly-owned
                     subsidiary ("DRV Capital"). All significant intercompany balances and
                     transactions have been eliminated in consolidation. Debt Resolve, Inc. and subsidiary (the "Company") was incorporated
                     under the laws of the State of Delaware in April 21, 1997. The
                     Company offers its service as an Application Service Provider ("ASP")
                     model, enabling clients to introduce this collection option with no
                     modifications to their existing collections computer systems. Its
                     products capitalize on using the Internet as a tool for
                     communication, resolution, settlement and payment of delinquent debt.
                     To date, the Company has had minimal sales revenues, has incurred
                     expenses and has sustained substantial losses. Consequently, its
                     operations are subject to all the risks inherent in the establishment
                     of a new business enterprise. For the period from inception through
                     March 31, 2010, the Company has accumulated a deficit through its
                     development stage of $71,793,006. NOTE 2  SIGNIFICANT ACCOUNTING POLICIES Estimates The preparation of the financial statements in conformity with
                     generally accepted accounting principles requires management to make
                     estimates and assumptions that affect certain reported amounts and
                     disclosures. Accordingly, actual results could differ from those
                     estimates. Reclassification Certain reclassifications have been made to prior periods' data to
                     conform to the current year's presentation. These reclassifications
                     had no effect on reported income or losses.
 8


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition To date, the Company has earned revenue from collection agencies,
                     collection law firms and lenders that implemented our online system.
                     The Company's current contracts provide for revenue based on a
                     percentage of the amount of debt collected or through a flat monthly
                     fee. Although other revenue models have been proposed, most revenue
                     earned to date has been determined using these methods, and such
                     revenue is recognized when the settlement amount of debt is collected
                     by the client or at the beginning of the month for a flat fee. For
                     the early adopters of the Company's product, the Company has waived
                     set-up fees and other transactional fees that we anticipate charging
                     in the future. While the percent of debt collected will continue to
                     be a revenue recognition method going forward, other payment models
                     are also being offered to clients and may possibly become our
                     preferred revenue model. Dependent upon the structure of future
                     contracts, revenue may be derived from a combination of set up fees
                     or flat monthly fees with transaction fees upon debt settlement, fees
                     per account loaded or fees per settlement. The Company is currently
                     marketing our system to three primary markets. The first and second
                     are financial institutions and collection agencies or law firms, our
                     traditional markets. The Company is also expanding into healthcare,
                     particularly hospitals, which is our third market. In recognition of the principles expressed in Accounting Standards
                     Codification subtopic 605-10, Revenue Recognition ("ASC 605-10") that
                     revenue should not be recognized until it is realized or realizable
                     and earned, and given the element of doubt associated with
                     collectability of an agreed settlement on past due debt, the Company
                     postpones recognition of all contingent revenue until the client
                     receives payment from the debtor. As is required by SAB 104, revenues
                     are considered to have been earned when the Company has substantially
                     accomplished the agreed-upon deliverables to be entitled to payment
                     by the client. For most current active clients, these deliverables
                     consist of the successful collection of past due debts using the
                     Company's system and/or, for clients under a flat fee arrangement,
                     the successful availability of the Company's system to its customers. In addition, in accordance with ASC 605-10, revenue is recognized and
                     identified according to the deliverable provided. Set-up fees,
                     percentage contingent collection fees, fixed settlement fees, monthly
                     fees, etc. are identified separately. Accounts Receivable The Company extends credit to large, mid-size and small companies for
                     collection services. The Company has a concentration of credit risk
                     as almost 100% of the balance of accounts receivable at December 31,
                     2009 and 2008 consists of only two customers or one customer,
                     respectively. We do not generally require collateral or other
                     security to support customer receivables. Accounts receivable are
                     carried at their estimated collectible amounts. Accounts receivable
                     are periodically evaluated for collectability and the allowance for
                     doubtful accounts is adjusted accordingly. Management determines
                     collectability based on their experience and knowledge of the
                     customers. As of March 31, 2010 and December 31, 2009, no allowance
                     for doubtful accounts has been booked. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, the Company considers
                     all highly liquid debt instruments purchased with a maturity date of
                     three months or less to be cash equivalents.
 9


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Values In the first quarter of fiscal year 2008, the Company adopted
                     Accounting Standards Codification subtopic 820-10, Fair Value
                     Measurements and Disclosures ("ASC 820-10"). ASC 820-10 defines fair
                     value, establishes a framework for measuring fair value, and enhances
                     fair value measurement disclosure. ASC 820-10 delays, until the first
                     quarter of fiscal year 2009, the effective date for ASC 820-10 for
                     all 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 (at least annually). The adoption of
                     ASC 820-10 did not have a material impact on the Company's financial
                     position or operations. Refer to Footnote 17 for further discussion
                     regarding fair valuation. Property and Equipment Property and equipment are stated at cost. When retired or otherwise
                     disposed, the related carrying value and accumulated depreciation are
                     removed from the respective accounts and the net difference less any
                     amount realized from disposition, is reflected in earnings. For
                     financial statement purposes, property and equipment are recorded at
                     cost and depreciated using the straight-line method over their
                     estimated useful lives of 3 to 5 years. Long-Lived Assets The Company has adopted Accounting Standards Codification subtopic
                     360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10
                     requires that long-lived assets and certain identifiable intangibles
                     held and used by the Company be reviewed for impairment whenever
                     events or changes in circumstances indicate that the carrying amount
                     of an asset may not be recoverable. Events relating to recoverability
                     may include significant unfavorable changes in business conditions,
                     recurring losses, or a forecasted inability to achieve break-even
                     operating results over an extended period. The Company evaluates the
                     recoverability of long-lived assets based upon forecasted
                     undiscounted cash flows. Should impairment in value be indicated, the
                     carrying value of intangible assets will be adjusted, based on
                     estimates of future discounted cash flows resulting from the use and
                     ultimate disposition of the asset. ASC 360-10 also requires assets to
                     be disposed of be reported at the lower of the carrying amount or the
                     fair value less costs to sell. Income Taxes The Company has adopted Accounting Standards Codification subtopic
                     740-10, Income Taxes ("ASC 740-10") which requires the recognition of
                     deferred tax liabilities and assets for the expected future tax
                     consequences of events that have been included in the financial
                     statement or tax returns. Under this method, deferred tax liabilities
                     and assets are determined based on the difference between financial
                     statements and tax basis of assets and liabilities using enacted tax
                     rates in effect for the year in which the differences are expected to
                     reverse. Temporary differences between taxable income reported for
                     financial reporting purposes and income tax purposes are
                     insignificant. The adoption of ASC 740-10 did not have a material
                     impact on the Company's consolidated results of operations or
                     financial condition. Comprehensive Income The Company does not have any items of comprehensive income in any of
                     the periods presented.
 10


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (continued) Net Loss per Share The Company has adopted Accounting Standards Codification subtopic
                     260-10, Earnings Per Share ("ASC 260-10") specifying the computation,
                     presentation and disclosure requirements of earnings per share
                     information. Basic loss per share has been calculated based upon the
                     weighted average number of common shares outstanding. Stock options
                     and warrants have been excluded as common stock equivalents in the
                     diluted loss per share because there effect is anti-dilutive on the
                     computation. Fully diluted shares outstanding were 74,238,245 and
                     69,087,559 for the three month periods ended March 31, 2010 and 2009,
                     respectively. Stock-based compensation Effective for the year beginning January 1, 2006, the Company has
                     adopted Accounting Standards Codification subtopic 718-10,
                     Stock-based Compensation ("ASC 718-10") which requires all
                     share-based payments to employees, including grants of employee stock
                     options, to be recognized in the income statement based on their fair
                     values. Pro-forma disclosure is no longer an alternative. This
                     statement does not change the accounting guidance for share based
                     payment transactions with parties other than employees provided in
                     ASC 718-10. The Company implemented ASC 718-10 on January 1, 2006
                     using the modified prospective method. Total stock-based compensation expense for the three month period
                     ended March 31, 2010 and 2009 amounted to $109,650 and $12,500,
                     respectively. Defined Contribution (401k) Plan The Company maintains a defined contribution (401k) plan for our
                     employees. The plan provides for a company match in the amount of
                     100% of the first 3% of pre-tax salary contributed and 50% of the
                     next 3% of pre-tax salary contributed. Due to the severe cash
                     limitations that we have experienced, the match was suspended for
                     2009 and 2010 and will only be re-instated when business conditions
                     warrant. Reliance on Key Personnel and Consultants The Company has only 4 full-time employees and one part-time
                     employee. Additionally, there are approximately 12 consultants
                     performing various specialized services. The Company is heavily
                     dependent on the continued active participation of the President and
                     key consultants. The loss of the President or key consultants could
                     significantly and negatively impact the business until adequate
                     replacements can be identified and put in place.
 11


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative Financial Instruments The Company's derivative financial instruments consist of embedded
                     derivatives related to Convertible Debentures. These embedded
                     derivatives include certain conversion features. The accounting
                     treatment of derivative financial instruments requires that the
                     Company record the derivatives and related warrants at their fair
                     values as of the inception date of the Convertible Debenture
                     Agreement and at fair value as of each subsequent balance sheet date.
                     In addition, under the provisions of Accounting Standards
                     Codification subtopic 815-40, Derivatives and Hedging; Contracts in
                     Entity's Own Equity ("ASC 815-40") as a result of entering into the
                     Debentures, the Company is required to classify all other
                     non-employee stock options and warrants as derivative liabilities and
                     mark them to market at each reporting date. Any change in fair value
                     inclusive of modifications of terms will be recorded as
                     non-operating, non-cash income or expense at each reporting date. If
                     the fair value of the derivatives is higher at the subsequent balance
                     sheet date, the Company will record a non-operating, non-cash charge.
                     If the fair value of the derivatives is lower at the subsequent
                     balance sheet date, the Company will record non-operating, non-cash
                     income. As of March 31, 2010, conversion-related derivatives and the
                     warrants were valued using the Black-Scholes Option Pricing Model
                     with the following assumptions: dividend yield of 0%; annual
                     volatility of 395.91%; and risk free interest rate from 0.16% to
                     2.55%. The derivative liabilities are classified as long term
                     liabilities. Recent Accounting Pronouncements In March 2010, the FASB issued new accounting guidance, under ASC
                     Topic 605 on Revenue Recognition. This standard provides that the
                     milestone method is a valid application of the proportional
                     performance model for revenue recognition if the milestones are
                     substantive and there is substantive uncertainty about whether the
                     milestones will be achieved. Determining whether a milestone is
                     substantive requires judgment that should be made at the inception of
                     the arrangement. To meet the definition of a substantive milestone,
                     the consideration earned by achieving the milestone (1) would have to
                     be commensurate with either the level of effort required to achieve
                     the milestone or the enhancement in the value of the item delivered,
                     (2) would have to relate solely to past performance, and (3) should
                     be reasonable relative to all deliverables and payment terms in the
                     arrangement. No bifurcation of an individual milestone is allowed and
                     there can be more than one milestone in an arrangement. The standard
                     is effective for interim and annual periods beginning on or after
                     June 15, 2010. The Company is currently evaluating the impact the
                     adoption of this guidance will have on its condensed consolidated
                     financial statements. In February 2010, the FASB issued ASU No. 2010-09, which updates the
                     guidance in ASC 855,
                     Subsequent Events, such that companies that file with the SEC will no longer be
                     required to indicate the date through which they have analyzed
                     subsequent events. This updated guidance became effective immediately
                     upon issuance and was adopted as of the first quarter of 2010. In February 2010 the FASB issued Update No. 2010-08 "Technical
                     Corrections to Various Topics" ("2010-08"). 2010-08 represents
                     technical corrections to SEC paragraphs within various sections of
                     the Codification. Management is currently evaluating whether these
                     changes will have any material impact on its financial position,
                     results of operations or cash flows.
 12


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements (Continued) In January 2010 the FASB issued Update No. 2010-06 "Fair Value
                     Measurements and DisclosuresImproving Disclosures about Fair Value
                     Measurements" ("2010-06"). 2010-06 requires new disclosures regarding
                     significant transfers between Level 1 and Level 2 fair value
                     measurements, and disclosures regarding purchases, sales, issuances
                     and settlements, on a gross basis, for Level 3 fair value
                     measurements. 2010-06 also calls for further disaggregation of all
                     assets and liabilities based on line items shown in the statement of
                     financial position. This amendment is effective for fiscal years
                     beginning after December 15, 2010 and interim periods within those
                     fiscal years. The Company is currently evaluating whether adoption of
                     this standard will have a material impact on its financial position,
                     results of operations or cash flows. In January 2010 the FASB issued Update No. 2010-05
                     "CompensationStock CompensationEscrowed Share Arrangements and
                     Presumption of Compensation" ("2010-05"). 2010-05 re-asserts that the
                     Staff of the Securities Exchange Commission (the "SEC Staff") has
                     stated the presumption that for certain shareholders escrowed share
                     represent a compensatory arrangement. 2010-05 further clarifies the
                     criteria required to be met to establish a position different from
                     the SEC Staff's position. The Company does not believe this
                     pronouncement will have any material impact on its financial
                     position, results of operations or cash flows. In January 2010 the FASB issued Update No. 2010-04 "Accounting for
                     Various TopicsTechnical Corrections to SEC Paragraphs" ("2010-04").
                     2010-04 represents technical corrections to SEC paragraphs within
                     various sections of the Codification. Management is currently
                     evaluating whether these changes will have any material impact on its
                     financial position, results of operations or cash flows. In January 2010 the FASB issued Update No. 2010-02 "Accounting and
                     Reporting for Decreases in Ownership of a Subsidiarya Scope
                     Clarification" ("2010-02") an update of ASC 810 "Consolidation."
                     2010-02 clarifies the scope of ASC 810 with respect to decreases in
                     ownership in a subsidiary to those of a subsidiary or group of assets
                     that are a business or nonprofit, a subsidiary that is transferred to
                     an equity method investee or joint venture, and an exchange of a
                     group of assets that constitutes a business or nonprofit activity to
                     a non-controlling interest including an equity method investee or a
                     joint venture. Management does not expect adoption of this standard
                     to have any material impact on its financial position, results of
                     operations or operating cash flows. Management does not intend to
                     decrease its ownership in any of its wholly-owned subsidiaries. In January 2010 the FASB issued Update No. 2010-01 "Accounting for
                     Distributions to Shareholders with Components of Stock and Casha
                     consensus of the FASB Emerging Issues Task Force" ("2010-03") an
                     update of ASC 505 "Equity." 2010-03 clarifies the treatment of stock
                     distributions as dividends to shareholders and their affect on the
                     computation of earnings per shares. Management does not expect
                     adoption of this standard to have any material impact on its
                     financial position, results of operations or operating cash flows. NOTE 3 - GOING CONCERN MATTERS The accompanying unaudited condensed consolidated financial
                     statements have been prepared on a going concern basis, which
                     contemplates the realization of assets and the satisfaction of
                     liabilities in the normal course of business. As shown in the
                     accompanying consolidated financial statements, the Company incurred
                     a net loss of $3,299,116 and $672,753 for the three month periods
                     ended March 31, 2010 and 2009, respectively. Additionally, the
                     Company has negative working capital of $3,941,366 as of March 31,
                     2010. These factors among others raise substantial doubt about the
                     Company's ability to continue as a going concern.
 13


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 3 - GOING CONCERN MATTERS (continued) The Company has undertaken further steps as part of a plan to improve
                     operations with the goal of sustaining our operations for the next
                     twelve months and beyond to address its lack of liquidity by raising
                     additional funds, either in the form of debt or equity or some
                     combination thereof. However, there can be no assurance that the
                     Company can successfully accomplish these steps and or business
                     plans, and it is uncertain that the Company will achieve a profitable
                     level of operations and be able to obtain additional financing. The Company's continued existence is dependent upon management's
                     ability to develop profitable operations and resolve its liquidity
                     problems. The accompanying consolidated financial statements do not
                     include any adjustments relating to the recoverability and
                     classification of asset carrying amounts or the amount and
                     classification of liabilities that might result should the Company be
                     unable to continue as a going concern. There can be no assurance that any additional financings will be
                     available to the Company on satisfactory terms and conditions, if at
                     all. In the event that the Company is unable to continue as a going
                     concern, it may elect or be required to seek protection from its
                     creditors by filing a voluntary petition in bankruptcy or may be
                     subject to an involuntary petition in bankruptcy. NOTE 4  PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets as of March 31, 2010 and December
                     31, 2009 are comprised of the following: March 31,2010
                           
                           
                           December 31,2009Employee advances
                           
                           $
                           26,500
                           
                           $
                           26,500Un-deposited funds
                           
                           
                           75,000
                           
                           
                           75,000Other prepaid expenses
                           
                           
                           51,739
                           
                           
                           86,062Total
                           
                           $
                           153,239
                           
                           $
                           187,562
 14


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2010 NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment at March 31, 2010 and December 31, 2009 are
                     comprised of the following: March 31, 2010
                           
                           
                           
                           
                           
                           December 31,2009Computer equipment
                           
                           $
                           106,917
                           
                           
                           
                           
                           $
                           106,917Software
                           
                           
                           42,170
                           
                           
                           
                           
                           
                           42,170Telecommunication equipment
                           
                           
                           3,165
                           
                           
                           
                           
                           
                           3,165Office equipment
                           
                           
                           3,067
                           
                           
                           
                           
                           
                           3,067Furniture and fixtures
                           
                           
                           106,436
                           
                           
                           
                           
                           
                           106,436Total
                           
                           
                           261,755
                           
                           
                           
                           
                           
                           261,755Less accumulated depreciation
                           
                           
                           (234,065
                           )
                           
                           
                           
                           
                           (223,787
                           )Total
                           
                           $
                           27,690
                           
                           
                           
                           
                           $
                           37,968 The Company uses the straight line method of depreciation over 3 to 5
                     years. During the three month periods ended March 31, 2010 and 2009,
                     depreciation expense charged to operations was $10,279 and $12,279,
                     respectively. NOTE 6  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities as of March 31, 2010 and
                     December 31, 2009 are comprised of the following: March 31,2010
                           
                           
                           
                           
                           
                           December 31,2009Accounts payable and accrued expenses
                           
                           $
                           2,045,070
                           
                           
                           
                           
                           $
                           2,091,045Accrued interest
                           
                           
                           198,999
                           
                           
                           
                           
                           
                           272,685Payroll and related accruals
                           
                           
                           397,839
                           
                           
                           
                           
                           
                           397,826Total
                           
                           $
                           2,641,908
                           
                           
                           
                           
                           $
                           2,761,556 DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 7 - CONVERTIBLE NOTES, SHORT TERM On September 30, 2008, an unaffiliated investor loaned the Company
                     $300,000 on a 6-month unsecured convertible debenture with a maturity
                     date of March 31, 2009. This convertible debenture replaced a note
                     issued on July 31, 2008 in the same amount of $300,000 with a
                     maturity date of January 31, 2009. The debenture carries interest at
                     a rate of 15% per annum, with $22,500 (6 months) of interest payable
                     in advance from the proceeds of the original loan on July 31, 2008.
                     Thereafter, interest is payable monthly in cash or stock. The
                     outstanding principal and interest may be repaid, in whole or in
                     part, at any time without prepayment penalty. The Exchange Agreement
                     called for the lender to receive 150,000 shares of the common stock
                     of the company in consideration for the exchange of the original note
                     for the convertible debenture, which were issued during the year
                     ended December 31, 2009. In accordance with Accounting Standards
                     Codification subtopic 470-50, Debt-Modifications and Extinguishments
                     ("ASC 470-50"), the exchange was determined to be an extinguishment
                     of debt, and extinguishment accounting was applied. The debenture was
                     secured by an escrow of 450,000 shares of the common stock of the
                     Company, which was held in escrow at the lender's attorney's office.
                     These shares were released from escrow during the year ended December
                     31, 2009 in payment of the interest accrued through July 31, 2009 and
                     a partial payment of the principal (see below). At any time on or
                     after the Issue Date and prior to the time the Debenture is paid in
                     full in accordance with its terms (including, without limitation,
                     after the occurrence of an Event of Default, or, if the Debenture is
                     not fully paid or converted after the Maturity Date), the Holder of
                     this Debenture is entitled, at its option, to convert this Debenture
                     at any time into shares of Common Stock, $0.001 par value ("Common
                     Stock"), of the Company at the Conversion Price. Conversion Price"
                     means (i) the average VWAP for the 20 Trading Days ending on the
                     Trading Day immediately before the relevant Conversion Date,
                     multiplied by (ii) fifty percent (50%). The debenture was recorded
                     net of a beneficial conversion feature of $252,030, based on the
                     relative fair value of the conversion feature. The beneficial
                     conversion feature was amortized over the term of the debenture. The
 15


debenture was also recorded net of a deferred debt discount of
                     $47,970 as shares to be issued based on the relative fair value of
                     the Exchange Shares. The deferred debt discount was also amortized
                     over the term of the debenture. During the three months ended March
                     31, 2010 and 2009, the Company recorded amortization of the
                     beneficial conversion feature and deferred debt discount related to
                     this debenture of $0 and $150,000, respectively. On August 31, 2009, the Company repaid $30,950 in note principal and
                     $23,322 in accrued interest by the issuance of 450,000 shares of
                     Company common stock from treasury that were valued at the closing
                     market price of $0.25 per share. Based on the $112,500 value of the
                     shares issued, the Company recognized a $58,228 loss on
                     extinguishment of the debt during the year ended December 31, 2009.
                     On March 24, 2010, the Company repaid $9,050 in note principal and
                     $3,096 in accrued interest by issuance of 222,447 shares of Company
                     common stock that were valued at $0.26 per share. Based on a $57,836
                     value of the shares issued, the Company recognized a $45,691 loss on
                     extinguishment of debt during the three months ended March 31, 2010.
                     As of March 31, 2010, the outstanding balance on this convertible was
                     $260,000. At the date of this report, the debenture has been paid in
                     full and discharged. On July 31, 2008, the Company agreed to pay the attorney who arranged
                     the above financing 50,000 shares of stock in the Company for
                     introducing the investor. Because of a delinquent payable with the
                     Company's stock transfer agent, the shares were converted to a
                     6-month loan of $50,000 with a maturity date of January 31, 2009. The
                     note carried interest at a rate of 12% per annum, payable monthly in
                     arrears in cash. At December 31, 2008, due to the inability of the
                     Company to pay the interest on the note, the note was exchanged for
                     an unsecured convertible debenture with the same maturity date of
                     January 31, 2009 in the amount of $51,000. The debenture carries
                     interest at a rate of 12% per annum, with interest payable monthly in
                     arrears in cash. The outstanding principal and interest may be
                     repaid, in whole or in part, at any time without prepayment penalty.
                     At any time on or after the Issue Date and prior to the time the
                     Debenture is paid in full in accordance with its terms (including,
                     without limitation, after the occurrence of an Event of Default, or,
                     if the Debenture is not fully paid or converted after the Maturity
                     Date), the Holder of this Debenture is entitled, at its option to
                     convert this Debenture at any time into shares of Common Stock,
                     $0.001 par value ("Common Stock"), of the Company at the Conversion
                     Price. "Conversion Price" means (i) the average of the lowest three
                     (3) bid prices for the Common Stock over a ten (10) Trading Day
                     period ending on the Trading Day immediately before the relevant
                     Conversion Date, multiplied by (ii) fifty percent (50%), provided
                     that Holder shall not receive more than 9.99% of the issued and
                     outstanding Common Stock. The debenture was recorded net of a
                     beneficial conversion feature of $51,000, based on the relative fair
                     value of the conversion feature.
 16


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 7 - CONVERTIBLE NOTES, SHORT TERM (continued) The beneficial conversion feature is being amortized over the term of
                     the debenture. During the three month periods ended March 31, 2010
                     and 2009, the Company recorded amortization of the beneficial
                     conversion feature related to this debenture of $0 and $12,750,
                     respectively. As a result of the default on this debenture, the
                     Company negotiated a settlement with the attorney to discharge the
                     debenture, its accrued interest and old outstanding legal bills to
                     the attorney for $75,000 paid $5,000 per month beginning August 1,
                     2009. The Company has made the required monthly payments from August
                     through December. The payments from January to March 2010 have not
                     yet been made. The Company has identified embedded derivatives related to the above
                     notes. These embedded derivatives included certain conversion
                     features and default provisions. The accounting treatment of
                     derivative financial instruments requires that the Company determine
                     fair value of the derivatives as of the inception date of the notes
                     and to fair value them as of each subsequent balance sheet date. NOTE 8  SHORT TERM NOTES On November 30, 2007, an unaffiliated investor loaned the Company
                     $100,000 on an unsecured 90-day short term note. The note carries 12%
                     interest per annum, with interest payable monthly in cash. The
                     principal balance outstanding will be due at any time upon 30 days
                     written notice, subject to mandatory prepayment (without penalty) of
                     principal and interest, in whole or in part, from the net cash
                     proceeds of any public or private, equity or debt financing made by
                     Debt Resolve. The note matured on February 28, 2008 and was extended
                     to July 31, 2009 for aggregate extension fees of $85,000. In
                     conjunction with the note the Company also issued a warrant to
                     purchase 100,000 shares of common stock at an exercise price of $1.25
                     per share with an expiration date of November 30, 2012. The note was
                     recorded net of a debt discount of $44,100, based on the relative
                     fair value of the warrant under the Black-Scholes pricing model. The
                     debt discount was amortized over the initial term of the note and was
                     fully amortized by March 2008. This note is guaranteed by Mssrs.
                     Mooney and Burchetta, two Directors of the Company. On August 27,
                     2009, the Company repaid $65,000 of the outstanding balance on this
                     note, the $85,000 of accrued extension fees and $19,003 in accrued
                     interest by the issuance of 1,126,685 shares of Company common stock
                     that were valued at the closing market price of $0.25 per share.
                     Based on the $281,671 value of the shares issued, the Company
                     recognized an $112,668 loss on extinguishment of the debt during the
                     year ended December 31, 2009. As of March 31, 2010, the outstanding
                     balance on this note was $35,000. The note is in default. On December 21, 2007, an unaffiliated investor loaned the Company
                     $125,000 on an unsecured 18-month note with a maturity date of June
                     21, 2009. The note has a provision requiring repayment once the
                     Company has raised an aggregate of $500,000 following issuance of
                     this note. As a result, this note is currently in default as it has
                     not been repaid and the Company reached the $500,000 threshold in
                     September, 2008. The note carries interest at a rate of 12% per
                     annum, with interest accruing and payable at maturity. In conjunction
                     with the note, the Company granted to the investor a warrant to
                     purchase 37,500 shares of common stock at an exercise price of $1.07
                     and an expiration date of December 21, 2012. The note was recorded
                     net of a deferred debt discount of $19,375, based on the relative
                     fair value of the warrant under the Black-Scholes pricing model. Such
                     discount is being amortized over the term of the note and was fully
                     amortized in 2008. This note is guaranteed by Mr. Burchetta, a
                     Company director. On April 10, 2008, the Company borrowed an
                     additional $198,000 from this investor. Please see discussion below.
 17


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 8  SHORT TERM NOTES (continued) On December 30, 2007, an unaffiliated investor loaned the Company
                     $200,000 on an unsecured 18-month note with a maturity date of June
                     30, 2009. The note carries interest at a rate of 12% per annum, with
                     interest accruing and payable at maturity. In conjunction with this
                     note, the Company also issued a warrant to purchase 100,000 shares of
                     common stock at an exercise price of $1.00 and an expiration date of
                     December 30, 2012. The note was recorded net of a deferred debt
                     discount of $51,600, based on the relative fair value of the warrant
                     under the Black-Scholes pricing model. Such discount is being
                     amortized over the term of the note. During the three month periods
                     ended March 31, 2010 and 2009, the amortization expense was $0 and
                     $8,600, respectively. This note is guaranteed by Mr. Burchetta, a
                     Company director. As of March 31, 2010, this note has matured and is
                     still outstanding and is in default at this time. The Company is in
                     discussions with the lender. On January 25, 2008, an unaffiliated investor loaned the Company
                     $100,000 on an unsecured 18-month note with a maturity date of July
                     25, 2009. The note carries interest at a rate of 12% interest per
                     annum, with interest accruing and payable at maturity. In conjunction
                     with the note, the Company also issued a warrant to purchase 50,000
                     shares of common stock at an exercise price of $1.00 and an
                     expiration date of January 24, 2013. The note was recorded net of a
                     deferred debt discount of $20,300, based on the relative fair value
                     of the warrant under the Black-Scholes pricing model. Such discount
                     is being amortized over the term of the note. During the three month
                     periods ended March 31, 2010 and 2009, amortization was $0 and
                     $3,383, respectively. As of March 31, 2010, this note has matured and
                     is still outstanding and is in default at this time. The Company is
                     in discussions with the lender. Between January 2008 and June 2009, an unaffiliated investor loaned
                     the Company $79,000 on a short term basis. The interest rate is 12%
                     per annum, and the loan is repayable on demand. As of March 31, 2010,
                     the remaining outstanding balance on the loan is $820. On February 26, 2008, an unaffiliated investor loaned the Company an
                     additional $100,000 on an unsecured 18-month note with a maturity
                     date of August 26, 2009. The note carries interest at a rate of 12%
                     interest per annum, with interest accruing and payable at maturity.
                     Terms of the loan included a $20,000 service fee on repayment or a
                     $45,000 service fee if repayment occurs more than 31 days after
                     origination. The outstanding principal and interest may be repaid, in
                     whole or in part, at any time without prepayment penalty.
                     Accordingly, since the loan remains unpaid, the Company has accrued
                     the service fee of $45,000 as of March 31, 2010. 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 month
                     periods ended March 31, 2010 and 2009, amortization was $0 and
                     $9,567, respectively. As of March 31, 2010, this note has matured and
                     is still outstanding and is in default at this time. The Company is
                     in discussions with the lender. On March 7, 2008, the Company borrowed $100,000 from a bank at a
                     variable rate equal to the bank's prime rate (currently 5.25%) for 30
                     days. On March 14, 2008, the original loan was repaid, and the
                     Company borrowed $150,000 at the prime rate and due on April 7, 2008.
                     On May 15, 2008, the loan was repaid and the Company borrowed
                     $250,000 at the prime rate and due on July 1, 2008. The note was
                     subsequently extended to July 1, 2010 and is outstanding as of March
                     31, 2010. The loan is secured by the assets of the Company and is
                     personally guaranteed by Mr. Mooney, a Director of the Company. On March 27, 2008, an unaffiliated investor loaned the Company
                     $100,000 on an unsecured 18-month note with a maturity date of
                     September 27, 2009. The note carries interest at a rate of 12%
                     interest per annum, with interest accruing and payable at maturity.
                     The outstanding principal and interest may be repaid, in whole or in
                     part, at any time without prepayment penalty. In conjunction with the
                     note, the Company also issued a warrant to purchase 50,000 shares of
                     common stock at an exercise price of $1.95 and an expiration date of
                     March 27, 2013. The note was recorded net of a deferred debt discount
                     of $37,900, based on the relative fair value of the warrant under the
                     Black-Scholes pricing model. Such discount is being amortized over
                     the term of the note. During the three month periods ended March 31,
                     2010 and 2009, amortization was $0 and $6,317 respectively. As of
                     December 31, 2009, this note had matured and was in default at that
                     time. On February 11, 2010, the note and accrued interest were fully
                     discharged through conversion to stock.
 18


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 8  SHORT TERM NOTES (continued) On April 10, 2008, an unaffiliated investor loaned the Company an
                     additional $198,000 on an amendment of the prior unsecured note with
                     a maturity date of June 21, 2009 for the entire balance of the first
                     note plus the amendment ($323,000 total). The note carries interest
                     at a rate of 12% per annum, with interest accruing and payable at
                     maturity. The outstanding principal and interest may be repaid, in
                     whole or in part, at any time without prepayment penalty. In
                     conjunction with the note, the Company also issued a warrant to
                     purchase 99,000 shares of common stock at an exercise price of $2.45
                     and an expiration date of April 10, 2013. This warrant has a
                     "cashless" exercise feature. The note was recorded net of a deferred
                     debt discount of $88,110, based on the relative fair value of the
                     warrant. The debt discount is being amortized over the term of the
                     note. During the year December 31, 2008, the Company recorded
                     amortization of the debt discount related to this note with the
                     discount being fully amortized at December 31, 2008 due to the note
                     being in default. This note is guaranteed by Mr. Burchetta, a
                     Director of the Company. The amended note maintains the provision
                     requiring repayment of the note upon raising gross proceeds of
                     $500,000 subsequent the issuance of the note. At September 30, 2008,
                     the Company had raised in excess of $500,000 subsequent to this
                     amended note, and as a result, this note is in default. The Company
                     also issued 50,000 shares of common stock valued at $122,130 in order
                     to induce the investor to forbear on the note, which is included in
                     expenses. As of March 31, 2010, this note has matured and is still
                     outstanding and is in default at this time. On February 12, 2010, the
                     Company converted $74,867 of accrued interest through January 2010
                     and $65,133 of principal on the note to stock. The remaining
                     principal balance after the payment is $257,867 (for both notes). The
                     Company is in continuing discussions with the lender. On December 4, 2009, an unaffiliated investor and consultant paid the
                     Company's insurance premiums in the amount of $11,697. In
                     compensation for this payment, the investor was repaid $12,750 on
                     January 27, 2010. The investor also received a warrant to purchase
                     125,000 shares of the common stock of the Company at an exercise
                     price of $0.15 per share. The warrant has a five year exercise period
                     and a "cashless" exercise provision. The note was recorded net of a
                     deferred debt discount of $12,750, 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 month
                     periods ended March 31, 2010 and 2009, amortization expense was
                     $12,750 and $0, respectively. On February 11, 2010, an unaffiliated investor and consultant loaned
                     the Company $100,000 on a 30-day loan to assist in restructuring the
                     balance sheet. The investor received a warrant to purchase 1,000,000
                     shares of the common stock of the Company at an exercise price of
                     $0.25 per share. The warrant has a five year exercise period and a
                     "cashless" exercise provision. The note was recorded net of a
                     deferred debt discount of $100,000, 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 month
                     periods ended March 31, 2010 and 2009, amortization expense was
                     $100,000 and $0, respectively. On March 30, 2010, an unaffiliated investor and consultant loaned the
                     Company $20,000 on a 30-day loan to assist with investor relations
                     activities. The investor received a warrant to purchase 200,000
                     shares of the common stock of the Company at an exercise price of
                     $0.25 per share. The warrant has a five year exercise period and a
                     "cashless" exercise provision. The note was recorded net of a
                     deferred debt discount of $20,000, 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 month
                     periods ended March 31, 2010 and 2009, amortization expense was $0.
 19


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 9  LINES OF CREDIT RELATED PARTIES On May 31, 2007, the Company entered into a line of credit agreement
                     with Arisean Capital, Ltd. ("Arisean"), pursuant to which the Company
                     may borrow from time to time up to $500,000 from Arisean to be used
                     by the Company to fund its working capital needs. Arisean is
                     controlled by Charles S. Brofman, the Co-Founder of the Company and a
                     former member of its Board of Directors. Borrowings under the line of
                     credit were secured by the assets of the Company, subject to a
                     subordination agreement, and bear interest at a rate of 12% per
                     annum, with interest payable monthly in cash. The principal balance
                     outstanding could 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. On February 8, 2008, in
                     consideration of the line of credit not being repaid with the later
                     loan proceeds secured subsequent to the date of the agreement, the
                     Company granted options to purchase 350,000 shares of the common
                     stock of the Company at $1.25 per share to Mr. Brofman. The term of
                     the options is three years, and they vested immediately. The option
                     expense of $227,500 was treated as deferred debt discount in
                     association with Mr. Brofman's financing during 2008 and was expensed
                     immediately. On September 25, 2009, the Company repaid the $576,000
                     outstanding balance on this line of credit and $109,456 in accrued
                     interest by the issuance of 4,569,706 shares of Company common stock
                     that were valued at the closing market price of $0.45 per share.
                     Based on the $2,056,368 value of the shares issued, the Company
                     recognized a $1,370,912 loss on extinguishment of the debt during the
                     year ended December 31, 2009. Additionally, as of September 25, 2009,
                     Arisean released its first lien on the assets of the Company, placing
                     the new 2009 investors in first lien position (see Note 9). Interest
                     expense accrued on this line of credit during 2009 was $50,703. As of
                     March 31, 2010, the outstanding balance on this line of credit was
                     $10,557 in remaining accrued interest. On August 10, 2007, the Company entered into a line of credit
                     agreement with James D. Burchetta, Debt Resolve's Co-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 were 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 could be due at any time upon
                     30 days written notice, subject to mandatory prepayment (without
                     penalty) of principal and interest, in whole or in part, from the net
                     cash proceeds of any public or private, equity or debt financing made
                     by Debt Resolve. On August 27, 2009, the Company repaid the $119,000
                     outstanding balance on this line of credit and $23,345 in accrued
                     interest by the issuance of 948,970 shares of Company common stock
                     that were valued at the closing market price of $0.25 per share.
                     Based on the $237,242 value of the shares issued, the Company
                     recognized a $94,897 loss on extinguishment of the debt during the
                     year ended December 31, 2009. Interest expense accrued on this line
                     of credit during 2009 was $9,311. As of March 31, 2010, the
                     outstanding balance on this line of credit was $1,017 in remaining
                     accrued interest. The Company also owed $124,099 of accrued expenses
                     and $40,000 of accrued consulting fees to Mr. Burchetta as of March
                     31, 2010.
 20


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 9  LINES OF CREDIT RELATED PARTIES (continued) On October 17, 2007, the Company entered into a line of credit
                     agreement with William M. Mooney, a Director of Debt Resolve, for up
                     to $275,000 to be used primarily to fund the working capital needs of
                     First Performance. Borrowings under the line of credit bear interest
                     at 12% per annum, with interest payable monthly in cash. The
                     principal balance outstanding will be due at any time upon 30 days
                     written notice, subject to mandatory prepayment (without penalty) of
                     principal and interest, in whole or in part, from the net cash
                     proceeds of any public or private, equity or debt financing made by
                     Debt Resolve. In conjunction with this line of credit, the Company
                     also issued a warrant to purchase 137,500 shares of common stock at
                     an exercise price of $2.00 per share with an expiration date of
                     October 17, 2012. The liability for borrowings under the line of
                     credit was recorded net of a deferred debt discount of $117,700,
                     based on the relative fair value of the warrant under the
                     Black-Scholes pricing model. The debt discount was fully amortized
                     during the year ended December 31, 2007. Borrowings under this line
                     of credit are guaranteed by Mr. Burchetta and Mr. Brofman. On
                     February 8, 2008, in consideration of the line of credit not being
                     repaid with the later loan proceeds secured subsequent to the date of
                     the agreement, the Company granted Mr. Mooney 350,000 options to
                     purchase common stock at $1.25 per share. This option has a term of
                     three years and vested immediately. The grant was valued at $227,500
                     under the Black-Scholes pricing model and was expensed immediately as
                     amortization of the deferred debt discount. On August 27, 2009, the
                     Company repaid $343,421 of principal on this line of credit and
                     $64,222 in accrued interest by the issuance of 2,717,616 shares of
                     Company common stock that was valued at the closing market price of
                     $0.25 per share. Based on the $679,404 value of the shares issued,
                     the Company recognized a $271,762 loss on extinguishment of the debt
                     during the year ended December 31, 2009. On September 24, 2009, the
                     Company entered into a short term loan with William M. Mooney, a
                     Director of Debt Resolve, for $150,000 to be used to discharge the
                     bridge loans of another investor. Borrowings under the loan bear
                     interest at 9% per annum, with interest accrued and payable on
                     maturity. The Note was due on November 24, 2009. In conjunction with
                     this line of credit, the Company also issued a warrant to purchase
                     150,000 shares of common stock at an exercise price of $0.15 per
                     share with an expiration date of September 24, 2014. The Note was
                     recorded net of a deferred debt discount of $15,000, based on the
                     relative fair relative fair value of the warrant under the
                     Black-Scholes pricing model. Such discount was amortized over the
                     term of the Note. During the three month periods ended March 31, 2010
                     and 2009, amortization was $15,000 and $0, respectively. Interest
                     expense accrued on this loan as of March 31, 2010 was $12,938. As of
                     March 31, 2010, the outstanding balance on this loan was $157,000. On July 1, 2008, the Company entered into a line of credit agreement
                     with Kenneth H. Montgomery, a former Chief Executive Officer and
                     Director of Debt Resolve, for up to $315,000 to be used to fund the
                     working capital needs of Debt Resolve. Borrowings under the line of
                     credit would bear interest at 12% per annum, with interest payable
                     monthly in cash. The principal balance outstanding could be due at
                     any time upon 30 days written notice, subject to mandatory prepayment
                     (without penalty) of principal and interest, in whole or in part,
                     from the net cash proceeds of any public or private, equity or debt
                     financing made by Debt Resolve. In conjunction with this line of
                     credit, the Company also issued an option to purchase 350,000 shares
                     of common stock at an exercise price of $1.00 per share on July 15,
                     2008 with an expiration date of July 15, 2015. The note was recorded
                     net of a deferred debt discount of $262,500, based on the relative
                     fair value of the option. The debt discount was amortized over the
                     term of the note. As of June 30, 2009, the Company has borrowed
                     $158,202 under this line of credit plus $185,681 of Company expenses
                     paid directly by Mr. Montgomery for a total borrowed of $343,883. On August 27, 2009, the Company repaid $158,202 of principal on this
                     line of credit and $24,492 in accrued interest by the issuance of
                     1,217,966 shares of Company common stock that were valued at the
                     closing market price of $0.25 per share. Based on the $304,491 value
                     of the shares issued, the Company recognized a $121,797 loss on
                     extinguishment of the debt in the year ended December 31, 2009. As of
                     March 31, 2010, the outstanding balance owed to Mr. Montgomery is
                     $214,385 in expenses plus $1,352 in accrued interest on the line of
                     credit that was repaid and terminated.
 21


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 10  CONVERTIBLE DEBENTURES From June 2009 to March 2010, unaffiliated investors loaned the
                     Company an aggregate of $1,237,459 on three year Series A Convertible
                     Debentures with an interest rate of 14%. Of this total, $75,000 was
                     shown under un-deposited funds under other current assets. The
                     interest accrues and is payable at maturity, which range in dates
                     from June 2012 to March 2013. The conversion price is set at $0.15
                     per share. The Debentures carry a first lien security interest. In
                     addition, the investors received 12,374,590 warrants to purchase the
                     common stock of the Company at an exercise price of $1.00. On January
                     21, 2010, the exercise price was reduced to $0.40 due to certain
                     provisions of the warrants. The exercise period of the warrants is
                     five years. The notes were recorded net of a deferred debt discount
                     of $1,150,792, based on the relative fair value of the warrants under
                     the Black-Scholes pricing model. Such discount is being amortized
                     over the term of the notes. During the three month periods ended
                     March 31, 2010 and 2009, the Company recorded amortization of the
                     debt discount related to these notes of $228,551 and $0,
                     respectively. As of March 31, 2010, $375,459 plus accrued interest
                     was converted to stock by the terms of the notes, leaving a balance
                     remaining of $862,000. During the three months ended March 31, 2010, unaffiliated investors
                     loaned the Company an aggregate of $200,000 on three year Series B
                     Convertible Debentures with an interest rate of 14%. During the
                     period, $50,000 was repaid in cash, leaving a balance of $150,000 on
                     these debentures at March 31, 2010. The interest accrues and is
                     payable at maturity. The conversion price is set at $0.15 per share.
                     The Debentures carry a first lien security interest with the
                     debentures above. In addition, at conversion, the investors will
                     receive 600,000 warrants to purchase the common stock of the Company
                     at an exercise price of $0.40 per share. The warrants are callable
                     when the Company's stock trades above $0.75 per share for 10
                     consecutive trading days. The notes were recorded net of a deferred
                     debt discount of $161,000, based on the relative fair value of the
                     warrants under the Black-Scholes pricing model. Such discount is
                     being amortized over the term of the notes. During the three month
                     periods ended March 31, 2010 and 2009, the Company recorded
                     amortization of the debt discount related to these notes of $48,222
                     and $0, respectively. The embedded conversion option related to the Convertible Debentures
                     is accounted for under ASC 815-40. We have determined that the
                     embedded conversion option is a derivative liability. Accordingly,
                     the embedded conversion option will be marked to market through
                     earnings at the end of each reporting period. The conversion option
                     is valued using the Black-Scholes valuation model. See derivative
                     liability discussion below. NOTE 11 - DERIVATIVE LIABILITY As described in Note 7 above, the Company's derivative financial
                     instruments consist of embedded derivatives related to the short term
                     Convertible Debentures. These embedded derivatives include certain
                     conversion features indexed to the Company's common stock. The
                     accounting treatment of derivative financial instruments requires
                     that the Company record the derivatives and related items at their
                     fair values as of the inception date of the Convertible Debenture
                     Agreement and at fair value as of each subsequent balance sheet date.
                     In addition, under the provisions of Accounting Standards
                     Codification subtopic 815-40, Derivatives and Hedging; Contracts in
                     Entity's Own Equity ("ASC 815-40"), as a result of entering into the
                     Debentures, the Company is required to classify all other
                     non-employee stock options and warrants as derivative liabilities and
                     mark them to market at each reporting date. Any change in fair value
                     inclusive of modifications of terms will be recorded as
                     non-operating, non-cash income or expense at each reporting date. If
                     the fair value of the derivatives is higher at the subsequent balance
                     sheet date, the Company will record a non-operating, non-cash charge.
                     If the fair value of the derivatives is lower at the subsequent
                     balance sheet date, the Company will record non-operating, non-cash
                     income. As of March 31, 2010, conversion-related derivatives fair
                     value of $3,102,208 and the warrants and option fair values of
                     $6,677,178 were determined using the Black-Scholes Option Pricing
                     Model with the following assumptions: dividend yield of 0%; annual
                     volatility of 395.911%; and risk free interest rate from 0.06% to
                     2.55%. The derivative liabilities are classified as long term
                     liabilities. As of the date of the financial statements, the Company believes an
                     event under the contract that would create an obligation to settle in
                     cash or other current assets is remote and has classified the
                     obligation as a long term liability.
 22


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 12  STOCKHOLDERS' EQUITY Preferred Stock At March 31, 2010 and December 31, 2009, the Company has authorized
                     10,000,000 shares of preferred stock, par value $0.001, of which none
                     are issued and outstanding. Common stock At March 31, 2010 and December 31, 2009, the Company has authorized
                     100,000,000 shares of common stock, par value $0.001, of which
                     45,474,375 and 39,898,584 are issued and outstanding, respectively. During the year ended December 31, 2009, the Company issued 617,417
                     shares upon the exercise of investor warrants. During the year ended December 31, 2009, the Company issued 5,950,000
                     shares of common stock as compensation for professional services
                     rendered and 50,000 shares to a Company employee as compensation for
                     his services. During the year ended December 31, 2009, the Company issued 8,767,398
                     shares of Company common stock to settle $1,483,709 in liabilities
                     owed to former employees and vendors. The $2,276,099 value of the
                     shares issued, as determined by the closing prices on the dates of
                     issuance, exceeded the $1,483,709 in liabilities settled, and the
                     Company recorded the difference as a $792,388 loss on extinguishment
                     of the liabilities during the year ended December 31, 2009. During the year ended December 31, 2009, the Company issued 8,767,398
                     shares of Company common stock to settle $1,483,709 in liabilities
                     owed to former employees and vendors. The $2,276,099 value of the
                     shares issued, as determined by the closing prices on the dates of
                     issuance, exceeded the $1,483,709 in liabilities settled, and the
                     Company recorded the difference as a $792,388 loss on extinguishment
                     of the liabilities during the year ended December 31, 2009. During the year ended December 31, 2009, the Company issued
                     10,141,885 shares of Company common stock to settle $1,521,282 in
                     notes payable and accrued interest. The $3,415,029 value of the
                     shares issued, as determined by the closing prices on the dates of
                     issuance, exceeded the $1,521,282 in liabilities settled, and the
                     Company recorded the difference as a $1,893,749 loss on
                     extinguishment of the liabilities during the year ended December 31,
                     2009. During the year ended December 31, 2009, the Company issued 1,576,685
                     shares of Company common stock to settle $223,275 in principal and
                     accrued interest owed on two notes payable. The $394,171 value of the
                     shares issued, as determined by the closing prices on the dates of
                     issuance, exceeded the $223,275 in liabilities settled, and the
                     Company recorded the difference as a $170,896 loss on extinguishment
                     of the liabilities during the year ended December 31, 2009. The
                     extinguished liabilities consisted of $95,950 in note principal and
                     $127,325 in accrued interest and fees. Of the 1,576,685 shares
                     issued, 450,000 shares were release from treasury. Prior to their
                     release, the Company excluded the 450,000 shares from the number of
                     outstanding shares used to determine its net loss per share. In connection with the Company's sale of a $300,000 convertible
                     debenture on September 30, 2008, the Company was to issue 150,000
                     shares in compensation for the agreement exchanging the original note
                     dated July 31, 2008 for the convertible debenture dated September 30,
                     2008. The Company issued the shares on September 15, 2009. During the year ended December 31, 2009, the Company issued a total
                     of 2,250,000 shares to five members of the Company's board of
                     directors as compensation for their services and issued 333,334
                     shares to the Company's Interim CEO and President in satisfaction of
                     an accrued bonus payable. During the three month period ended March 31, 2010, the Company
                     issued 4,170,794 shares of Company common stock to settle $589,595 in
                     notes payable and accrued interest. The $945,300 value of the shares
                     issued, as determined by the closing prices on the dates of issuance,
                     exceeded the $589,595 in liabilities settled, and the Company
                     recorded the difference as a $355,705 loss on extinguishment of the
                     liabilities during the three month period ended March 31, 2010. During the three month period ended March 31, 2010, the Company
                     issued 880,000 shares of Company common stock to settle reset
                     provisions contained in a private placement completed in August 2007.
                     The $262,240 value of the shares, as determined by the closing price
                     on the date of issuance, was charged to current period operations for
                     the three month period ended March 31, 2010.
 23


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 12  STOCKHOLDERS' EQUITY (continued) During the three month period ended March 31, 2010, the Company
                     issued 224,997 shares upon the exercise of investor warrants on a
                     cashless basis. During the three month period March 31, 2010, the Company issued
                     300,000 shares of common stock as compensation for professional
                     services rendered. NOTE 13-WARRANTS AND OPTIONS Warrants The following table summarizes warrants outstanding and related
                     prices for the shares of the Company's common stock issued to
                     shareholders at March 31, 2010: Exercise Price
                           
                           
                           
                           
                           
                           NumberOutstanding
                           
                           
                           
                           
                           
                           Warrants OutstandingWeighted AverageRemainingContractualLife (years)
                           
                           
                           
                           
                           
                           WeightedAverageExercise price
                           
                           
                           
                           
                           
                           NumberExercisable
                           
                           
                           
                           
                           
                           Warrants ExercisableWeightedAverageExercise Price$
                           0.00000004
                           
                           
                           
                           
                           
                           2,400,000
                           
                           
                           
                           
                           
                           3.88
                           
                           
                           
                           
                           
                           0.00000004
                           
                           
                           
                           
                           
                           2,400,000
                           
                           
                           
                           
                           $
                           0.000000040.01
                           
                           
                           
                           
                           
                           160,521
                           
                           
                           
                           
                           
                           1.24
                           
                           
                           
                           
                           
                           0.01
                           
                           
                           
                           
                           
                           160,521
                           
                           
                           
                           
                           
                           0.010.12
                           
                           
                           
                           
                           
                           275,000
                           
                           
                           
                           
                           
                           1.62
                           
                           
                           
                           
                           
                           0.12
                           
                           
                           
                           
                           
                           275,000
                           
                           
                           
                           
                           
                           0.120.15
                           
                           
                           
                           
                           
                           3,225,000
                           
                           
                           
                           
                           
                           4.30
                           
                           
                           
                           
                           
                           0.15
                           
                           
                           
                           
                           
                           3,225,000
                           
                           
                           
                           
                           
                           0.150.25
                           
                           
                           
                           
                           
                           1,490,048
                           
                           
                           
                           
                           
                           4.90
                           
                           
                           
                           
                           
                           0.25
                           
                           
                           
                           
                           
                           1,490,048
                           
                           
                           
                           
                           
                           0.250.40
                           
                           
                           
                           
                           
                           12,974,590
                           
                           
                           
                           
                           
                           4.56
                           
                           
                           
                           
                           
                           0.40
                           
                           
                           
                           
                           
                           12,974,590
                           
                           
                           
                           
                           
                           0.401.00
                           
                           
                           
                           
                           
                           678,000
                           
                           
                           
                           
                           
                           2.49
                           
                           
                           
                           
                           
                           1.00
                           
                           
                           
                           
                           
                           678,000
                           
                           
                           
                           
                           
                           1.001.07
                           
                           
                           
                           
                           
                           37,500
                           
                           
                           
                           
                           
                           2.73
                           
                           
                           
                           
                           
                           1.07
                           
                           
                           
                           
                           
                           37,500
                           
                           
                           
                           
                           
                           1.071.25
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           2.83
                           
                           
                           
                           
                           
                           1.25
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           1.251.95
                           
                           
                           
                           
                           
                           50,000
                           
                           
                           
                           
                           
                           2.99
                           
                           
                           
                           
                           
                           1.95
                           
                           
                           
                           
                           
                           50,000
                           
                           
                           
                           
                           
                           1.952.00
                           
                           
                           
                           
                           
                           137,500
                           
                           
                           
                           
                           
                           2.55
                           
                           
                           
                           
                           
                           2.00
                           
                           
                           
                           
                           
                           137,500
                           
                           
                           
                           
                           
                           2.002.45
                           
                           
                           
                           
                           
                           99,000
                           
                           
                           
                           
                           
                           3.03
                           
                           
                           
                           
                           
                           2.45
                           
                           
                           
                           
                           
                           99,000
                           
                           
                           
                           
                           
                           2.452.52
                           
                           
                           
                           
                           
                           181,777
                           
                           
                           
                           
                           
                           0.36
                           
                           
                           
                           
                           
                           2.52
                           
                           
                           
                           
                           
                           181,777
                           
                           
                           
                           
                           
                           2.526.00
                           
                           
                           
                           
                           
                           225,000
                           
                           
                           
                           
                           
                           1.60
                           
                           
                           
                           
                           
                           6.00
                           
                           
                           
                           
                           
                           225,000
                           
                           
                           
                           
                           
                           6.00Total
                           
                           
                           
                           
                           
                           22,283,936
                           
                           
                           
                           
                           
                           4.3
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           22,283,936
 24


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 13-WARRANTS AND OPTIONS (continued) Transactions involving the Company's warrant issuance are summarized as follows: Number ofShares
                           
                           
                           
                           
                           
                           WeightedAverage PricePer ShareOutstanding at December 31, 2008
                           
                           
                           3,840,455
                           
                           
                           
                           
                           $
                           1.23Issued
                           
                           
                           37,874,590
                           
                           
                           
                           
                           
                           0.27Exercised
                           
                           
                           (617,417
                           )
                           
                           
                           
                           
                           0.00000004Canceled or expired
                           
                           
                           (23,978,740
                           )
                           
                           
                           
                           
                           0.00000004Outstanding at December 31, 2009
                           
                           
                           17,118,888
                           
                           
                           
                           
                           
                           0.36Issued
                           
                           
                           5,440,048
                           
                           
                           
                           
                           
                           0.24Exercised
                           
                           
                           (225,000
                           )
                           
                           
                           
                           
                           0.00000004Canceled or expired
                           
                           
                           (50,000
                           )
                           
                           
                           
                           
                           3.85Outstanding at March 31, 2010
                           
                           
                           22,283,936
                           
                           
                           
                           
                           $
                           0.44  In conjunction with the issuance of debt and settlement of Payable, the Company issued warrants
                     to purchase an aggregate of 3,890,048 shares of common stock with an
                     exercise price from $0.15 to $0.40 per share expiring five years from
                     the date of issuance. The fair value of the warrants were determined
                     using the Black-Scholes option pricing method and were recorded as a
                     derivative liability at the date of issuance. In conjunction with certain consulting services, the Company issued
                     warrants to purchase an aggregate of 1,550,000 shares of common stock
                     with an exercise prices from $0.15 to $0.40 per share expiring five
                     years from the date of issuance. These warrants contain a "cashless
                     exercise" feature. The fair value of the warrants were determined
                     using the Black-Scholes option pricing method and were recorded as a
                     derivative liability at the date of issuance.
 25


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 13-WARRANTS AND OPTIONS (continued) Non-Employee Options The following table summarizes non employee options outstanding and
                     related prices for the shares of the Company's common stock issued to
                     shareholders at March 31, 2010: Exercise Price
                           
                           
                           NumberOutstanding
                           
                           
                           
                           
                           
                           Option OutstandingOptions AverageRemainingContractualLife (years)
                           
                           
                           
                           
                           
                           WeightedAverageExercise price
                           
                           
                           
                           
                           
                           NumberExercisable
                           
                           
                           
                           
                           
                           Options ExercisableWeightedAverageExercise Price$
                           0.70
                           
                           
                           75,000
                           
                           
                           
                           
                           
                           5.44
                           
                           
                           
                           
                           
                           0.70
                           
                           
                           
                           
                           
                           
                           
                           
                           75,000
                           
                           
                           
                           
                           
                           0.701.84
                           
                           
                           25,000
                           
                           
                           
                           
                           
                           5.17
                           
                           
                           
                           
                           
                           1.84
                           
                           
                           
                           
                           
                           
                           
                           
                           25,000
                           
                           
                           
                           
                           
                           1.845.00
                           
                           
                           3,000
                           
                           
                           
                           
                           
                           1.59
                           
                           
                           
                           
                           
                           5.00
                           
                           
                           
                           
                           
                           
                           
                           
                           3,000
                           
                           
                           
                           
                           
                           5.00Total
                           
                           
                           103,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           103,000 Transactions involving the Company's non employee option issuance
                     are summarized as follows: Number ofShares
                           
                           
                           WeightedAverage PricePer ShareOutstanding at December 31, 2008
                           
                           
                           203,000
                           
                           $
                           3.02Issued
                           
                           
                           --
                           
                           
                           --Exercised
                           
                           
                           --
                           
                           
                           --Canceled or expired
                           
                           
                           (100,000
                           )
                           $
                           5.00Outstanding at December 31, 2009
                           
                           
                           103,000
                           
                           $
                           1.10Issued
                           
                           
                           --
                           
                           
                           --Exercised
                           
                           
                           --
                           
                           
                           --Canceled or expired
                           
                           
                           --
                           
                           
                           --Outstanding at March 31, 2010
                           
                           
                           103,000
                           
                           $
                           1.10
 26


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 13-WARRANTS AND OPTIONS (continued) Employee Options The following table summarizes employee options outstanding and
                     related prices for the shares of the Company's common stock issued to
                     shareholders at March 31, 2010: Exercise Price
                           
                           
                           
                           
                           
                           NumberOutstanding
                           
                           
                           
                           
                           
                           Option OutstandingOptions AverageRemainingContractualLife (years)
                           
                           
                           
                           
                           
                           WeightedAverageExercise price
                           
                           
                           
                           
                           
                           NumberExercisable
                           
                           
                           
                           
                           
                           Options ExercisableWeightedAverageExercise price$
                           0.19
                           
                           
                           
                           
                           
                           1,000,000
                           
                           
                           
                           
                           
                           6.35
                           
                           
                           
                           
                           $
                           0.19
                           
                           
                           
                           
                           
                           1,000,000
                           
                           
                           
                           
                           $
                           0.190.20
                           
                           
                           
                           
                           
                           125,000
                           
                           
                           
                           
                           
                           3.00
                           
                           
                           
                           
                           
                           0.20
                           
                           
                           
                           
                           
                           125,000
                           
                           
                           
                           
                           
                           0.200.80
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           4.84
                           
                           
                           
                           
                           
                           0.80
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           0.801.00
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           5.29
                           
                           
                           
                           
                           
                           1.00
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           1.001.25
                           
                           
                           
                           
                           
                           1,334,500
                           
                           
                           
                           
                           
                           2.26
                           
                           
                           
                           
                           
                           1.25
                           
                           
                           
                           
                           
                           1,334,500
                           
                           
                           
                           
                           
                           1.251.40
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           5.20
                           
                           
                           
                           
                           
                           1.40
                           
                           
                           
                           
                           
                           350,000
                           
                           
                           
                           
                           
                           1.401.50
                           
                           
                           
                           
                           
                           887,500
                           
                           
                           
                           
                           
                           1.46
                           
                           
                           
                           
                           
                           1.50
                           
                           
                           
                           
                           
                           887,500
                           
                           
                           
                           
                           
                           1.501.63
                           
                           
                           
                           
                           
                           20,000
                           
                           
                           
                           
                           
                           5.21
                           
                           
                           
                           
                           
                           1.63
                           
                           
                           
                           
                           
                           20,000
                           
                           
                           
                           
                           
                           1.631.84
                           
                           
                           
                           
                           
                           10,000
                           
                           
                           
                           
                           
                           5.17
                           
                           
                           
                           
                           
                           1.84
                           
                           
                           
                           
                           
                           10,000
                           
                           
                           
                           
                           
                           1.844.75
                           
                           
                           
                           
                           
                           203,000
                           
                           
                           
                           
                           
                           4.07
                           
                           
                           
                           
                           
                           4.75
                           
                           
                           
                           
                           
                           203,000
                           
                           
                           
                           
                           
                           4.755.00
                           
                           
                           
                           
                           
                           2,326,934
                           
                           
                           
                           
                           
                           5.38
                           
                           
                           
                           
                           
                           5.00
                           
                           
                           
                           
                           
                           2,326,934
                           
                           
                           
                           
                           
                           5.0010.00
                           
                           
                           
                           
                           
                           20,000
                           
                           
                           
                           
                           
                           3.49
                           
                           
                           
                           
                           
                           10.00
                           
                           
                           
                           
                           
                           20,000
                           
                           
                           
                           
                           
                           3.74Total
                           
                           
                           
                           
                           
                           6,976,934
                           
                           
                           
                           
                           
                           2.98
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           6,976,934  DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 13-WARRANTS AND OPTIONS (continued) Transactions involving the Company's employee option issuance are
                     summarized as follows: Number ofShares
                           
                           
                           WeightedAverage PricePer ShareOutstanding at December 31, 2008
                           
                           
                           5,851,934
                           
                           $
                           5.89Issued
                           
                           
                           1,000,000
                           
                           
                           0.19Exercised
                           
                           
                           --Canceled or expired
                           
                           
                           --Outstanding at December 31, 2009
                           
                           
                           6,851,934
                           
                           
                           5.89Issued
                           
                           
                           125,000
                           
                           
                           0.20Exercised
                           
                           
                           --Canceled or expired
                           
                           
                           --Outstanding at March 31, 2010
                           
                           
                           6,976,934
                           
                           $
                           2.50 The Board granted stock options to purchase 125,000 shares of common
                     stock of the Company at an exercise price $0.20 with an exercise
                     period of three years to a new advisory board member. The grant was
                     valued using the Black-Scholes model and had a value of $26,250,
                     which was fully expensed during the three month period ended March
                     31, 2010. NOTE 14 -COMMITMENTS AND CONTINGENCIES Litigation
 27


On July 17, 2008, Dreier LLP, a law firm, filed a complaint in the
                     Supreme Court of New York, County of New York, seeking damages of
                     $311,023 plus interest for legal services allegedly rendered to us.
                     The complaint was answered on August 14, 2008 raising various
                     affirmative defenses. On December 16, 2008, Dreier LLP filed for
                     bankruptcy in the U.S. Bankruptcy Court for the Southern District of
                     New York. The case has been on hold since the bankruptcy filing. On
                     March 18, 2009, the Company filed a counterclaim in the bankruptcy
                     court for legal malpractice and the defenses rose in the previously
                     filed answer. The entire balance in dispute is in the accounts
                     payable of the Company.
 28


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 14 -COMMITMENTS AND CONTINGENCIES (continued) On September 17, 2008, Computer Task Group, a vendor, filed a
                     complaint in the Supreme Court of New York, County of Erie, seeking
                     damages of $24,546 plus interest for consulting services rendered to
                     us. On December 3, 2008, judgment was entered in favor of Computer
                     Task Group for $24,546 plus $2,539 in interest and $651 in costs, or
                     a total of $27,735. A restraining order was served on the Company's
                     bank account for the amount of the judgment. On March 10, 2009, a
                     total of $12,839 was removed from our account in partial satisfaction
                     of the judgment, leaving a current total now due of $14,896. This
                     balance payable is in the accounts payable of the Company. Computer
                     Task Group still has a hold on one of the Company's bank accounts. On December 1, 2008, AT&T, a vendor, filed a complaint in the Supreme
                     Court of New York, County of New York, seeking damages of $62,383
                     plus interest for services allegedly rendered to us. The complaint
                     was answered on February 23, 2009 raising various affirmative
                     defenses. On April 8, 2010, the settlement payment of $28,000 was
                     sent, and the case has been dismissed and closed. On October 9, 2009, PR Newswire Association filed a complaint in New
                     Jersey Special Civil Court, Hudson County against the Company for
                     unpaid bills in the amount of $7,470. On March 22, 2010, a default
                     judgment in the amount of $8,124 was entered. This balance is in the
                     accounts payable of the Company. On November 9, 2009, Patriot National Bank, a financial institution,
                     filed a complaint in the Supreme Court of New York, Count of
                     Westchester, seeking damages of $68,993.62 as a result of an
                     overdraft in our bank account resulting from a non-sufficient fund
                     check received from an investor on May 22, 2009. An answer was filed
                     by the Company on December 20, 2009. On February 22, 2010, a motion
                     for summary judgment was filed with the court by Patriot. An amended
                     motion of summary judgment was filed on March 1, 2010 by Patriot. As
                     of March 31, 2010, the unpaid amount remaining on the overdraft was
                     $48,517. The Company is making monthly payments to reduce the
                     overdraft through an allocated portion of its revenue. The entire
                     amount in dispute is on the balance sheet of the Company under Bank
                     Overdrafts. From time to time, the Company is involved in various litigation
                     matters in the ordinary course of business. In the opinion of
                     management, the ultimate disposition of these matters will not have a
                     material adverse effect on the Company's financial position or
                     results of operations. Operating leases The Company currently shares space with a business partner under an
                     agreement from December 2008. The Company and business partner agreed
                     to cross-market the services of each party to their clients. As part
                     of the agreement, the Company was granted certain office space. In
                     July 2009 under a verbal agreement, the Company agreed to pay rent in
                     the amount of $1,000 per month for increased office space. NOTE 15  EMPLOYMENT AGREEMENTS James D. Burchetta The Company had entered into an employment agreement on January 13,
                     2003 with James D. Burchetta under which he would devote
                     substantially all of his business and professional time to us and our
                     business development. The employment agreement with Mr. Burchetta was
                     effective until January 13, 2013. The agreement provided Mr.
                     Burchetta with an initial annual base salary of $240,000 and
                     contained provisions for minimum annual increases based on changes in
                     an applicable "cost-of-living" index. The employment agreement with
                     Mr. Burchetta contained provisions under which his annual salary may
                     increase to $600,000 if we achieved specified operating milestones
                     and also provided for additional compensation based on the value of a
                     transaction that results in a change of control, as that term is
                     defined in the agreement. In the event of a change of control, Mr.
                     Burchetta would be entitled to receive 25% of the sum of $250,000
                     plus 2.5% of the transaction value, as that term is defined in the
                     agreement, between $5,000,000 and $15,000,000 plus 1% of the
                     transaction value above $15,000,000.
 29


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 15  EMPLOYMENT AGREEMENTS (continued) The Company amended the employment agreement with Mr. Burchetta in
                     February 2004, agreeing to modify his level of compensation, subject
                     to its meeting specified financial and performance milestones. The
                     employment agreement, as amended, provided that the base salary for
                     Mr. Burchetta would be as follows: (1) if at the date of any salary
                     payment, the aggregate amount of our net cash on hand provided from
                     operating activities and net cash and/or investments on hand provided
                     from financing activities is sufficient to cover our projected cash
                     flow requirements (as established by our board of directors in good
                     faith from time to time) for the following 12 months (the "projected
                     cash requirement"), the annual base salary will be $150,000; and (2)
                     if at the date of any salary payment, our net cash on hand provided
                     from operating activities is sufficient to cover our projected cash
                     requirement, the annual base salary will be $250,000, and increased
                     to $450,000 upon the date upon which we complete the sale or license
                     of our Debt Resolve system with respect to 400,000 consumer credit
                     accounts. Under the terms of the amended employment agreement, no
                     salary payments were made to Mr. Burchetta during 2004. The Company
                     recorded compensation expense and a capital contribution totaling
                     $150,000 in 2004, representing an imputed compensation expense for
                     the minimum base salary amounts under the agreement with Mr.
                     Burchetta, as if we had met the condition for paying his salary. The Company amended the employment agreement with Mr. Burchetta
                     again in June 2005, agreeing that (1) as of April 1, 2005 the Company
                     will pay Mr. Burchetta an annual base salary of $250,000 per year,
                     and thereafter his base salary will continue at that level, subject
                     to adjustments approved by the compensation committee of our board of
                     directors, and (2) the employment term will extend for five years
                     after the final closing of our June/September 2005 private financing.
                     Compensation expense under the employment agreement with Mr.
                     Burchetta is recorded as payroll and related expenses in the
                     unaudited condensed consolidated statement of operations and totaled
                     $0 and $135,417 for the twelve months ended December 31, 2009 and
                     2008, respectively. On August 27, 2009, the accrued salary from 2008
                     was converted to stock. On July 15, 2008, the employment agreement was converted to a
                     consulting agreement with all terms otherwise unchanged, as Mr.
                     Burchetta became non-executive Chairman on February 16, 2008. One
                     additional term added was that the Chairman shall always make $25,000
                     more than the Chief Executive Officer and have comparable benefits.
                     The Board affirmed the effectiveness of the agreement to January 13,
                     2013. Consulting expense under the consulting agreement with Mr.
                     Burchetta is recorded as general and administrative expenses in the
                     unaudited condensed consolidated statement of operations and totaled
                     $30,000 for the three months ended March 31, 2010 and $195,833 for
                     the year ended December 31, 2009. Consulting expense for the year
                     ended December 31, 2008 totaled $114,583. On August 27, 2009, the
                     accrued consulting fees of $242,500 for the period July 2008 through
                     July 2009 were converted to stock. On September 29, 2009 and
                     effective as of August 1, 2009, the Company and Mr. Burchetta amended
                     his consulting agreement from a full-time consulting position to a
                     part-time consulting position. In addition, the monthly consulting
                     fee was reduced from $20,833 per month to $10,000 per month. Finally,
                     Mr. Burchetta waived the condition that his compensation exceeds that
                     of the CEO by at least $25,000 per month and has comparable benefits.
                     In return for the modifications to the contract with a termination
                     date of January 13, 2013, Mr. Burchetta received 1,686,000 shares of
                     stock, which represents the reduction in compensation during the
                     remaining term of the agreement. As of March 31, 2010, the Company owes Mr. Burchetta an aggregate of
                     $40,000 under the consulting agreement.
 30


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 15  EMPLOYMENT AGREEMENTS (continued) David M. Rainey On May 1, 2007, David M. Rainey joined our company as Chief Financial
                     Officer and Treasurer. Mr. Rainey also became Secretary of the
                     Company in November 2007, President of the Company in January 2008
                     and Interim Chief Executive Officer on July 15, 2009. Mr. Rainey
                     stepped down as Interim CEO on April 12, 2010. Mr. Rainey has a one
                     year contract that renews automatically unless 90 days notice of
                     intention not to renew is given by the Company. Mr. Rainey's base
                     salary is $200,000, subject to annual increases at the discretion of
                     the board of directors. Mr. Rainey also received a grant of 75,000
                     options to purchase the common stock of the Company, one third of
                     which vest on the first, second and third anniversaries of the start
                     of employment with the Company. Mr. Rainey is also eligible for a
                     bonus of up to 50% of salary based on performance objectives set by
                     the Chairman and the Board of Directors. Mr. Rainey's contract
                     provides for 12 months of severance for any termination without cause
                     with full benefits. Upon a change in control, Mr. Rainey receives two
                     years severance and bonus with benefits and immediate vesting of all
                     stock options then outstanding. As of March 31, 2010, the Company
                     owes $158,333 in salary under the agreement. Each of the employment agreements with Mr. Burchetta and Mr. Rainey
                     also contain covenants (a) restricting the employee from engaging in
                     any activities competitive with our business during the term of their
                     employment agreements, (b) prohibiting the employee from disclosure
                     of our confidential information and (c) confirming that all
                     intellectual property developed by the employee and relating to our
                     business constitutes our sole property. In addition, Mr. Rainey's
                     contract provides for a one year non-compete during the term of his
                     severance. NOTE 16 - RELATED PARTY TRANSACTIONS During the year ended December 31, 2009, the Company issued
                     15,841,788 shares of Company common stock to settle $2,560,868 in
                     accrued liabilities and for a contract settlement owed to
                     individuals, or an entity controlled by an individual, who were
                     Company officers or directors or former officers or directors at the
                     time of settlement. The $4,890,388 value of the shares issued, as
                     determined by the closing prices on the dates of issuance, exceeded
                     the $2,560,868 in liabilities settled, and the Company recorded the
                     difference as a $2,329,521 loss on extinguishment of the liabilities
                     in the three months ended September 30, 2009. The extinguished
                     liabilities consisted of $900,230 in accrued payroll compensation,
                     $1,196,623 in loans made to the Company, $221,515 in interest accrued
                     thereon, and $242,500 in accounts payable for consulting services
                     rendered. Related party interest for the three months ended March 31,
                     2010 was $4,645. Related party interest for the year ended December
                     31, 2009 was $105,109. During the year ended December 31, 2009, the Company issued a total
                     of 2,250,000 shares to five members of the Company's board of
                     directors as compensation for their services valued at $428,750.
                     Another executive received an option grant of 1,000,000 shares at an
                     exercise price of $0.19 with a seven year life as compensation for
                     services and in recognition of a promotion valued at $190,000. Certain Company directors and a former officer personally guarantee
                     the Company's notes payable and its' bank loan (Note 9).
 31


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 17 - FAIR VALUE MEASUREMENT The Company adopted the provisions of Accounting Standards
                     Codification subtopic 825-10, Financial Instruments ("ASC 825-10") on
                     January 1, 2008. ASC 825-10 defines fair value as the price that
                     would be received from selling an asset or paid to transfer a
                     liability in an orderly transaction between market participants at
                     the measurement date. When determining the fair value measurements
                     for assets and liabilities required or permitted to be recorded at
                     fair value, the Company considers the principal or most advantageous
                     market in which it would transact and considers assumptions that
                     market participants would use when pricing the asset or liability,
                     such as inherent risk, transfer restrictions, and risk of
                     nonperformance. ASC 825-10 establishes a fair value hierarchy that
                     requires an entity to maximize the use of observable inputs and
                     minimize the use of unobservable inputs when measuring fair value.
                     ASC 825-10 establishes three levels of inputs that may be used to
                     measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than Level 1 prices such as quoted
                     prices for similar assets or liabilities; quoted prices in markets
                     with insufficient volume or infrequent transactions (less active
                     markets); or model-derived valuations in which all significant inputs
                     are observable or can be derived principally from or corroborated by
                     observable market data for substantially the full term of the assets
                     or liabilities. Level 3 - Unobservable inputs to the valuation methodology that are
                     significant to the measurement of fair value of assets or liabilities. To the extent that valuation is based on models or inputs that are
                     less observable or unobservable in the market, the determination of
                     fair value requires more judgment. In certain cases, the inputs used
                     to measure fair value may fall into different levels of the fair
                     value hierarchy. In such cases, for disclosure purposes, the level in
                     the fair value hierarchy within which the fair value measurement is
                     disclosed and is determined based on the lowest level input that is
                     significant to the fair value measurement. Upon adoption of ASC 825-10, there was no cumulative effect
                     adjustment to the beginning retained earnings and no impact on the
                     consolidated financial statements. The carrying value of the Company's cash and cash equivalents,
                     accounts receivable, accounts payable, short-term borrowings
                     (including convertible notes payable), and other current assets and
                     liabilities approximate fair value because of their short-term
                     maturity. All other significant financial assets, financial
                     liabilities and equity instruments of the Company are either
                     recognized or disclosed in the consolidated financial statements
                     together with other information relevant for making a reasonable
                     assessment of future cash flows, interest rate risk and credit risk.
                     Where practicable the fair values of financial assets and financial
                     liabilities have been determined and disclosed; otherwise only
                     available information pertinent to fair value has been disclosed. The following table sets forth the Company's financial instruments as
                     of March 31, 2010 which was recorded on the balance sheet at fair
                     value on a recurring basis by level within the fair value hierarchy.
                     As required by ASC 825-10, these are classified based on the lowest
                     level of input that is significant to the fair value measurement: QuotedPrices inActiveMarkets forIdenticalInstrumentsLevel 1
                           
                           
                           
                           
                           
                           SignificantOtherObservableInputsLevel 2
                           
                           
                           
                           
                           
                           SignificantUnobservableInputsLevel 3Liabilities:Derivative liability
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           $
                           (9,779,387
                           ) At March 31, 2010, the carrying amounts of the notes payable
                     approximate fair value because all of the notes have been classified
                     to current maturity.
 32


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 18  RESTATEMENT The Company determined that an error had occurred in the accounting
                     treatment of warrants issued for services, determination of the a
                     beneficial conversion feature relating to convertible debt and the
                     associated amortization. The following table reflects the changes for
                     three months ended March 31, 2009: Condensed Consolidated Statement of operations for the three months
                     ended March 31, 2010: As filed:
                           
                           
                           Adjustments
                           
                           
                           As restated:Revenues
                           
                           $
                           24,495
                           
                           
                           
                           
                           $
                           24,495Total costs and expenses
                           
                           
                           382,493
                           1
                           
                           100.000
                           
                           
                           482,493Net loss from operations
                           
                           
                           (357,998
                           )
                           
                           (100,000
                           )
                           
                           (457,998
                           )Interest expense
                           
                           
                           (92,548
                           )
                           
                           
                           
                           
                           (92,548
                           )Amortization of debt discount
                           
                           
                           (232,638)2
                           
                           
                           42,022
                           )
                           
                           (190,616
                           )Gain on change in fair value of derivative liability
                           
                           
                           (31,591
                           )
                           
                           100,000
                           
                           
                           68,409Net loss
                           
                           
                           (714,775
                           )
                           
                           42,022
                           
                           
                           (672,753
                           ) Condensed Consolidated Statement of Cash Flows for the three months
                     ended March 31, 2009: As filed:
                           
                           
                           Adjustments
                           
                           
                           As restated:Cash flows from operating activities;Net loss
                           
                           
                           (714,775)2
                           
                           
                           42,022
                           
                           
                           (672,753
                           )Amortization of debt discount
                           
                           
                           232,638
                           2
                           
                           (42,022
                           )
                           
                           190,616Interest paid from short term notes
                           
                           
                           20,500
                           3
                           
                           (20,500
                           )
                           
                           -Non changing items
                           
                           
                           359,519
                           
                           
                           
                           
                           
                           359,519Net cash used in operating activities
                           
                           
                           (102,118
                           )
                           
                           (20,500
                           )
                           
                           (122,618
                           )Cash flows from investing activities:
                           
                           
                           -
                           
                           
                           -
                           
                           
                           -Cash flows from financing activities:Proceeds from short term notes
                           
                           
                           70,000
                           3
                           
                           20,500
                           
                           
                           90,500Net cash provided by financing activities
                           
                           
                           70,000
                           
                           
                           20,500
                           
                           
                           90,500Net decrease in cash and cash equivalents
                           
                           
                           (32,118
                           )
                           
                           
                           
                           
                           (32,118
                           )Cash and cash equivalents, beginning of period
                           
                           
                           32,551
                           
                           
                           
                           
                           
                           32,551Cash and cash equivalent, end of period
                           
                           
                           433
                           
                           
                           
                           
                           
                           433  (1) Correct charge for fair value of warrants issued for services (2) Correct amortization of debt discounts (3) Reclassification of interest settled in conjunction with
                     financing activities
 33


DEBT RESOLVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 NOTE 19  SUBSEQUENT EVENTS Subsequent to March 31, 2010, the Company has received $40,370 under
                     short-term loans under which certain investors paid certain accounts
                     payable of the Company. In conjunction with these loans, these
                     investors were issued 403,702 warrants to purchase the common stock
                     of the Company at an exercise price of $0.25. Subsequent to March 31, 2010, the Company has received $75,000 under
                     the Series B Convertible Debentures from unaffiliated investors.
                     These debentures are convertible at a conversion rate of $0.15 per
                     share. Upon conversion, these investors will also receive 300,000
                     warrants to purchase the common stock of the Company at a price of
                     $0.40 per share. These warrants, as described above, are callable
                     when the stock of the Company trades at greater than $0.75 per share
                     for 10 consecutive trading days. Subsequent to March 31, 2010, the Company has received $40,000 under
                     Series C Convertible Debentures from unaffiliated investors. These
                     debentures are convertible at a conversion rate of $0.15 per share.
                     These investors were issued 400,000 warrants to purchase the common
                     stock of the Company at an exercise price of $0.40 per share. The
                     conversion rate and warrant exercise price of this series has limited
                     re-pricing rights if a subsequent offering occurs with certain
                     conditions no later than June 30, 2010. As a result of the late repayment of the 60-day loan from William M.
                     Mooney, a Director, dated September 24, 2009, the Company became
                     liable for a $69,000 tax penalty on the loan as of April 15, 2010. As
                     a result, the original $150,000 loan now has a total due of $219,000
                     less a $25,000 partial repayment on April 6, 2010, for a net balance
                     on the loan of $194,000 due. In addition, Mr. Mooney was previously
                     owed $7,000 on a prior line of credit, for a total due to Mr. Mooney
                     of $201,000. On April 8, 2010, the Board appointed James G. Brakke, a director of
                     the Company, to the position of Chief Executive Officer. Mr. Brakke
                     will receive a salary of $120,000 a year, which accrues unpaid until
                     the Company completes a single funding tranche of at least $1
                     million. Mr. Brakke also received 1,500,000 options to purchase the
                     common stock of the Company at an exercise price of $0.17 per share.
                     At the same Board meeting, the Company granted 1,000,000 options to
                     purchase the common stock of the Company at an exercise price of
                     $0.17 per share for his service as Interim Chief Executive Officer of
                     the Company. The remaining two Board members each received 1,000,000
                     options at the $0.17 exercise price for their service to the Board
                     during 2009. All of the options have seven year terms. It is the
                     custom of the Company to award Board options around the time of the
                     10-K filing of the Company each year. On April 7, 2010, $100,000 of the $260,000 remaining principal on a
                     short term convertible note was converted into 1,831,502 shares of
                     common stock of the Company. The remaining balance on the note after
                     the conversion was $160,000. On May 17, 2010, the remaining $160,000 in principal and accrued
                     interest of $6,669 was converted to 3,947,194 shares of the common
                     stock of the Company. Following this conversion, the note was fully
                     repaid and discharged.
 34


Item 2. Management's Discussion and Analysis or Plan of Operation Overview Prior to January 19, 2007, we were a development stage company. On
                     January 19, 2007, we acquired all of the outstanding capital stock of
                     First Performance Corporation, a Nevada corporation ("First
                     Performance"), and its wholly-owned subsidiary, First Performance
                     Recovery Corporation, pursuant to a Stock Purchase Agreement dated
                     January 19, 2007. As a result, we are no longer considered a
                     development stage entity. Since completing initial product development in early 2004, our
                     primary business has been providing a software solution to consumer
                     lenders or those collecting on those loans based on our proprietary
                     DebtResolve system, our Internet-based bidding system that
                     facilitates the settlement and collection of delinquent and defaulted
                     consumer debt via the Internet. We have marketed our service
                     primarily to consumer credit card issuers, collection agencies,
                     collection law firms and the buyers of defaulted debt in the United
                     States, Europe and now Asia. We intend to market our service to other
                     segments served by the collections industry worldwide. For example,
                     we believe that our system will be especially valuable for the
                     collection of low balance debt, such as that held by utility
                     companies and online service providers, where the cost of
                     traditionally labor intensive collection efforts may exceed the value
                     collected. We also intend to pursue past-due Internet-related debt,
                     such as that held by sellers of sales and services online. We believe
                     that consumers who incurred their debt over the Internet will be
                     likely to respond favorably to an Internet-based collection solution.
                     In addition, creditors of Internet-related debt usually have access
                     to debtors' e-mail addresses, facilitating the contact of debtors
                     directly by e-mail. In addition, there are significant opportunities
                     for us in healthcare with hospitals and large provider groups. We
                     believe that expanding to more recently past-due portfolios of such
                     debt will result in higher settlement volumes, improving our clients'
                     profitability by increasing their collections while reducing their
                     cost of collections. We do not anticipate any material incremental
                     costs associated with developing our capabilities and marketing to
                     these creditors, as our existing DebtResolve system can already
                     handle this type of debt, and we make contact with these creditors in
                     our normal course of business. We have prepared for our entry into the European marketplace by
                     reviewing our mode of business and modifying our contracts to comply
                     with appropriate European privacy, debtor protection and other
                     applicable regulations. We expect that initially, our expense
                     associated with servicing our United Kingdom and other potential
                     European clients will be minimal, consisting primarily of travel
                     expense to meet with those clients and additional legal fees, as our
                     European contracts, although already written to conform to European
                     regulations, may require customization. We have begun investigation
                     of, and negotiations with, companies who may provide local,
                     outsourced European customer service support for us on an as needed
                     basis, the expense of which will be variable with the level of
                     business activity. We may incur additional costs, which we cannot
                     anticipate at this time, if we expand into Canada and other countries. Our revenues to date have been insufficient to fund our operations.
                     We have financed our activities to date through our management's
                     contributions of cash, the forgiveness of royalty and consulting
                     fees, the proceeds from sales of our common stock in private
                     placement financings, the proceeds of our convertible promissory
                     notes in six private financings, short-term borrowings from previous
                     investors or related parties and the proceeds from the sale of our
                     common stock in our initial public offering. In connection with our
                     marketing and client support goals, we expect our operating expenses
                     to grow as we employ additional technicians, sales people and client
                     support representatives. We expect that salaries and other
                     compensation expenses will continue to be our largest category of
                     expense, while travel, legal, audit and other sales and marketing
                     expenses will grow as we expand our sales, marketing and support
                     capabilities. Effective utilization of our system will require a
                     change in thinking on the part of the collection industry, but we
                     believe the effort will result in new collection benchmarks. We
                     intend to provide detailed advice and hands-on assistance to clients
                     to help them make the transition to our system. Our current and former contracts provide that we will earn revenue
                     based on a percentage of the amount of debt collected from accounts
                     submitted on our DebtResolve system, from flat fees per settlement
                     achieved, from flat fees per account placed on the system or a flat
                     monthly fee. Although other revenue models have been proposed, most
                     revenue earned to date has been determined using these methods, and
                     such revenue is recognized when the settlement amount of debt is
                     collected by our client or at the beginning of each month. For the
                     early adopters of our system, we waived set-up fees and other
                     transactional fees that we anticipate charging on a going-forward
                     basis. While the percent of debt collected will continue to be a
                     revenue recognition method going forward, other payment models are
                     also being offered to clients and may possibly become our preferred
                     revenue model. Most contracts currently in process include provisions
                     for set up fees and base revenue on a monthly fee, in the aggregate
                     or per account, with some contracts having a small transaction fee on
                     debt settlement as well. In addition, with respect to our DR Prevent
                     module expected to be completed in 2010, which settles consumer debt
                     at earlier stages, we expect that a fee per account on our system,
                     and/or the hybrid revenue model which will include both fees per
                     account and transaction fees at settlement, may become the preferred
                     revenue methods. As we expand our knowledge of the industry, we
 35


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. For the three months ending March 31, 2010 and the year ending
                     December 31, 2009, we had inadequate revenues and incurred net losses
                     of $3,299,116 and $13,115,424 from continuing operations,
                     respectively. Cash used in operating activities of continuing
                     operations was $387,695 for the three months ended March 31, 2010.
                     Based upon projected operating expenses of approximately $80,000 per
                     month, we believe that our working capital as of the date of this
                     report may not be sufficient to fund our plan of operations for the
                     next twelve months. The aforementioned factors raise substantial
                     doubt about our ability to continue as a going concern. The Company needs to raise additional capital in order to be able to
                     accomplish its business plan objectives. The Company has historically
                     satisfied its capital needs primarily from the sale of debt and
                     equity securities. Management of the Company is continuing its
                     efforts to secure additional funds through debt and/or equity
                     instruments. Management believes that it will be successful in
                     obtaining additional financing; however, no assurance can be provided
                     that the Company will be able to do so. There is no assurance that
                     these funds will be sufficient to enable the Company to attain
                     profitable operations or continue as a going concern. To the extent
                     that the Company is unsuccessful, the Company may need to curtail its
                     operations and implement a plan to extend payables and reduce
                     overhead until sufficient additional capital is raised to support
                     further operations. In the alternative, the Company may be forced to
                     seek bankruptcy protection from its creditors. There can be no
                     assurance that efforts to secure additional funding will be
                     successful. These consolidated financial statements do not include
                     any adjustments that might result from the outcome of this
                     uncertainty. Subsequent to March 31, 2010, the Company has secured $154,550 in
                     additional financing. Results of Operations for the Three Months Ended March 31, 2010
                        Compared to the Three Months Ended March 31, 2009 Revenues Revenues totaled $29,826 and $24,495 for the three months ended March
                     31, 2010 and 2009, respectively. We earned revenue during the three
                     months ended March 31, 2010 from contingency fee income, based on a
                     percent of debt collected, and flat monthly fees. We earned revenue
                     during the three months ended March 31, 2009 from contingency fee
                     income, based on a percent of debt collected. Costs and Expenses Payroll and related expenses. Payroll and related expenses amounted to $137,346 for the three
                     months ended March 31, 2010, as compared to $192,241 for the three
                     months ended March 31, 2009, a decrease of $54,895. This decrease was
                     due to having fewer employees in 2010 versus 2009. Salaries were
                     $83,750 and $160,000 in the three months ended March 31, 2010 and
                     2009, respectively. Employee benefits were $18,859 and $17,142 in the
                     three months ended March 31, 2010 and 2009, respectively. Employee
                     stock compensation expense increased to $26,250 in the three months
                     ended March 31, 2010 from $12,500 in the three months ended March 31,
                     2009, as there was a new grant in the 2010 period to a new Advisory
                     Board member. Employment taxes were $8,487 and $2,599 during the
                     three months ended March 31, 2010 and 2009, respectively, as most
                     payrolls were accrued in 2009 and not paid. General and administrative expenses. General and administrative expenses amounted
to $1,470,524 for the
                     three months ended March 31, 2010, as compared to $277,973 for the
                     three months ended March 31, 2009, an increase of $1,192,551. This
                     increase was due to entirely to increases in fundraising costs
                     associated with removing cash liabilities from our balance sheet and
                     higher legal and accounting costs. Stock compensation to consultants
                     was $83,400 and $0 for the three months ended March 31, 2010 and
                     2009, respectively. Occupancy was $3,000 and ($1,718) for the three
                     months ended March 31, 2010 and 2009, respectively.
                     Telecommunications was $13,302 and $20,161 for the three months ended
                     March 31, 2010 and 2009, respectively, as we restructured to a lower
                     cost system in 2009. Service fees were $1,013,675 and $171,974 for
                     the three months ended March 31, 2010 and 2009, respectively, as we
                     incurred higher fundraising expense for note conversions. Accounting
                     increased to $55,475 for the three months ended March 31, 2010 from
                     $0 for the three months ended March 31, 2009 due to not filing our
                     2008 10-K in the normal period. Travel, marketing, insurance and
                     legal were $14,640, $1,898, $12,826 and $82,870 in the three months
                     ended March 31, 2010 compared with $965, $1,273, $27,783 and $33,265
                     in the three months ended March 31, 2009. Miscellaneous general and
                     administrative expenses were $3,439 and $24,144 for the three months
                     ended March 31, 2010 and 2009, respectively, with higher extension
                     fees on outstanding notes in 2008.
 36


Depreciation and amortization expense. For the three months ended March 31, 2010 and 2009, we recorded
                     depreciation expense of $10,279 and $12,279, respectively.
                     Depreciation expense for the three months ended March 31, 2010 is
                     lower due to the full depreciation of some assets after March 31,
                     2009. Interest income (expense). We recorded interest income, interest expense and interest expense 
                     related parties of $0, ($4,645) and ($66,434) for the three months
                     ended March 31, 2010, respectively, compared to interest income,
                     interest expense and interest expense  related parties of $0,
                     ($35,614) and ($56,934), respectively, for the three months ended
                     March 31, 2009. Amortization of deferred debt discount.Amortization expense of $389,524 and $190,617 was incurred for the
                     three months ended March 31, 2010 and 2009, respectively, for the
                     amortization of the value of the deferred debt discount associated
                     with certain of our lines of credit and notes payable. Amortization
                     expense increased due to the issuance of new notes after March 31,
                     2009. Gain/(Loss) on derivative liability.We recorded a loss on derivative liability of ($1,262,671) and a gain
                     of $68,409 for the three months ended March 31, 2010 and 2009,
                     respectively, for the revaluation of certain derivatives at March 31,
                     2010 and 2009. Our higher stock price at March 31, 2010 resulted in a
                     large loss for the current period compared to the lower stock prices
                     during the three months ended March 31, 2009. Liquidity and Capital Resources As of March 31, 2010, we had a working capital deficiency in the
                     amount of $3,941,366 from operations and cash and cash equivalents
                     totaling $81,399. We incurred a net loss of $3,299,116 from
                     operations for the three months ended March 31, 2010. Net cash used
                     in operating activities was $387,695 for the three months ended March
                     31, 2010. Cash flow provided by financing activities was $469,095 for
                     the three months ended March 31, 2010. As of December 31, 2009, we
                     had a working capital deficiency in the amount of $4,229,322 and cash
                     and cash equivalents totaling $0. We incurred a net loss of
                     $13,115,424 from continuing operations for the year ended December
                     31, 2009. Net cash used in operating and investing activities for
                     continuing operations was $956,740 and $0, respectively for the year
                     ended December 31, 2009. Cash flow provided by financing activities
                     for continuing operations was $942,358 for the year ended December
                     31, 2009. Our working capital as of the date of this report is
                     negative and is not sufficient to fund our plan of operations for the
                     next year. The aforementioned factors raise substantial doubt about
                     our ability to continue as a going concern. The Company needs to raise additional capital in order to be able to
                     accomplish its business plan objectives. The Company has historically
                     satisfied its capital needs primarily from the sale of debt and
                     equity securities. Management of the Company is continuing its
                     efforts to secure additional funds through debt and/or equity
                     instruments. We have also settled some of our liabilities through
                     issuances of our common stock, and we expect to settle additional
                     liabilities through discounted lump sum payments. Management believes
                     that it will be successful in obtaining additional financing and
                     settling our liabilities; however, no assurance can be provided that
                     the Company will be able to do so. There is no assurance that these
                     funds will be sufficient to enable the Company to attain profitable
                     operations or continue as a going concern. To the extent that the
                     Company is unsuccessful, the Company may need to curtail its
                     operations and implement a plan to extend payables and reduce
                     overhead until sufficient additional capital is raised to support
                     further operations. In the alternative, the Company may have to seek
                     protection from its creditors in bankruptcy. There can be no
                     assurance that efforts to raise adequate capital will be successful.
                     These consolidated financial statements do not include any
                     adjustments that might result from the outcome of this uncertainty. On January 27, 2010, an unaffiliated investor loaned the Company
                     $125,000 on a three year Convertible Debenture with an interest rate
                     of 14%. The interest accrues and is payable at maturity. The
                     conversion price is set at $0.15 per share. The Debenture carries a
                     first lien security interest. In addition, the investor received
                     1,250,000 warrants to purchase the common stock of the Company at an
                     exercise price of $0.40 per share. The exercise period of the warrant
                     is five years. On February 11, 2010, an unaffiliated investor loaned the Company
                     $100,000 on a one month short term loan with an interest rate of 12%.
                     The interest accrues and is payable at maturity. In addition, the
                     investor received 1,000,000 warrants to purchase the common stock of
                     the Company at an exercise price of $0.25 per share. The warrant has
                     a "cashless" exercise provision. The exercise period of the warrant
                     is five years. On March 9, 2010, an unaffiliated investor loaned the Company an
                     additional $50,000 on a three year Convertible Debenture with an
                     interest rate of 14%. The interest accrues and is payable at
                     maturity. The conversion price is set at $0.15 per share. The
                     Debenture carries a first lien security interest. In addition, the
                     investor received 500,000 warrants to purchase the common stock of
                     the Company at an exercise price of $0.40 per share. The exercise
                     period of the warrant is five years. On March 30, 2010, an unaffiliated investor loaned the Company an
                     additional $25,000 on a three year Convertible Debenture with an
                     interest rate of 14%. The interest accrues and is payable at
                     maturity. The conversion price is set at $0.15
 37


per share. The Debenture carries a first lien security interest. In
                     addition, the investor received 250,000 warrants to purchase the
                     common stock of the Company at an exercise price of $0.40 per share.
                     The exercise period of the warrant is five years. On March 30, 2010, an unaffiliated investor loaned the Company
                     $30,000 on a three year Convertible Debenture with an interest rate
                     of 14%. The interest accrues and is payable at maturity. The
                     conversion price is set at $0.15 per share. The Debenture carries a
                     first lien security interest. In addition, the investor received
                     300,000 warrants to purchase the common stock of the Company at an
                     exercise price of $0.40 per share. The exercise period of the warrant
                     is five years. On March 30, 2010, an unaffiliated investor loaned the Company
                     $22,500 on a three year Convertible Debenture with an interest rate
                     of 14%. The interest accrues and is payable at maturity. The
                     conversion price is set at $0.15 per share. The Debenture carries a
                     first lien security interest. In addition, the investor received
                     225,000 warrants to purchase the common stock of the Company at an
                     exercise price of $0.40 per share. The exercise period of the warrant
                     is five years. On March 30, 2010, an unaffiliated investor loaned the Company an
                     additional $20,000 on a one month short term loan with an interest
                     rate of 12%. The interest accrues and is payable at maturity. In
                     addition, the investor received 200,000 warrants to purchase the
                     common stock of the Company at an exercise price of $0.25 per share.
                     The warrant has a "cashless" exercise provision. The exercise period
                     of the warrant is five years. On March 30, 2010, an unaffiliated investor loaned the Company
                     $75,000 on a three year Convertible Debenture with an interest rate
                     of 14%. The interest accrues and is payable at maturity. The
                     conversion price is set at $0.15 per share. The Debenture carries a
                     first lien security interest. In addition, the investor received
                     750,000 warrants to purchase the common stock of the Company at an
                     exercise price of $0.40 per share. The exercise period of the warrant
                     is five years. The $75,000 investment appears in the "undeposited
                     funds" on the balance sheet, as the funds were received on April 1,
                     2010. Critical Accounting Policies and Estimates Use of estimates The preparation of financial statements in conformity with accounting
                     principles generally accepted in the United States of America
                     requires our management to make estimates and assumptions that affect
                     the amounts reported in the financial statements and the accompanying
                     notes. These estimates and assumptions are based on our management's
                     judgment and available information and, consequently, actual results
                     could be different from these estimates. Stock-based compensation The Company accounts for stock options issued under the recognition
                     and measurement principles of Accounting Standards Codification
                     subtopic 718-10, Compensation ("ASC 718-10"). Under the provisions of
                     ASC 718-10, the Company is required to measure the cost of services
                     received in exchange for an award of equity instruments based on the
                     fair value of the award. For employees and directors, the award is
                     measured on the grant date and for non-employees, the award is
                     generally re-measured on interim financial reporting dates until the
                     service period is complete, in accordance with ASC 718-10. The fair
                     value amount is then recognized over the period during which services
                     are required to be provided in exchange for the award, usually the
                     vesting period. Total stock-based compensation expense for the three
                     months ended March 31, 2010 and 2009 amounted to $109,650 and
                     $12,500, respectively. As of March 31, 2010, there was no
                     unrecognized compensation cost. The Company accounts for the expected life of share options in
                     accordance with the "simplified" method provisions ASC 718-10. Recent Accounting Pronouncements The following accounting guidance has been issued and will be
                     effective for the Company in or after fiscal year 2009: Financial Accounting Standards Board ("FASB") Accounting Standard
                     Codification ("ASC") 820,
                     Fair Value Measurements and Disclosures ("ASC 820" and formerly referred to as FAS-157), establishes a
                     framework for measuring fair value in GAAP, clarifies the definition
                     of fair value within that framework, and expands disclosures about
                     the use of fair value measurements. ASC 820 is effective for fiscal
                     years beginning after November 15, 2007. ASC 820-10-65,
                     Transition and Open Effective Date Information, deferred the effective date of ASC 820, for non-financial assets
                     and liabilities that are not on a recurring basis recognized or
                     disclosed at fair value in the financial statements, to fiscal years,
                     and interim periods, beginning after November 15, 2008. The Company
                     has adopted the guidance within ASC 820 for non-financial assets and
                     liabilities measured at fair value on a nonrecurring basis at
                     January 1, 2009 and will continue to apply its provisions
                     prospectively from January 1, 2009. The application of ASC 820 for
                     non-financial assets and liabilities did not have a significant
                     impact on earnings nor the financial position for the periods
                     presented.
 38


FASB ASC 805, Business Combinations ("ASC 805" and formerly referred to as FAS-141(R)) requires the
                     acquisition method to be applied to all transactions and other events
                     in which an entity obtains control over one or more other businesses,
                     requires the acquirer to recognize the fair value of all assets and
                     liabilities acquired, even if less than one hundred percent ownership
                     is acquired, and establishes the acquisition date fair value as
                     measurement date for all assets and liabilities assumed. The guidance
                     within ASC 805 is effective prospectively for any acquisitions made
                     after fiscal years beginning after December 15, 2008. FASB ASC 810, Consolidation ("ASC 810"), ASC 810-10-65, Transition and Open Effective Date Information ("ASC 810-10-65" and formerly referred to as FAS-160) establishes
                     accounting and reporting standards for the non-controlling interest
                     in a subsidiary and for the deconsolidation of a subsidiary. It
                     clarifies that a non-controlling interest in a subsidiary is an
                     ownership interest in the consolidated financial statements. ASC
                     810-10-65 is effective for fiscal years beginning after December 15,
                     2008. The application of ASC 810-10-65 did not have a significant
                     impact on earnings nor the financial position. FASB ASC 815, Derivatives and Hedging("ASC 815"), ASC 815-10-65, Transition and Open Effective Date Information ("ASC 815-10-65"and formerly referred to as FAS-161) includes a
                     requirement for enhanced disclosures about an entity's derivative and
                     hedging activities and thereby improves the transparency of financial
                     reporting. ASC 815 is effective prospectively for fiscal years
                     beginning after November 15, 2008. The application of ASC 815
                     expanded the required disclosures in regards to the Company's
                     derivative and hedging activities. FASB ASC 350, Intangibles  Goodwill and Other, ASC 350-30-65, Transition and Open Effective Date Information ("ASC 350-30-65" and formerly referred to as FSP FAS 142-3) amends
                     the factors that should be considered in developing renewal or
                     extension assumptions used to determine the useful life of a
                     recognized intangible. ASC 350-30-65 is effective for fiscal years
                     beginning after December 15, 2008, and interim periods within those
                     fiscal years. The guidance in this ASC 350-30-65 for determining the
                     useful life of a recognized intangible shall be applied prospectively
                     to intangible assets acquired after the effective date. The
                     disclosure requirements of ASC 350-30-65, however, shall be applied
                     prospectively to all intangible assets recognized in the Company's
                     financial statements as of the effective date. The application of ASC
                     350-30-65 is not expected to have a material impact on earnings nor
                     the financial position. FASB ASC 715, Compensation  Retirement Benefits, ASC 715-20-65, Transition and Open Effective Date Information ("ASC 715-20-65" and formerly referred to as FSP FAS-132(R)-1)
                     provides guidance on an employer's disclosures about plan assets of a
                     defined benefit pension or other postretirement plans. ASC 715-20-65
                     is effective prospectively for fiscal years ending after December 15,
                     2009. The application of ASC 715-20-65 will expand the Company's
                     disclosures regarding pension plan assets.  FASB ASC 825 Financial Instruments, ASC 825-10-65, Transition and Open Effective Date Information ("ASC 825-10-65" and formerly referred to as FSP FAS 107-1 and APB
                     28-1) requires disclosures about fair value of financial instruments
                     for interim reporting periods as well as in annual financial
                     statements. This guidance also requires those disclosures in
                     summarized financial information at interim reporting periods. ASC
                     825-10-65 is effective prospectively for interim reporting periods
                     ending after June 15, 2009. The application of ASC 825-10-65 expanded
                     the Company's disclosures regarding the use of fair value in interim
                     periods. FASB ASC 855, Subsequent Events ("ASC 855" and formerly referred to as FAS-165), modified the
                     subsequent event guidance. The three modifications to the subsequent
                     events guidance are: 1) To name the two types of subsequent events
                     either as recognized or non-recognized subsequent events, 2) To
                     modify the definition of subsequent events to refer to events or
                     transactions that occur after the balance sheet date, but before the
                     financial statement are issued or available to be issued and 3) To
                     require entities to disclose the date through which an entity has
                     evaluated subsequent events and the basis for that date, i.e. whether
                     that date represents the date the financial statements were issued or
                     were available to be issued. This guidance is effective for interim
                     or annual financial periods ending after June 15, 2009, and should be
                     applied prospectively Statement Relating to Forward-Looking Statements This report contains forward-looking statements that are based on our
                     beliefs as well as assumptions and information currently available to
                     us. When used in this report, the words "believe," "expect,"
                     "anticipate," "estimate," "potential" and similar expressions are
                     intended to identify forward-looking statements. These statements are
                     subject to risks, uncertainties and assumptions, including, without
                     limitation, the risks and uncertainties concerning our recent
                     research and development activities; the risks and uncertainties
                     concerning acceptance of our services and products, if and when fully
                     developed, by our potential customers; our present financial
                     condition and the risks and uncertainties concerning the availability
                     of additional capital as and when required; the risks and
                     uncertainties concerning the Limited License Agreement with Messrs.
                     Brofman and Burchetta; the risks and uncertainties concerning our
                     dependence on our key executives; the risks and uncertainties
                     concerning technological changes and the competition for our services
                     and products; the risks and uncertainties concerning general
 39


economic conditions; and the risks and uncertainties described in our
                     Annual Report on Form 10-KSB for the year ended December 31, 2007,
                     filed on April 16, 2008, in the section labeled "Risk Factors."
                     Should one or more of these risks or uncertainties materialize, or
                     should underlying assumptions prove incorrect, actual results may
                     vary materially from those anticipated, estimated, or projected. We
                     caution you not to place undue reliance on any forward-looking
                     statements, all of which speak only as of the date of this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 4T. Controls and Procedures Disclosure Controls and Procedures We evaluated the design and operation of our disclosure controls and
                     procedures to determine whether they are effective in ensuring that
                     we disclose required information in a timely manner and in accordance
                     with the Securities Exchange Act of 1934 (the "Exchange Act") and the
                     rules and regulations promulgated by the SEC. The executive who
                     serves as our President and Chief Financial Officer has participated
                     in such evaluation. Management concluded, based on such review, that
                     our disclosure controls and procedures, as defined by Exchange Act
                     Rules 13a-15(e) and 15d-15(e), were not effective as of the end of
                     the period covered by this Quarterly Report on Form 10-Q. The
                     ineffectiveness of these disclosure controls is due to the matters
                     described below in "Internal Control over Financial Reporting." Limitations on the Effectiveness of Controls We believe that a control system, no matter how well designed and
                     operated, cannot provide absolute assurance that the objectives of
                     the control system are met, and no evaluation of controls can provide
                     absolute assurance that all control issues and instances of fraud, if
                     any, within a company have been detected. Our disclosure controls and
                     procedures are designed to provide a reasonable assurance of
                     achieving their objectives and our President and Chief Financial
                     Officer has concluded that such controls and procedures are not
                     effective at the "reasonable assurance" level. The ineffectiveness of
                     these disclosure controls is due to the matters described below in
                     "Internal Control over Financial Reporting." Internal Control over Financial Reporting The Company's independent registered public accounting firm has
                     reported to our audit committee certain matters involving internal
                     controls that this firm considered to be reportable conditions and a
                     material weakness, under standards established by Public Company
                     Accounting Oversight Board. The reportable conditions and material
                     weakness relate to a limited segregation of duties at the Company.
                     Segregation of duties within our company is limited due to the small
                     number of employees that are assigned to positions that involve the
                     processing of financial information. Specifically, certain key
                     financial accounting and reporting personnel had an expansive scope
                     of duties that allowed for the creation, review, approval and
                     processing of financial data without independent review and
                     authorization for preparation of consolidation schedules and
                     resulting financial statements and related disclosures. We did not
                     maintain a sufficient depth of personnel with an appropriate level of
                     accounting knowledge, experience and training in the selection and
                     application of Generally Accepted Accounting Principles commensurate
                     with financial reporting requirements. Accordingly, we place undue
                     reliance on the finance team at corporate headquarters, specifically
                     the executive who is our 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, 2010 and 2009 fairly present, in all material
                     respects, its financial condition and results of operations. During
                     the three months ended March 31, 2010, 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.
 40


PART II. OTHER INFORMATION Item 1. Legal Proceedings Lawsuits from vendors On July 17, 2008, Dreier LLP, a law firm, filed a complaint in the
                     Supreme Court of New York, County of New York, seeking damages of
                     $311,023.32 plus interest for legal services allegedly rendered to
                     us. The complaint was answered on August 14, 2008 raising various
                     affirmative defenses. On December 16, 2008, Dreier LLP filed for
                     bankruptcy in the U.S. Bankruptcy Court for the Southern District of
                     New York. The case has been on hold since the bankruptcy filing. On
                     March 18, 2009, we filed a counterclaim in the bankruptcy court for
                     legal malpractice and the defenses raised in the previously filed
                     answer. The entire balance in dispute is in the accounts payable of
                     the Company. On September 17, 2008, Computer Task Group, a vendor, filed a
                     complaint in the Supreme Court of New York, County of Erie, seeking
                     damages of $24,545.69 plus interest for consulting services rendered
                     to us. On December 3, 2008, judgment was entered in favor of Computer
                     Task Group for $24,545.69 plus $2,538.54 in interest and $651.00 in
                     costs, or a total of $27,735.23. A restraining order was served on
                     our bank account for the amount of the judgment. On March 10, 2009, a
                     total of $12,839.44 was removed from our account in partial
                     satisfaction of the judgment, leaving a current total now due of
                     $14,895.79. This balance payable is in the accounts payable of
                     the Company. On December 1, 2008, AT&T, a vendor, filed a complaint in the Supreme
                     Court of New York, County of New York, seeking damages of $62,383.21
                     plus interest for services allegedly rendered to us. The complaint
                     was answered on February 23, 2009 raising various affirmative
                     defenses. The case was settled for the payment of $28,000 on April
                     20, 2010 and has been dismissed and closed. On October 13, 2009, PR Newswire, a vendor, filed a complaint in the
                     Superior Court of New Jersey, Special Civil Part, Hudson County,
                     seeking damages of $7,470 plus interest for services provided to us.
                     On March 22, 2010, a default judgment was entered against us in the
                     amount of $8,124.16, which remains unpaid as of the date of
                     this filing. On November 9, 2009, Patriot National Bank, a financial institution,
                     filed a complaint in the Supreme Court of New York, Count of
                     Westchester, seeking damages of $68,993.62 as a result of an
                     overdraft in our bank account resulting from non-sufficient funds
                     checks received from an investor on May 22 and May 29, 2009. Our
                     attorneys are reviewing the matter. The entire amount remaining of
                     $32,410 is in the accounts payable of the Company. From time to time, the Company is involved in various litigation in
                     the ordinary course of business. In the opinion of management, the
                     ultimate disposition of these matters will not have a material
                     adverse effect on the Company's financial position or results of
                     operations. Item 1A. Risk Factors As a "small reporting company" as defined by Item 10 of Regulation
                     S-K, we are not required to provide information required by this item. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities On December 21, 2007, an unaffiliated investor loaned the Company
                     $125,000 on an 18-month note with a maturity date of June 21, 2009.
                     The note has a provision requiring repayment once the Company has
                     raised an aggregate of $500,000 following issuance of this note. As a
                     result, this note is currently in default as it has not been repaid
                     and the Company reached the $500,000 threshold in September, 2008.
                     The note carries interest at a rate of 12% per annum, with interest
                     accruing and payable at maturity. The note is secured by the assets
                     of the Company. In conjunction with the note, the Company granted to
                     the investor a warrant to purchase 37,500 shares of common stock at
                     an exercise price of $1.07 and an expiration date of December 21,
                     2012. The note was recorded net of a deferred debt discount of
                     $19,375, based on the relative fair value of the warrant under the
                     Black-Scholes pricing model. Such discount is being amortized over
                     the term of the note and was fully amortized in 2008. This note is
                     guaranteed by Mr. Burchetta, a Company director. On April 10, 2008,
                     the Company borrowed an additional $198,000 from this investor.
                     Please see discussion below.
 41


On December 30, 2007, an unaffiliated investor loaned the Company
                     $200,000 on an 18-month note with a maturity date of June 30, 2009.
                     The note carries interest at a rate of 12% per annum, with interest
                     accruing and payable at maturity. In conjunction with this note, the
                     Company also issued a warrant to purchase 100,000 shares of common
                     stock at an exercise price of $1.00 and an expiration date of
                     December 30, 2012. The note was recorded net of a deferred debt
                     discount of $51,600, based on the relative fair value of the warrant
                     under the Black-Scholes pricing model. Such discount was amortized
                     over the term of the note. During the three months ended March 31,
                     2010 and 2009, the Company recorded amortization of the debt discount
                     related to this note of $0 and $8,600, respectively. This note is
                     guaranteed by Mr. Burchetta, a Company director. As of March 31,
                     2010, this note has matured and is still outstanding and is in
                     default at this time. The Company is in discussions with the lender. On January 25, 2008, an unaffiliated investor loaned the Company
                     $100,000 on an unsecured 18-month note with a maturity date of July
                     25, 2009. The note carries interest at a rate of 12% interest per
                     annum, with interest accruing and payable at maturity. In conjunction
                     with the note, the Company also issued a warrant to purchase 50,000
                     shares of common stock at an exercise price of $1.00 and an
                     expiration date of January 24, 2013. The note was recorded net of a
                     deferred debt discount of $20,300, based on the relative fair value
                     of the warrant under the Black-Scholes pricing model. Such discount
                     was amortized over the term of the note. During the three months
                     periods ended March 31, 2010 and 2009, amortization was $0 and
                     $3,383, respectively. The investor loaned the Company an additional
                     $100,000 on February 26, 2008. As of March 31, 2010, this note has
                     matured and is still outstanding and is in default at this time. The
                     Company is in discussions with the lender. On February 26, 2008, an unaffiliated investor loaned the Company an
                     additional $100,000 on an 18-month note with a maturity date of
                     August 26, 2009. The note carries interest at a rate of 12% interest
                     per annum, with interest accruing and payable at maturity. Terms of
                     the loan included a $20,000 service fee on repayment or a $45,000
                     service fee if repayment occurs more than 31 days after origination.
                     The outstanding principal and interest may be repaid, in whole or in
                     part, at any time without prepayment penalty. Accordingly, since the
                     loan remains unpaid, the Company has accrued the service fee of
                     $45,000 as of March 31, 2010. 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, 2010 and 2009, the Company recorded amortization of the
                     debt discount related to this note of $0 and $9,567, respectively. As
                     of March 31, 2010, this note has matured and is still outstanding and
                     is in default. The Company is in discussions with the lender. On April 10, 2008, an unaffiliated investor loaned the Company an
                     additional $198,000 on an amendment of the prior note with a maturity
                     date of June 21, 2009 for the entire balance of the first note plus
                     the amendment ($323,000 total). The note carries interest at a rate
                     of 12% per annum, with interest accruing and payable at maturity. The
                     outstanding principal and interest may be repaid, in whole or in
                     part, at any time without prepayment penalty. In conjunction with the
                     note, the Company also issued a warrant to purchase 99,000 shares of
                     common stock at an exercise price of $2.45 and an expiration date of
                     April 10, 2013. This warrant has a "cashless" exercise feature. The
                     note was recorded net of a deferred debt discount of $88,110, based
                     on the relative fair value of the warrant. The debt discount is being
                     amortized over the term of the note. During the three and nine months
                     ended September 30, 2008, the Company recorded amortization of the
                     debt discount related to this note of $73,425 and 88, 110, with the
                     discount being fully amortized at September 30, 2008 due to the note
                     being in default. This note is guaranteed by Mr. Burchetta. The
                     amended note maintains the provision requiring repayment of the note
                     upon raising gross proceeds of $500,000 subsequent the issuance of
                     the note. At September 30, 2008, the Company had raised in excess of
                     $500,000 subsequent to this amended note, and as a result, this note
                     is in default. The Company also issued 50,000 shares of common stock
                     valued at $122,130 in order to induce the investor to forbear on the
                     note, which is included in expenses. As of March 31, 2010, this note
                     has matured and is still outstanding and is in default. On February
                     12, 2010, the Company converted $74,867 of accrued interest through
                     January 31, 2010 and $65,133 of principal on the note to stock. The
                     remaining principal balance after the payment is $257,867 (for both
                     notes). The investor signed a 90-day standstill on the note in
                     consideration of the payment. The Company is in continuing
                     discussions with the lender. On July 31, 2008, the Company agreed to give the attorney who
                     arranged the above financing 50,000 shares of stock in the Company
                     for introducing the investor. Because of a delinquent payable with
                     the Company's stock transfer agent, the shares were converted to a 6
                     month loan of $50,000 with a maturity date of January 31, 2009. The
                     note carried interest at a rate of 12% per annum, payable monthly in
                     arrears in cash. At September 30, 2008, due to the inability of the
                     Company to pay the interest on the note, the note was exchanged for a
                     convertible debenture with the same maturity date of January 31, 2009
                     in the amount of $51,000. At any time on or after the Issue Date and
                     prior to the time the Debenture is paid in full in accordance with
                     its terms (including, without limitation, after the occurrence of an
                     Event of Default, or, if the Debenture is not fully paid or converted
                     after the Maturity Date), the Holder of this Debenture is entitled,
                     at its option to convert this Debenture at any time into shares of
                     Common Stock, $0.001 par value ("Common Stock"), of the Company at
                     the Conversion Price. Conversion
 42


Price" means the (i) the average VWAP for the 20 Trading Days ending
                     on the Trading Day immediately before the relevant Conversion Date,
                     multiplied by (ii) fifty percent (50%). As a result of the default on
                     this debenture, the Company negotiated a settlement with the attorney
                     to discharge the debenture, its accrued interest and old outstanding
                     legal bills to the attorney for $75,000 paid $5,000 per month
                     beginning August 1, 2009. 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.
 43


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 24, 2010 DEBT RESOLVE, INC.By:
                           
                           
                           /s/ James G. BrakkeJames G. Brakke
                              Co-Chairman and Chief Executive Officer
                              (Principal executive officer)By:
                           
                           
                           /s/ David M. RaineyDavid M. RaineyPresident and Chief Financial Officer(Principal financial and accounting officer)
 44