**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**







(Mark
      One)




x
      QUARTERLY REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
      PERIOD ENDED JUNE 30, 2007




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




For
      the
      Transition Period from ________ to ___________




Commission
      File No.:  0-29525




**DEBT
      RESOLVE, INC.**


(Name
      of
      small business issuer in its charter)




**Delaware**
            **33-0889197**(State
                or other jurisdiction of
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)**707
                Westchester Avenue, Suite L7****White
                Plains, New York**
            **10604**(Address
                of principal executive offices)
            (Zip
                Code)




**(914)
      949-5500**


(Issuer’s
      telephone number)




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





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





As
      of
      August 17, 2007, 7,499,414 shares of the issuer’s Common Stock were issued and
      outstanding.




Transitional
      Small Business Disclosure Format (check one):  Yes o No x















**DEBT
      RESOLVE, INC. AND SUBSIDIARIES**


**TABLE
      OF CONTENTS**




Page**PART
                I. Financial Information**Item
                1. Condensed Consolidated Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheet at June 30, 2007
            3Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                June 30, 2007 and 2006
            4Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended June
                30,
                2007 and 2006
            5Notes
                to Condensed Consolidated Financial Statements
            6Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            21Item
                3. Controls and Procedures
            30**PART
                II. Other Information**Item
                1. Legal Proceedings
            31Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            31Item
                3. Defaults Upon Senior Securities
            31Item
                4. Submission of Matters to a Vote of Security Holders
            31Item
                5. Other Information
            31Item
                6. Exhibits and Reports on Form 8-K
            31Signatures
            32Certifications






2




**PART
      I: FINANCIAL INFORMATION**




**Item
      1. Condensed Consolidated Financial Statements
      (Unaudited)**




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Balance Sheet


June
      30,
      2007


(Unaudited)




ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            170,882Restricted
                cash
            
            
            305,336Accounts
                receivable
            
            
            327,532Prepaid
                debt collection payments
            
            
            133,651Prepaid
                expenses and other current assets
            
            
            101,591Total
                current assets
            
            
            1,038,992Fixed
                assets, net
            
            
            424,590Other
                assets:Deposits
                and other assets
            
            
            149,160Deferred
                acquisition costs
            
            
            758,663Purchased
                accounts receivable
            
            
            437,055Intangible
                assets, net
            
            
            270,000Total
                other assets
            
            
            2,039,468Total
                assets
            
            $
            3,078,460LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCYCurrent
                liabilities:Accounts
                payable
            
            $
            1,908,276Collections
                payable
            
            
            305,336Accrued
                payroll
            
            
            73,364Accrued
                expenses
            
            
            37,311Portfolio
                loans payable
            
            
            413,780Line
                of credit - related party
            
            
            500,000Total
                current liabilities
            
            
            3,238,067Stockholders’
                deficiency:Preferred
                stock, 10,000,000 shares authorized, $0.001 par value, none issued
                and outstanding
            
            
            -Common
                stock, 100,000,000 shares authorized, $0.001 par value, 7,423,175
                shares
                issued and outstanding
            
            
            7,423Additional
                paid-in capital
            
            
            39,930,856Accumulated
                deficit
            
            
            (40,097,886
            )Total
                stockholders’ deficiency
            
            
            (159,607
            )Total
                liabilities and stockholders’ deficiency
            
            $
            3,078,460




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




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Operations


(Unaudited **)**




Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2007
            
            2006
            
            2007
            
            2006Revenues
            
            $
            875,210
            
            $
            27,026
            
            $
            2,013,066
            
            $
            54,290Costs
                and expenses:Payroll
                and related expenses (1)
            
            
            3,093,006
            
            
            585,277
            
            
            4,740,598
            
            
            1,201,739General
                and administrative expenses (2)
            
            
            1,822,760
            
            
            546,916
            
            
            3,399,825
            
            
            1,117,213Impairment
                of goodwill and intangibles
            
            
            1,179,080
            
            
            —
            
            
            1,179,080
            
            
            —Depreciation
                and amortization expense
            
            
            67,211
            
            
            13,849
            
            
            119,997
            
            
            27,467Total
                expenses
            
            
            6,162,057
            
            
            1,146,042
            
            
            9,439,500
            
            
            2,346,419Loss
                from operations
            
            
            (5,286,847
            )
            
            (1,119,016
            )
            
            (7,426,434
            )
            
            (2,292,129
            )Other
                (expense) income:Net
                interest (expense) income
            
            
            (16,884
            )
            
            (143,246
            )
            
            3,553
            
            
            (219,063
            )Amortization
                of deferred debt discount
            
            
            —
            
            
            (377,999
            )
            
            —
            
            
            (898,134
            )Amortization
                of deferred financing costs
            
            
            —
            
            
            (57,541
            )
            
            —
            
            
            (139,371
            )Other
                income
            
            
            —
            
            
            1,500
            
            
            5,010
            
            
            3,000Total
                other (expense) income
            
            
            (16,884
            )
            
            (577,286
            )
            
            8,563
            
            
            (1,253,568
            )Net
                loss
            
            $
            (5,303,731
            )
            $
            (1,696,302
            )
            $
            (7,417,871
            )
            $
            (3,545,697
            )Per
                share data:Basic
                and diluted net loss per common share (See Note 2)
            
            $
            0.69
            
            $
            (0.55
            )
            $
            0.96
            
            $
            (1.17
            )Basic
                and diluted weighted average number of common shares outstanding
                (See Note
                2)
            
            
            7,707,668
            
            
            3,097,595
            
            
            7,689,168
            
            
            3,034,344




(1)
            Includes
                stock based compensation to employees of $1,574,704 and $1,731,218
                for the
                three and six months ended June 30, 2007 respectively. The Company
                recorded no stock based compensation to employees in the three and
                six
                months ended June 30, 2006.


(2)
            Includes
                stock based compensation to consultants of $70,456 and $237,030 for
                the
                three months ended June 30, 2007 and $56,406 and $112,812 for the
                three
                and six months ended June 30, 2006,
                respectively.




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





4


DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Six
                Months Ended June 30,2007
            
            2006**Cash
                flows from operating activities:**Net
                loss
            
            $
            (7,417,871
            )
            $
            (3,545,697
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Non
                cash stock based compensation
            
            
            1,968,248
            
            
            112,812Amortization
                of deferred debt discount
            
            
            —
            
            
            898,134Amortization
                of deferred financing costs
            
            
            —
            
            
            139,371Depreciation
                and amortization
            
            
            119,997
            
            
            27,467Goodwill
                and intangibles impairment charge
            
            
            1,179,080
            
            
            —Write
                downs of purchased receivables
            
            
            59,042
            
            
            —Changes
                in operating assets & liabilitiesRestricted
                cash
            
            
            (147,851
            )
            
            —Accounts
                receivable
            
            
            101,212
            )
            
            (21,140
            )Prepaid
                debt collection payments
            
            
            (133,651
            )
            
            —Prepaid
                expenses and other current assets
            
            
            91,719
            
            
            64,209Deposits
                and other assets
            
            
            (2,616
            )
            
            —Deferred
                acquisition costs
            
            
            (758,663
            )
            
            —Accounts
                payable
            
            
            445,755
            
            
            106,711Collections
                payable
            
            
            147,851
            
            
            —Accrued
                expenses
            
            
            (255,831
            )
            
            230,153Accrued
                payroll
            
            
            73,364
            
            
            —Net
                cash used in operating activities
            
            
            (4,530,215
            )
            
            (1,987,980
            )**Cash
                flows from investing activities:**Purchase
                of First Performance Corporation, including direct
                expenses
            
            
            (586,915
            )
            
            —Investment
                in purchased accounts receivable
            
            
            (607,994
            )
            
            —Liquidations
                of purchased receivables
            
            
            67,518
            
            
            —Sales
                of purchased receivables
            
            
            44,379
            
            
            —Purchases
                of fixed assets
            
            
            (35,464
            )
            
            (4,170
            )Net
                cash used in investing activities
            
            
            (1,118,476
            )
            
            (4,170
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of notes and convertible notes
            
            
            —
            
            
            2,504,750Proceeds
                from portfolio loans
            
            
            547,195
            
            
            —Repayment
                of portfolio loans
            
            
            (133,415
            )
            
            —Proceeds
                from issuance of short term notes
            
            
            —
            
            
            525,000Repayment
                of stockholders’ loans
            
            
            —
            
            
            (25,000
            )Borrowing
                from line of credit
            
            
            500,000
            
            
            —Repayment
                of line of credit
            
            
            (150,000
            )
            
            —Proceeds
                from exercise of warrants
            
            
            130,222
            
            
            —Stock
                offering costs
            
            
            —
            
            
            (23,513
            )Deferred
                financing costs
            
            
            —
            
            
            (365,317
            )Net
                cash provided by financing activities
            
            
            894,002
            
            
            2,615,920Net
                (decrease) increase in cash and cash equivalents
            
            
            (4,754,689
            )
            
            623,770Cash
                and cash equivalents at beginning of period
            
            
            4,925,571
            
            
            23,576Cash
                and cash equivalents at end of period
            
            $
            170,882
            
            $
            647,346**Non
                cash investing and financing activities:**Conversion
                of loans payable, accounts payable and accrued expenses to convertible
                notes
            
            $
            —
            
            $
            977,012Issuance
                of warrants for deferred financing fees
            
            $
            —
            
            $
            128,211**Supplemental
                investing and financing activities:**Current
                assets acquired
            
            $
            679,734
            
            $
            —Property
                and equipment acquired
            
            
            286,229
            
            
            —Security
                deposits acquired
            
            
            51,999
            
            
            —Intangible
                assets acquired
            
            
            450,000
            
            
            —Goodwill
                recognized on business combination
            
            
            1,042,205
            
            
            —Accrued
                liabilities assumed in the acquisition
            
            
            (1,573,252
            )
            
            —Direct
                acquisition costs
            
            
            (86,915
            )
            
            —Non-cash
                consideration to seller
            
            
            (350,000
            )
            
            —Cash
                paid to acquire business
            
            $
            500,000
            
            $
            —




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




5




DEBT
      RESOLVE, INC. AND SUBSIDIARIES


Notes
      to
      Condensed Consolidated Financial Statements


June
      30,
      2007


(Unaudited)




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




The
      accompanying unaudited condensed consolidated financial statements of Debt
      Resolve Inc. and subsidiaries (the “Company” or “Debt Resolve”) have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America (“GAAP”) for interim financial information. In the
      opinion of management, such statements include all adjustments (consisting
      only
      of normal recurring adjustments) necessary for the fair presentation of the
      Company’s financial position, results of operations and cash flows at the dates
      and for the periods indicated. Pursuant to the requirements of the Securities
      and Exchange Commission (the “SEC”) applicable to quarterly reports on Form
      10-QSB, the accompanying financial statements do not include all the disclosures
      required by GAAP for annual financial statements. While the Company believes
      that the disclosures presented are adequate to make the information not
      misleading, these unaudited interim condensed consolidated financial statements
      should be read in conjunction with the consolidated financial statements and
      related notes included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2006. Operating results for the three and six months
      ended June 30, 2007 are not necessarily indicative of the results that may
      be
      expected for the fiscal year ending December 31, 2007, or any other interim
      period.




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




The
      Company has historically raised funds through the sale of debt and equity
      instruments. On November 6, 2006, the Company completed an initial public
      offering (“IPO”). The Company sold 2,500,000 shares of common stock at $5.00 per
      share pursuant to the IPO. After deducting underwriting discounts and expenses
      and offering-related expenses, the IPO resulted in net proceeds to the Company
      of $10,655,782. After the repayment of approximately $3,650,000 in interest
      and
      a portion of the remaining principal of the Company’s outstanding notes and
      convertible notes, the Company’s net cash received was approximately $7,000,000.
      Subsequent to the IPO, the Company has entered into two lines of credit with
      related parties aggregating $600,000. In addition, the Company has received
      approximately $130,000 in cash proceeds from the exercise of
      warrants.




Management
      is actively pursuing additional debt/equity financing and pursuing strategic
      acquisitions.  In January 2007, the Company acquired the
      outstanding capital stock of First Performance Corporation, an
      accounts receivable management agency (see Note 3), and accordingly, is no
      longer in the development stage as of the date of the
      acquisition.  Management believes that it will be successful in
      obtaining additional financing and that it will successfully integrate its
      acquisition to a level of profitability, however it has not yet achieved
      profitability, and no assurance can be provided that the Company will be
      able to do so.  If the Company is unable to raise sufficient additional
      funds or integrate its acquisition to a level of profitability, it will have
      to
      develop and implement a plan to extend payables and reduce overhead until
      sufficient additional capital is raised to support further operations. However,
      there can be no assurance that its efforts will be successful.




On
      April
      30, 2007, the Company, Credint Holdings, LLC (“Credint Holdings”) and the
      holders of all of the limited liability membership interests of Credint Holdings
      entered into a securities purchase agreement (the “Purchase Agreement”) for the
      Company to acquire 100% of the outstanding limited liability company membership
      interests of Creditors Interchange Receivable Management, LLC (“Creditors
      Interchange”), an accounts receivable management agency and wholly-owned
      subsidiary of Credint Holdings. The total consideration for the acquisition
      consists of (a) 840,337 shares of the Company’s common stock, and (b) $60
      million in cash less the sum, as of the date the acquisition is consummated,
      of
      all principal, accrued interest, prepayment penalties and other charges in
      respect of Creditors Interchange’s outstanding indebtedness. The acquisition is
      subject to, among other things, shareholder approval of the acquisition and
      the
      Company securing financing relating to the acquisition prior to August 31,
      2007.
      There is no assurance that the transaction will be completed. See Note
      4.




6




NOTE
      2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts
      of First Performance Corporation, a wholly-owned subsidiary, together with
      its wholly-owned subsidiary, First Performance Recovery Corporation, and DRV
      Capital LLC, a wholly-owned subsidiary, together with its wholly owned
      subsidiary, EAR Capital, LLC. All material inter-company balances and
      transactions have been eliminated in consolidation.





Reverse
      Stock Split





On
      August
      25, 2006, the Company effected a one-for-ten reverse stock split. All share
      and
      per share information herein has been retroactively restated to give effect
      to
      this reverse stock split.




Fair
      Value of Financial Instruments




The
      reported amounts of the Company’s financial instruments, including accounts
      payable and accrued liabilities, approximate their fair value due to their
      short
      maturities. The carrying amounts of debt approximate fair value because the
      debt
      agreements provide for interest rates that approximate market.





Restricted
      Cash





The
      Company typically receives cash collected on behalf of its clients. Such cash
      is
      held in trust for the clients, and is not available to the Company for general
      corporate purposes. As such, it is segregated from Cash and Cash Equivalents.
      The Company also records a corresponding liability as Collections
      Payable.




Accounts
      Receivable




The
      Company extends credit to large and mid-size companies for collection services.
      The Company has concentrations of credit risk in that 87% of the balance of
      accounts receivable at June 30, 2007 is made up of only five customers. At
      June
      30, 2007, accounts receivable from the two largest accounts amounted to
      approximately $105,925 (32%) and $54,296 (17%), respectively. The Company does
      not generally require collateral or other security to support customer
      receivables. Accounts receivable are carried at their estimated collectible
      amounts. Accounts receivable are periodically evaluated for collectibility
      and
      the allowance for doubtful accounts is adjusted accordingly. Management
      determines collectibility based on their experience and knowledge of the
      customers.





Business
      Combinations




In
      accordance with business combination accounting, the Company allocates the
      purchase price of acquired companies to the tangible and intangible assets
      acquired and liabilities assumed, based on their estimated fair values. The
      Company engaged a third-party appraisal firm to assist management in determining
      the fair values of First Performance Corporation. Such a valuation requires
      management to make significant estimates and assumptions, especially with
      respect to intangible assets.





Management
      makes estimates of fair values based upon assumptions believed to be reasonable.
      These estimates are based on historical experience and information obtained
      from
      the management of the acquired companies. Critical estimates in valuing certain
      of the intangible assets include but are not limited to: future expected cash
      flows from customer relationships and market position, as well as assumptions
      about the period of time the acquired trade names will continue to be used
      in
      the combined company's product portfolio; and discount rates. These estimates
      are inherently uncertain and unpredictable. Assumptions may be incomplete or
      inaccurate, and unanticipated events and circumstances may occur which may
      affect the accuracy or validity of such assumptions, estimates or actual
      results. See Note 6.




7




Goodwill
      and Intangible Assets




The
      Company accounts for goodwill and intangible assets in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
      142”). Under SFAS 142, goodwill and intangibles that are deemed to have
      indefinite lives are no longer amortized but, instead, are to be reviewed at
      least annually for impairment. Application of the goodwill impairment test
      requires judgment, including the identification of reporting units, assigning
      assets and liabilities to reporting units, assigning goodwill to reporting
      units, and determining the fair value. Significant judgments required to
      estimate the fair value of reporting units include estimating future cash flows,
      determining appropriate discount rates and other assumptions. Changes in these
      estimates and assumptions could materially affect the determination of fair
      value and/or goodwill impairment for each reporting unit. Intangible assets
      will
      be amortized over their estimated useful lives. The Company performed an
      analysis of its goodwill and intangible assets in accordance with SFAS 142
      as of
      June 30, 2007 and determined that an impairment charge was necessary. See Note
      6.





Use
      of
      estimates




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




Income
      Taxes





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





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





In
      many
      cases the Company’s tax positions are related to tax years that remain subject
      to examination by relevant tax authorities. The Company files income tax returns
      in the United States (federal) and in various state and local jurisdictions.
      In
      most instances, the Company is no longer subject to federal, state and local
      income tax examinations by tax authorities for years prior to 2003.





The
      adoption of the provisions of FIN 48 did not have a material impact on the
      Company’s consolidated financial position and results of operations. As of June
      30, 2007, no liability for unrecognized tax benefits was required to be
      recorded.




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




8




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




Revenue
      Recognition




The
      Company earned revenue during 2007 and 2006 from several collection agencies
      and
      lenders that implemented the Company’s online system. The Company’s current
      contracts provide for revenue based on a percentage of the amount of debt
      collected or on a flat fee per settlement from accounts submitted on the
      DebtResolve system. 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.
      For
      the early adopters of the Company’s product, the Company waived set-up fees and
      other transactional fees that the Company anticipates charging in the future.
      While the percent of debt collected will continue to be a revenue recognition
      method going forward, other payment models are also being offered to clients
      and
      may possibly become the Company’s preferred revenue model. Dependent upon the
      structure of future contracts, revenue may be derived from a combination of
      set
      up fees or monthly licensing fees with transaction fees upon debt settlement.




In
      recognition of the principles expressed in Staff Accounting Bulletin 104 (“SAB
      104”), that revenue should not be recognized until it is realized or realizable
      and earned, and given the element of doubt associated with collectability of
      an
      agreed settlement on past due debt, at this time the Company uniformly postpones
      recognition of all contingent revenue until its 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 its
      system and/or, for clients under a licensing arrangement, the successful
      availability of its system to its customers.




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




Recently
      signed contracts and contracts under negotiation call for multiple deliverables,
      and each component of revenue will be considered to have been earned when the
      Company has met the associated deliverable, as is required by SAB 104 Topic
      13(A). For new contracts being implemented which include a licensing fee per
      account, following the guidance of SAB 104 regarding services being rendered
      continuously over time, the Company will recognize revenue based on contractual
      prices established in advance and will recognize income over the contractual
      time periods. Where some doubt exists on the collectability of the revenues,
      a
      valuation reserve will be established or the income charged to losses, based
      on
      management’s opinion regarding the collectability of those revenues.




In
      January 2007, the Company initiated operations of its debt buying subsidiary,
      DRV Capital LLC. DRV Capital and its wholly-owned subsidiary, EAR Capital I,
      LLC, have engaged in the acquisition of pools of past due debt at a deeply
      discounted price, for the purpose of collecting on those debts. In recognition
      of the principles expressed in Statement of Position 03-3 (“SOP 03-3”), where
      the timing and amount of cash flows expected to be collected on these pools
      is
      reasonably estimable, the Company will recognize the excess of all cash flows
      expected at acquisition over the initial investment in the pools of debt as
      interest income on a level-yield basis over the life of the pool (accretable
      yield). Because the Company only recently entered into this business, it will
      use the cost recovery method until it has evaluated the accuracy of its model.
      Revenue will be earned by this debt buying subsidiary under the cost recovery
      method when the amount of debt collected exceeds the discounted price paid
      for
      the pool of debt. When management has determined that it is able to predict
      cash
      flows with some reliability, it will adopt the income accrual method, described
      above, recognizing the revenues on a level yield method over the expected
      ownership period of the pool.




On
      January 19, 2007, the Company completed the acquisition of First Performance
      Corporation, a collection agency, and its wholly-owned subsidiary First
      Performance Recovery Corporation. In recognition of the principles expressed
      in
      SAB 104, that revenue should not be recognized until it is realized or
      realizable and earned, and given the element of doubt associated with
      collectability of an agreed settlement on past due debt, at this time, the
      Company uniformly postpones recognition of all contingent revenue until the
      cash
      payment is received from the debtor. At the time it remits fees collected to
      its
      clients, the Company accrues the portion of those fees that the client
      contractually owes. 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.




9




Stock-based
      compensation




Beginning
      on January 1, 2006, the Company accounts for stock options issued under
      stock-based compensation plans under the recognition and measurement principles
      of SFAS No. 123 - Revised. The Company adopted the modified prospective
      transition method and therefore, did not restate prior periods’ results. Total
      stock-based compensation expense related to these and other stock-based grants
      for the three and six months ended June 30, 2007 amounted to $1,645,160 and
      $1,968,248, respectively and for the three and six months ended June 30, 2006
      amounted to $56,406 and $112,812, respectively.




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





**Six
                months ended**
              **June
                30,****2007**
            
            **2006**Risk
                free interest rate range
            
            
            4.50-4.84
            %
            
            1.66-4.12
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Expected
                volatility
            
            
            81.1%-96.7
            %
            
            96.7
            %Expected
                life in years
            
            
            3-7
            
            
            3-10





The
      fair
      value of each option granted to employees and non-employees is estimated as
      of
      the grant date using the Black-Scholes option pricing model. The estimated
      fair
      value of the options granted is recognized as an expense over the requisite
      service period of the award, which is generally the option vesting period.
      As of
      June 30, 2007, total unrecognized compensation cost for these and prior grants
      amounted to $839,534.




Net
      loss
      per share of common stock





Basic
      net
      loss per share excludes dilution for potentially dilutive securities and is
      computed by dividing net loss attributable to common stockholders by the
      weighted average number of common shares outstanding during the period. Diluted
      net loss per share reflects the potential dilution that could occur if
      securities or other instruments to issue common stock were exercised or
      converted into common stock. Potentially dilutive securities realizable from
      the
      exercise of options and warrants of 4,070,934 and 974,221, respectively at
      June
      30, 2007, are excluded from the computation of diluted net loss per share as
      their inclusion would be anti-dilutive.




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




NOTE
      3.  ACQUISITION
      OF FIRST PERFORMANCE CORPORATION:





As
      discussed in Note 1, on January 19, 2007, the Company acquired all of the
      outstanding capital stock of First Performance Corporation, a Nevada corporation
      (“First Performance”), and its wholly-owned subsidiary, First Performance
      Recovery Corporation, pursuant to a Stock Purchase Agreement dated January
      19,
      2007. First Performance is an accounts receivable management agency with
      operations in Las Vegas, Nevada and Fort Lauderdale, Florida. (Subsequent to
      June 30, 2007, the Fort Lauderdale office was closed.) The aggregate purchase
      price of $850,000 included $500,000 of cash and $350,000 of the Company’s common
      stock, consisting of 88,563 shares at $3.95 per share.




10




The
      assets and liabilities of First Performance have been recorded in the Company’s
      consolidated balance sheet at their fair values at the date of acquisition.
      As
      part of the purchase of First Performance, the Company acquired identifiable
      intangible assets of approximately $450,000. Of the identifiable intangibles
      acquired, $60,000 was assigned to trade names and $390,000 was assigned to
      customer relationships. In accordance with SFAS 142, based on certain changes
      in
      the operations of First Performance, including the loss of three of its major
      clients, the Company  performed an interim impairment analysis at June
      30, 2007. See Note 6. The amounts of these intangibles have been estimated
      based
      upon information available to management and are subject to change based upon
      an
      outside appraisal being completed. The acquired intangibles have been assigned
      definite lives and are subject to amortization, as described in the table below.





The
      following table details amortization periods for the identifiable, amortizable
      intangibles:





Intangible
                Asset
            
            Amortization
                Period
              in
                YearsTrade
                names
            
            10
                yearsCustomer
                relationships
            
            4
                years




The
      following table details the preliminary allocation of the purchase price for
      the
      acquisition of First Performance:





Fair
                ValueRestricted
                cash
            
            $
            157,485Accounts
                receivable
            
            
            419,167Prepaid
                expenses and other current assets
            
            
            103,082Fixed
                assets, net
            
            
            286,229Intangible
                asset - trade names
            
            
            60,000Intangible
                asset - customer relationships
            
            
            390,000Deposits
                and other assets
            
            
            51,999Accounts
                payable
            
            
            (1,573,252
            )Net
                fair values assigned to assets acquired andliabilities
                assumed
            
            
            (105,290
            )Direct
                costs of acquisition
            
            
            (86,915
            )Goodwill
            
            
            1,042,205Total
            
            $
            850,000





The
      following represents a summary of the purchase price consideration:





Cash
            
            $
            500,000Value
                of common stock issued
            
            
            350,000Total
                purchase price paid
            
            $
            850,000Direct
                acquisition costs
            
            
            86,915Total
                purchase price consideration
            
            $
            936,915




First
      Performance was purchased on January 19, 2007, and therefore only its operations
      from January 19, 2007 through June 30, 2007 are included in the Company’s
      condensed consolidated financial statements. The following table presents the
      Company’s unaudited pro forma combined results of operations for each of the
      three and six months ended June 30, 2007 and 2006, respectively, as if First
      Performance had been acquired at the beginning of each of the periods.





11








For
                the three months ended
              June
                30,
            
            For
                the six months ended
              June
                30,2007
            
            2006
            
            2007
            
            2006(unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)Revenues
            
            $
            875,210
            
            $
            1,647,846
            
            $
            2,173,233
            
            $
            3,291,384Net
                loss
            
            $
            (5,303,731
            )
            $
            (2,475,236
            )
            $
            (7,603,996
            )
            $
            (5,044,597
            )Pro-forma
                basic and diluted net loss per common share
            
            $
            (0.69
            )
            $
            (0.80
            )
            $
            (0.99
            )
            $
            (1.62
            )Weighted
                average common shares outstanding - basic and diluted
            
            
            7,707,668
            
            
            3,106,452
            
            
            7,689,168
            
            
            3,108,228




The
      pro
      forma combined results are not necessarily indicative of the results that
      actually would have occurred if the First Performance acquisition had been
      completed as of the beginning of 2006, nor are they necessarily indicative
      of
      future consolidated results.





Effective
      with the acquisition of First Performance on January 19, 2007, the Company
      also
      sponsors the First Performance employee savings plan, for all employees of
      First
      Performance who have completed 1,000 hours of service.  This plan does not
      include a company matching contribution.  The Company is currently in
      the process of merging this plan and its existing 401(k) plan.





NOTE
      4.  SECURITIES
      PURCHASE AGREEMENT - CREDITORS INTERCHANGE:





Securities
      Purchase Agreement





As
      discussed in Note 1, on April 30, 2007, the Company, Credint Holdings, and
      the
      holders of all of the limited liability membership interests of Credint Holdings
      entered into a securities purchase agreement for the Company to acquire 100%
      of
      the outstanding limited liability company membership interests of Creditors
      Interchange, an accounts receivable management agency and wholly-owned
      subsidiary of Credint Holdings. Prior to this agreement, an agreement with
      Creditors Interchange for the use by Creditors Interchange of the Company’s
      DebtResolve system, and a management services agreement pursuant to which
      Creditors Interchange provides management consulting services to First
      Performance were in place.





The
      total
      consideration for the acquisition consists of (a) 840,337 shares of the
      Company’s common stock, and (b) $60,000,000 in cash less the sum, as of the date
      the acquisition is consummated, of all principal, accrued interest, prepayment
      penalties and other charges in respect of Creditors Interchange’s outstanding
      indebtedness. The acquisition is subject to, among other things, shareholder
      approval of the acquisition and the Company securing financing relating to
      the
      acquisition. There is no assurance that the Company will obtain financing,
      or
      that it will consummate the transaction. The closing date in the original
      agreement was June 30, 2007, and has been extended to August 31,
      2007.





In
      connection with the financing of the transaction, as well as to provide
      additional working capital and to fund operations, the Company has signed an
      engagement letter with investment banks to explore financing alternatives.
      Subsequent to June 30, 2007, the Company has secured financing commitments
      for
      up to $40 million in debt, consisting of $25 million of senior secured debt
      and
      $15 million of mezzanine debt. The Company is in discussions with various
      potential investors for an additional $30 million in equity financing. The
      Company believes that it will secure a further extension of the closing date
      if
      definitive equity term sheets are procured by August 31, 2007. However, there
      can be no assurance that the seller will agree to a further extension or that
      the Company will secure equity term sheets by the deadline, nor that the
      financing and acquisition transactions will be completed.




12





Employment
      Agreements





In
      connection with the Purchase Agreement, the Company has entered into employment
      agreements with Bruce Gray and John Farinacci. Pursuant to his employment
      agreement, Mr. Gray will serve as Executive Vice President of the Company and
      President and Chief Executive Officer of Creditors Interchange. Mr. Gray shall
      also be nominated to join the Board of Directors of the Company. Mr. Gray will
      receive a base salary of $400,000 and options to purchase up to 400,000 shares
      of the Company’s common stock. Mr. Gray is also eligible for an annual bonus
      based on certain performance criteria.





Pursuant
      to his employment agreement with the Company, Mr. Farinacci will serve as
      President of First Performance, a wholly-owned subsidiary of the Company, and
      Executive Vice President-Operations of Creditors Interchange. Mr. Farinacci
      will
      also serve as a Senior Vice President of the Company. Mr. Farinacci will receive
      a base salary of $300,000 and options to purchase up to 400,000 shares of the
      Company’s Common Stock. Mr. Farinacci is also eligible for an annual bonus based
      on certain performance criteria.





While
      the
      employment agreements with Messrs. Gray and Farinacci were executed on April
      30,
      2007, both employment agreements are effective as of the closing of the
      transactions contemplated by the Purchase Agreement and will automatically
      terminate should the transaction not occur.





NOTE
      5.  FIXED
      ASSETS:




Fixed
      assets consist of the following:




June
                30,Useful
                life
            
            2007Computer
                equipment
            
            
            3-5
                years
            
            $
            608,149Computer
                software
            
            
            3
                years
            
            
            67,641Telecommunications
                equipment
            
            
            5
                years
            
            
            3,165Office
                equipment
            
            
            3
                years
            
            
            6,361Furniture
                and fixtures
            
            
            5
                years
            
            
            177,515Leasehold
                improvements
            
            
            Lease
                term
            
            
            21,081883,912Less:
                accumulated depreciation
            
            (459,322
            )$
            424,590




Depreciation
      expense totaled $41,336 and $13,849 for the three months ended June 30, 2007
      and
      2006, respectively. Depreciation expense totaled $76,871 and $27,467 for the
      six
      months ended June 30, 2007 and 2006, respectively.




13


NOTE
      6.  IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS





The
      Company recorded $1,042,205 of goodwill in connection with its acquisition
      of
      First Performance. (See Note 3). It also recorded $450,000 in intangible assets
      related to First Performance’s trade names and customer relationships (See Note
      6). The amounts of goodwill that the Company  recorded  in 
connection  with this acquisition  was  determined  by
      comparing the aggregate  amount of the purchase price plus related
      transaction  costs to the  fair  value of the net  tangible
      and  identifiable intangible assets acquired.





In
      accordance with SFAS 142, based on certain changes in the operations of First
      Performance, including the loss of three of its major clients, the Company 
performed an interim impairment analysis at June 30, 2007. As a result of
      this analysis, the Company determined that the entire amount of goodwill with
      respect to First Performance was deemed to be impaired. In addition, the
      other intangible assets subject to amortization were also found to be impaired,
      and were revalued at $270,000.  Accordingly, the Company recorded
      a goodwill and intangibles impairment charge in the amount of $1,179,080 as
      of June 30, 2007.





Making
      estimates about the carrying value of goodwill requires management to exercise
      significant judgment. It is at least reasonably possible that the
      estimate of the effect on the financial statements of a
      condition, situation, or set of circumstances  that existed at
      the date of the financial statements, which management considered in formulating
      its estimate could change in the near term due to one or more future 
confirming events.  Accordingly, the actual results 
regarding  estimates of the carrying value of these intangibles could
      differ materially from the Company's estimates.




NOTE
      7.  INTANGIBLE
      ASSETS:





Intangible
      assets consist exclusively of amounts related to the acquisition of First
      Performance.





The
      components of intangible assets as of June 30, 2007 are set forth in the
      following table:





Useful
                life
            
            Original
                amount
            
            Amortization
            
            Impairment
            
            June
                30,
              2007Trade
                names
            
            
            10
                years
            
            $
            60,000
            
            
            (2,500
            )
            
            (32,500
            )
            $
            25,000Customer
                relationships
            
            
            4
                years
            
            $
            390,000
            
            
            (40,625
            )
            
            (104,375
            )
            $
            245,000$
            450,000
            
            
            (43,125
            )
            
            (136,875
            )
            $
            270,000




The
      amortization of intangibles will result in the following additional expense
      by
      year:


Years
                  Ended December 31:
              
              Intangible
                  Amortization2007
              
              $
              35,4902008
              
              
              70,9812009
              
              
              70,9812010
              
              
              70,9812011
              
              
              8,306Thereafter
              
              
              13,261Total
              
              $
              270,000




Amortization
      expense totaled $25,875 and $43,125 for the three and six months ended June
      30,
      2007, respectively.




The
      weighted average amortization period for amortizable intangibles is 4.4 years
      and has no residual value.




14




NOTE
      8.  LINES
      OF
      CREDIT:





First
      Performance had a line of credit that terminated on the date of the Company’s
      acquisition. The outstanding balance as of January 19, 2007 of $150,000 was
      repaid during the six months ended June 30, 2007, and the line of credit was
      terminated.





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, including to support the Company’s debt collection subsidiary,
      First Performance. Borrowings under the line of credit are secured by the assets
      of the Company and bear interest at a rate of 12% per annum, with interest
      payable monthly in cash. The principal balance outstanding will be due at any
      time upon 30 days written notice, subject to mandatory prepayment (without
      penalty) of principal and interest, in whole or in part, from the net cash
      proceeds of any public or private, equity or debt financing completed by the
      Company. Arisean’s obligation to lend such funds to the Company is subject to a
      number of conditions, including review by Arisean of the proposed use of such
      funds by the Company. Arisean is controlled by Charles S. Brofman, the
      Co-Chairman of the Company and a member of its Board of Directors. As of June
      30, 2007, the outstanding balance on the line of credit was
      $500,000.





NOTE
      9.  PURCHASED
      ACCOUNTS RECEIVABLE:





On
      December 22, 2006, the Company and its wholly-owned subsidiaries, EAR Capital
      I,
      LLC, as borrower, and DRV Capital, LLC, as servicer, entered into a $20.0
      million secured debt financing facility pursuant to a Master Loan and Servicing
      Agreement, dated as of December 21, 2006, with Sheridan Asset Management, LLC
      (“Sheridan”), as lender, to finance the purchase of distressed consumer debt
      portfolios from time to time. The facility generally provides for a 90.0%
      advance rate with respect to each qualified debt portfolio purchased. Interest
      accrues at 12% per annum and is payable monthly. Notes issued under the facility
      are collateralized by the distressed consumer debt portfolios that are purchased
      with the proceeds of the loans. Each note has a maturity date not to exceed
      a
      maximum of 24 months after the borrowing date. Once the notes are repaid and
      the
      Company has been repaid its investment (generally 10% of the purchase price),
      the Company and Sheridan share the residual collections from the debt
      portfolios, net of servicing fees, as per the terms specified in each
      acquisition agreement. The sharing in residual cash flows continues for the
      entire economic life of the debt portfolios financed using this facility and
      will extend beyond the expiration date of the facility. New advances for
      portfolio purchases under the facility are not available beyond the December
      21,
      2007 expiration date. The Company is required to give Sheridan the opportunity
      to fund all of its purchases of distressed consumer debt with advances through
      December 21, 2008. As of June 30, 2007, the Company had acquired $607,994 in
      discounted value of acquired receivables, with a remaining balance of $437,054.
      During the six months ended June 30, 2007, the Company performed a revaluation
      of the remaining receivables and recorded a decline in value of $59,042. The
      Company borrowed a total of $547,195 to finance these receivables and had
      outstanding remaining portfolio loans payable in the amount of
      $413,780.





The
      following tables represent the activity with respect to purchased receivables
      and financings for those receivables for the six months ended June 30,
      2007.





**Purchased
                Accounts Receivable**Beginning
                balance - January 1, 2007
            
            $
            —Purchases
            
            
            607,994Liquidations
            
            
            (67,518
            )Sale
                of pools
            
            
            (44,379
            )Write
                downs
            
            
            (59,042
            )Ending
                balance - June 30, 2007
            
            $
            437,055








15







**Portfolio
                loans payable:**Beginning
                balance January 1, 2007
            
            $
            —Borrowings
            
            
            547,195Repayments
            
            
            (133,415
            )Ending
                balance June 30, 2007
            
            $
            413,780




NOTE
      10.  STOCK
      OPTIONS:




As
      of
      June 30, 2007, the Company had one stock-based employee compensation plan. 
The 2005 Incentive Compensation Plan (the “2005 Plan”) was approved by the
      stockholders on June 14, 2005 and provides for the issuance of options and
      restricted stock grants to officers, directors, key employees and consultants
      of
      the Company to purchase up to 900,000 shares of common stock.





A
      summary
      of option activity within the 2005 Plan during the six months ended June 30,
      2007 is presented below:


2007
              
              Weighted
                  Average Exercise Price
              
              Weighted
                  Average Remaining Contractual Term
              
              Aggregate
                  Intrinsic ValueOutstanding
                  at January 1, 2007 261,000
              
              $
              5.00
              
              
              4.2
                  Years
              
              $
              —Granted
              
              
              632,000
              
              $
              4.61
              
              
              5.9
                  Years
              
              $
              —Exercised
              
              
              —
              
              $
              —
              
              
              —
              
              $
              —Forfeited
                  or expired
              
              
              (5,500
              )
              $
              5.00
              
              
              —
              
              $
              —Outstanding
                  at June 30, 2007
              
              
              887,500
              
              $
              4.74
              
              
              5.4
                  Years
              
              $
              —Exercisable
                  at June 30, 2007
              
              
              463,750
              
              $
              4.76
              
              
              5.9
                  Years
              
              $
              —





As
      of
      June 30, 2007, the Company had 423,750 unvested options within the 2005
      Plan.





On
      February 1, 2007, the Company issued options to purchase 30,000 shares of its
      common stock exercisable
      at $4.04 per share to a
      new
      employee .
      The stock options
      have an exercise period of five years and vest 30% at issuance, 30% in six
      months and 40% on the anniversary of issuance. The grant was valued at
      $91,200 ,
      will be
      expensed over the vesting period and resulted in an expense during the six
      months ended June 30, 2007 of $68,400.




On
      February 28, 2007, the Company issued options to purchase 20,000 shares of
      its
      common stock exercisable
      at $4.10 per share to a
      new
      board member .
      The stock options
      have an exercise period of five years, vest 50% at issuance and 50% on the
      anniversary of issuance, were valued at $61,600 ,
      will be
      expensed over the vesting period and resulted in an expense during the six
      months ended June 30, 2007 of $41,067.




On
      April
      23, 2007, the Company issued options to purchase 75,000 shares of its common
      stock exercisable at $3.70 per share to a new employee. The stock options have
      an exercise period of seven years and vest 25% at issuance, 25% at six months,
      25% at eighteen months and 25% at thirty months after the grant date. The grant
      was valued at $210,750, will be expensed over the one year employment contract
      term and resulted in expense during the six months ended June 30, 2007 of
      $87,813.




On
      April
      27, 2007, the Company issued options to purchase 75,000 shares of its common
      stock exercisable at $4.75 per share to a new employee. The stock options have
      an exercise period of seven years and vest 33% on the first, second and third
      anniversary of the grant date. The grant was valued at $270,750, will be
      expensed over the one year employment contract term and resulted in expense
      during the six months ended June 30, 2007 of $45,125.




16




On
      April
      27, 2007, the Company issued options to purchase 278,000 shares of its common
      stock exercisable at $4.75 per share to four current employees. The stock
      options have an exercise period of seven years. Of the grant, 276,500 shares
      vest immediately and 1,500 vest on the first anniversary of the grant date.
      The
      grant was valued at $1,003,580, were expensed immediately except for the grant
      vesting over the first year and resulted in expense during the six months ended
      June 30, 2007 of $999,068.




On
      April
      27, 2007, the Company issued options to purchase 154,000 shares of its common
      stock exercisable at $5.00 per share to six current employees. The stock options
      have an exercise period of four years, providing the grantees with the
      equivalent of a seven year grant, as all new options granted now have a seven
      year term. Of the grant, options to purchase 77,000 shares vest immediately
      and
      options to purchase the remaining 77,000 shares vest on the first anniversary
      of
      the grant date. The grant was valued at $446,600, the expense associated with
      the first 77,000 shares were expensed immediately and the remainder are being
      expensed over the one year vesting period and resulted in a charge during the
      six months ended June 30, 2007 of $128,487.




A
      summary
      of stock option activity outside the 2005 Plan during the six months ended
      June
      30, 2007 is presented below:


2007
              
              Weighted
                  Average Exercise Price
              
              Weighted
                  Average Remaining Contractual Term
              
              Aggregate
                  Intrinsic ValueOutstanding
                  at January 1, 2007
              
              
              3,147,434
              
              $
              4.96
              
              
              6.5
                  Years
              
              $
              —Granted
              
              
              50,000
              
              $
              4.75
              
              
              6.8
                  Years
              
              $
              —Exercised
              
              
              —
              
              $
              —
              
              
              —
              
              $
              —Forfeited
                  or expired
              
              
              (14,000
              )
              $
              5.00
              
              
              —
              
              $
              —Outstanding
                  at June 30, 2007
              
              
              3,183,434
              
              $
              4.99
              
              
              6.5
                  Years
              
              $
              63,945Exercisable
                  at June 30, 2007
              
              
              3,183,434
              
              $
              4.99
              
              
              6.5
                  Years
              
              $
              63,945





On
      April
      27, 2007, the Company issued options to purchase 50,000 shares of its common
      stock exercisable at $4.75 per share to a current employee. The stock options
      vest immediately and have an exercise period of seven years. The grant was
      valued at $180,500 and was expensed immediately.





As
      of
      June 30, 2007, the Company had no unvested stock options outside the 2005
      Plan.





During
      the six months ended June 30, 2007 and 2006, the Company recorded an expense
      of
      $15,436 and $112,812 respectively, representing the amortized amount of the
      fair
      value of stock options issued to non-employees prior to January 1,
      2006.




The
      Company recorded stock based compensation expense representing the amortized
      amount of the fair value of options granted in 2006 in the amount of $128,668
      and $267,782 during the three and six months ended June 30, 2007,
      respectively.




17




NOTE
      11.  WARRANTS:




A
      summary
      of warrant activity as of January 1, 2007 and changes during the six months
      ended June 30, 2007 is presented below:


2007
              
              Weighted
                  Average Exercise Price
              
              Weighted
                  Average Remaining Contractual Term
              
              Aggregate
                  Intrinsic ValueOutstanding
                  at January 1, 2007
              
              
              2,091,158
              
              $
              1.44
              
              
              3.3
                  Years
              
              
              —Granted
              
              
              100,000
              
              $
              3.85
              
              
              2.7
                  Years
              
              
              —Exercised
              
              
              (830,199
              )
              $
              0.16
              
              
              —
              
              
              —Forfeited
                  or Expired
              
              
              (50,000
              )
              $
              3.85
              
              
              —
              
              
              —Outstanding
                  at June 30, 2007
              
              
              1,310,959
              
              $
              2.45
              
              
              5.4
                  Years
              
              $
              2,131,778Exercisable
                  at June 30, 2007
              
              
              1,085,959
              
              $
              1.60
              
              
              2.6
                  Years
              
              $
              2,131,778




As
      of
      June 30, 2007, there were 225,000 unvested warrants to purchase shares of common
      stock.





On
      March
      1, 2007 the Company issued a warrant to purchase 100,000 shares of its common
      stock exercisable at $3.85 per share to a consultant. The warrant has an
      exercise period of three years, which vests 25% at issuance and 25% at three,
      six and nine months from issuance. The warrant was valued at $240,000. On June
      30, 2007, warrants for 50,000 shares of common stock were cancelled due to
      termination of the consultant’s services. Expense during the six months ended
      June 30, 2007 was $134,571.




During
      the six months ended June 30, 2007, the Company received $130,222 in cash
      proceeds from the exercise of 830,200 warrants to purchase common
      stock.




NOTE
      12.  LITIGATION:




On  January
      8, 2007, the Company filed a patent infringement lawsuit against Apollo
      Enterprise Solutions, LLC (“Apollo”) in federal court in New Jersey.  The
      suit alleges that Apollo’s online debt collection system infringes one or
      more claims of the patents-in-suit, U.S. Patent Nos. 6,330,551 and
      6,954,741.  The Company claims that it has exclusive rights under these and
      certain other patents with respect to the settlement of consumer
      debt.  A change
      of venue moved the suit to the Southern District of New York.





In
      response to the Company’s complaint, Apollo (i) filed a motion to dismiss for an
      alleged lack of personal jurisdiction and, (ii) on January 29, 2007, filed
      a
      mirror lawsuit against the Company in federal court in the Central District
      of
      California which seeks a declaratory judgment of non-infringement and invalidity
      with respect to these patents. The Company filed a motion to dismiss, transfer
      or stay the California case in preference to the first-filed New Jersey case.
      That motion has
      been
      granted by the court, and the California case has been stayed in preference
      to
      the New Jersey case .
      In the
      New Jersey case, the Court issued an order requiring the parties to submit
      a
      series of briefs showing why the case should not be transferred from New Jersey
      to the District of Delaware, the Southern District of New York or the Central
      District of California. The New Jersey Court subsequently denied Apollo’s motion
      to transfer the case to California and granted the Company’s request in the
      alternative that the case be heard in New York if the Court decided it should
      not stay in New Jersey. The case was transferred to federal court in the
      Southern District of New York where it remains pending at a preliminary stage.
      The mirror action that Apollo filed against the Company in California has been
      dismissed without prejudice by the parties. The Company intends to continue
      to
      vigorously enforce its intellectual property rights. Management believes that
      the Company has a reasonable chance of successfully
      asserting the patents-in-suit against Apollo.  However, the
      Company is unable to predict the outcome of these claims and, accordingly,
      no adjustments have been made in the condensed consolidated financial statements
      in response to these claims.





18




NOTE
      13.  OPERATING
      LEASES:




On
      August
      1, 2005, the Company entered into a five year lease for its corporate
      headquarters which includes annual escalations in rent. Since that date, in
      accordance with SFAS No. 13, “Accounting for Leases,” the Company accounts for
      rent expense using the straight line method of accounting, accruing the
      difference between actual rent due and the straight line amount. At June 30,
      2007, accrued rent payable totaled $15,263.





The
      Company also leased an office in Fort Lauderdale, Florida under a non-cancelable
      operating lease that expires January 31, 2009 and called for monthly payments
      of
      $22,481. Until August 31, 2007, the monthly payment has been reduced by a $5,000
      abatement to $17,481 per month. Subsequent to June 30, 2007, the Company
      negotiated an early cancellation of the Florida lease whereby the rent
      obligation will terminate at August 31, 2007. The
      Company also
      leases an office in Las Vegas, Nevada under a non-cancelable operating lease
      that expires July 31, 2014 and calls for monthly payments of $21,644.





Rent
      expense for the three months ended June 30, 2007 and 2006 was $147,382 and
      $30,822, respectively. Rent expense for the six months ended June 30, 2007
      and
      2006 was $273,475 and $61,643, respectively.





Future
      minimum rental payments under the above non-cancelable operating leases (as
      renegotiated) are as follows:




For
                the Year Ending
              December
                31,
            
            **Amount**2007
            
            $
            231,8402008
            
            
            387,0292009
            
            
            389,8922010
            
            
            335,6572011
            
            
            259,728Thereafter
            
            
            670,964$
            2,275,110





NOTE
      14.  EMPLOYMENT
      AGREEMENTS:




On
      April
      23, 2007, Anthony P. Canale was appointed to the position of General Counsel
      of
      the Company. Mr. Canale’s employment agreement provides for a base salary of
      $175,000 with certain bonus provisions. Mr. Canale was also awarded 75,000
      options vesting 25% on the date of hire, 25% in six months, 25% in eighteen
      months and 25% in 30 months. The employment agreement has a one year renewable
      term.




On
      May 1,
      2007, the Company appointed David M. Rainey to the position of Chief Financial
      Officer and Treasurer. Mr. Rainey’s employment agreement provides for a base
      salary of $200,000 with certain bonus provisions. Mr. Rainey was also awarded
      75,000 options which vest 1/3 each on the first, second and third anniversaries
      of his employment. The employment agreement has a one year renewable term.
      Katherine A. Dering, the former Chief Financial Officer, has remained with
      the
      Company as Senior Vice President - Finance, under an amended employment
      agreement until September 1, 2007.




19




NOTE
      15.  SEGMENT
      DATA:




The
      Company is a technology-driven accounts receivable management company with
      operations in three segments: internet debt resolution software and services
      (“Internet Services”), defaulted consumer debt buying (“Debt Buying”), and a
      consumer debt collections agency (“Collection Agency”).





Debt
      Resolve, operating the Company’s core business, offers online debt resolution
      services to creditors and collection agencies. DRV Capital is a debt buyer
      that
      uses the Company’s patent-based online collection software to boost its
      collections on the debt which it owns. First Performance operates collection
      operations in two states and collects on defaulted consumer debt on behalf
      of
      its clients, who are debt buyers and creditors.





The
      following tables summarize financial information about the Company’s business
      segments for the three and six months ended June 30, 2007:





Three
      months ended June 30, 2007:





**Internet****Services**
            
            **Debt
                Buying**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            12,507
            
            $
            1,126
            
            $
            861,577
            
            $
            —
            
            $
            875,210Loss
                from operations
            
            $
            (2,674,488
            )
            $
            (144,748
            )
            $
            (2,209,320
            )
            $
            (258,291
            )
            $
            (5,286,847
            )Depreciation
                and amortization
            
            $
            14,380
            
            $
            —
            
            $
            52,831
            
            $
            —
            
            $
            67,211Goodwill
                & intangibles impairment charge
            
            $
            —
            
            $
            —
            
            $
            (1,179,080
            )
            $
            —
            
            $
            (1,179,080
            )Interest
                income
            
            $
            (2,793
            )
            $
            (13,858
            )
            $
            (233
            )
            $
            —
            
            $
            (16,884
            )Capital
                expenditures
            
            $
            7,229
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            7,229Total
                assets
            
            $
            1,254,255
            
            $
            453,063
            
            $
            1,371,142
            
            $
            —
            
            $
            3,078,460




Six
      months ended June 30, 2007:





**Internet****Services**
            
            **Debt
                Buying**
            
            **Collection****Agency**
            
            **Corporate**
            
            **Consolidated**Revenues
            
            $
            33,128
            
            $
            3,227
            
            $
            1,976,711
            
            $
            —
            
            $
            2,013,066Loss
                from operations
            
            $
            (4,058,541
            )
            $
            (237,256
            )
            $
            (2,644,006
            )
            $
            (486,631
            )
            $
            (7,426,434
            )Depreciation
                and amortization
            
            $
            28,178
            
            $
            —
            
            $
            91,819
            
            $
            —
            
            $
            119,997Goodwill
                & intangibles impairment charge
            
            $
            —
            
            $
            —
            
            $
            (1,179,080
            )
            $
            —
            
            $
            (1,179,080
            )Interest
                income
            
            $
            33,906
            
            $
            (29,909
            )
            $
            (443
            )
            $
            —
            
            $
            3,553Capital
                expenditures
            
            $
            40,320
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            40,320Total
                assets
            
            $
            1,254,255
            
            $
            453,063
            
            $
            1,371,142
            
            $
            —
            
            $
            3,078,460




NOTE
      16.  SUBSEQUENT
      EVENTS:




a.
            Warrant
                Exercises




Subsequent
      to June 30, 2007, the Company issued 76,239 shares in connection with the
      exercise of warrants for cash proceeds of $41,844.


b.
            Line of Credit - Related party




On
      August
      10, 2007, Debt Resolve entered into a line of credit with James D. Burchetta,
      Debt Resolve's CEO and Co-Chairman, for up to $100,000 to be used by Debt
      Resolve primarily to fund the working capital needs of First Performance.
      Borrowings under the line of credit will bear interest at 12% per annum, with
      interest payable monthly in cash. The principal balance outstanding will be
      due
      at any time upon 30 days written notice from Mr. Burchetta, 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. Subsequent to August 10, 2007, the Company has borrowed
      $95,000 under this line of credit.




20








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





**Overview**





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





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




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




Our
      revenues to date have been insufficient to fund our operations. We have financed
      our activities to date through our management’s contributions of cash, the
      forgiveness of royalty and consulting fees, the proceeds from sales of our
      common stock in private placement financings, the proceeds of our convertible
      promissory notes in three private financings, short-term borrowings from
      previous investors or related parties 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,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
      initial contracts provide that we will earn revenue based on a percentage of
      the
      amount of debt collected from accounts submitted on our DebtResolve system
      and
      from flat fees per settlement achieved. 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. For the early adopters of our system, we waived set-up fees
      and
      other transactional fees that we anticipate charging on a going-forward basis.
      While the percent of debt collected will continue to be a revenue recognition
      method going forward, other payment models are also being offered to clients
      and
      may possibly become our preferred revenue model. Most contracts currently in
      process include provisions for set up fees and base revenue on a monthly
      licensing fee per account, with a small transaction fee on debt settlement.
      In
      addition, with respect to our DR Prevent TM module, we expect that a licensing
      fee per account on our system, and/or the hybrid revenue model which will
      include both fees per account and transaction fees at settlement, may become
      the
      preferred revenue methods. As we expand our knowledge of the industry, we have
      become aware that different revenue models may be more appropriate for the
      individual circumstances of our potential clients, and our expanded choice
      of
      revenue models reflects that knowledge.




21




We
      have
      also entered into the business of purchasing and collecting debt. Through our
      subsidiary, DRV Capital LLC, and its single-purpose subsidiary, EAR Capital
      I,
      LLC, we have bought two portfolios of charged-off debt at a significant discount
      to their face value and, through subcontracted, licensed debt collectors,
      attempt to collect on that debt by utilizing both our DebtResolve system and
      also traditional collection methods. We were also testing marketing strategies
      targeted to debtors for the DebtResolve system. We hope that, in addition to
      the
      actual revenues earned from this venture, by buying and settling these debts,
      we
      will develop a new paradigm for the collection of such debts, as well as develop
      “best practice” usage methods, which we can then share with our core clients.




On
      December 22, 2006, we, EAR Capital I, LLC, as borrower, and DRV Capital LLC,
      as
      servicer, entered into a $20.0 million secured debt financing facility pursuant
      to a Master Loan and Servicing Agreement, dated December 21, 2006, with Sheridan
      Asset Management, LLC, (“Sheridan”) as lender, to finance the purchase of
      distressed consumer debt portfolios from time to time. The facility generally
      provides for a 90.0% advance rate with respect to each qualified debt portfolio
      purchased. Interest accrues at 12% per annum and is payable monthly. Notes
      issued under the facility are collateralized by the distressed consumer debt
      portfolios that are purchased with the proceeds of the loans. Each note has
      a
      maturity date not to exceed a maximum of 24 months after the borrowing date,
      and
      amounts repaid cannot be re-borrowed. Once the notes are repaid and we have
      been
      repaid our investment, we and Sheridan share the residual collections from
      the
      debt portfolios, net of servicing fees, in a ratio determined according to
      terms
      agreed upon at each acquisition of each pool of accounts receivable. The sharing
      in residual cash flows continues for the entire economic life of the debt
      portfolios financed using this facility, and will extend beyond the expiration
      date of the facility. New advances for portfolio purchases under the facility
      are not available beyond the December 21, 2007 expiration date. Under the terms
      of the agreement, we are required to give Sheridan the opportunity to fund
      any
      of our purchases of distressed consumer debt with advances through December
      21,
      2008.





Revenue
      streams associated with this business will include servicing fees earned and
      paid, collections of principal in excess of the price paid, interest earned
      on
      purchased debt and paid to investment partners, and, from time to time, gains
      on
      the resale of remaining balances. We, as the parent company, may also earn
      increased revenues from the use of our DebtResolve system by agencies that
      may
      be subcontracted to collect these debts. We expect that revenues earned from
      the
      debt purchase and collection business will develop slowly, over several months,
      beginning from the time we first capitalized the subsidiary. We have already
      hired experienced staff and incurred certain legal expenses to meet compliance
      requirements for entering this business. Unless we achieve certain scale in
      these operations, early revenues will not fully cover those costs. In January
      2007, we purchased our first two pools of defaulted debt through DRV Capital
      and
      its single-purpose subsidiary, EAR Capital.




In
      January 2007, we purchased the outstanding common stock of First Performance.
      First Performance is a collection agency that represents both regional and
      national credit grantors from such diverse industries as retail, bankcard,
      oil
      cards, mortgage and auto. By entering this business directly, we have signaled
      our intention to become a significant player in the accounts receivable
      management industry. We believe that through a mixture of both traditional
      and
      our innovative, technologically-driven collection methods, we can achieve
      superior returns.





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





On
      April
      30, 2007, we, Credint Holdings, LLC (“Credint Holdings”) and the holders of all
      of the limited liability membership interests of Credint Holdings entered into
      a
      securities purchase agreement (the “Purchase Agreement”) for us to acquire 100%
      of the outstanding limited liability company membership interests of Creditors
      Interchange Receivables Management, LLC (“Creditors Interchange”), an accounts
      receivable management agency and wholly-owned subsidiary of Credint Holdings.
      Prior to this agreement, an agreement with Creditors Interchange for the use
      by
      Creditors Interchange of our DebtResolve system, and a management services
      agreement pursuant to which Creditors Interchange provides management consulting
      services to First Performance were in place.




22





The
      total
      consideration for the acquisition consists of (a) 840,337 shares of our common
      stock, and (b) $60,000,000 in cash less the sum, as of the date the acquisition
      is consummated, of all principal, accrued interest, prepayment penalties and
      other charges in respect of Creditors Interchange’s outstanding indebtedness.
      The acquisition is subject to, among other things, shareholder approval of
      the
      acquisition and our company securing financing relating to the
      acquisition. We cannot assure you that we will obtain financing, or that we
      will
      consummate the transaction. The closing date in the original agreement was
      June
      30, 2007, which has been extended to August 31, 2007.





In
      connection with the financing of the transaction, and as well as to provide
      additional working capital and to fund operations, we have signed an engagement
      letter with investment banks to explore financing alternatives. As of August
      7,
      2007, we had secured financing commitments for up to $40 million in debt,
      consisting of $25 million of senior secured debt and $15 million of mezzanine
      debt. We are in late-stage discussion with various potential equity investors
      for an additional $30 million in equity financing. We believe that we can secure
      a further extension of the closing date if definitive equity term sheets are
      procured by August 31, 2007. However, we cannot assure you that the seller
      will
      agree to a further extension or that we will secure equity term sheets by the
      deadline. In the event that equity term sheets are not obtained by August 31,
      2007, we intend to terminate the securities purchase agreement.




We
      have
      suffered significant recurring operating losses, have negative working capital
      and need to raise additional capital in order to be able to accomplish our
      business plan objectives. These conditions raise substantial doubt about our
      ability to continue as a going concern. A stockholder has provided us with
      a
      $500,000 line of credit. In addition, subsequent to June 30, 2007, management
      of our company has provided interim operating funds of $100,000 through a
      line of credit. If we are unable to raise sufficient additional funds or
      integrate our acquisition to a level of profitability, we will have to develop
      and implement a plan to extend payables and reduce overhead until sufficient
      additional capital is raised to support further operations. In the second
      quarter of 2007, we reduced overhead and extended payables. However, we
      cannot assure you that our efforts will be successful.





**Results
      of Operations for the Three Months Ended June 30, 2007 Compared to the Three
      Months Ended June 30, 2006**




***Revenues***




Revenues
      totaled $875,210 and $27,026 for the three months ended June 30, 2007 and 2006,
      respectively. We earned revenue during the three months ended June 30, 2007
      from
      fees earned on debt collected by our collection agency, and as a percent of
      debt
      collected at collection agencies, law firms, a lender and two banks that
      implemented our online system. Of the revenue earned during the three months
      ended June 30, 2007, $861,577 was earned as fees on debt collected at our
      collection agency and $12,507 was contingency fee income, based on a percentage
      of the amount of debt collected or fees per settlement from accounts placed
      on
      our online system. In addition, we earned $1,126 in revenue for management
      fees
      related to investments in past due consumer debt portfolios purchased through
      our DRV Capital subsidiary. Of the revenue earned during the three months ended
      June 30, 2006, $12,500 was earned for fees charged to license our software
      for
      the period, and $14,526 was contingency fee income, based on a percentage of
      the
      amount of debt collected from accounts placed on our online system. Our internet
      business had $1.079 billion and $852 million face value of debt placed on the
      DebtResolve system in the three months ended June 30, 2007 and 2006,
      respectively, a 27% increase.




***Costs
      and Expenses***




23




**Payroll
      and related expenses** .
      Payroll
      and related expenses totaled $3,093,006 for the three months ended June 30,
      2007, an increase of $2,507,729 over payroll and related expenses of $585,277
      for the three months ended June 30, 2006. This increase was due primarily to
      payroll and related expenses for the addition of our First Performance
      subsidiary, which totaled $962,569 for the three months ended June 30, 2007,
      and
      to non-cash stock based compensation expense of $1,574,704 and $0 for the three
      months ended June 30, 2007 and 2006, respectively. Internet business cash
      payroll and related expenses decreased by $29,544, or 5.1%, from $585,277 for
      the three months ended June 30, 2006 to $555,733 for the three months ended
      June
      30, 2007. Salary expenses were $1,276,374 for the three months ended June 30,
      2007, an increase of $798,160 over salary expenses of $478,214 for the three
      months ended June 30, 2006. In addition, the staffing increase related to the
      First Performance acquisition resulted in payroll tax expense of $116,704 for
      the three months ended June 30, 2007, an increase of $79,410 over payroll tax
      expense of $37,294 for the three months ended June 30, 2006 and an increase
      in
      health insurance expense to $101,854 for the three months ended June 30, 2007
      from $39,106 in the three months ended June 30, 2006, an increase of $62,748.
      Other miscellaneous salary related expenses were $23,370 in payroll expenses
      for
      the three months ended June 30, 2007 as compared with $30,663 for the three
      months ended June 30, 2006, a decrease of $7,293.




**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $1,822,760 for the three months ended
      June 30, 2007, as compared to $546,916 for the three months ended June 30,
      2006,
      an increase of $1,275,844. This increase was primarily due to the acquisition
      of
      First Performance, which added $876,417 to general and administrative expenses
      for the three month period, including an expense of $1,179,080 at June 30,
      2007
      related to the impairment of purchased intangibles and goodwill. The expense
      for
      stock based compensation for stock options granted to consultants for the three
      months ended June 30, 2007 was $70,456, as compared with stock based
      compensation in the amount of $56,406 for the three months ended June 30, 2006.
      Also, for the three months ended June 30, 2007 consulting fees totaled $555,928,
      as compared with $38,589 in consulting fees for the three months ended June
      30,
      2006, resulting in an increase of $517,339, primarily related to hiring outside
      consultants to assist in selling the DebtResolve system in the United States
      and
      the United Kingdom, and to assist in the integration and management of our
      new
      First Performance subsidiary. Legal fees decreased by $146,495 to $80,684 for
      the three months ended June 30, 2007 from $227,179 for the three months ended
      June 30, 2006, primarily due to the hiring of our full time General Counsel,
      which brought some legal work in-house. The expenses for occupancy,
      telecommunications, travel and office supplies for the three months ended June
      30, 2007 were $147,382, $213,009, $118,846 and $189,535, respectively, as
      compared with expenses of $30,822, $44,686, $38,454 and $3,166 for occupancy,
      telecommunications, travel and office supplies, respectively, for the three
      months ended June 30, 2006, all due to the addition of First Performance and
      travel related to the Creditors Interchange acquisition. Marketing expenses
      increased by $93,207 to $109,264 for the three months ended June 30, 2007 from
      $16,057 for the three months ended June 30, 2006, primarily due to our expanded
      efforts to market the DebtResolve system using consultants. During the three
      months ended June 30, 2006, we recognized a $59,042 charge to mark to
      market the purchased receivables held by DRV Capital. Other general operating
      costs for the three months ended June 30, 2007, including insurance and
      accounting expenses, amounted to $244,132, as compared with $91,557 for the
      three months ended June 30, 2006.




**Interest
      income (expense).** We
      recorded interest expense of $16,884 for the three months ended June 30, 2007,
      compared to interest expense of $143,246 for the three months ended June 30,
      2006. Interest expense for the three months ended June 30, 2007 includes
      interest accrued on our lines of credit, and interest expense for the three
      months ended June 30, 2006 includes interest accrued on our 7% convertible
      notes
      and other short term notes.




**Depreciation
      and amortization expense** .
      For the
      three months ended June 30, 2007, we recorded depreciation expense of $41,336
      and an expense of $25,875 for the amortization of intangibles recorded in
      connection with the acquisition of First Performance Corporation in January
      2007. Depreciation expense for the three months ended June 30, 2006 was $13,849.
      We had no amortization or other expense related to intangibles in 2006.




**Amortization
      of deferred debt discount.** Amortization
      expense of $377,999 was incurred for the three months ended June 30, 2006 for
      the amortization of the value of the beneficial conversion feature and deferred
      debt discount associated with our convertible note offerings. These convertible
      note offerings were repaid during 2006 and the related deferred debt discount
      was fully amortized.




**Amortization
      of deferred financing costs.** Amortization
      expense of $57,541 was incurred for the three months ended June 30, 2006 for
      the
      amortization of deferred financing costs associated with our convertible note
      offerings. These convertible note offerings were repaid in 2006 and the related
      deferred financing costs were fully amortized.




24





**Results
      of Operations for the Six months ended June 30, 2007 Compared to the Six Months
      ended June 30, 2006**




***Revenues***




Revenues
      totaled $2,013,066 and $54,290 for the six months ended June 30, 2007 and 2006,
      respectively. We earned revenue during the six months ended June 30, 2007 from
      fees earned on debt collected by our collection agency, as a percent of debt
      collected at collection agencies, a lender and two banks that implemented our
      online system and as a flat fee per settlement with some clients. Of the revenue
      earned during the six months ended June 30, 2007, $1,976,711 was earned as
      fees
      on debt collected at our collection agency, $25,628 was contingency fee income,
      based on a percentage of the amount of debt collected from accounts placed
      on
      our online system or settlement fees, and $7,500 was start up fee income. In
      addition, we earned $3,227 in revenue for management fees related to investments
      in past due consumer debt portfolios purchased through our DRV Capital
      subsidiary. Of the revenue earned during the six months ended June 30, 2006,
      $14,583 was earned for fees charged to license our software for the period,
      $3,600 was start up fee income and $36,107 was contingency fee income, based
      on
      a percentage of the amount of debt collected from accounts placed on our online
      system. Our internet business had $2.1 billion and $1.7 billion face value
      of
      debt placed on the DebtResolve system in the six months ended June 30, 2007
      and
      2006, respectively, a 26% increase.




***Costs
      and Expenses***




**Payroll
      and related expenses** .
      Payroll
      and related expenses totaled $4,740,598 for the six months ended June 30, 2007,
      an increase of $3,538,859 over payroll and related expenses of $1,201,739 for
      the six months ended June 30, 2006. This increase was due to payroll and related
      expenses for our First Performance subsidiary acquired in 2007, which totaled
      $1,893,380 for the six month period and non-cash stock based compensation
      expense of $1,731,218 and $0 for the six months ended June 30, 2007 and 2006,
      respectively, an increase of $1,709,683. Internet business cash payroll and
      related expenses for the six months ended June 30, 2007 and 2006 were $1,116,000
      and $1,180,204, respectively, a decrease of $64,204, or 5.4%. Salary expenses
      were $2,504,395 for the six months ended June 30, 2007, an increase of
      $1,520,187 over salary expenses of $984,208 for the six months ended June 30,
      2006. In addition, the staffing increase related to the First Performance
      acquisition resulted in payroll tax expense of $240,036 for the six months
      ended
      June 30, 2007, an increase of $166,335 over payroll tax expense of $73,701
      for
      the six months ended June 30, 2006 and an increase in health insurance expense
      to $191,101 for the six months ended June 30, 2007 from $73,858 in the six
      months ended June 30, 2006, an increase of $117,243. Other miscellaneous salary
      related expenses were $73,848 in payroll expenses for the six months ended
      June
      30, 2007 as compared with $48,437 for the six months ended June 30, 2006, a
      increase of $25,421.




**General
      and administrative expenses** .
      General
      and administrative expenses amounted to $3,399,825 for the six months ended
      June
      30, 2007, as compared to $1,117,213 for the six months ended June 30, 2006,
      an
      increase of $2,282,612. This increase was primarily due to the acquisition
      of
      First Performance, which added $1,456,438 to general and administrative expenses
      for the six month period, including the expense of $1,179,080 related to the
      impairment of purchased intangibles and goodwill. The expense for stock based
      compensation for stock options granted to consultants for the six months ended
      June 30, 2007 was $237,030, as compared with stock based compensation in the
      amount of $112,812 for the six months ended June 30, 2006. Also, for the six
      months ended June 30, 2007, consulting fees totaled $582,861, as compared with
      $78,867 in consulting fees for the six months ended June 30, 2006, resulting
      in
      an increase of $503,994, primarily related to hiring outside consultants to
      assist in selling the Debt Resolve system in the United States and the United
      Kingdom, and to assist in the integration and management of our new First
      Performance subsidiary. Legal fees decreased by $30,178 to $354,502 for the
      six
      months ended June 30, 2007 from $384,680 for the six months ended June 30,
      2006,
      primarily due to the hiring of our General Counsel, which brought some legal
      work in-house. The expenses for occupancy, telecommunications, travel and office
      supplies in the six months ended June 30, 2007 were $273,475, $373,346, $221,687
      and $325,760, respectively, as compared with expenses of $61,643, $115,619,
      $112,797 and $10,515 for occupancy, telecommunications, travel and office
      supplies, respectively, for the six months ended June 30, 2006, all due almost
      exclusively to the addition of First Performance and additional travel in
      support of the Creditors Interchange acquisition. Marketing expenses increased
      by $173,986 to $218,036 during the six months ended June 30, 2007 from $44,050
      for the six months ended June 30, 2006, primarily due to our expanded efforts
      to
      market the DebtResolve system. Direct collection costs of First Performance
      and
      DRV Capital were $322,974 during the six months ended June, 30, 2007 and $0
      for
      the six months ended June 30, 2006, as both DRV and First Performance began
      operations with us in January, 2007. During the six months ended June 30,
      2006, we recognized a $59,042 charge to mark to market the purchased
      receivables held by DRV Capital. Other general operating costs for the six
      months ended June 30, 2007, including insurance and accounting expenses,
      amounted to $396,629, as compared with $196,230 for the six months ended June
      30, 2006.




25




**Interest
      income (expense).** We
      recorded interest income of $3,553 for the six months ended June 30, 2007,
      compared to interest expense of $219,063 for the six months ended June 30,
      2006.
      Interest expense for the six months ended June 30, 2006 includes interest
      accrued on our 7% convertible notes and other short term notes.




**Depreciation
      and amortization expense** .
      For the
      six months ended June 30, 2007 we recorded depreciation expense of $76,872
      and
      an expense of $43,125 for the amortization of intangibles recorded in connection
      with the acquisition of First Performance Corporation in January 2007. For
      the
      six months ended June 30, 2007 we had no amortization expense, but recorded
      depreciation expense of 27,467.




**Amortization
      of deferred debt discount.** Amortization
      expense of $898,134 was incurred for the six months ended June 30, 2006 for
      the
      amortization of the value of the beneficial conversion feature and deferred
      debt
      discount associated with our convertible note offerings. These convertible
      note
      offerings were repaid during 2006 and the related deferred debt discount was
      fully amortized.




**Amortization
      of deferred financing costs.** Amortization
      expense of $139,371 was incurred for the six months ended June 30, 2006 for
      the
      amortization of deferred financing costs associated with our convertible note
      offerings. These convertible note offerings were repaid in 2006 and the related
      deferred financing costs were fully amortized.





**Liquidity
      and Capital Resources**





As
      of
      June 30, 2007, we had a working capital deficiency in the amount of $2,199,075,
      and cash and cash equivalents totaling $170,882. We incurred a net loss of
      $7,417,871 for the six months ended June 30, 2007. Net cash used in operating
      and investing activities was $5,648,691 for the six months ended June 30, 2007.
      Cash flow provided by financing activities was $894,002 for the six months
      ended
      June 30, 2007. 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 twelve
      months.  The aforementioned factors raise substantial doubt about our
      ability to continue as a going concern.




Our
      management is actively pursuing additional debt and/or equity financing and
      pursuing strategic acquisitions.  As discussed above, we acquired
      First Performance, an accounts receivable management agency, in January
      2007, and accordingly, are no longer in the development stage as of the date
      of
      the acquisition.  Our management believes that we will be successful
      in obtaining additional financing and successfully integrate our First
      Performance acquisition to a level of profitability, however, we cannot assure
      you that we will be able to do so.  Also as discussed above, we have signed
      a securities purchase agreement to acquire Creditors Interchange by the end
      of
      August. In connection with the financing of the transaction, as well as to
      provide additional working capital and to fund operations, we have signed an
      engagement letter with investment banks to explore financing alternatives,
      andare in discussions with various potential investors for an additional $30
      million in equity financing. We cannot assure you that the equity financing
      will be obtained at all or on terms acceptable to us.




A
      stockholder has provided us with a $500,000 line of credit. In addition,
      subsequent to June 30, 2007, management of our company has provided interim
      operating funds of $100,000 through a line of credit. If we are unable to raise
      sufficient additional funds or integrate our acquisition to a level of
      profitability, we will have to develop and implement a plan to extend payables
      and reduce overhead until sufficient additional capital is raised to support
      further operations. In the second quarter of 2007, we reduced overhead and
      extended payables. However, we cannot assure you that our efforts will
      be successful. To the extent that we are unsuccessful, we may need to curtail
      our operations.




26




**Critical
      Accounting Policies and Estimates**




Accounts
      Receivable




We
      extend
      credit to large and mid-size companies for collection services. We have
      concentrations of credit risk in that 93% of the balance of accounts receivable
      at June 30, 2007 is made up of only seven customers. At June 30, 2007, accounts
      receivable from the two largest accounts amounted to approximately $105,925
      (28%) and $54,296 (14%), 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 collectibility and the allowance for doubtful accounts is adjusted
      accordingly. Our management determines collectibility based on their experience
      and knowledge of the customers.





Business
      Combinations




In
      accordance with business combination accounting, we allocate the purchase price
      of acquired companies to the tangible and intangible assets acquired and
      liabilities assumed, based on their estimated fair values. We engaged a
      third-party appraisal firm to assist our management in determining the fair
      values of First Performance. Such a valuation requires our management to make
      significant estimates and assumptions, especially with respect to intangible
      assets.





Our
      management makes estimates of fair values based upon assumptions believed to
      be
      reasonable. These estimates are based on historical experience and information
      obtained from the management of the acquired companies. Critical estimates
      in
      valuing certain of the intangible assets include but are not limited to: future
      expected cash flows from customer relationships and market position, as well
      as
      assumptions about the period of time the acquired trade names will continue
      to
      be used in the combined company's product portfolio; and discount rates. These
      estimates are inherently uncertain and unpredictable. Assumptions may be
      incomplete or inaccurate, and unanticipated events and circumstances may occur
      which may affect the accuracy or validity of such assumptions, estimates or
      actual results.




Goodwill
      and Intangible Assets




We
      account for goodwill and intangible assets in accordance with Statement of
      Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“SFAS
      141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).
      Under SFAS 142, goodwill and intangibles that are deemed to have indefinite
      lives are no longer amortized but, instead, are to be reviewed at least annually
      for impairment. Application of the goodwill impairment test requires judgment,
      including the identification of reporting units, assigning assets and
      liabilities to reporting units, assigning goodwill to reporting units, and
      determining the fair value. Significant judgments required to estimate the
      fair
      value of reporting units include estimating future cash flows, determining
      appropriate discount rates and other assumptions. Changes in these estimates
      and
      assumptions could materially affect the determination of fair value and/or
      goodwill impairment for each reporting unit. Intangible assets will be amortized
      over their estimated useful lives. We performed an analysis of its goodwill
      and
      intangible assets in accordance with SFAS 142 as of June 30, 2007 and determined
      that an impairment charge was necessary.





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 management’s judgment and available information and, consequently, actual
      results could be different from these estimates.




Income
      Taxes




27





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





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





In
      many
      cases, our tax positions are related to tax years that remain subject to
      examination by relevant tax authorities. We file income tax returns in the
      United States (federal) and in various state and local jurisdictions. In most
      instances, we are no longer subject to federal, state and local income tax
      examinations by tax authorities for years prior to 2003.





The
      adoption of the provisions of FIN 48 did not have a material impact on our
      consolidated financial position and results of operations. As of June 30, 2007,
      no liability for unrecognized tax benefits was required to be
      recorded.




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




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




Revenue
      recognition




We
      earned
      revenue during 2007 and 2006 from several collection agencies and lenders that
      implemented our online system. Our current contracts provide for revenue based
      on a percentage of the amount of debt collected or on a flat fee per settlement
      from accounts submitted on the DebtResolve system. 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. For the early adopters of our product, we waived set-up
      fees and other transactional fees that we anticipate charging in the future.
      While the percent of debt collected will continue to be a revenue recognition
      method going forward, other payment models are also being offered to clients
      and
      may possibly become our preferred revenue model. Dependent upon the structure
      of
      future contracts, revenue may be derived from a combination of set up fees
      or
      monthly licensing fees with transaction fees upon debt settlement.




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




28




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




Recently
      signed contracts and contracts under negotiation call for multiple deliverables,
      and each component of revenue will be considered to have been earned when we
      have met the associated deliverable, as is required by SAB 104 Topic 13(A).
      For
      new contracts being implemented which include a licensing fee per account,
      following the guidance of SAB 104 regarding services being rendered continuously
      over time, we will recognize revenue based on contractual prices established
      in
      advance and will recognize income over the contractual time periods. Where
      some
      doubt exists on the collectability of the revenues, a valuation reserve will
      be
      established or the income charged to losses, based on management’s opinion
      regarding the collectability of those revenues.




In
      January 2007, we initiated operations of our debt buying subsidiary, DRV Capital
      LLC. DRV Capital and its wholly-owned subsidiary, EAR Capital I, LLC, engage
      in
      the acquisition of pools of past due debt at a deeply discounted price, for
      the
      purpose of collecting on those debts. In recognition of the principles expressed
      in Statement of Position 03-3 (“SOP 03-3”), where the timing and amount of cash
      flows expected to be collected on these pools is reasonably estimable, we will
      recognize the excess of all cash flows expected at acquisition over the initial
      investment in the pools of debt as interest income on a level-yield basis over
      the life of the pool (accretable yield). Because we only recently entered into
      this business, we will use the cost recovery method until we have evaluated
      the
      accuracy of our model. Revenue will be earned by this debt buying subsidiary
      under the cost recovery method when the amount of debt collected exceeds the
      discounted price paid for the pool of debt. When our management has determined
      that we are able to predict cash flows with some reliability, we will adopt
      the
      income accrual method, described above, recognizing the revenues on a level
      yield method over the expected ownership period of the pool.




On
      January 19, 2007, we completed the acquisition of First Performance, a
      collection agency, and its wholly-owned subsidiary First Performance Recovery
      Corporation. In recognition of the principles expressed in SAB 104, that revenue
      should not be recognized until it is realized or realizable and earned, and
      given the element of doubt associated with collectability of an agreed
      settlement on past due debt, at this time we uniformly postpone recognition
      of
      all contingent revenue until the cash payment is received from the debtor.
      At
      the time we remit fees collected to our clients, we accrue the portion of those
      fees that the client contractually owes. As is required by SAB 104, revenues
      are
      considered to have been earned when we have substantially accomplished the
      agreed-upon deliverables to be entitled to payment by the client. For most
      current active clients, these deliverables consist of the successful collection
      of past due debts.




Stock-based
      compensation




Beginning
      on January 1, 2006, we account for stock options issued under stock-based
      compensation plans under the recognition and measurement principles of SFAS
      No.
      123 - Revised. We adopted the modified prospective transition method and
      therefore, did not restate prior periods’ results. Total stock-based
      compensation expense related to these issuances and other stock-based grants for
      the three and six months ended June 30, 2007 amounted to $1,645,160 and
      $1,968,248, respectively, and for the three and six months ended June 30, 2006
      amounted to $56,406 and $112,812, respectively.




The
      determination of the fair value of stock-based awards on the date of grant
      is
      affected by our stock price as well as assumptions regarding a number of complex
      and subjective variables. These variables include the price of the underlying
      stock, our expected stock price volatility over the expected term of the awards,
      actual and projected employee stock option exercise behaviors, the risk-free
      interest rate and the expected annual dividend yield on the underlying
      shares.




If
      actual
      results differ significantly from these estimates or different key assumptions
      were used, there could be a material effect on our financial statements.
 The future impact of the cost of stock-based compensation on our results
      of operations, including net income/(loss) and earnings/(loss) per diluted
      share, will depend on, among other factors, the level of equity awards as well
      as the market price of our common stock at the time of the award as well as
      various other assumptions used in valuing such awards. We will periodically
      evaluate these estimates.




29




**Statement
      Relating to Forward-Looking Statements**




This
      report contains forward-looking statements that are based on our beliefs as
      well
      as assumptions and information currently available to us. When used in this
      report, the words “believe,” “expect,” “anticipate,” “estimate,” “potential” and
      similar expressions are intended to identify forward-looking statements. These
      statements are subject to risks, uncertainties and assumptions, including,
      without limitation, the risks and uncertainties concerning our recent research
      and development activities; the risks and uncertainties concerning acceptance
      of
      our services and products, if and when fully developed, by our potential
      customers; our present financial condition and the risks and uncertainties
      concerning the availability of additional capital as and when required; the
      risks and uncertainties concerning the Limited License Agreement with Messrs.
      Brofman and Burchetta; the risks and uncertainties concerning our dependence
      on
      our key executives; the risks and uncertainties concerning technological changes
      and the competition for our services and products; the risks and uncertainties
      concerning general economic conditions; and the risks and uncertainties
      described in our Annual Report on Form 10-KSB for the year ended December 31,
      2006, filed on April 17, 2007, 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. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and our Chief Financial
      Officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon
      that evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that our company’s disclosure controls and procedures are effective,
      as of June 30, 2007, in ensuring that material information relating to us
      required to be disclosed by us in reports that we file or submit under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the Securities Exchange Commission rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      an
      issuer in reports it files or submits under the Exchange Act is accumulated
      and
      communicated to management, including its principal executive officer or
      officers and principal financial officer or officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure.





**Changes
      in Internal Control over Financial Reporting**




For
      the
      six months ended June 30, 2007, our internal controls over financial reporting
      were materially impacted by its acquisition of First Performance, which took
      place on January 19, 2007. First
      Performance is a collection agency which operates two branch locations and
      employs approximately 70 people. The books and records of the acquired company
      were moved to our White Plains location, and the controller of First Performance
      currently works under the supervision of our Chief Financial Officer. We have
      added more staff in the accounting department to assist in the consolidations
      and daily accounting processes. We are currently in the process of reviewing
      and
      formalizing controls in place over the preparation of First Performance’s
      financial statements, which have been consolidated into ours and included in
      this report. Based on initial review and assessment, our management believes
      that the design and operation of First Performance’s disclosure controls and
      procedures, together with the supervisory review we provide, are adequate and
      effective.




**CEO
      and CFO Certifications**




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




30


**PART
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**





**Lawsuit
      against Apollo**




On  January
      8, 2007, we filed a patent infringement lawsuit against Apollo Enterprise
      Solutions, LLC (“Apollo”) in federal court in New Jersey.  The suit alleges
      that Apollo’s online debt collection system infringes one or more claims of
      the patents-in-suit, U.S. Patent Nos. 6,330,551 and 6,954,741.  We
      have exclusive rights under these and certain other patents with respect to
      the settlement of consumer debt.  In
      response to our complaint, Apollo (i) filed a motion to dismiss for an alleged
      lack of personal jurisdiction and, (ii) on January 29, 2007, filed a mirror
      lawsuit against us in federal court in the Central District of California which
      seeks a declaratory judgment of non-infringement and invalidity with respect
      to
      these patents. We have filed a motion to dismiss, transfer or stay the
      California case in preference to the first-filed New Jersey case. That motion has
      been
      granted by the court, and the California case has been stayed in preference
      to
      the New Jersey case .
      In the
      New Jersey case, the Court issued an order requiring the parties to submit
      a
      series of briefs showing why the case should not be transferred from New Jersey
      to the District of Delaware, the Southern District of New York or the Central
      District of California. The New Jersey Court subsequently denied Apollo’s motion
      to transfer the case to California and granted our request in the alternative
      that the case be heard in New York if the Court decided it should not stay
      in
      New Jersey. The case was transferred to federal court in the Southern District
      of New York where it remains pending at a preliminary stage. The mirror action
      that Apollo filed against us in California has been dismissed without prejudice
      by the parties. We intend to continue to vigorously enforce our intellectual
      property rights.




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





None





**Item
      3. Defaults upon Senior Securities**





None





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





None





**Item
      5. Other Information**





None





**Item
      6. Exhibits**





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.




31





**SIGNATURES**




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




Dated:
              August 20,
              2007**DEBT RESOLVE,
              INC.**By:
            /s/ James
              D. BurchettaJames
              D. BurchettaCo-Chairman
                and Chief Executive Officer
              (principal
                executive officer)





By:
            /s/ David
              M. RaineyDavid
              M. RaineyChief
                Financial Officer and Treasurer
              (principal
                financial and accounting officer)







32