x |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended MARCH 31,
2008
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
DEBT
RESOLVE, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
33-0889197
|
|
(State
or other jurisdiction of incorporation or organization
|
(I.R.S.
Employer Identification No.)
|
707
Westchester Avenue, Suite L7
White
Plains, New York
|
10604
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(914)
949-5500
|
(Issuer’s
telephone number)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
Page
|
|
PART
I. Financial Information
|
|
Item
1. Condensed Consolidated Financial Statements
|
|
|
|
Condensed
Consolidated Balance Sheets at March 31, 2008 (unaudited) and December
31,
2007
|
3
|
Condensed
Consolidated Statements of Operations for the Three Months Ended
March 31,
2008 and 2007 (unaudited)
|
4
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
March 31,
2008 and 2007 (unaudited)
|
5
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
17
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
22
|
Item
4. Controls and Procedures
|
23
|
PART
II. Other Information
|
|
Item
1. Legal Proceedings
|
24
|
Item
1A. Risk Factors
|
24
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
24
|
Item
3. Defaults Upon Senior Securities
|
24
|
Item
4. Submission of Matters to a Vote of Security Holders
|
24
|
Item
5. Other Information
|
24
|
Item
6. Exhibits
|
24
|
Signatures
|
25
|
Certifications
|
26
|
ASSETS
|
|||||||
March
31, 2008
|
|||||||
(Unaudited)
|
December
31, 2007
|
||||||
Current
assets:
|
|||||||
Restricted
cash
|
$
|
35,757
|
$
|
67,818
|
|||
Accounts
receivable
|
144,943
|
84,013
|
|||||
Other
receivable
|
--
|
200,000
|
|||||
Prepaid
expenses and other current assets
|
93,696
|
108,189
|
|||||
Total
current assets
|
274,396
|
460,020
|
|||||
Fixed
assets, net
|
248,734
|
283,095
|
|||||
Other
assets:
|
|||||||
Deposits
and other assets
|
108,780
|
108,780
|
|||||
Intangible
assets, net
|
192,696
|
208,848
|
|||||
Total
other assets
|
301,476
|
317,628
|
|||||
Total
assets
|
$
|
824,606
|
$
|
1,060,743
|
|||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued liabiliti
|
$
|
1,755,404
|
$
|
1,444,764
|
|||
Accrued
professional fees
|
1,145,193
|
1,003,550
|
|||||
Collections
payable
|
35,337
|
42,606
|
|||||
Short
term notes (net of deferred debt discount
of $29,400 at December 31, 2007)
|
367,000
|
70,600
|
|||||
Lines
of credit - related parties
|
1,006,000
|
1,011,000
|
|||||
Total
current liabilities
|
4,308,934
|
3,572,520
|
|||||
Notes
payable (net of deferred debt discount
of $169,301 and $70,975, respectively)
|
455,699
|
254,025
|
|||||
Total
liabilities
|
4,764,633
|
3,826,545
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
deficiency:
|
|||||||
Preferred
stock, 10,000,000 shares authorized,
$0.001 par value, none issued and outstanding
|
-- | -- | |||||
Common
stock, 100,000,000 shares authorized, $0.001 par value, 8,478,530
and
8,474,363 shares issued and outstanding
|
8,479
|
8,474
|
|||||
Additional
paid-in capital
|
44,199,662
|
42,501,655
|
|||||
Accumulated
deficit
|
(48,148,168
|
)
|
(45,275,931
|
)
|
|||
Total
stockholders’ deficiency
|
(3,940,027
|
)
|
(2,765,802
|
)
|
|||
Total
liabilities and stockholders’ deficiency
|
$
|
824,606
|
$
|
1,060,743
|
Three
Months Ended March 31,
|
|||||||
2008
|
2007
|
||||||
Revenues
|
$
|
233,148
|
$
|
1,135,754
|
|||
Costs
and expenses:
|
|||||||
Payroll
and related expenses
|
1,,646,006
|
1,598,424
|
|||||
General
and administrative expenses
|
849,140
|
1,531,625
|
|||||
Depreciation
and amortization expense
|
50,513
|
52,785
|
|||||
Total
operating expenses
|
2,545,659
|
3,182,834
|
|||||
Loss
from operations
|
(2,312,511
|
)
|
(2,047,080
|
)
|
|||
Other
income (expense):
|
|||||||
Interest
income
|
190
|
36,770
|
|||||
Interest
expense
|
(29,388
|
)
|
(282
|
)
|
|||
Interest
expense - related party
|
(30,431
|
)
|
--
|
||||
Amortization
of deferred debt discount
|
(501,674
|
)
|
--
|
||||
Other
income
|
1,577
|
5,010
|
|||||
Total
other (expense) income
|
(559,726
|
)
|
41,498
|
||||
Loss
from continuing operations
|
(2,872,237
|
)
|
(2,005,582
|
)
|
|||
Loss
from discontinued operations
|
--
|
(108,560
|
)
|
||||
Net
loss
|
$
|
(2,872,237
|
)
|
$
|
(2,114,142
|
)
|
|
Net
loss per common share:
|
|||||||
basic
and diluted (See Note 2)
|
|||||||
Continuing
operations
|
$
|
(0.33
|
)
|
$
|
(0.26
|
)
|
|
Discontinued
operations
|
$
|
--
|
$
|
(0.02
|
)
|
||
Total
|
$
|
(0.33
|
)
|
$
|
(0.28
|
)
|
|
Basic
and diluted weighted average number of common shares outstanding
(See Note
2)
|
8,689,803
|
7,670,462
|
Three
months ended March 31,
|
|||||||
2008
|
2007
|
||||||
Cash
flows from continuing operating activities:
|
|||||||
Net
loss
|
$
|
(2,872,237
|
)
|
$
|
(2,005,582
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Non
cash stock based compensation
|
1,127,369
|
323,088
|
|||||
Accrued
rent
|
491
|
1,351
|
|||||
Amortization
of deferred debt discount
|
501,674
|
--
|
|||||
Depreciation
and amortization
|
50,513
|
52,785
|
|||||
Changes
in operating assets & liabilities
|
|||||||
Restricted
cash
|
32,061
|
(129,755
|
)
|
||||
Accounts
receivable
|
(60,931
|
)
|
(116,934
|
)
|
|||
Prepaid
debt collection payments
|
--
|
(125,794
|
)
|
||||
Prepaid
expenses and other current assets
|
14,493
|
4,745
|
|||||
Deferred
acquisition costs
|
--
|
(150,535
|
)
|
||||
Deposits
and other assets
|
--
|
(615
|
)
|
||||
Accounts
payable and accrued expenses
|
310,151
|
(600,993
|
)
|
||||
Accrued
professional fees
|
141,643
|
190,586
|
|||||
Collections
payable
|
(7,269
|
)
|
129,755
|
||||
Net
cash used in continuing operating activities
|
(762,042
|
)
|
(2,427,898
|
)
|
|||
Cash
flows from continuing investing activities:
|
|||||||
Purchase
of First Performance Corporation
|
--
|
(571,579
|
)
|
||||
Purchases
of fixed assets
|
--
|
(28,234
|
)
|
||||
Net
cash used in continuing investing activities
|
--
|
(599,813
|
)
|
||||
Cash
flows from continuing financing activities:
|
|||||||
Proceeds
from other receivable
|
200,000
|
--
|
|||||
Proceeds
from long term loans
|
300,000
|
--
|
|||||
Proceeds
from issuance of short term notes
|
412,000
|
--
|
|||||
Repayment
of short term notes
|
(145,000
|
)
|
|||||
Repayment
of line of credit
|
(5,000
|
)
|
(150,000
|
)
|
|||
Proceeds
from exercise of warrants
|
42
|
823
|
|||||
Net
cash provided by (used in) continuing financing activities
|
762,042
|
(149,177
|
)
|
||||
Cash
flows of discontinued operations
|
|||||||
Net
cash used in operating activities
|
--
|
(98,849
|
)
|
||||
Net
cash used in investing activities
|
--
|
(570,866
|
)
|
||||
Net
cash provided by financing activities
|
--
|
533,105
|
|||||
Net
cash used in discontinued operations
|
--
|
(136,610
|
)
|
||||
Net
decrease in cash and cash equivalents
|
--
|
(3,313,498
|
)
|
||||
Cash
and cash equivalents at beginning of period
|
--
|
4,925,571
|
|||||
Cash
and cash equivalents at end of period
|
$
|
--
|
$
|
1,612,073
|
|||
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 purchase business combination
|
--
|
1,026,869
|
|||||
Accrued
liabilities assumed in the acquisition
|
--
|
(1,573,252
|
)
|
||||
Direct
acquisition costs
|
--
|
(71,579
|
)
|
||||
Non-cash
consideration to seller
|
--
|
(350,000
|
)
|
||||
Cash
paid to acquire business
|
$
|
--
|
$
|
500,000
|
Three
months ended
March
31,
|
||
2008
|
2007
|
|
Risk
free interest rate range
|
2.10-3.21%
|
4.52-4.84%
|
Dividend
yield
|
0%
|
0%
|
Expected
volatility
|
81.1%-
|
81.1%-96.7%
|
Expected
life in years
|
3-7
|
3-7
|
Three
Months
|
||||
Ended
March 31,
|
||||
2007
|
||||
(unaudited)
|
||||
Revenues
|
$
|
1,298,022
|
||
Net
loss
|
$
|
(2,300,266
|
)
|
|
Pro-forma
basic and diluted net loss per common share
|
$
|
(0.30
|
)
|
|
Weighted
average common shares outstanding - basic and diluted
|
7,698,999
|
Three
months ended March 31,
|
||||
2007
|
||||
Revenue
|
$
|
2,100
|
||
Payroll
and related expenses
|
49,168
|
|||
General
and administrative expenses
|
45,441
|
|||
Total
expenses
|
94,609
|
|||
Loss
from operations
|
(92,509
|
)
|
||
Interest
expense
|
(16,051
|
)
|
||
Loss
from discontinued operations
|
$
|
(108,560
|
)
|
Weighted
|
|||||||||||||
Weighted
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||
2008
|
Price
|
Term
|
Value
|
||||||||||
Outstanding
at January 1, 2008
|
820,000
|
$
|
4.79
|
4.2
Years
|
$
|
--
|
|||||||
Granted
|
173,000
|
$
|
1.25
|
6.9
Years
|
$
|
--
|
|||||||
Exercised
|
--
|
$
|
--
|
--
|
$
|
--
|
|||||||
Forfeited
or expired
|
(135,500
|
)
|
$
|
4.63
|
--
|
$
|
--
|
||||||
Outstanding
at March 31, 2008
|
857,500
|
$
|
3.06
|
4.7
Years
|
$
|
432,210
|
|||||||
Exercisable
at March 31, 2008
|
626,500
|
$
|
3.49
|
4.9
Years
|
$
|
432,210
|
Weighted
|
|||||||||||||
Weighted
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||
2008
|
Price
|
Term
|
Value
|
||||||||||
Outstanding
at January 1, 2008
|
3,033,434
|
$
|
4.97
|
6.3
Years
|
$
|
--
|
|||||||
Granted
|
1,511,500
|
$
|
1.25
|
4.9
Years
|
$
|
--
|
|||||||
Exercised
|
--
|
$
|
--
|
--
|
$
|
--
|
|||||||
Forfeited
or Expired
|
(60,000
|
)
|
$
|
5.00
|
--
|
$
|
--
|
||||||
Outstanding
at March 31, 2008
|
4,484,934
|
$
|
3.23
|
5.7
Years
|
$
|
2,252,275
|
|||||||
Exercisable
at March 31, 2008
|
4,309,934
|
$
|
3.33
|
5.7
Years
|
$
|
2,252,275
|
2008
|
2007
|
||||||
Payroll
and related expenses
|
$
|
1,044,719
|
$
|
156,514
|
|||
General
and administrative expenses
|
$
|
82,650
|
$
|
166,574
|
Weighted
|
|||||||||||||
Weighted
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||
2008
|
Price
|
Term
|
Value
|
||||||||||
Outstanding
at January 1, 2008
|
2,042,770
|
$
|
1.60
|
3.0
Years
|
--
|
||||||||
Granted
|
350,000
|
$
|
1.31
|
4.9
Years
|
--
|
||||||||
Exercised
|
(4,167
|
)
|
$
|
0.01
|
--
|
--
|
|||||||
Forfeited
or Expired
|
(100,000
|
)
|
$
|
4.25
|
--
|
--
|
|||||||
Outstanding
at March 31, 2008
|
2,288,603
|
$
|
1.44
|
3.2
Years
|
$
|
1,742,391
|
|||||||
Exercisable
at March 31, 2008
|
2,063,603
|
$
|
1.60
|
3.6
Years
|
$
|
1,742,391
|
For
the Years Ending
December
31,
|
Amount
|
|||
2008
|
$
|
296,160
|
||
2009
|
403,502
|
|||
2010
|
357,467
|
|||
2011
|
289,984
|
|||
2012
|
298,683
|
|||
Thereafter
|
437,404
|
|||
$
|
2,083,200
|
Internet
Services
|
Collection
Agency
|
Corporate
|
Consolidated
|
||||||||||
Revenues
|
$
|
84,178
|
$
|
148,970
|
$
|
--
|
$
|
233,148
|
|||||
Loss
from operations
|
$
|
(2,041,443
|
)
|
$
|
(505,692
|
)
|
$
|
(220,376
|
)
|
$
|
(2,767,511
|
)
|
|
Depreciation
and amortization
|
$
|
14,537
|
$
|
35,976
|
$
|
--
|
$
|
50,513
|
|||||
Interest
income
|
$
|
190
|
$
|
--
|
$
|
--
|
$
|
190
|
|||||
Interest
expense
|
$
|
(28,741
|
)
|
$
|
(647
|
)
|
$
|
--
|
$
|
(29,388
|
)
|
||
Interest
expense - related parties
|
$
|
(27,391
|
)
|
$
|
(3,040
|
)
|
$
|
--
|
$
|
(30,431
|
)
|
||
Total
assets
|
$
|
412,477
|
$
|
412,129
|
$
|
--
|
$
|
824,606
|
Internet
Services
|
Collection
Agency
|
Corporate
|
Consolidated
|
||||||||||
Revenues
|
$
|
20,620
|
$
|
1,115,134
|
$
|
--
|
$
|
1,135,754
|
|||||
Loss
from operations
|
$
|
(1,384,055
|
)
|
$
|
(434,686
|
)
|
$
|
(228,340
|
)
|
$
|
(2,047,081
|
)
|
|
Depreciation
and amortization
|
$
|
13,797
|
$
|
38,988
|
$
|
--
|
$
|
52,785
|
|||||
Interest
income
|
$
|
36,770
|
$
|
--
|
$
|
--
|
$
|
36,770
|
|||||
Interest
expense
|
$
|
(71
|
)
|
$
|
(210
|
)
|
$
|
--
|
$
|
(281
|
)
|
||
Capital
expenditures
|
$
|
28,234
|
$
|
--
|
$
|
--
|
$
|
28,234
|
|||||
Total
assets
|
$
|
2,049,863
|
$
|
2,889,623
|
$
|
--
|
|
$
|
4,939,486
|
||||
Goodwill
|
$
|
--
|
$
|
1,026,869
|
$
|
--
|
$
|
1,026,869
|
31.1 |
Certification
of Chief Executive Officer required by Rule
13(a)-14(a).
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31.2 |
Certification
of Chief Financial Officer required by Rule
13(a)-14(a).
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32.1 |
Certifications
required by Rule 13(a)-14(b) and 18 U.S.C. Section
1350.
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DEBT
RESOLVE, INC.
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By: | /s/ Kenneth H. Montgomery | |
Kenneth
H. Montgomery
Chief
Executive Officer
(principal
executive officer)
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By: | /s/ David M. Rainey | |
David
M. Rainey
President
and Chief Financial Officer
(principal
financial and accounting officer)
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