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)
|
|
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 |
3
|
Condensed
Consolidated Balance Sheets at June 30, 2008 (unaudited) and
December 31,
2007
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three Months and
Six Months
Ended June 30, 2008 and 2007 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended
June 30,
2008 and 2007 (unaudited)
|
5
|
|
Condensed Consolidated Statements of Stockholders’ Deficiency (unaudited) |
6-7
|
|
Notes to Condensed Consolidated Financial Statements (unaudited) |
8
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
27
|
Item
4.
|
Controls
and Procedures
|
27
|
PART
II. Other Information
|
|
|
Item
1.
|
Legal
Proceedings
|
28
|
Item
1A.
|
Risk Factors |
28
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
28
|
Signatures
|
29
|
|
Certifications
|
|
ASSETS
|
||||||
|
||||||
June
30, 2008 (Unaudited) |
December
31, 2007
|
|||||
Current
assets:
|
||||||
Cash
|
$
|
27,489
|
$
|
—
|
||
Restricted
cash
|
30,191
|
67,818
|
||||
Accounts
receivable
|
103,950
|
84,013
|
||||
Other
receivable
|
4,712
|
200,000
|
||||
Prepaid
expenses and other current assets
|
63,446
|
108,189
|
||||
Total
current assets
|
229,788
|
460,020
|
||||
Fixed
assets, net
|
128,487
|
283,095
|
||||
Other
assets:
|
||||||
Deposits
and other assets
|
108,780
|
108,780
|
||||
Intangible
assets, net
|
—
|
208,848
|
||||
Total
other assets
|
108,780
|
317,628
|
||||
Total
assets
|
$
|
467,055
|
$
|
1,060,743
|
||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||
Current
liabilities:
|
||||||
Accounts
payable and accrued liabilities
|
$
|
2,503,794
|
$
|
1,444,764
|
||
Accrued
professional fees
|
1,255,473
|
1,003,550
|
||||
Accrued
closing costs - FPC
|
1,364,458
|
—
|
||||
Collections
payable
|
28,960
|
42,606
|
||||
Short
term notes (net of deferred debt
|
||||||
discount
of $0 and $29,400,
|
||||||
respectively)
|
380,000
|
70,600
|
||||
Short
term note - related party
|
142,202
|
—
|
||||
Lines
of credit - related parties
|
1,037,121
|
1,011,000
|
||||
Total
current liabilities
|
6,712,008
|
3,572,520
|
||||
Notes
payable (net of deferred debt
|
||||||
discount
of $211,631 and $70,975,
|
||||||
respectively)
|
611,369
|
254,025
|
||||
Total
liabilities
|
7,323,377
|
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
|
8,962
|
8,474
|
||||
authorized,
$0.001 par value,
|
||||||
8,961,864
and 8,474,363 shares issued
|
||||||
and
outstanding
|
||||||
Additional
paid-in capital
|
45,521,033
|
42,501,655
|
||||
Accumulated
deficit
|
(52,386,317
|
)
|
(45,275,931
|
)
|
||
Total
stockholders’ deficiency
|
(6,856,322
|
)
|
(2,765,802
|
)
|
||
Total
liabilities and stockholders’
deficiency
|
$
|
467,055
|
$
|
1,060,743
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Revenues
|
$46,819
|
$12,507
|
$130,997
|
$33,128
|
|||||||||
Costs
and expenses:
|
|||||||||||||
General
and administrative expenses
|
2,014,030
|
2,930,906
|
3,890,490
|
4,550,123
|
|||||||||
Depreciation
and amortization expense
|
14,433
|
14,380
|
28,970
|
28,178
|
|||||||||
Total
expenses
|
2,028,463
|
2,945,286
|
3,919,460
|
4,578,301
|
|||||||||
Loss
from operations
|
(1,981,644
|
)
|
(2,932,779
|
)
|
(3,788,463
|
)
|
(4,545,173
|
)
|
|||||
Other
(expense) income:
|
|||||||||||||
Interest
income
|
—
|
4,840
|
190
|
41,610
|
|||||||||
Interest
expense
|
(33,498
|
)
|
—
|
(58,692
|
)
|
(70
|
)
|
||||||
Interest
expense - related parties
|
(34,071
|
)
|
(7,633
|
)
|
(65,008
|
)
|
(7,635
|
)
|
|||||
Amortization
of deferred debt discount
|
(45,781
|
)
|
—
|
(547,454
|
)
|
—
|
|||||||
Other
income
|
(337
|
)
|
—
|
(338
|
)
|
10,080
|
|||||||
Total
other (expense) income
|
(113,687
|
)
|
(2,793
|
)
|
(671,302
|
)
|
43,985
|
||||||
Loss
from continuing operations
|
(2,095,331
|
)
|
(2,935,572
|
)
|
(4,459,765
|
)
|
(4,501,188
|
)
|
|||||
Loss
from discontinued operations
|
(2,142,817
|
)
|
(2,368,159
|
)
|
(2,650,619
|
)
|
(2,916,683
|
)
|
|||||
Net
loss
|
$
|
(4,238,148
|
)
|
$
|
(5,303,731
|
)
|
$
|
(7,110,384
|
)
|
$
|
(7,417,871
|
)
|
|
Net
loss per common share:
|
|||||||||||||
basic
and diluted (See Note 2)
|
|||||||||||||
Continuing
operations
|
$
|
(0.24
|
)
|
$
|
(0.38
|
)
|
$
|
(0.51
|
)
|
$
|
(0.58
|
)
|
|
Discontinued
operations
|
$
|
(0.24
|
)
|
$
|
(0.31
|
)
|
$
|
(0.30
|
)
|
$
|
(0.38
|
)
|
|
Total
|
$
|
(0.48
|
)
|
$
|
(0.69
|
)
|
$
|
(0.81
|
)
|
$
|
(0.96
|
)
|
|
Basic
and diluted weighted average number of common shares
|
|||||||||||||
outstanding
(See Note 2)
|
8,848,045
|
7,707,668
|
8,768,924
|
7,689,168
|
Six
months ended June 30,
|
|||||||
2008
|
2007
|
||||||
Cash
flows from continuing operating activities:
|
|||||||
Net
loss
|
$
|
(4,459,765
|
)
|
$
|
(4,501,188
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Non
cash stock based compensation
|
1,680,730
|
1,968,248
|
|||||
Amortization
of deferred debt discount
|
547,455
|
—
|
|||||
Depreciation
and amortization
|
28,970
|
28,178
|
|||||
Changes
in operating assets & liabilities
|
|||||||
Accounts
receivable
|
(18,675
|
)
|
6,465
|
||||
Prepaid
expenses and other current assets
|
46,609
|
27,288
|
|||||
Deferred
acquisition costs
|
—
|
(758,663
|
)
|
||||
Deposits
and other assets
|
—
|
(2,000
|
)
|
||||
Accounts
payable and accrued expenses
|
812,134
|
609,678
|
|||||
Accrued
professional fees
|
240,202
|
—
|
|||||
Net
cash provided by (used in) continuing operating
activities
|
(1,122,240
|
)
|
(2,621,994
|
)
|
|||
Cash
flows from continuing investing activities:
|
|||||||
Purchases
of fixed assets
|
—
|
(34,626
|
)
|
||||
Net
cash used in continuing investing activities
|
—
|
(34,626
|
)
|
||||
Cash
flows from continuing financing activities:
|
|||||||
Proceeds
from other receivable
|
200,000
|
—
|
|||||
Proceeds
from long term loans
|
498,000
|
—
|
|||||
Proceeds
from issuance of short term notes
|
717,202
|
—
|
|||||
Proceeds
from line of credit
|
36,121
|
500,000
|
|||||
Repayment
of short term notes
|
(295,000
|
)
|
—
|
||||
Repayment
of line of credit
|
(10,000
|
)
|
—
|
||||
Proceeds
from issuance of common stock
|
680,000
|
||||||
Proceeds
from exercise of warrants
|
375
|
130,222
|
|||||
Net
cash provided by continuing financing
activities
|
1,826,698
|
630,222
|
|||||
Cash
flows of discontinued operations
|
|||||||
Net
cash used in operating activities
|
(676,969
|
)
|
(1,908,221
|
)
|
|||
Net
cash used in investing activities
|
—
|
(1,083,850
|
)
|
||||
Net
cash provided by financing activities
|
—
|
263,780
|
|||||
Net
cash used in discontinued operations
|
(676,969
|
)
|
(2,728,291
|
)
|
|||
Net
increase
(decrease) in cash and cash equivalents
|
27,489
|
(4,754,689
|
)
|
||||
Cash
and cash equivalents at beginning of period
|
—
|
4,925,571
|
|||||
Cash
and cash equivalents at end of period
|
$
|
27,489
|
$
|
170,882
|
|||
Supplemental
investing and financing activities:
|
|||||||
Current
assets acquired
|
—
|
$
|
679,734
|
||||
Fixed
assets acquired
|
—
|
286,229
|
|||||
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
|
Preferred
Stock
|
Common
Stock
|
|||||||||||||||||||||||||
Number
of
Shares
|
Amount
|
Number
of
Shares
|
Amount
|
Deferred
compensation
|
Additional
Paid
in
Capital
|
Deficit
Accumulated
During
the
Development
Stage
|
Total
|
|||||||||||||||||||
Balance
at December 31, 2007
|
8,474,363
|
$
|
8,474
|
$
|
0
|
$
|
42,501,655
|
($
|
45,275,931
|
)
|
$ |
2,765,802
|
)
|
|||||||||||||
Capital
contributed from the exercise
|
||||||||||||||||||||||||||
of
options and warrants
|
4,167
|
4
|
38
|
42
|
||||||||||||||||||||||
Capital
contributed from the grant of
|
||||||||||||||||||||||||||
stock
options to employees
|
1,499,719
|
1,499,719
|
||||||||||||||||||||||||
Capital
contributed from the accrual
of
|
|
|
||||||||||||||||||||||||
restricted
stock to an employee
|
40,000
|
40,000
|
||||||||||||||||||||||||
Capital
contributed from the grant of
|
||||||||||||||||||||||||||
stock
options to pay for consulting
|
||||||||||||||||||||||||||
services
|
82,650
|
82,650
|
||||||||||||||||||||||||
Sales
of common stock for cash
|
0
|
0
|
||||||||||||||||||||||||
Amortization
of deferred
|
||||||||||||||||||||||||||
compensation
|
0
|
0
|
||||||||||||||||||||||||
Capital
contributed from deferred
|
||||||||||||||||||||||||||
debt
discount
|
115,600
|
115,600
|
||||||||||||||||||||||||
Net
loss
|
-2,872,237
|
-2,872,237
|
||||||||||||||||||||||||
Balance
at March 31, 2008
|
8,478,530
|
$
|
8,478
|
$
|
—
|
$
|
44,199,662
|
($ |
48,148,168
|
)
|
($ |
3,940,028
|
)
|
Preferred
Stock
|
Common
Stock
|
|||||||||||||||||||||||||
Number
of
Shares
|
Amount
|
Number
of
Shares
|
Amount
|
Deferred
compensation
|
Additional
Paid
in
Capital
|
Deficit
Accumulated
During
the
Development
Stage
|
Total
|
|||||||||||||||||||
Capital
contributed from the exercise
|
||||||||||||||||||||||||||
of
options and warrants
|
33,334
|
33
|
300
|
333
|
||||||||||||||||||||||
Capital
contributed from the grant of
|
||||||||||||||||||||||||||
stock
options to employees
|
|
|
495,261
|
495,261
|
||||||||||||||||||||||
Capital
contributed from the issuance of restricted stock to an employee
(reversing accrual)
|
50,000
|
50
|
-50
|
0
|
||||||||||||||||||||||
Capital
contributed from the grant of
|
||||||||||||||||||||||||||
stock
options to pay for consulting
|
||||||||||||||||||||||||||
services
|
58,150
|
58,150
|
||||||||||||||||||||||||
Sales
of common stock for cash
|
400,000
|
400
|
679,600
|
680,000
|
||||||||||||||||||||||
Amortization
of deferred
|
||||||||||||||||||||||||||
compensation
|
0
|
0
|
||||||||||||||||||||||||
Capital
contributed from deferred
|
||||||||||||||||||||||||||
debt
discount
|
88,110
|
88,110
|
||||||||||||||||||||||||
Net
loss
|
-4,238,148
|
-4,238,148
|
||||||||||||||||||||||||
Balance
at June 30, 2008
|
8,961,864
|
$
|
8,962
|
$
|
—
|
$
|
45,521,033
|
($ |
52,386,316
|
)
|
($ |
6,856,322
|
)
|
Six
months ended
June
30,
|
||
2008
|
2007
|
|
Risk
free interest rate range
|
2.10-3.50%
|
4.52-4.84%
|
Dividend
yield
|
0%
|
0%
|
Expected
volatility
|
81.1%
|
81.1%-96.7%
|
Expected
life in years
|
3-7
|
3-7
|
For
the three months ended
June
30, 2007
|
For
the six months ended
June
30, 2007
|
||||||
(unaudited)
|
(unaudited)
|
||||||
Revenues
|
$
|
875,210
|
$
|
2,173,233
|
|||
Net
loss
|
$
|
(5,303,731
|
)
|
$
|
(7,603,996
|
)
|
|
Pro-forma
basic and diluted net loss per common share
|
$
|
(0.69
|
)
|
$
|
(0.99
|
)
|
|
Weighted
average common shares outstanding - basic and diluted
|
7,707,668
|
7,703,358
|
Three
months ended
June
30, 2007
|
Six
months ended
June
30, 2007
|
||||||
Revenue
|
$
|
1,127
|
$
|
3,227
|
|||
Payroll
and related expenses
|
65,855
|
115,023
|
|||||
General
and administrative expenses
|
80,018
|
125,459
|
|||||
Total
expenses
|
145,873
|
240,482
|
|||||
Loss
from operations
|
(144,746
|
)
|
(237,255
|
)
|
|||
Interest
expense
|
(13,858
|
)
|
(29,909
|
)
|
|||
Loss
from discontinued operations
|
$
|
(158,604
|
)
|
$
|
(267,164
|
)
|
Three
months ended
|
|||||||
June
30, 2008
|
June
30, 2007
|
||||||
Revenue
|
$
|
154,798
|
$
|
861,577
|
|||
Payroll
and related expenses
|
280,748
|
962,569
|
|||||
General
and administrative expenses
|
348,153
|
876,417
|
|||||
Impairment
of goodwill and intangibles
|
176,545
|
1,179,080
|
|||||
Disposal
of fixed asset
|
87,402
|
—
|
|||||
Accrual for closing costs for lease |
1,367,558
|
— | |||||
Depreciation
and amortization
|
34,563
|
52,831
|
|||||
Total
expenses
|
2,294,969
|
3,070,897
|
|||||
Loss
from operations
|
(2,140,171
|
)
|
(2,209,320
|
)
|
|||
Interest
expense
|
(5,408
|
)
|
(233
|
)
|
|||
Other
income
|
2,762
|
—
|
|||||
Loss
from discontinued operations
|
$
|
(2,142,817
|
)
|
$
|
(2,209,553
|
)
|
Six months
ended
|
|||||||
June
30, 2008
|
June
30, 2007
|
||||||
Revenue
|
$
|
303,768
|
$
|
1,976,711
|
|||
Payroll
and related expenses
|
565,758
|
1,893,380
|
|||||
General
and administrative expenses
|
681,829
|
1,456,438
|
|||||
Impairment
of goodwill and intangibles
|
176,545
|
1,179,080
|
|||||
Disposal
of fixed asset
|
87,402
|
—
|
|||||
Accrual
for closing costs for lease
|
1,367,558
|
|
—
|
||||
Depreciation
and amortization
|
70,539
|
91,819
|
|||||
Total
expenses
|
2,949,631
|
4,620,717
|
|||||
Loss
from operations
|
(2,645,863
|
)
|
(2,644,006
|
)
|
|||
Interest
expense
|
(9,095
|
)
|
(443
|
)
|
|||
Other
income (expense)
|
4,339
|
(5,070
|
)
|
||||
Loss
from discontinued operations
|
$
|
(2,650,619
|
)
|
$
|
(2,649,519
|
)
|
2008
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding
at January 1, 2008
|
820,000
|
$
|
4.79
|
4.2
Years
|
$
|
—
|
|||||||
Granted
|
203,000
|
$
|
1.32
|
6.7
Years
|
$
|
—
|
|||||||
Exercised
|
—
|
$
|
—
|
—
|
$
|
—
|
|||||||
Forfeited
or expired
|
(138,000
|
)
|
$
|
4.65
|
—
|
$
|
—
|
||||||
Outstanding
at June 30, 2008
|
885,000
|
$
|
3.01
|
4.9
Years
|
$
|
25,950
|
|||||||
Exercisable
at June 30, 2008
|
717,500
|
$
|
3.26
|
4.8
Years
|
$
|
25,950
|
2008
|
Weighted
Exercise
Average
Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding
at January 1, 2008
|
3,033,434
|
$
|
4.97
|
6.3
Years
|
$
|
—
|
|||||||
Granted
|
1,886,500
|
$
|
1.29
|
5.1
Years
|
$
|
—
|
|||||||
Exercised
|
—
|
$
|
—
|
—
|
$
|
—
|
|||||||
Forfeited
or Expired
|
(155,000
|
)
|
$
|
4.66
|
—
|
$
|
—
|
||||||
Outstanding
at June 30, 2008
|
4,764,934
|
$
|
3.06
|
5.7
Years
|
$
|
384,225
|
|||||||
Exercisable
at June 30, 2008
|
4,589,934
|
$
|
3.15
|
5.7
Years
|
$
|
384,225
|
Three
months ended June
30,
|
|||||||
2008
|
2007
|
||||||
Payroll
and related expenses
|
$
|
495,261
|
$
|
1,574,704
|
|||
General
and administrative expenses
|
$
|
58,150
|
$
|
70,456
|
Six
months ended June 30
|
|||||||
2008
|
2007
|
||||||
Payroll
and related expenses
|
$
|
1,539,930
|
$
|
1,746,654
|
|||
General
and administrative expenses
|
$
|
140,800
|
$
|
221,594
|
2008
|
Weighted
Exercise
Average
Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
Outstanding
at January 1, 2008
|
2,042,770
|
$
|
1.60
|
3.0
Years
|
—
|
||||||||
Granted
|
449,000
|
$
|
1.56
|
4.7
Years
|
—
|
||||||||
Exercised
|
(37,501
|
)
|
$
|
0.01
|
—
|
—
|
|||||||
Forfeited
or Expired
|
(227,802
|
)
|
$
|
3.32
|
—
|
—
|
|||||||
Outstanding
at March 31, 2008
|
2,226,467
|
$
|
1.44
|
3.2
Years
|
$
|
463,705
|
|||||||
Exercisable
at March 31, 2008
|
2,001,467
|
$
|
1.60
|
3.6
Years
|
$
|
463,705
|
For
the Years Ending
December
31,
|
Amount
|
|||
2008
|
$
|
64,673
|
||
2009
|
130,164
|
|||
2010
|
75,929
|
|||
$
|
270,766
|
Write-off
of Fixed Assets
|
$
|
87,402
|
||
Write-off
of Intangibles
|
176,545
|
|||
Accrual
of final lease costs
|
1,367,558
|
|||
Total
charges
|
$
|
1,631,505
|
Write-off
of Fixed Assets
|
$
|
87,402
|
||
Write-off
of Intangibles
|
176,545
|
|||
Accrual
of final lease costs
|
1,367,558
|
|||
Total
charges
|
$
|
1,631,505
|
DEBT RESOLVE, INC. | |
By:
/s/ KENNETH H. MONTGOMERY
Kenneth
H. Montgomery
Chief
Executive Officer
(principal
executive officer
|
|
By:
/s/ DAVID M. RAINEY
David
M. Rainey
President
and Chief Financial Officer
(principal
financial and accounting officer)
|
|