debt_10q.htm

0001477932-12-001924.txt : 20120611 0001477932-12-001924.hdr.sgml : 20120611 20120611061702 ACCESSION NUMBER: 0001477932-12-001924 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120611 DATE AS OF CHANGE: 20120611 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEBT RESOLVE INC CENTRAL INDEX KEY: 0001106645 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 330889197 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33110 FILM NUMBER: 12899264 BUSINESS ADDRESS: STREET 1: 150 WHITE PLAINS ROAD STREET 2: SUITE 108 CITY: TARRYTOWN STATE: NY ZIP: 10591 BUSINESS PHONE: 9149495500 MAIL ADDRESS: STREET 1: 150 WHITE PLAINS ROAD STREET 2: SUITE 108 CITY: TARRYTOWN STATE: NY ZIP: 10591 FORMER COMPANY: FORMER CONFORMED NAME: LOMBARDIA ACQUISITION CORP DATE OF NAME CHANGE: 20000214 10-Q 1 debt_10q.htm FORM 10-Q debt_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2012

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

For the Transition Period from ________ to ___________

Commission File No.: 1-33110

DEBT RESOLVE, INC.

(Exact name of registrant as specified in its charter)

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

150 White Plains Road, Suite 108 Tarrytown, New York		10591
(Address of principal executive offices)		(Zip Code)

(914) 949-5500

(Issuer's telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

As of May 21, 2012, 87,387,703 shares of the issuer's Common Stock were outstanding.

DEBT RESOLVE, INC.

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Balance Sheets at March 31, 2012 (unaudited) and December 31, 2011	3

	Condensed Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (unaudited)	4

	Condensed Statements of Stockholders' Deficiency from January 1, 2012 through March 31, 2012 (unaudited)	5

	Condensed Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (unaudited)	6

	Notes to Condensed Financial Statements (unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4T.	Controls and Procedures	24

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 1A.	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

	Signature	29

	CERTIFICATIONS

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DEBT RESOLVE, INC.

CONDENSED BALANCE SHEETS

	March 31,			December 31,
	2012			2011
	(unaudited)
ASSETS
Current assets:
Cash	$	15,511		$	26,832
Accounts receivable, net		28,025			26,777
Prepaid expenses and other current assets		49,416			77,738
Total current assets		92,952			131,347

Fixed assets, net		1,868			2,717

Other assets:
Deposits		1,000			1,000

Total assets	$	95,820		$	135,064

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
Accounts payable and other accrued liabilities	$	2,890,115		$	2,740,191
Notes payable, current portion		502,867			502,867
Notes payable-related parties		92,667			81,000
Convertible short-term notes		744,174			345,181
Line of credit, related party		151,000			151,000
Total current liabilities		4,380,823			3,820,239

Long term debt:
Note payable, long term portion		131,250			150,000
Convertible long-term notes		236,511			530,049
Total liabilities		4,748,584			4,500,288

Stockholders' deficiency:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized; 87,137,703 and 85,587,703 shares issued and outstanding as of March 31, 2012 and December 31, 2011 respectively		87,138			85,588
Additional paid in capital		66,929,499			66,726,119
Accumulated deficit		(71,669,401	)		(71,176,931	)
Total stockholders' deficiency		(4,652,764	)		(4,365,224	)

Total liabilities and stockholders' deficiency	$	95,820		$	135,064

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

DEBT RESOLVE, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended March 31,
	2012			2011

REVENUES:	$	48,610		$	35,483

Costs and expenses:
Payroll and related expenses		211,736			154,225
Selling, general and administrative expenses		146,402			328,543
Depreciation and amortization		849			3,128
Total costs and expenses		358,987			485,896

Net loss from operations		(310,377	)		(450,413	)

Other income (expense):
Interest expense		(70,041	)		(58,780	)
Interest expense - amortization of debt discounts		(112,052	)		(107,485	)

Net loss before provision for income taxes		(492,470	)		(616,678	)

Income tax (benefit)		-			-

Net loss	$	(492,470	)	$	(616,678	)

Net loss per common share -basic and diluted	$	(0.01	)	$	(0.01	)

Weighted average number of common shares outstanding used in loss per share calculation, basic and diluted		86,066,824			79,614,932

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

DEBT RESOLVE, INC.

CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY

THREE MONTHS ENDED MARCH 31, 2012

(unaudited)

									Additional
	Preferred stock				Common stock				Paid In		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance, December 31, 2011		-		-		85,587,703		85,588		66,726,119		(71,176,931	)		(4,365,224	)
Sale of common stock, net of costs and fees		-		-		1,550,000		1,550		153,450		-			155,000
Fair value of options issued to employees for services		-		-		-		-		45,000		-			45,000
Deferred debt discount in connection with related party notes payable		-		-		-		-		4,930		-			4,930
Net loss		-		-		-		-		-		(492,470	)		(492,470	)
Balance, March 31, 2012		-	$	-		87,137,703	$	87,138	$	66,929,499	$	(71,669,401	)	$	(4,652,764	)

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

DEBT RESOLVE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

	Three months ended March 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(492,470	)	$	(616,678	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		849			3,128
Amortization of debt discounts		112,052			107,485
Stock based compensation		45,000			-
Changes in operating assets and liabilities:
Accounts receivable		(1,248	)		(7,160	)
Prepaid expenses and other assets		28,322			3,555
Accounts payable and accrued expenses		149,924			418,288
Net cash used in operating activities		(157,571	)		(91,382	)

CASH FLOWS FROM INVESTING ACTIVITIES:		-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		-			(3,603	)
Proceeds from sale of common stock, net of costs and fees		155,000			43,500
Proceeds from issuance of short term notes-related party		10,000			-
Repayment of short term notes		(18,750	)		-
Proceeds from long term notes		-			25,000
Net cash provided by financing activities		146,250			64,897

Net decrease in cash and cash equivalents		(11,321	)		(26,485	)
Cash and cash equivalents at beginning of period		26,832			26,681

Cash and cash equivalents at end of period	$	15,511		$	196

Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	$	4,092		$	3,315
Cash paid during period for taxes	$	-		$	-

Non-cash financing and investing transactions:
Note payable issued for accrued expenses	$	-		$	105,750

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

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

NOTE 1 – BASIS AND BUSINESS PRESENTATION

Debt Resolve, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in April 21, 1997. The Company offers its service as an Application Service Provider (“ASP”) or cloud-based model, enabling clients to introduce this collection option with no modifications to their existing collections computer systems. Its products capitalize on using the Internet as a tool for communication, resolution, settlement and payment of delinquent debt.

Basis of Presentation

These unaudited condensed financial statements have been prepared in accordance with the instructions to the Form 10-Q, and therefore, do not include all the information necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2012. The unaudited condensed financial statements should be read in conjunction with the consolidated December 31, 2011 financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC").

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying unaudited condensed financial statements follows:

Estimates

The preparation of the unaudited condensed financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Reclassification

Certain reclassifications have been made to prior periods' data to conform to the current period's presentation. These reclassifications had no effect on reported income or losses.

Credit Risk

The Company extends credit to large, mid-size and small companies for collection services. At March 31, 2012, three clients represented receivables of $10,000 (36%), $10,000 (36%), and $4,075 (15%). At December 31, 2011, three clients represented receivables of $5,000 (19%), $10,000 (37%) and $11,777 (44%). As of March 31, 2012 and December 31, 2011, no allowance for doubtful accounts has been recognized.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

The Company had two clients accounting for 30.85% and 30.85%; (total of 61.70%) of total revenues for the three months ended March 31, 2012, respectively, and had two clients accounting for 50% and 42%; (total of 92%) of total revenues for the three months ended March 31, 2011.

Income Taxes

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to debt costs.

Net Loss per Share

The Company follows Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 98,205,158 and 89,528,787 for the three months ended March 31, 2012 and 2011, respectively.

Stock-based compensation

Total stock-based compensation expense for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.

Defined Contribution (401k) Plan

The Company maintains a defined contribution (401k) plan for our employees. The plan provides for a company match in the amount of 100% of the first 3% of pre-tax salary contributed and 50% of the next 3% of pre-tax salary contributed. Due to the severe cash limitations that the Company has experienced, the match was suspended from mid-2008 to the present and will only be re-instated when business conditions warrant.

Reliance on Key Personnel and Consultants

The Company has only 4 full-time employees. Additionally, there are 2 consultants performing various specialized services. The Company is heavily dependent on the continued active participation of the President, the Chief Operating Officer and key consultants. The loss of the President, Chief Operating Officer or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.

Recent accounting pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

NOTE 3 – GOING CONCERN MATTERS

The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed financial statements, the Company incurred a net loss of $492,470 for the three months ended March 31, 2012. Additionally, the Company has negative working capital (total current liabilities exceeded total current assets) of $4,287,871 as of March 31, 2012. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has undertaken further steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond to address its lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing.

The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, it may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy.

The accompanying unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2012 and December 31, 2011 are comprised of the following:

	March 31, 2012			December 31, 2011
Computer equipment	$	110,548		$	110,548
Software		42,170			42,170
Telecommunication equipment		3,165			3,165
Office equipment		3,067			3,067
Furniture and fixtures		106,436			106,436
Total		265,386			265,386
Less accumulated depreciation		(263,518	)		(262,669	)
Total	$	1,868		$	2,717

The Company uses the straight line method of depreciation over 3 to 5 years.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of March 31, 2012 and December 31, 2011 are comprised of the following:

	March 31, 2012		December 31, 2011
Accounts payable and accrued expenses	$	1,512,120	$	1,468,691
Accrued interest		632,522		567,469
Payroll and related accruals, net of advance to employees		745,473		704,031
Total	$	2,890,115	$	2,740,191

NOTE 6 – NOTES PAYABLE

As of March 31, 2012 and December 31, 2011, short term notes are as follows:

	March 31, 2012		December 31, 2011
Bank loans	$	256,250	$	275,000
Investor notes payable, 12% per annum, currently in default		377,867		377,867
Total		634,117		652,867
Less current portion		502,867		502,867
Long term portion (only bank loan)	$	131,250	$	150,000

Investor notes payable

On December 21, 2007, an unaffiliated investor loaned the Company $125,000 on an unsecured 18-month note with a maturity date of June 21, 2009. The note has a provision requiring repayment once the Company has raised an aggregate of $500,000 following issuance of this note. As a result, this note is currently in default as it has not been repaid and the Company reached the $500,000 threshold in September, 2008. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, the Company granted to the investor a warrant to purchase 37,500 shares of common stock at an exercise price of $1.07 and an expiration date of December 21, 2012. This note is guaranteed by Mr. Burchetta, a Company director.

On December 30, 2007, an unaffiliated investor loaned the Company $200,000 on an unsecured 18-month note with a maturity date of June 30, 2009. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with this note, the Company also issued a warrant to purchase 100,000 shares of common stock at an exercise price of $1.00 and an expiration date of December 30, 2012. This note is guaranteed by Mr. Burchetta, a Company director. As of March 31, 2012 and December 31, 2011, this note is in default.

On April 10, 2008, an unaffiliated investor loaned the Company an additional $198,000 on an amendment of the prior unsecured note with a maturity date of June 21, 2009 (see above) for the entire balance of the first note plus the amendment ($323,000 total). The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, the Company also issued a warrant to purchase 99,000 shares of common stock at an exercise price of $2.45 and an expiration date of April 10, 2013. This warrant has a "cashless" exercise feature. This note is guaranteed by Mr. Burchetta, a Director of the Company. The note was amended and maintains the provision requiring repayment of the note upon raising gross proceeds of $500,000 subsequent the issuance of the note. At September 30, 2008, the Company had raised in excess of $500,000 subsequent to this amended note, and as a result, this note is in default.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

As of March 31, 2012 and December 31, 2011, the principal balance of the note was $177,867, and is still in default.

Bank loans

On October 7, 2011, a bank loan was issued in the amount of $237,500 at a 6.25% interest rate, with monthly payments of $6,250 maturing on December 1, 2014, and guaranteed by Mr. Mooney. During the three months ended March 31, 2012, the Company repaid $18,750 towards the outstanding note. The outstanding balance on the bank loan as of March 31, 2012 and December 31, 2011 is $206,250 and $225,000, respectively.

On April 15, 2011, the Company borrowed an additional unsecured loan of $50,000 at a rate of 6.25% due on July 1, 2011. The loan was guaranteed by Mr. Mooney. The loan was subsequently extended to September 1, 2011. The Company repaid this loan by paying $25,000 on July 26, 2011 and September 9, 2011. On December 20, 2011, the Company again borrowed an additional unsecured loan of $50,000 at a rate of 6.25% due on April 1, 2012. This loan is again guaranteed by Mr. Mooney. The loan has been extended to July 1, 2012.

NOTE 7 – NOTES PAYABLE, RELATED PARTIES

As of March 31, 2012 and December 31, 2011, notes payable, related parties are as follows:

	March 31, 2012		December 31, 2011
Note payable dated January 14, 2011	$	6,000	$	6,000
Note payable dated April 14, 2011		25,000		25,000
Note payable dated April 15, 2011		25,000		25,000
Note payable dated May 27, 2011		10,000		10,000
Note payable dated January 18, 2012		5,000		-
Note payable dated January 20, 2012		5,000		-
Series A Convertible note, net of unamortized debt discount of $3,333 and $5,000, respectively		16,667		15,000
Total		92,667		81,000
Less current portion		92,667		81,000
Long term portion	$	-	$	-

On January 14, 2011, the President David M. Rainey loaned $6,000 (unsecured) to the Company with a due date of June 30, 2011. The loan has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 60,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,220, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012 and 2011, the Company amortized the debt discount and charged $0 and $1,110, respectively.

On April 14, 2011, the Chief Executive Officer James G. Brakke loaned $25,000 (unsecured) to the Company with a due date of July 31, 2011. The loan has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 250,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

On April 15, 2011, a director William M. Mooney, Jr. loaned $25,000 (unsecured) to the Company with a due date of July 31, 2011. The note has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 250,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.

On May 27, 2011, a director William M. Mooney, Jr. loaned an additional $15,000 (unsecured) (of which $5,000 has been repaid in 2011) to the Company with a due date of September 30, 2011. The note has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 150,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.

On January 18, 2012, the Chief Executive Officer James G Brakke loaned $5,000 (unsecured) to the Company with a demand due date. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 50,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,495, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012, the Company amortized the debt discount and charged $2,495 to interest expense- amortization of debt discount.

On January 20, 2012, a director William M. Mooney, Jr. loaned $5,000 (unsecured) to the Company with a demand due date. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 50,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,435, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012, the Company amortized the debt discount and charged $2,435 to interest expense- amortization of debt discount.

As described in Note 9 below, From June 2009 to March 2010, investors loaned the Company an aggregate of $1,237,459 on three year Series A Convertible Notes with an interest rate of 14%, of which $20,000 was a related party note by the Chief Executive Officer James G. Brakke prior to joining the Company. See Note 9 for full description. . During the three months ended March 31, 2012 and 2011, the Company amortized the debt discount and charged $1,667 and $1,667, respectively, to interest expense - amortization of debt discount.

Total unpaid accrued interest on the notes payable to related parties as of March 31, 2012 and December 31, 2011 was $7,937 and $5,722, respectively. During the three months ended March 31, 2012 and 2011, the Company recorded interest expense of $2,215 and $0, respectively, in connection with the notes payable to related parties.

NOTE 8 – LINE OF CREDIT- RELATED PARTY

On September 24, 2009, the Company entered into an unsecured short term loan with William M. Mooney, a Director of Debt Resolve, for $150,000 to be used to discharge the bridge loans of another investor. Borrowings under the loan bear interest at 12% per annum, with interest accrued and payable on maturity. The Note was due on November 24, 2009 and is still outstanding. In conjunction with this line of credit, the Company also issued a warrant to purchase 150,000 shares of common stock at an exercise price of $0.15 per share with an expiration date of September 24, 2014. On April 6, 2010, a partial repayment of $25,000 of principal was paid. Also, as a result of the delinquent repayment of the note, a penalty of $69,000 was incurred on April 15, 2010. On August 17, 2010, a partial payment of $50,000 of principal was made on the line of credit. Unpaid accrued interest on this loan as of March 31, 2012 and December 31, 2011 was $51,227 and $46,710, respectively. As of March 31, 2012 and December 31, 2011, the outstanding balance on this loan was $151,000. The loan matured on November 24, 2009 and is currently in default. During the three months ended March 31, 2012 and 2011, the Company recorded $4,517 and $4,468, respectively, as interest expense.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

NOTE 9 – CONVERTIBLE NOTES

Convertible notes are comprised of the following:

	March 31, 2012			December 31, 2011
Series A Convertible Notes, net of unamortized debt discount of $178,667 and $246,750, respectively	$	638,333		$	570,250
Series B Convertible Notes, net of unamortized debt discount of $70,363 and $88,884, respectively		154,637			136,116
Series C convertible Notes, net of unamortized debt discount of $91,008 and $109,003, respectively		168,992			150,997
Series D Convertible Notes, net of unamortized debt discount of $6,277 and $7,133, respectively		18,723			17,867
Total		980,685			875,230
Less: Current portion		(744,174	)		(345,181	)
Long term portion	$	236,511		$	530,049

From June 2009 to March 2010, unaffiliated investors loaned the Company an aggregate of $1,217,459 (excluding $20,000 related party, see Note 7) on three-year Series A Convertible Notes with an interest rate of 14%. The interest accrues and is payable at maturity, which range in dates from August 2012 to March 2013. The conversion price is set at $0.15 per share. The Notes carry a first lien security interest in all of the assets of the Company. In addition, the investors received 12,174,590 warrants to purchase the common stock of the Company at an exercise price of $1.00. On January 21, 2010, the exercise price was reduced to $0.40 due to certain provisions of the warrants. The exercise period of the warrants is five years. The notes were recorded net of a deferred debt discount of $1,143,268, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $68,083 and $67,620, respectively.

During year ended December 31, 2010, unaffiliated investors loaned the Company an aggregate of $275,000 on three-year Series B Convertible Notes with an interest rate of 14%. During the year ended December 31, 2010, $50,000 was repaid in cash, leaving a balance of $225,000 on these notes at December 31, 2011 and 2010. The interest accrues and is payable at maturity. The conversion price is set at $0.15 per share. The Notes carry a first lien security interest in all of the assets of the Company with the Series A notes above. In addition, at conversion, the investors will receive 900,000 warrants to purchase the common stock of the Company at an exercise price of $0.40 per share. The warrants are callable when the Company's stock trades above $0.75 per share for 10 consecutive trading days. The notes were recorded net of a deferred debt discount of $264,324, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $18,521 and $18,522, respectively. The Series B Convertible Notes had a liquidated damages clause requiring a registration statement to be filed within 90 days of the last closing, or damages of 1% of shares for the next 90 days until filed are assessed. No registration statement was filed. The last closing occurred on April 22, 2010. The initial 90 day period expired on July 21, 2010. The damages accrued until October 19, 2010. The value of these damages of $105,750 is accrued for the year ended December 31, 2010. The 1,762,500 shares were issued on January 31, 2011 in full settlement of the damages with no remaining liability under the clause.

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

During the year ended December 31, 2010, unaffiliated investors loaned the Company an aggregate of $260,000 on three-year Series C Convertible Notes with an interest rate of 14%. The interest accrues and is payable at maturity. The conversion price was set at $0.15 per share. The notes carry a first lien security interest with the Series A and B notes above in all of the assets of the Company. In addition, the investors received 2,641,670 warrants to purchase the common stock of the Company at an exercise price of $0.40 per share. The series C notes have a “ratchet” provision resetting the conversion price to $0.10 and the warrant exercise price to $0.25 on the first closing of a subsequent offering with those terms. This “ratchet” was triggered on August 12, 2010 with the completion of the minimum closing of $1,500,000 on a $3,000,000 private placement. Additionally, as a result of the delay in filing a registration statement on the private placement”, the Series C Warrants have become “cashless”, along with the warrants from the private placement. There is no further effect from this “ratchet” event. The notes were recorded net of a deferred debt discount of $215,940, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $17,995 and $17,995, respectively.

During the year ended December 31, 2011, the Company issued an aggregate of $25,000 of Series D Convertible Notes with an interest rate of 14% due three years from the date of issuance. The interest accrues and is payable at maturity. The conversion price is set at $0.12 per share. The investors have a second lien position behind the Series A, B and C notes. In addition, the investors received 250,000 warrants to purchase the common stock of the Company at an exercise price of $0.30 per share over five years. The notes were recorded net of deferred debt discount of $10,271 based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount relating to these notes of $856 and $571, respectively.

Aggregate Maturity of Long-Term convertible notes, if not converted, as of March 31, 2012 are as follows:

Year	Amount
2012		509,500
2013		812,500
2014		25,000
Total		1,347,000
Less Related party (Note 7)		20,000
Less Debt Discount		346,315
	$	980,685

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

NOTE 10 – WARRANTS AND OPTIONS

Warrants

The following table summarizes warrants outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Warrants Exercisable Weighted Average Exercise Price
$	0.10		1,771,600		3.38	$	0.10		1,771,600	$	0.10
	0.15		4,183,334		2.90		0.15		4,183,334		0.15
	0.25		42,081,750		3.52		0.25		42,081,750		0.25
	0.30		250,000		3.86		0.30		250,000		0.30
	0.40		12,974,590		2.82		0.40		12,974,590		0.40
	1.00		678,000		0.49		1.00		678,000		1.00
	1.07		37,500		0.73		1.07		37,500		1.07
	1.25		350,000		0.83		1.25		350,000		1.25
	1.95		50,000		0.99		1.95		50,000		1.95
	2.00		137,500		0.55		2.00		137,500		2.00
	2.45		99,000		1.02		2.45		99,000		2.45
Total			62,613,274		3.27	$	0.29		62,613,274	$	0.29

Transactions involving the Company's warrant issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2010		49,407,195		$	0.33
Issued		10,610,000			0.25
Exercised		(87,254	)		(0.09	)
Canceled or expired		(516,667	)		(2.68	)
Outstanding at December 31, 2011		59,413,274			0.30
Issued		3,200,000			0.25
Exercised		-			-
Expired		-			-
Outstanding at March 31, 2012		62,613,274		$	0.29

In conjunction with the sale of the Company's common stock during 2012, the Company issued warrants to purchase 3,100,000 shares of common stock with an exercise price of $0.25 per share expiring five years from the date of issuance.

In conjunction with issuance of short term notes to related parties during 2012, the Company issued an aggregate of warrants to purchase an aggregate of 100,000 shares of common stock with an exercise price of $0.25 per share expiring five years from the date of issuance. The fair value of the warrants was determined using the Black-Scholes option pricing method with the following assumptions: Dividend yield: 0%; Volatility: 280.93% to 282.20%; and Risk free rate: 0.82% to 0.91% and was amortized and charged to interest expense-amortization of debt discount over the term of the related notes (see Note 7).

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

Non-Employee Options

The following table summarizes non-employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Option Outstanding Options Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Options Exercisable Weighted Average Exercise Price
$	0.10		4,250,000		4.84	$	0.10		650,000	$	0.10
	0.13		500,000		5.26		0.13		500,000		0.13
	0.70		75,000		3.19		0.70		75,000		0.70
	1.84		25,000		3.17		1.84		25,000		1.84
Total			4,850,000		4.85	$	0.12		1,250,000	$	0.18

Transactions involving the Company's non-employee option issuance are summarized as follows:

	Number of Shares		Weighted Average Price Per Share
Outstanding at December 31, 2010		4,603,000	$	0.13
Issued		250,000		0.10
Exercised		--		--
Canceled or expired		--
Outstanding at December 31, 2011		4,850,000	$	0.12
Issued		-		-
Exercised		-		-
Expired		-		-
Outstanding at March 31, 2012		4,850,000	$	0.12

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

Employee Options

The following table summarizes employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Option Outstanding Options Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Options Exercisable Weighted Average Exercise price
$	0.06		3,500,000		6.17	$	0.06		2,000,000	$	0.06
	0.09		250,000		6.68		0.09		250,000		0.09
	0.095		500,000		6.80		0.095		500,000		0.095
	0.15		250,000		1.63		0.15		250,000		0.15
	0.17		4,500,000		5.02		0.17		4,500,000		0.17
	0.19		1,000,000		4.36		0.19		1,000,000		0.19
	0.20		250,000		1.06		0.20		250,000		0.20
	0.22		175,000		5.00		0.22		175,000		0.22
	0.80		350,000		2.82		0.80		350,000		0.80
	1.00		350,000		3.29		1.00		350,000		1.00
	1.25		634,500		2.51		1.25		634,500		1.25
	1.40		350,000		3.45		1.40		350,000		1.40
	1.50		243,500		1.74		1.50		243,500		1.50
	1.63		20,000		3.21		1.63		20.000		1.63
	1.84		10,000		3.17		1.84		10,000		1.84
	4.75		203,000		2.07		4.75		203,000		4.75
	5.00		1,829,934		4.03		5.00		1,829,934		5.00
	10.00		20,000		1.49		10.00		20,000		10.00
Total			14,435,934		4.74	$	0.97		12,935,934	$	0.97

Transactions involving the Company's employee option issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2010		12,026,934		$	1.50
Issued		3,750,000			0.06
Exercised		--			--
Canceled or expired		(1,821,000	)		2.44
Outstanding at December 31, 2011		13,955,934			0.99
Issued		500,000			0.095
Exercised		--			--
Expired		(20,000	)		1.50
Outstanding at March 31, 2012		14,435,934		$	0.97

DEBT RESOLVE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2012

During the three months ended March 31, 2012, the Board granted stock options to purchase 500,000 shares of common stock of the Company at exercise price of $0.095 with exercise period of seven years to an existing employee, fully vested. The grant was valued using the Black-Scholes model and had a value of $45,000 and was charged to operations for the three months ended March 31, 2012. The fair value of the options was determined using the Black-Scholes option pricing method with the following assumptions: Dividend yield: 0%; Volatility: 282.58%; and Risk Free rate: 1.31%

Total stock-based compensation expense for employee options for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Litigation

On July 17, 2008, Dreier LLP, a law firm, filed a complaint in the Supreme Court of New York, County of New York, seeking damages of $311,023.32 plus interest for legal services allegedly rendered to us. The complaint was answered on August 14, 2008 raising various affirmative defenses. On December 16, 2008, Dreier LLP filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. The case has been on hold since the bankruptcy filing. On March 18, 2009, the Company filed a counterclaim in the bankruptcy court for legal malpractice and the defenses raised in the previously filed answer. The full amount in dispute is included in the Company’s accounts payable. The bankruptcy case has stayed this litigation and is still pending at this time. However, the Company believes that based on bankruptcy law this action will be discharged along with the bankruptcy case following distribution of the assets of the estate with no liability to us.

From time to time, the Company is involved in various litigation matters in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations.

NOTE 12 – RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2012 and 2011, certain Company directors personally guarantee the Company's notes payable and its' bank loan (Notes 6). Also, certain directors and officers made short-term loans as discussed in Note 7. Total interest expense in connection with notes payable to related parties and related party line of credits amounted $6,732 and $4,468 for the three months ended March 31, 2012 and 2011, respectively (Note 7 and Note 8).

NOTE 13 – SUBSEQUENT EVENTS

On April 19, 2012, the Company issued 250,000 shares to a consultant in compensation for investor relations services.

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

Overview

Since completing initial product development in early 2004, our primary business has been providing software solutions to consumer lenders or those collecting on those consumer loans based on our proprietary DR Settle™ solution, our Internet-based bidding system that facilitates the settlement and collection of defaulted consumer debt via the Internet. In 2010, we launched two other solutions, DR Prevent™ for early stage collections and DR Collect™, a solution specifically tailored to agencies and law firms. We have marketed our services primarily to consumer banks, collection agencies, collection law firms and the buyers of defaulted debt in the United States, Europe and Asia. We intend to market our services 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 or payday lenders. We believe that consumers who incurred their debt over the Internet will be quite 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. Also, there are significant opportunities for us in healthcare with hospitals and large provider groups. We believe that expanding to more recently past-due portfolios of such debt will result in higher settlement volumes, improving our clients’ profitability by increasing their collections while reducing their cost of collections. We do not anticipate any material incremental costs associated with developing our capabilities and marketing to these creditors, as our existing Debt Resolve solutions can already handle most types of debt, and we make contact with these creditors in our normal course of business. However, we are continually upgrading our solutions to address specific client needs or to open new markets for our web solutions with our existing staff.

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 companies who may provide local, outsourced European customer service support for us on an as needed basis, the expense of which will be variable with the level of business activity. We may incur additional costs, which we cannot anticipate at this time, if we expand into Canada and other countries. However, none of these additional costs that we are aware of at this time are material to our current cost structure or would impact our financial results in a material way.

Our marketing and client support goals are currently focused entirely on increasing revenue in the short term. Once we begin to approach breakeven on a cash basis, we expect our operating expenses to grow in line with revenues for an initial period as we employ additional technicians, sales people and client support representatives, although the rate of increase will level out. We expect that salaries and other compensation expenses will continue to be our largest category of expense, while travel, legal, audit and other sales and marketing expenses will grow as we expand our sales, marketing and support capabilities. In addition, we expect to incur moderate capital expenditures to upgrade our data center and provide for geographic redundancy. No additional costs of these types will be incurred until our revenues increase to the point that facilitates additional costs. Our current strategy focuses entirely on increasing revenue substantially within our current resources. Our current lean staffing does somewhat limit the number of new clients that we can implement each month and will eventually affect the number of clients that we can effectively support with our current cost structure.

In 2011, we adopted a business strategy of partnering with well known collection industry providers, including shop floor collection software providers, payment processors and other industry service vendors. We believe that partnering with these established industry providers will accelerate our sales effort, as these partners market our solutions to their existing client bases. We are integrating our solutions with their technology, and our partners are beginning their marketing efforts at this time.

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 and to document the performance of our solutions in each market to provide strong return-on-investment data to these prospective clients. Our recent clients tell us that they are happy with the results that they are getting. However, there is still an extensive sales process to get prospective clients comfortable with using web-based collection technology. As a result, our sales cycle tends to be longer in some cases than what is required from a technical perspective. We can have new clients up and running typically in 30 days or less, but the sales cycle may extend this period to 60-90 days with some prospective clients.

Our current contracts provide that we will earn revenue based on a percentage of the amount of debt collected from accounts submitted on our Debt Resolve solutions, flat fees per settlement achieved, flat fees per account placed, or a flat monthly fee. Although other revenue models have been proposed, most revenue earned to date has been determined using these methods, and such revenue is recognized when the settlement amount of debt is collected by our client or at the beginning of each month. For the early adopters of our system, we waived set-up fees and other transactional fees that we anticipate charging on a going-forward basis. While the percent of debt collected will continue to be a revenue recognition method going forward, other payment models are also being offered to clients and may possibly become our preferred revenue model. Most contracts currently in process include provisions for set up fees and base revenue on a flat monthly or annual fee, in the aggregate or per account, with some contracts having a small transaction fee on debt settlement as well. In addition, with respect to our early delinquency stage DR Prevent module, we expect that a fee per account on our system, and/or the hybrid revenue model which will include both fees per account and transaction fees at settlement, may become the preferred revenue methods. In October 2010, we launched a new application, DR Collect, which targets collection agencies and collection law firms on a flat monthly fee basis. Finally, we launched iSettleNow.com in late 2011 that charges new clients a setup fee and a percent of payments made through the solution. 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.

For the three months ending March 31, 2012 and 2011, we had significantly inadequate revenues and incurred a net loss of $492,470 and $616,678, respectively, from operations. Cash used in operating activities was $157,571 for the three months ended March 31, 2012. Cash used in operating activities was $632,355 for the year ended December 31, 2011. Based upon projected operating expenses, we believe that our working capital as of the date of this report may not be sufficient to fund our plan of operations for the next twelve months. The aforementioned factors raise substantial doubt about our ability to continue as a going concern.

We need to raise additional capital in order to be able to accomplish our business plan objectives. We have historically satisfied our capital needs primarily from the sale of debt and equity securities. We are continuing our efforts to secure additional funds through debt and/or equity instruments. The principal sources of capital for us are private individual accredited investors and investment banks specializing in raising capital for micro-cap companies like us. Since 2009, the principal source of funding for us has been these private accredited investors, who have invested $1,747,000 in notes (including convertible notes) and $792,500 in stock purchases or a total of $2,539,500.

In addition, we closed a private placement with an investment bank in 2010 for gross proceeds of $1,600,000 in stock purchases. Also, a bank loaned us $300,000 of which $256,250 is still outstanding as of March 31, 2012. Finally, board members and management have loaned us $230,000 that has not been repaid or converted to stock and has provided either short term or longer term capital to us. These totals do not include other short term loans principally from non-affiliated third parties that were loaned to us and repaid since 2009.

We expect revenue to increase in 2012 based on current contracts and our sales pipeline by approximately 200% from calendar 2011. During 2011, we used approximately $650,000 in cash plus we increased our accounts payable and accrued expenses for operations (excluding accrued interest) by another $350,000, for a total cash need of $1 million in 2011, with revenue of only $138,000. We expect similar expenses in 2012 and also have maturing notes of $500,000. Many of our partnerships that are currently driving revenue growth are only beginning to become active, and revenue for 2012 may substantially exceed the 200% increase based on current partnership agreements in place.

In addition to increasing revenue, we previously focused on improving our balance sheet to facilitate further investment. Our balance sheet enhancement efforts have resulted in significant dilution to our existing shareholders as certain liabilities were converted to stock. In addition, some of these conversions resulted in concentrated large illiquid blocks of our shares which may overhang our trading for extensive periods of time. This restructuring was substantially completed in October 2010. Our efforts removed approximately $8 million of current liabilities from the balance sheet at June 30, 2009 that was filed on our Form 10-Q on August 19, 2009. The liabilities converted or settled were certain ones that existed on that balance sheet date. The conversion to equity of some of these liabilities resulted in the issuance of approximately 23.6 million shares. Approximately $377,000 of notes from that period remain outstanding that are subject to later conversion at a conversion rate of $0.10 per share.

Since most of the restructuring has been substantially completed, there would not be significant additional shares issued or dilution for this reason, except for the $377,000 of notes discussed above that have the potential for the issuance of 3,770,000 shares plus additional shares for accrued interest. Also, there will not be further large blocks of liabilities removed going forward as there was during the period July 1, 2009 to October 31, 2010. While the improvements have enhanced our balance sheet and therefore made securing additional funding more practical, the remaining liabilities will have to be paid down over time and will consume a portion of free cash flow post-profitability. Also, even though the balance sheet has improved significantly since June 30, 2009, there is no assurance that we will be successful in raising additional capital to continue operations until we reach profitability.

Results of Operations for the Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

Revenues

Revenues totaled $48,610 and $35,483 for the three months ended March 31, 2012 and 2011, respectively. We earned revenue during the three months ended March 31, 2012 and 2011 as a percent of debt collected, on a fee per settlement and on a flat monthly fee basis.

Costs and Expenses

Payroll and related expenses. Payroll and related expenses amounted to $211,736 for the three months ended March 31, 2012, as compared to $154,225 for the three months ended March 31, 2011, an increase of $57,511. The increase mainly resulted from the stock based compensation issued in 2012 for $45,000. We did not have any employee stock compensation expense in the three months ended March 31, 2011. Salaries were $143,350 and $132,500 in the three months ended March 31, 2012 and 2011, respectively, as one employee was added after the 2011 quarter. Employee benefits were $23,386 and $21,725 in the three months ended March 31, 2012 and 2011, respectively.

General and administrative expenses. General and administrative expenses amounted to $146,402 for the three months ended March 31, 2012, as compared to $328,543 for the three months ended March 31, 2011, a decrease of $182,141. Service fees were $45,224 and $64,887 for the three months ended March 31, 2012 and 2011, respectively. Stock compensation to consultants was $0 for the three months ended March 31, 2012 and 2011. Occupancy expense was $7,076 and $3,000 for the three months ended March 31, 2012 and 2011, respectively. Telecommunications expense was $14,248 and $14,339 for the three months ended March 31, 2012 and 2011, respectively. Accounting expenses decreased to $38,421 for the three months ended March 31, 2012 from $96,575 for the three months ended March 31, 2011. We had more accounting services and billings received in the first quarter of 2011, whereas in 2012 more accounting services and billings were received in the second quarter of 2012. Travel, marketing, insurance and legal expense were $4,825, $7,498, $25,536 and $-0- in the three months ended March 31, 2012 compared with $4,801, $19,572, $28,922 and $86,303 in the three months ended March 31, 2011. The decrease in legal fees was primarily due to most legal matters being handled internally by the President, chief financial Officer and Acting General Counsel subsequent to the first quarter of 2011. Other miscellaneous general and administrative expenses were $3,574 and $10,144 for the three months ended March 31, 2012 and 2011, respectively.

Depreciation and amortization expense. For the three months ended March 31, 2012 and 2011, we recorded depreciation expense of $849 and $3,128, respectively. Depreciation expense for the three months ended March 31, 2012 is lower due to the full depreciation of some assets after March 31, 2011.

Interest (expense). We recorded interest expense of $70,041 for the three months ended March 31, 2012 compared to interest expense of $58,780 for the three months ended March 31, 2011. Interest expense increased due to the issuance of new notes in 2011 and 2012.

Amortization of deferred debt discount. Amortization expense of $112,052 and $107,485 was incurred for the three months ended March 31, 2012 and 2011, respectively, for the amortization of the value of the deferred debt discount associated with certain of our notes payable. Amortization expense increased due to the issuance of new notes during 2011 and 2012.

Liquidity and Capital Resources

As of March 31, 2012, we had a working capital deficiency (total current liabilities exceeded total current assets) in the amount of $4,287,871 and cash and cash equivalents totaling $15,511. We reported a net loss of $492,470 for the three months ended March 31, 2012. Net cash used in operating activities was $157,571 for the three months ended March 31, 2012. Cash flow provided by financing activities was $146,250 for the three months ended March 31, 2012. As of December 31, 2011, we had a working capital deficiency (total current liabilities exceeded total current assets) in the amount of $3,838,892 and cash and cash equivalents totaling $26,832. Our working capital as of the date of this report is negative and is not sufficient to fund our plan of operations for the next year. The aforementioned factors raise substantial doubt about our ability to continue as a going concern.

We have historically satisfied our capital needs primarily from the sale of debt and equity securities. We are continuing our efforts to secure additional funds through debt and/or equity instruments. The principal sources of capital for us are private individual accredited investors and investment banks specializing in raising capital for micro-cap companies like us. Since 2009, the principal source of funding for us has been these private accredited investors, who have invested $1,747,000 in notes (including convertible notes) and $792,500 in stock purchases or a total of $2,384,500. In addition, we closed a private placement with an investment bank in 2010 for gross proceeds of $1,600,000 in stock purchases. Also, a bank loaned us $300,000 of which $256,250 is still outstanding as of March 31, 2012. Finally, board members and management have loaned us $220,000 that has not been repaid or converted to stock and has provided either short term or longer term capital to us. These totals do not include other short term loans principally from non-affiliated third parties that were loaned to us and repaid since 2009.

We have successfully raised capital for our day-to-day operations since our inception in January 2003; however, no assurance can be provided that we will continue to be able to do so. There is no assurance that any funds secured will be sufficient to enable us to attain profitable operations or continue as a going concern. To the extent that we are unsuccessful, we may need to curtail our operations and implement a plan to extend payables and reduce overhead until sufficient additional capital is raised to support further operations. At any time until substantial capital is raised, there is also a significant risk of bankruptcy. There can be no assurance that any plan to raise additional funding will be successful. It is quite challenging in the current environment to raise money given the initial delays in generating meaningful revenue. We constantly speak with banks or investors, but the yield is low. Unless our revenue grows quickly, it may not be possible to demonstrate the progress investors require to secure additional funding. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On January 18, 2012, our Chief Executive Officer James G Brakke loaned $5,000 (unsecured) to the Company with a demand due date. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 50,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.

In the first quarter of 2012, private investors purchased 1,550,000 shares of common stock for proceeds of $155,000. In addition, the investors received 3,100,000 warrants to purchase our common stock at an exercise price of $0.25. The warrants have a five year exercise period and are 50% “cashless” and 50% cash exercise.

Critical Accounting Policies and Estimates

Use of estimates

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

Stock-based compensation

We account for stock options issued under the recognition and measurement principles of Accounting Standards Codification subtopic 718-10, Compensation ("ASC 718-10"). Under the provisions of ASC 718-10, we are required to measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the award is measured on the grant date and for non-employees, the award is generally re-measured on interim financial reporting dates until the service period is complete, in accordance with ASC 718-10. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Total stock-based compensation expense for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.

Recent Accounting Pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

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-K for the year ended December 31, 2011, filed on April 16, 2012, in the section labeled "Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you not to place undue reliance on any forward-looking statements, all of which speak only as of the date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

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

Limitations on the Effectiveness of Controls

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

Internal Control over Financial Reporting

The Company's independent registered public accounting firm has reported to our audit committee certain matters involving internal controls that this firm considered to be reportable conditions and a material weakness, under standards established by Public Company Accounting Oversight Board. The reportable conditions and material weakness relate to a limited segregation of duties at the Company. Segregation of duties within our company is limited due to the small number of employees that are assigned to positions that involve the processing of financial information.

Specifically, certain key financial accounting and reporting personnel had an expansive scope of duties that allowed for the creation, review, approval and processing of financial data without independent review and authorization for preparation of consolidation schedules and resulting financial statements and related disclosures. We did not maintain a sufficient depth of personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of Generally Accepted Accounting Principles commensurate with financial reporting requirements. Accordingly, we place undue reliance on the finance team at corporate headquarters, specifically the executive who is our President and Chief Financial Officer and outside accounting professionals. Accordingly, management has determined that this control deficiency constitutes a material weakness. This material weakness could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. In addition, due to limited staffing, the Company is not always able to detect minor errors or omissions in reporting.

Going forward, management anticipates that additional staff will be necessary to mitigate these weaknesses, as well as to implement other planned improvements. Additional staff will enable us to document and apply transactional and periodic controls procedures, permit a better review and approval process and improve quality of financial reporting. However, the potential addition of new staff is contingent on obtaining additional financing, and there is no assurance that the Company will be able to do so.

Management believes that its unaudited condensed financial statements for the three months ended March 31, 2012 and 2011 fairly presented, in all material respects, its financial condition and results of operations. During the three months ended March 31, 2012, there were no changes to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Lawsuits from vendors

Item 1A. Risk Factors

As a "small reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

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

During the three months ended March 31, 2012, unaffiliated investors bought 1,550,000 shares of common stock in an aggregate of $155,000. In addition, the investors received 3,100,000 warrants to purchase the common stock of the Company at an exercise price of $0.25 per share. The warrants have a five year exercise period and are 50% “cashless” and 50% cash at exercise.

Item 3. Defaults upon Senior Securities

On December 21, 2007, an unaffiliated investor loaned us $125,000 on an unsecured 18-month note with a maturity date of June 21, 2009. The note has a provision requiring repayment once we raised an aggregate of $500,000 following issuance of this note. As a result, this note is currently in default as it has not been repaid and we reached the $500,000 threshold in September, 2008. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, we granted to the investor a warrant to purchase 37,500 shares of common stock at an exercise price of $1.07 and an expiration date of December 21, 2012. This note is guaranteed by Mr. Burchetta, a Company director. On April 10, 2008, we borrowed an additional $198,000 from this investor. Please see discussion below.

On December 30, 2007, an unaffiliated investor loaned us $200,000 on an 18-month note with a maturity date of June 30, 2009. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with this note, the Company also issued a warrant to purchase 100,000 shares of common stock at an exercise price of $1.00 and an expiration date of December 30, 2012. This note is guaranteed by Mr. Burchetta, a Company director. As of March 31, 2012, this note has matured and is still outstanding and is in default at this time. The Company is in discussions with the lender.

On April 10, 2008, an unaffiliated investor loaned us an additional $198,000 on an amendment of the prior unsecured note with a maturity date of June 21, 2009 for the entire balance of the first note plus the amendment ($323,000 total). The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. The outstanding principal and interest may be repaid, in whole or in part, at any time without prepayment penalty. In conjunction with the note, we also issued a warrant to purchase 99,000 shares of common stock at an exercise price of $2.45 and an expiration date of April 10, 2013. This warrant has a "cashless" exercise feature. This note is guaranteed by Mr. Burchetta, a Director of the Company. The amended note maintains the provision requiring repayment of the note upon raising gross proceeds of $500,000 subsequent the issuance of the note. At September 30, 2008, we had raised in excess of $500,000 subsequent to this amended note, and as a result, this note is in default. We also issued 50,000 shares of common stock valued at $122,130 in order to induce the investor to forbear on the note, which is included in expenses. On February 12, 2010, we converted $74,867 of accrued interest through January 2010 and $65,133 of principal on the note to stock. On August 27, 2010, we repaid $80,000 in principal on the note, leaving a remaining balance of $177,867 plus accrued interest due on the note as of March 31, 2012. As of March 31, 2012, this note has matured and is still outstanding and is in default at this time.

Item 4. Mining Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits and Filings on Form 8-K (incorporated by reference)

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.

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** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections

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.

	DEBT RESOLVE, INC.

Dated: June 11, 2012	By:	/s/ Michael J. Cassella
		Michael J. Cassella
		Co-Chairman and Chief Executive Officer
		(Principal executive officer)

	By:	/s/ David M. Rainey
		David M. Rainey
		President and Chief Financial Officer
		(Principal financial and accounting officer)

EX-31.1 2 debt_ex311.htm CERTIFICATION debt_ex311.htm

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Michael J. Cassella, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Debt Resolve, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: June 11, 2012	By:	/s/ MICHAEL J. CASSELLA
		Michael J. Cassella
		Co-Chairman and Chief Executive Officer

EX-31.2 3 debt_ex312.htm CERTIFICATION debt_ex312.htm

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, David M. Rainey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Debt Resolve, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: June 11, 2012	By:	/s/ DAVID M. RAINEY
		David M. Rainey
		President and Chief Financial Officer

EX-32.1 4 debt_ex321.htm CERTIFICATION debt_ex321.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Debt Resolve, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Cassella, Co-Chairman and Chief Executive Officer and I, David M. Rainey, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 11, 2012	By:	/s/ MICHAEL J. CASSELLA
		Michael J. Cassella
		Co-Chairman and Chief Executive Officer
	By:	/s/ DAVID M. RAINEY
		David M. Rainey
		President and Chief Financial Officer

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Debt Resolve, Inc. (the Company) was incorporated under the laws of the State of Delaware in April 21, 1997. The Company offers its service as an Application Service Provider (ASP) or cloud-based model, enabling clients to introduce this collection option with no modifications to their existing collections computer systems. Its products capitalize on using the Internet as a tool for communication, resolution, settlement and payment of delinquent debt.   Basis of Presentation   These unaudited condensed financial statements have been prepared in accordance with the instructions to the Form 10-Q, and therefore, do not include all the information necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.   In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2012. The unaudited condensed financial statements should be read in conjunction with the consolidated December 31, 2011 financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC").

A summary of the significant accounting policies applied in the presentation of the accompanying unaudited condensed financial statements follows:   Estimates The preparation of the unaudited condensed financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.   Reclassification Certain reclassifications have been made to prior periods' data to conform to the current period's presentation. These reclassifications had no effect on reported income or losses.   Credit Risk The Company extends credit to large, mid-size and small companies for collection services. At March 31, 2012, three clients represented receivables of $10,000 (36%), $10,000 (36%), and $4,075 (15%). At December 31, 2011, three clients represented receivables of $5,000 (19%), $10,000 (37%) and $11,777 (44%). As of March 31, 2012 and December 31, 2011, no allowance for doubtful accounts has been recognized.   The Company had two clients accounting for 30.85% and 30.85%; (total of 61.70%) of total revenues for the three months ended March 31, 2012, respectively, and had two clients accounting for 50% and 42%; (total of 92%) of total revenues for the three months ended March 31, 2011.   Income Taxes The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to debt costs.   Net Loss per Share  The Company follows Accounting Standards Codification subtopic 260-10, Earnings Per Share (ASC 260-10) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 98,205,158 and 89,528,787 for the three months ended March 31, 2012 and 2011, respectively.   Stock-based compensation Total stock-based compensation expense for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.   Defined Contribution (401k) Plan The Company maintains a defined contribution (401k) plan for our employees. The plan provides for a company match in the amount of 100% of the first 3% of pre-tax salary contributed and 50% of the next 3% of pre-tax salary contributed. Due to the severe cash limitations that the Company has experienced, the match was suspended from mid-2008 to the present and will only be re-instated when business conditions warrant.   Reliance on Key Personnel and Consultants  The Company has only 4 full-time employees. Additionally, there are 2 consultants performing various specialized services. The Company is heavily dependent on the continued active participation of the President, the Chief Operating Officer and key consultants. The loss of the President, Chief Operating Officer or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.   Recent accounting pronouncements There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Companys financial position, results of operations or cash flows.

The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed financial statements, the Company incurred a net loss of $492,470 for the three months ended March 31, 2012. Additionally, the Company has negative working capital (total current liabilities exceeded total current assets) of $4,287,871 as of March 31, 2012. These factors among others raise substantial doubt about the Companys ability to continue as a going concern.   The Company has undertaken further steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond to address its lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing.   The Companys continued existence is dependent upon managements ability to develop profitable operations and resolve its liquidity problems. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, it may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy.   The accompanying unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Property and equipment at March 31, 2012 and December 31, 2011 are comprised of the following:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> March 31, 2012</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> December 31, 2011</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Computer equipment</td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">110,548</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">110,548</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Software</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">42,170</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">42,170</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Telecommunication equipment</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,165</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,165</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Office equipment</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,067</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,067</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Furniture and fixtures</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">106,436</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">106,436</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Total</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">265,386</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">265,386</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Less accumulated depreciation</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(263,518</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(262,669</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td></tr> <tr style="background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; vertical-align: bottom; text-align: left">Total</td> <td style="vertical-align: top; padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; vertical-align: top">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; vertical-align: top; text-align: right">1,868</td> <td style="vertical-align: top; padding-bottom: 2.7pt"> </td> <td style="vertical-align: top; padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; vertical-align: top">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; vertical-align: top; text-align: right">2,717</td> <td style="vertical-align: top; padding-bottom: 2.7pt"> </td></tr> </table>   The Company uses the straight line method of depreciation over 3 to 5 years.

Accounts payable and accrued liabilities as of March 31, 2012 and December 31, 2011 are comprised of the following:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> March 31, 2012</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> December 31, 2011</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Accounts payable and accrued expenses</td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,512,120</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,468,691</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Accrued interest</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">632,522</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">567,469</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Payroll and related accruals, net of advance to employees</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">745,473</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">704,031</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Total</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2,890,115</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2,740,191</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>

As of March 31, 2012 and December 31, 2011, short term notes are as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">March 31, 2012</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> December 31, 2011</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Bank loans</td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">256,250</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">275,000</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Investor notes payable, 12% per annum, currently in default</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">377,867</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">377,867</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Total</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">634,117</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">652,867</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Less current portion</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">502,867</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">502,867</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Long term portion (only bank loan)</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">131,250</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">150,000</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table> Investor notes payable   On December 21, 2007, an unaffiliated investor loaned the Company $125,000 on an unsecured 18-month note with a maturity date of June 21, 2009. The note has a provision requiring repayment once the Company has raised an aggregate of $500,000 following issuance of this note. As a result, this note is currently in default as it has not been repaid and the Company reached the $500,000 threshold in September, 2008. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, the Company granted to the investor a warrant to purchase 37,500 shares of common stock at an exercise price of $1.07 and an expiration date of December 21, 2012. This note is guaranteed by Mr. Burchetta, a Company director.   On December 30, 2007, an unaffiliated investor loaned the Company $200,000 on an unsecured 18-month note with a maturity date of June 30, 2009. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with this note, the Company also issued a warrant to purchase 100,000 shares of common stock at an exercise price of $1.00 and an expiration date of December 30, 2012. This note is guaranteed by Mr. Burchetta, a Company director. As of March 31, 2012 and December 31, 2011, this note is in default.   On April 10, 2008, an unaffiliated investor loaned the Company an additional $198,000 on an amendment of the prior unsecured note with a maturity date of June 21, 2009 (see above) for the entire balance of the first note plus the amendment ($323,000 total). The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, the Company also issued a warrant to purchase 99,000 shares of common stock at an exercise price of $2.45 and an expiration date of April 10, 2013. This warrant has a "cashless" exercise feature. This note is guaranteed by Mr. Burchetta, a Director of the Company. The note was amended and maintains the provision requiring repayment of the note upon raising gross proceeds of $500,000 subsequent the issuance of the note. At September 30, 2008, the Company had raised in excess of $500,000 subsequent to this amended note, and as a result, this note is in default.   As of March 31, 2012 and December 31, 2011, the principal balance of the note was $177,867, and is still in default.   Bank loans On October 7, 2011, a bank loan was issued in the amount of $237,500 at a 6.25% interest rate, with monthly payments of $6,250 maturing on December 1, 2014, and guaranteed by Mr. Mooney. During the three months ended March 31, 2012, the Company repaid $18,750 towards the outstanding note. The outstanding balance on the bank loan as of March 31, 2012 and December 31, 2011 is $206,250 and $225,000, respectively.   On April 15, 2011, the Company borrowed an additional unsecured loan of $50,000 at a rate of 6.25% due on July 1, 2011. The loan was guaranteed by Mr. Mooney. The loan was subsequently extended to September 1, 2011. The Company repaid this loan by paying $25,000 on July 26, 2011 and September 9, 2011. On December 20, 2011, the Company again borrowed an additional unsecured loan of $50,000 at a rate of 6.25% due on April 1, 2012. This loan is again guaranteed by Mr. Mooney. The loan has been extended to July 1, 2012.

As of March 31, 2012 and December 31, 2011, notes payable, related parties are as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">March 31, 2012</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> December 31, 2011</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Note payable dated January 14, 2011</td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">6,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">6,000</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Note payable dated April 14, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Note payable dated April 15, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Note payable dated May 27, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Note payable dated January 18, 2012</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Note payable dated January 20, 2012</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Series A Convertible note, net of unamortized debt discount of $3,333 and $5,000, respectively</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">16,667</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">15,000</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Total</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">92,667</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">81,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Less current portion</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">92,667</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">81,000</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Long term portion</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   On January 14, 2011, the President David M. Rainey loaned $6,000 (unsecured) to the Company with a due date of June 30, 2011. The loan has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 60,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,220, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012 and 2011, the Company amortized the debt discount and charged $0 and $1,110, respectively.   On April 14, 2011, the Chief Executive Officer James G. Brakke loaned $25,000 (unsecured) to the Company with a due date of July 31, 2011. The loan has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 250,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.   On April 15, 2011, a director William M. Mooney, Jr. loaned $25,000 (unsecured) to the Company with a due date of July 31, 2011. The note has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 250,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.   On May 27, 2011, a director William M. Mooney, Jr. loaned an additional $15,000 (unsecured) (of which $5,000 has been repaid in 2011) to the Company with a due date of September 30, 2011. The note has been extended to December 31, 2011. The Company is currently in default. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 150,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period.   On January 18, 2012, the Chief Executive Officer James G Brakke loaned $5,000 (unsecured) to the Company with a demand due date. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 50,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,495, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012, the Company amortized the debt discount and charged $2,495 to interest expense- amortization of debt discount.   On January 20, 2012, a director William M. Mooney, Jr. loaned $5,000 (unsecured) to the Company with a demand due date. The loan carries interest at the rate of 12% per annum. The lender received a warrant to purchase 50,000 shares of the common stock of the Company at an exercise price of $0.25 per share. The warrant has a five year exercise period. The note was recorded net of a deferred debt discount of $2,435, based on the relative fair value of the warrant under the Black-Scholes pricing model. Such discount is being amortized over the term of the note. During the three months ended March 31, 2012, the Company amortized the debt discount and charged $2,435 to interest expense- amortization of debt discount.   As described in Note 9 below, From June 2009 to March 2010, investors loaned the Company an aggregate of $1,237,459 on three year Series A Convertible Notes with an interest rate of 14%, of which $20,000 was a related party note by the Chief Executive Officer James G. Brakke prior to joining the Company. See Note 9 for full description. . During the three months ended March 31, 2012 and 2011, the Company amortized the debt discount and charged $1,667 and $1,667, respectively, to interest expense - amortization of debt discount.   Total unpaid accrued interest on the notes payable to related parties as of March 31, 2012 and December 31, 2011 was $7,937 and $5,722, respectively. During the three months ended March 31, 2012 and 2011, the Company recorded interest expense of $2,215 and $0, respectively, in connection with the notes payable to related parties. On September 24, 2009, the Company entered into an unsecured short term loan with William M. Mooney, a Director of Debt Resolve, for $150,000 to be used to discharge the bridge loans of another investor. Borrowings under the loan bear interest at 12% per annum, with interest accrued and payable on maturity. The Note was due on November 24, 2009 and is still outstanding. In conjunction with this line of credit, the Company also issued a warrant to purchase 150,000 shares of common stock at an exercise price of $0.15 per share with an expiration date of September 24, 2014. On April 6, 2010, a partial repayment of $25,000 of principal was paid. Also, as a result of the delinquent repayment of the note, a penalty of $69,000 was incurred on April 15, 2010. On August 17, 2010, a partial payment of $50,000 of principal was made on the line of credit. Unpaid accrued interest on this loan as of March 31, 2012 and December 31, 2011 was $51,227 and $46,710, respectively. As of March 31, 2012 and December 31, 2011, the outstanding balance on this loan was $151,000. The loan matured on November 24, 2009 and is currently in default. During the three months ended March 31, 2012 and 2011, the Company recorded $4,517 and $4,468, respectively, as interest expense. Convertible notes are comprised of the following:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> March 31, 2012</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> December 31, 2011</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Series A Convertible Notes, net of unamortized debt discount of $178,667 and $246,750, respectively</td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">638,333</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">570,250</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Series B Convertible Notes, net of unamortized debt discount of $70,363 and $88,884, respectively</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">154,637</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">136,116</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Series C convertible Notes, net of unamortized debt discount of $91,008 and $109,003, respectively</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">168,992</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">150,997</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Series D Convertible Notes, net of unamortized debt discount of $6,277 and $7,133, respectively</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">18,723</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">17,867</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Total</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">980,685</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">875,230</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Less: Current portion</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(744,174</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(345,181</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: left">Long term portion</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">236,511</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">530,049</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   From June 2009 to March 2010, unaffiliated investors loaned the Company an aggregate of $1,217,459 (excluding $20,000 related party, see Note 7) on three-year Series A Convertible Notes with an interest rate of 14%. The interest accrues and is payable at maturity, which range in dates from August 2012 to March 2013. The conversion price is set at $0.15 per share. The Notes carry a first lien security interest in all of the assets of the Company. In addition, the investors received 12,174,590 warrants to purchase the common stock of the Company at an exercise price of $1.00. On January 21, 2010, the exercise price was reduced to $0.40 due to certain provisions of the warrants. The exercise period of the warrants is five years. The notes were recorded net of a deferred debt discount of $1,143,268, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $68,083 and $67,620, respectively.   During year ended December 31, 2010, unaffiliated investors loaned the Company an aggregate of $275,000 on three-year Series B Convertible Notes with an interest rate of 14%. During the year ended December 31, 2010, $50,000 was repaid in cash, leaving a balance of $225,000 on these notes at December 31, 2011 and 2010. The interest accrues and is payable at maturity. The conversion price is set at $0.15 per share. The Notes carry a first lien security interest in all of the assets of the Company with the Series A notes above. In addition, at conversion, the investors will receive 900,000 warrants to purchase the common stock of the Company at an exercise price of $0.40 per share. The warrants are callable when the Company's stock trades above $0.75 per share for 10 consecutive trading days. The notes were recorded net of a deferred debt discount of $264,324, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $18,521 and $18,522, respectively. The Series B Convertible Notes had a liquidated damages clause requiring a registration statement to be filed within 90 days of the last closing, or damages of 1% of shares for the next 90 days until filed are assessed. No registration statement was filed. The last closing occurred on April 22, 2010. The initial 90 day period expired on July 21, 2010. The damages accrued until October 19, 2010. The value of these damages of $105,750 is accrued for the year ended December 31, 2010. The 1,762,500 shares were issued on January 31, 2011 in full settlement of the damages with no remaining liability under the clause.    During the year ended December 31, 2010, unaffiliated investors loaned the Company an aggregate of $260,000 on three-year Series C Convertible Notes with an interest rate of 14%. The interest accrues and is payable at maturity. The conversion price was set at $0.15 per share. The notes carry a first lien security interest with the Series A and B notes above in all of the assets of the Company. In addition, the investors received 2,641,670 warrants to purchase the common stock of the Company at an exercise price of $0.40 per share. The series C notes have a ratchet provision resetting the conversion price to $0.10 and the warrant exercise price to $0.25 on the first closing of a subsequent offering with those terms. This ratchet was triggered on August 12, 2010 with the completion of the minimum closing of $1,500,000 on a $3,000,000 private placement. Additionally, as a result of the delay in filing a registration statement on the private placement, the Series C Warrants have become cashless, along with the warrants from the private placement. There is no further effect from this ratchet event. The notes were recorded net of a deferred debt discount of $215,940, based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount related to these notes of $17,995 and $17,995, respectively.   During the year ended December 31, 2011, the Company issued an aggregate of $25,000 of Series D Convertible Notes with an interest rate of 14% due three years from the date of issuance. The interest accrues and is payable at maturity. The conversion price is set at $0.12 per share. The investors have a second lien position behind the Series A, B and C notes. In addition, the investors received 250,000 warrants to purchase the common stock of the Company at an exercise price of $0.30 per share over five years. The notes were recorded net of deferred debt discount of $10,271 based on the relative fair value of the warrants under the Black-Scholes pricing model. Such discount is being amortized over the term of the notes. During the three months ended March 31, 2012 and 2011, the Company recorded amortization of the debt discount relating to these notes of $856 and $571, respectively. Aggregate Maturity of Long-Term convertible notes, if not converted, as of March 31, 2012 are as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Year</td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">Amount</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 88%; font: 10pt/115% Times New Roman, Times, Serif">2012</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">509,500</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">2013</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">812,500</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">2014</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Total</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,347,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Less Related party (Note 7)</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">20,000</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Less Debt Discount</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">346,315</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">980,685</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table> Warrants The following table summarizes warrants outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">Exercise Price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Outstanding</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Warrants Outstanding Weighted Average Remaining Contractual Life (years)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Exercise price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Exercisable</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Warrants Exercisable Weighted Average Exercise Price</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 23%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,771,600</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.38</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,771,600</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,183,334</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.90</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,183,334</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">42,081,750</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.52</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">42,081,750</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.25</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.30</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.86</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.30</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.30</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.40</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">12,974,590</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.82</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.40</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">12,974,590</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.40</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">678,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.49</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">678,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.07</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">37,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.73</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.07</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">37,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.07</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.83</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.95</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">50,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.99</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.95</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">50,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.95</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">137,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.55</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">137,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.00</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.45</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">99,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.02</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.45</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">99,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.45</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td colspan="2" style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">Total</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">62,613,274</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.27</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.29</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">62,613,274</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.29</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   Transactions involving the Company's warrant issuance are summarized as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number of Shares</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Price Per Share</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2010</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">49,407,195</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.33</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10,610,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.25</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(87,254</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(0.09</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Canceled or expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(516,667</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(2.68</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">59,413,274</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.30</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,200,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.25</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at March 31, 2012</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">62,613,274</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.29</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   In conjunction with the sale of the Company's common stock during 2012, the Company issued warrants to purchase 3,100,000 shares of common stock with an exercise price of $0.25 per share expiring five years from the date of issuance.   In conjunction with issuance of short term notes to related parties during 2012, the Company issued an aggregate of warrants to purchase an aggregate of 100,000 shares of common stock with an exercise price of $0.25 per share expiring five years from the date of issuance. The fair value of the warrants was determined using the Black-Scholes option pricing method with the following assumptions: Dividend yield: 0%; Volatility: 280.93% to 282.20%; and Risk free rate: 0.82% to 0.91% and was amortized and charged to interest expense-amortization of debt discount over the term of the related notes (see Note 7).   Non-Employee Options The following table summarizes non-employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">Exercise Price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Outstanding</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Option Outstanding Options Average Remaining Contractual Life (years)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Exercise price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Exercisable</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Options Exercisable Weighted Average Exercise Price</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 23%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,250,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.84</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">650,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.13</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.26</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.13</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.13</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.70</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">75,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.19</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.70</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">75,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.70</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.17</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">25,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td colspan="2" style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">Total</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,850,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.85</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.12</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,250,000</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.18</td> <td> </td></tr> </table>   Transactions involving the Company's non-employee option issuance are summarized as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number of Shares</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Price Per Share</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2010</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,603,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.13</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.10</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Canceled or expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,850,000</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.12</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">-</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at March 31, 2012</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,850,000</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.12</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   Employee Options The following table summarizes employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 10pt/115% Times New Roman, Times, Serif; text-align: center">Exercise Price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Outstanding</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Option Outstanding Options Average Remaining Contractual Life (years)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Exercise price</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number Exercisable</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Options Exercisable Weighted Average Exercise price</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 23%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.06</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,500,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">6.17</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.06</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2,000,000</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 12%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.06</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.09</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">6.68</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.09</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.09</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.095</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">6.80</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.095</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.095</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.63</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.15</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.17</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.02</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.17</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4,500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.17</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.19</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,000,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.36</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.19</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,000,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.19</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.20</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.06</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.20</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">250,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.20</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.22</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">175,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.22</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">175,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.22</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.80</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.82</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.80</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.80</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.29</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.00</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">634,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.51</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">634,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.25</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.40</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.45</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.40</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">350,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.40</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.50</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">243,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.74</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.50</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">243,500</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.50</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.63</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">20,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.21</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.63</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">20.000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.63</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3.17</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.84</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.75</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">203,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.07</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.75</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">203,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.75</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,829,934</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.03</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.00</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1,829,934</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">5.00</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10.00</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">20,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.49</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10.00</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">20,000</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">10.00</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td colspan="2" style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">Total</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">14,435,934</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">4.74</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.97</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">12,935,934</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.97</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   Transactions involving the Company's employee option issuance are summarized as follows:   <table cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Number of Shares</td> <td style="padding-bottom: 1.35pt"> </td> <td style="padding-bottom: 1.35pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Price Per Share</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="width: 76%; font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2010</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">12,026,934</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 1%; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="width: 9%; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.50</td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">3,750,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.06</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Canceled or expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(1,821,000</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">2.44</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at December 31, 2011</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">13,955,934</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.99</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Issued</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">500,000</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.095</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Exercised</td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td> <td> </td> <td> </td> <td style="font: 10pt/115% Times New Roman, Times, Serif; text-align: right">--</td> <td> </td></tr> <tr style="vertical-align: bottom; background-color: white"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Expired</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">(20,000</td> <td style="font: 10pt/115% Times New Roman, Times, Serif">)</td> <td style="padding-bottom: 1.35pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">1.50</td> <td style="padding-bottom: 1.35pt"> </td></tr> <tr style="vertical-align: bottom; background-color: #CCEEFF"> <td style="font: 10pt/115% Times New Roman, Times, Serif">Outstanding at March 31, 2012</td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">14,435,934</td> <td style="padding-bottom: 2.7pt"> </td> <td style="padding-bottom: 2.7pt"> </td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif">$</td> <td style="border-bottom: black 2.25pt double; font: 10pt/115% Times New Roman, Times, Serif; text-align: right">0.97</td> <td style="padding-bottom: 2.7pt"> </td></tr> </table>   During the three months ended March 31, 2012, the Board granted stock options to purchase 500,000 shares of common stock of the Company at exercise price of $0.095 with exercise period of seven years to an existing employee, fully vested. The grant was valued using the Black-Scholes model and had a value of $45,000 and was charged to operations for the three months ended March 31, 2012. The fair value of the options was determined using the Black-Scholes option pricing method with the following assumptions: Dividend yield: 0%; Volatility: 282.58%; and Risk Free rate: 1.31%   Total stock-based compensation expense for employee options for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.

Litigation On July 17, 2008, Dreier LLP, a law firm, filed a complaint in the Supreme Court of New York, County of New York, seeking damages of $311,023.32 plus interest for legal services allegedly rendered to us. The complaint was answered on August 14, 2008 raising various affirmative defenses. On December 16, 2008, Dreier LLP filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. The case has been on hold since the bankruptcy filing. On March 18, 2009, the Company filed a counterclaim in the bankruptcy court for legal malpractice and the defenses raised in the previously filed answer. The full amount in dispute is included in the Companys accounts payable. The bankruptcy case has stayed this litigation and is still pending at this time. However, the Company believes that based on bankruptcy law this action will be discharged along with the bankruptcy case following distribution of the assets of the estate with no liability to us.   From time to time, the Company is involved in various litigation matters in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations.

During the three months ended March 31, 2012 and 2011, certain Company directors personally guarantee the Company's notes payable and its' bank loan (Notes 6). Also, certain directors and officers made short-term loans as discussed in Note 7. Total interest expense in connection with notes payable to related parties and related party line of credits amounted $6,732 and $4,468 for the three months ended March 31, 2012 and 2011, respectively (Note 7 and Note 8).

On April 19, 2012, the Company issued 250,000 shares to a consultant in compensation for investor relations services.

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GOING CONCERN MATTERS	3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Note 3. GOING CONCERN MATTERS	The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed financial statements, the Company incurred a net loss of $492,470 for the three months ended March 31, 2012. Additionally, the Company has negative working capital (total current liabilities exceeded total current assets) of $4,287,871 as of March 31, 2012. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern. The Company has undertaken further steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond to address its lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing. The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, it may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. The accompanying unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

GOING CONCERN MATTERS

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 3. GOING CONCERN MATTERS

- Definition

Disclosure of accounting policy for reporting when there is a substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time (generally a year from the balance sheet date). Disclose: (a) pertinent conditions and events giving rise to the assessment of substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, (b) the possible effects of such conditions and events, (c) management's evaluation of the significance of those conditions and events and any mitigating factors, (d) possible discontinuance of operations, (e) management's plans (including relevant prospective financial information), and (f) information about the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities. If management's plans alleviate the substantial doubt about the entity's ability to continue as a going concern, disclosure of the principal conditions and events that initially raised the substantial doubt about the entity's ability to continue as a going concern would be expected to be considered. Disclose whether operations for the current or prior years generated sufficient cash to cover current obligations, whether waivers were obtained from creditors relating to the company's default under the provisions of debt agreements and possible effects of such conditions and events, such as: whether there is a possible need to obtain additional financing (debt or equity) or to liquidate certain holdings to offset future cash flow deficiencies. Disclose appropriate parent company information when parent is dependent upon remittances from subsidiaries to satisfy its obligations.

+ References+ Details

SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
Mar. 31, 2012
Notes to Financial Statements
Note 2. SIGNIFICANT ACCOUNTING POLICIES	A summary of the significant accounting policies applied in the presentation of the accompanying unaudited condensed financial statements follows: Estimates The preparation of the unaudited condensed financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Reclassification Certain reclassifications have been made to prior periods' data to conform to the current period's presentation. These reclassifications had no effect on reported income or losses. Credit Risk The Company extends credit to large, mid-size and small companies for collection services. At March 31, 2012, three clients represented receivables of $10,000 (36%), $10,000 (36%), and $4,075 (15%). At December 31, 2011, three clients represented receivables of $5,000 (19%), $10,000 (37%) and $11,777 (44%). As of March 31, 2012 and December 31, 2011, no allowance for doubtful accounts has been recognized. The Company had two clients accounting for 30.85% and 30.85%; (total of 61.70%) of total revenues for the three months ended March 31, 2012, respectively, and had two clients accounting for 50% and 42%; (total of 92%) of total revenues for the three months ended March 31, 2011. Income Taxes The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to debt costs. Net Loss per Share The Company follows Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because their effect is anti-dilutive on the computation. Fully diluted shares outstanding were 98,205,158 and 89,528,787 for the three months ended March 31, 2012 and 2011, respectively. Stock-based compensation Total stock-based compensation expense for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively. Defined Contribution (401k) Plan The Company maintains a defined contribution (401k) plan for our employees. The plan provides for a company match in the amount of 100% of the first 3% of pre-tax salary contributed and 50% of the next 3% of pre-tax salary contributed. Due to the severe cash limitations that the Company has experienced, the match was suspended from mid-2008 to the present and will only be re-instated when business conditions warrant. Reliance on Key Personnel and Consultants The Company has only 4 full-time employees. Additionally, there are 2 consultants performing various specialized services. The Company is heavily dependent on the continued active participation of the President, the Chief Operating Officer and key consultants. The loss of the President, Chief Operating Officer or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place. Recent accounting pronouncements There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

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CONDENSED BALANCE SHEETS (USD $)	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash	$ 15,511	$ 26,832
Accounts receivable, net	28,025	26,777
Prepaid expenses and other current assets	49,416	77,738
Total current assets	92,952	131,347
Fixed assets, net	1,868	2,717
Deposits	1,000	1,000
Total assets	95,820	135,064
Current liabilities:
Accounts payable and other accrued liabilities	2,890,115	2,740,191
Notes payable, current portion	502,867	502,867
Notes payable - related parties,	92,667	81,000
Convertible short-term notes,	744,174	345,181
Lines of credit, related parties	151,000	151,000
Total current liabilities	4,380,823	3,820,239
Long term debt:
Note payable, long term portion	131,250	150,000
Convertible long-term notes,	236,511	530,049
Total liabilities	4,748,584	4,500,288
Stockholders' deficiency:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding
Common stock, $0.001 par value, 200,000,000 shares authorized; 87,137,703 and 85,587,703 shares issued and outstanding as of March 31, 2012 and December 31, 2011	87,138	85,588
Additional paid in capital	66,929,499	66,726,119
Accumulated deficit	(71,669,401)	(71,176,931)
Total stockholders' deficiency	(4,652,764)	(4,365,224)
Total liabilities and stockholders' deficiency	$ 95,820	$ 135,064

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CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (USD $)	3 Months Ended
CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (USD $)	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (492,470)	$ (616,678)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	849	3,128
Amortization of debt discounts	112,052	107,485
Stock based compensation	45,000
Changes in operating assets and liabilities:
Accounts receivable	(1,248)	(7,160)
Prepaid expenses and other assets	28,322	3,555
Accounts payable and accrued expenses	149,924	418,288
Net cash used in operating activities	(157,571)	(91,382)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		(3,603)
Proceeds from sale of common stock, net of costs and fees	155,000	43,500
Proceeds from issuance of short term notes-related party	10,000
Repayment of short term notes	(18,750)
Proceeds from long term notes		25,000
Net cash provided by financing activities	146,250	64,897
Net (decrease) increase in cash and cash equivalents	(11,321)	(26,485)
Cash and cash equivalents at beginning of period	26,832	26,681
Cash and cash equivalents at end of period	15,511	196
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest	4,092	3,315
Cash paid during period for taxes
Non-cash financing and investing transactions:
Note payable issued for accrued expenses		$ 105,750

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BASIS AND BUSINESS PRESENTATION

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 1. BASIS AND BUSINESS PRESENTATION

Basis of Presentation

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CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Preferred stock par value	$ 0.001	$ 0.001
Preferred stock shares authorized	10,000,000	10,000,000
Preferred stock shares issued
Preferred stock shares outstanding
Common stock par value	$ 0.001	$ 0.001
Common stock shares authorized	200,000,000	200,000,000
Common stock shares issued	87,137,703	85,587,703
Common stock shares outstanding	87,137,703	85,587,703

- Definition

Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.

+ References+ Details

- Definition

Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.

+ References+ Details

XML 21 R17.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 11. COMMITMENTS AND CONTINGENCIES

Litigation

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 450

-SubTopic 20

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Document and Entity Information	3 Months Ended
Document and Entity Information	Mar. 31, 2012	May 21, 2012
Document And Entity Information
Entity Registrant Name	DEBT RESOLVE INC
Entity Central Index Key	0001106645
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		87,387,703
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012

XML 23 R18.htm IDEA: XBRL DOCUMENT

RELATED PARTY TRANSACTIONS	3 Months Ended
RELATED PARTY TRANSACTIONS	Mar. 31, 2012
Notes to Financial Statements
Note 12. RELATED PARTY TRANSACTIONS	During the three months ended March 31, 2012 and 2011, certain Company directors personally guarantee the Company's notes payable and its' bank loan (Notes 6). Also, certain directors and officers made short-term loans as discussed in Note 7. Total interest expense in connection with notes payable to related parties and related party line of credits amounted $6,732 and $4,468 for the three months ended March 31, 2012 and 2011, respectively (Note 7 and Note 8).

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(k))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Article 3A

-Section 04

-Paragraph b

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 57

-Paragraph 1-4

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 5

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39678-107864

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Article 4

-Section 08

-Paragraph k

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 6

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39622-107864

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39603-107864

+ Details

XML 24 R4.htm IDEA: XBRL DOCUMENT

CONDENSED STATEMENTS OF OPERATIONS (unaudited) (USD $)	3 Months Ended
CONDENSED STATEMENTS OF OPERATIONS (unaudited) (USD $)	Mar. 31, 2012	Mar. 31, 2011
Income Statement [Abstract]
REVENUES:	$ 48,610	$ 35,483
Costs and expenses:
Payroll and related expenses	211,736	154,225
Selling, general and administrative expenses	146,402	328,543
Depreciation and amortization	849	3,128
Total costs and expenses	358,987	485,896
Net loss from operations	(310,377)	(450,413)
Other income (expense):
Interest expense	(70,041)	(58,780)
Interest expense - amortization of debt discounts	(112,052)	(107,485)
Net loss before provision for income taxes	(492,470)	(616,678)
Income tax (benefit)
Net( loss) Income	$ (492,470)	$ (616,678)
Net loss per common share -basic and diluted	$ (0.01)	$ (0.01)
Weighted average number of common shares outstanding used in loss per share calculation, basic and diluted	86,066,824	79,614,932

XML 25 R12.htm IDEA: XBRL DOCUMENT

NOTES PAYABLE

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 6. NOTES PAYABLE

As of March 31, 2012 and December 31, 2011, short term notes are as follows:

	March 31, 2012		December 31, 2011
Bank loans	$	256,250	$	275,000
Investor notes payable, 12% per annum, currently in default		377,867		377,867
Total		634,117		652,867
Less current portion		502,867		502,867
Long term portion (only bank loan)	$	131,250	$	150,000

Investor notes payable

As of March 31, 2012 and December 31, 2011, the principal balance of the note was $177,867, and is still in default.

Bank loans

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

XML 26 R11.htm IDEA: XBRL DOCUMENT

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of March 31, 2012 and December 31, 2011 are comprised of the following:

	March 31, 2012		December 31, 2011
Accounts payable and accrued expenses	$	1,512,120	$	1,468,691
Accrued interest		632,522		567,469
Payroll and related accruals, net of advance to employees		745,473		704,031
Total	$	2,890,115	$	2,740,191

XML 27 R19.htm IDEA: XBRL DOCUMENT

SUBSEQUENT EVENTS	3 Months Ended
SUBSEQUENT EVENTS	Mar. 31, 2012
Notes to Financial Statements
Note 13. SUBSEQUENT EVENTS	On April 19, 2012, the Company issued 250,000 shares to a consultant in compensation for investor relations services.

XML 28 R15.htm IDEA: XBRL DOCUMENT

CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 9. CONVERTIBLE NOTES

Convertible notes are comprised of the following:

	March 31, 2012			December 31, 2011
Series A Convertible Notes, net of unamortized debt discount of $178,667 and $246,750, respectively	$	638,333		$	570,250
Series B Convertible Notes, net of unamortized debt discount of $70,363 and $88,884, respectively		154,637			136,116
Series C convertible Notes, net of unamortized debt discount of $91,008 and $109,003, respectively		168,992			150,997
Series D Convertible Notes, net of unamortized debt discount of $6,277 and $7,133, respectively		18,723			17,867
Total		980,685			875,230
Less: Current portion		(744,174	)		(345,181	)
Long term portion	$	236,511		$	530,049

Aggregate Maturity of Long-Term convertible notes, if not converted, as of March 31, 2012 are as follows:

Year	Amount
2012		509,500
2013		812,500
2014		25,000
Total		1,347,000
Less Related party (Note 7)		20,000
Less Debt Discount		346,315
	$	980,685

XML 29 R13.htm IDEA: XBRL DOCUMENT

NOTES PAYABLE, RELATED PARTIES

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 7. NOTES PAYABLE, RELATED PARTIES

As of March 31, 2012 and December 31, 2011, notes payable, related parties are as follows:

	March 31, 2012		December 31, 2011
Note payable dated January 14, 2011	$	6,000	$	6,000
Note payable dated April 14, 2011		25,000		25,000
Note payable dated April 15, 2011		25,000		25,000
Note payable dated May 27, 2011		10,000		10,000
Note payable dated January 18, 2012		5,000		-
Note payable dated January 20, 2012		5,000		-
Series A Convertible note, net of unamortized debt discount of $3,333 and $5,000, respectively		16,667		15,000
Total		92,667		81,000
Less current portion		92,667		81,000
Long term portion	$	-	$	-

XML 30 R14.htm IDEA: XBRL DOCUMENT

LINE OF CREDIT- RELATED PARTY	3 Months Ended
LINE OF CREDIT- RELATED PARTY	Mar. 31, 2012
Notes to Financial Statements
Note 8. LINE OF CREDIT- RELATED PARTY	On September 24, 2009, the Company entered into an unsecured short term loan with William M. Mooney, a Director of Debt Resolve, for $150,000 to be used to discharge the bridge loans of another investor. Borrowings under the loan bear interest at 12% per annum, with interest accrued and payable on maturity. The Note was due on November 24, 2009 and is still outstanding. In conjunction with this line of credit, the Company also issued a warrant to purchase 150,000 shares of common stock at an exercise price of $0.15 per share with an expiration date of September 24, 2014. On April 6, 2010, a partial repayment of $25,000 of principal was paid. Also, as a result of the delinquent repayment of the note, a penalty of $69,000 was incurred on April 15, 2010. On August 17, 2010, a partial payment of $50,000 of principal was made on the line of credit. Unpaid accrued interest on this loan as of March 31, 2012 and December 31, 2011 was $51,227 and $46,710, respectively. As of March 31, 2012 and December 31, 2011, the outstanding balance on this loan was $151,000. The loan matured on November 24, 2009 and is currently in default. During the three months ended March 31, 2012 and 2011, the Company recorded $4,517 and $4,468, respectively, as interest expense.

XML 31 R16.htm IDEA: XBRL DOCUMENT

WARRANTS AND OPTIONS

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 10. WARRANTS AND OPTIONS

Warrants

The following table summarizes warrants outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Warrants Exercisable Weighted Average Exercise Price
$	0.10		1,771,600		3.38	$	0.10		1,771,600	$	0.10
	0.15		4,183,334		2.90		0.15		4,183,334		0.15
	0.25		42,081,750		3.52		0.25		42,081,750		0.25
	0.30		250,000		3.86		0.30		250,000		0.30
	0.40		12,974,590		2.82		0.40		12,974,590		0.40
	1.00		678,000		0.49		1.00		678,000		1.00
	1.07		37,500		0.73		1.07		37,500		1.07
	1.25		350,000		0.83		1.25		350,000		1.25
	1.95		50,000		0.99		1.95		50,000		1.95
	2.00		137,500		0.55		2.00		137,500		2.00
	2.45		99,000		1.02		2.45		99,000		2.45
Total			62,613,274		3.27	$	0.29		62,613,274	$	0.29

Transactions involving the Company's warrant issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2010		49,407,195		$	0.33
Issued		10,610,000			0.25
Exercised		(87,254	)		(0.09	)
Canceled or expired		(516,667	)		(2.68	)
Outstanding at December 31, 2011		59,413,274			0.30
Issued		3,200,000			0.25
Exercised		-			-
Expired		-			-
Outstanding at March 31, 2012		62,613,274		$	0.29

Non-Employee Options

The following table summarizes non-employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Option Outstanding Options Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Options Exercisable Weighted Average Exercise Price
$	0.10		4,250,000		4.84	$	0.10		650,000	$	0.10
	0.13		500,000		5.26		0.13		500,000		0.13
	0.70		75,000		3.19		0.70		75,000		0.70
	1.84		25,000		3.17		1.84		25,000		1.84
Total			4,850,000		4.85	$	0.12		1,250,000	$	0.18

Transactions involving the Company's non-employee option issuance are summarized as follows:

	Number of Shares		Weighted Average Price Per Share
Outstanding at December 31, 2010		4,603,000	$	0.13
Issued		250,000		0.10
Exercised		--		--
Canceled or expired		--
Outstanding at December 31, 2011		4,850,000	$	0.12
Issued		-		-
Exercised		-		-
Expired		-		-
Outstanding at March 31, 2012		4,850,000	$	0.12

Employee Options

The following table summarizes employee options outstanding and related prices for the shares of the Company's common stock issued to shareholders at March 31, 2012:

Exercise Price		Number Outstanding		Option Outstanding Options Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Options Exercisable Weighted Average Exercise price
$	0.06		3,500,000		6.17	$	0.06		2,000,000	$	0.06
	0.09		250,000		6.68		0.09		250,000		0.09
	0.095		500,000		6.80		0.095		500,000		0.095
	0.15		250,000		1.63		0.15		250,000		0.15
	0.17		4,500,000		5.02		0.17		4,500,000		0.17
	0.19		1,000,000		4.36		0.19		1,000,000		0.19
	0.20		250,000		1.06		0.20		250,000		0.20
	0.22		175,000		5.00		0.22		175,000		0.22
	0.80		350,000		2.82		0.80		350,000		0.80
	1.00		350,000		3.29		1.00		350,000		1.00
	1.25		634,500		2.51		1.25		634,500		1.25
	1.40		350,000		3.45		1.40		350,000		1.40
	1.50		243,500		1.74		1.50		243,500		1.50
	1.63		20,000		3.21		1.63		20.000		1.63
	1.84		10,000		3.17		1.84		10,000		1.84
	4.75		203,000		2.07		4.75		203,000		4.75
	5.00		1,829,934		4.03		5.00		1,829,934		5.00
	10.00		20,000		1.49		10.00		20,000		10.00
Total			14,435,934		4.74	$	0.97		12,935,934	$	0.97

Transactions involving the Company's employee option issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2010		12,026,934		$	1.50
Issued		3,750,000			0.06
Exercised		--			--
Canceled or expired		(1,821,000	)		2.44
Outstanding at December 31, 2011		13,955,934			0.99
Issued		500,000			0.095
Exercised		--			--
Expired		(20,000	)		1.50
Outstanding at March 31, 2012		14,435,934		$	0.97

Total stock-based compensation expense for employee options for the three months ended March 31, 2012 and 2011 amounted to $45,000 and $0, respectively.

XML 32 R5.htm IDEA: XBRL DOCUMENT

CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY (unaudited) (USD $)	3 Months Ended
	Mar. 31, 2012
Beginning Balance, Amount	$ (4,365,224)
Sale of common stock, net of costs and fees, Amount	155,000
Fair value of options issued to employees for services	45,000
Deferred debt discount in connection with related party notes payable	4,930
Net loss	(492,470)
Ending balance, Amount	(4,652,764)
Common Stock
Beginning Balance, Amount	85,588
Beginning Balance, Shares	85,587,703
Sale of common stock, net of costs and fees, Amount	1,550
Sale of common stock, net of costs and fees, Shares	1,550,000
Ending balance, Amount	87,138
Ending balance, Shares	87,137,703
Additional Paid-In Capital
Beginning Balance, Amount	66,726,119
Sale of common stock, net of costs and fees, Amount	153,450
Fair value of options issued to employees for services	45,000
Deferred debt discount in connection with related party notes payable	4,930
Ending balance, Amount	66,929,499
Retained Earnings / Accumulated Deficit
Beginning Balance, Amount	(71,176,931)
Net loss	(492,470)
Ending balance, Amount	$ (71,669,401)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 944

-SubTopic 225

-Section S99

-Paragraph 1

-Subparagraph (SX 210.7-04.22)

-URI http://asc.fasb.org/extlink&oid=6879464&loc=d3e573970-122913

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 230

-SubTopic 10

-Section 45

-Paragraph 28

-URI http://asc.fasb.org/extlink&oid=6943989&loc=d3e3602-108585

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 225

-SubTopic 10

-Section S99

-Paragraph 2

-Subparagraph (SX 210.5-03.18)

-URI http://asc.fasb.org/extlink&oid=6880815&loc=d3e20235-122688

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph 38

-Subparagraph a

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 260

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6371337&loc=d3e3550-109257

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 220

-SubTopic 10

-Section 45

-Paragraph 6

-URI http://asc.fasb.org/extlink&oid=6920043&loc=d3e565-108580

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph A7

-Appendix A

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 130

-Paragraph 10, 15

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Glossary Other Comprehensive Income

-URI http://asc.fasb.org/extlink&oid=6519514

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 51

-Paragraph 38

-Subparagraph d

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Emerging Issues Task Force (EITF)

-Number 87-21

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 12: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Glossary Net Income

-URI http://asc.fasb.org/extlink&oid=6518256

Reference 13: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 944

-SubTopic 225

-Section S99

-Paragraph 1

-Subparagraph (SX 210.7-04.19)

-URI http://asc.fasb.org/extlink&oid=6879464&loc=d3e573970-122913

Reference 14: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Article 5

-Section 03

-Paragraph 19

Reference 15: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 95

-Paragraph 28, 29, 30

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 16: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 04

-Paragraph 20

-Article 9

+ Details

- Definition

Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.

+ References+ Details

XML 33 R10.htm IDEA: XBRL DOCUMENT

PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 4. PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2012 and December 31, 2011 are comprised of the following:

	March 31, 2012			December 31, 2011
Computer equipment	$	110,548		$	110,548
Software		42,170			42,170
Telecommunication equipment		3,165			3,165
Office equipment		3,067			3,067
Furniture and fixtures		106,436			106,436
Total		265,386			265,386
Less accumulated depreciation		(263,518	)		(262,669	)
Total	$	1,868		$	2,717

The Company uses the straight line method of depreciation over 3 to 5 years.

- Definition

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

+ References+ Details

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