Debt Resolve Revenues Look Good but Prospects Mixed

Collections technology provider Debt Resolve Inc. (AMEX: DRV) reported yesterday third quarter revenues of $526,818 compared with $30,617 in the same period a year ago. The huge jump was attributable to $512,417 collected by its First Performance collection agency, while revenues of $13,810 were generated from contingency fees on users of its Internet-based bidding system. Debt Resolve purchased First Performance in January. It lost four major clients of the collector during the first nine months of 2007 and took two impairment charges totaling $1.2 million. 

Debt Resolve didn’t report income or losses in its filing with the U.S. Securities and Exchange Commission. Instead it noted that its “revenues to date have been insufficient to fund our operations.” The company funds its activities with management cash contributions, forgiveness of royalty and consulting fees, sale of its stock in private placements, income from three private financings of promissory notes, borrowing from investors and others, and the proceeds of its initial public offering in November 2006.

The company acknowledged that there is “substantial doubt about our ability to continue” because it has “suffered significant recurring losses, (has) negative working capital and need(s) to raise additional capital.”

Legal fees increased 19 percent to $252,352 during the quarter due to patent infringement litigation with Apollo Enterprise Solutions, a firm with a similar online bidding system for consumers. Apollo and Debt Resolve settled that litigation early this month (“Debt Resolve and Apollo Settle Patent Infringement Lawsuit,” Nov. 6).

Debt Resolve in October announced it would no longer bid on debt portfolios through its own subsidiary, but will partner with debt buyers to purchase portfolios.