UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2006
Commission
File No. 333-54822
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
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22-376235
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(State
or Other Jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or Organization)
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16801
Addison Road, Suite 310, Addison, TX
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75001
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(214)866-0606
(Registrant's
Telephone Number, Including
Area Code)
Securities
registered under Section 12(b) of the Exchange Act:
None.
Securities
registered under Section 12(g) of the Exchange Act:
None.
Check
whether the Registrant: (1) filed all reports required to be filed by Section
13
or 15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and
(2)
has been subject to such filing requirements for the past 90 days.
Yes:
x No: o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x
State
Registrant's revenues for fiscal year ended December 31, 2006:
$479,474
State
the
aggregate market value of the common stock held by non-affiliates of the
Registrant: $95,502 as of April 13, 2007 based on the closing sales price of
$0.002 on that date.
Indicate
the number of shares outstanding of each of the Registrant's classes of common
stock, as of April 13, 2007:
Class
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Number
of Shares
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Common
Stock, $0.0001 par value
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47,751,393
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The
following documents are incorporated by reference into the Annual Report on
Form
10-KSB: None.
Transitional
Small Business Disclosure Format
Yes:
o No:
x
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F-1
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OUR
HISTORY
We
were
incorporated as a Nevada corporation on September 8, 2000, under the name TDT
Development, Inc. On May 16, 2002, we acquired Stronghold Technologies, Inc.,
a
New Jersey corporation, referred to herein as our "Predecessor Entity", pursuant
to a merger of Stronghold Technologies into our wholly-owned subsidiary, TDT
Stronghold Acquisition Corp., referred to herein as "Acquisition Sub". Our
company, formerly TDT Development, Inc., was a reporting entity at the time.
Its
principals were Pietro Bortolatti, President, CEO and Chairman, Tiziana DiRocco,
Vice-President and Director of European Operations and David Rector, Director.
The merger was an arms length transactions and none of the parties had a prior
existing relationship. As consideration for the merger, we issued 7,000,000
shares of our common stock valued at $.75 per share to the stockholders of
the
Predecessor Entity in exchange for all of the issued and outstanding shares
of
the Predecessor Entity. No fairness opinion was issued in connection with this
merger. Following the merger, Acquisition Sub, the survivor of the merger,
changed its name to Stronghold Technologies, Inc. (NJ) and remains our only
wholly-owned subsidiary. We approved the transaction as the sole shareholder
of
the Acquisition Sub as did the shareholders of the Predecessor Entity.
On
July
11, 2002, we changed our name from TDT Development, Inc. to Stronghold
Technologies, Inc. (NV). On July 19, 2002, we exchanged all of the shares that
we held in our two other wholly-owned subsidiaries, Terre di Toscana, Inc.
and
Terres Toscanes, Inc., which conducted an import and distribution business
specializing in truffle-based food product, for 75,000 shares of our common
stock held by Mr. Pietro Bortolatti, our former president.
On
September 26, 2006, we changed our name to Dealer Advance, Inc. As a result,
symbol on the OTCBB was changed to DLAV.
On
January 25, 2007, our Predecessor Entity filed a voluntary petition for relief
under Chapter 7 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas, Case No. 07-30322-sgj7.
In
connection with the filing, the Subsidiary has ceased all business activity
and
operations. The Subsidiary determined that it does not have sufficient resources
to continue its operations. The court has appointed a bankruptcy trustee
who will be responsible for the liquidation of the business through the
bankruptcy case.
Our
principal executive offices mailing address is 16801 Addison Road, Addison,
Texas 75001. Our telephone number is 214-866-0606 and our Internet address
is
www.dealeradvance.com.
HISTORY
OF OUR CUSTOMER RELATIONSHIP MANAGEMENT TECHNOLOGY BUSINESS
On
May
16, 2002, we entered the handheld wireless technology business via our
acquisition by merger of the Predecessor Entity. The Predecessor Entity was
founded on August 1, 2000 by Christopher J. Carey, our former Chief Executive
Officer and President, and Lenard J. Berger, former Chief Technology Officer
and
Salvatore F. D'Ambra, former Vice President, Product Development, of our
wholly-owned subsidiary. The Predecessor Entity was founded to develop
proprietary handheld wireless technology for the automotive dealer software
market.
In
2006
we ceased from continuing to conduct the Predecessor Entity's handheld wireless
technology business and have developed a new web based platform called WEB
DA
and currently offer the wireless technology created by the predecessor as an
option
WEB
BASED PRODUCT AND TECHNOLOGY DEVELOPMENT
We
are
engaged in the business of selling, marketing and installing a web based
application software and database systems that manages the auto dealer-client
relationship. Our suite of Customer Relationship Management ("CRM") software,
has been designed to assist auto dealerships in collecting cliental contact
information, following up on sales prospects and aiding dealership sales
personnel in finalizing the sale of its automobiles.
We
have
identified five major prospect and customer sources within an auto dealership
that can be leveraged for revenue and profit for our dealership clients: walk
in
showroom traffic, call-in prospects, internet based leads, the existing owner
base of customers and service prospects.
Our
software system is designed to provide a single solution for all of these five
major prospect groups to increase profitability and improve customer service
in
the dealership. Our software system provides information captured from
prospects, and provides automobile dealerships with the ability to manage
prospects and customers through a disciplined follow-up process.
On
January 18, 2007, we announced the launch of our new web based version of Dealer
Advance called Web DA™. This new development provides Dealerships a quick turn
on, easy to use, cost effective and accessible system with the programs
necessary to manage the Customer Relationship processes and functions at their
dealerships. The software will allow dealerships to run programs without a
significant investment in new hardware, which was previously required with
DealerAdvance(TM).
Previously,
dealership clients had to purchase and invest in servers, hardware, cabling
and
handheld devices to derive the benefits of the original Dealer Advance ™.
Additional costs included the time to install the system and back order of
materials. Also, the previous system required that a user or manager be
physically located at the dealership. Now, with the new web based technology,
users can access Web DA™ from anywhere at anytime provided they have access to
an internet connection and a web browser.
The
new
Web DA™ system provides an immediate and secure turn on after being assigned and
provisioned a username, password and new account. This immediate same day turn
on is achieved for a set up cost in range of $1,500 to $2,500. Previous
technology often required a capital investment of up to $70,000 with dependency
on material delivery and subcontractor installation delays caused by delays
and
back orders.
DESCRIPTION
OF PRODUCTS
WebDA(TM)
allows automobile dealers to capture a customer's contact and vehicle
information, purchasing requirements, and gives dealership personnel the ability
to search inventory in their DMS inventory systems . This search feature can
be
used to search inventory at multiple locations, dealership personnel can locate
an appropriate vehicle in stock and print out the necessary forms to complete
the purchase or lease deal. Through an integrated Customer Relationship
Management (CRM)application, the system sends detailed tasks for prospect and
customer follow-up on a sales and management level which increases the
likelihood that a customer will purchase from the dealer in the future. WebDA
administrators can produce activity and scoreboard reports to measure compliance
and dealership data. DealerAdvance(TM) allows sales professionals to capture
customer leads quickly, improve customer follow-up, and reduce administrative
costs.
We
host a
web application software system that enables Dealership clients to securely
access the system from any web browser after being granted an account with
a
username and password. All data that is entered onto the application is archived
and easily retrieved from the SQL database that we also host as part of the
product offering. All client data is protected and is only accessible by their
selected staff members. Additionally we provide a driver licensing scanning
station for easy capture of client data.
Many
auto
dealerships still rely on a paper based process to capture its prospects and
track their progress to purchasing a vehicle. This paper process is difficult
to
manage due to high turnover and skills of the typical sales force. Management
does not have the tools to determine how many opportunities have been generated
and if they are receiving follow up after leaving the dealership. DealerAdvance
prompts the salesperson to capture more information about each prospect and
advises them of the appropriate follow up. When a customer is ready to purchase
a vehicle, the system aids the dealership in completing the sales through
features such as inventory search and forms printing. Management is able to
view
dealership traffic in real-time, by salesperson, and can easily pinpoint
deficiencies in the capture and follow up process.
WEB
DA™
provides certain advantages to automobile dealerships, including:
o |
access
to competitive and proprietary industry information from a variety
of
sources, such as convenient access to vehicle
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o |
identification
numbers, drivers license numbers and reverse telephone number information
which provides home and business
addresses;
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o |
employee
access to sales contracts as well as access to sales and performance
reports; and
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o |
allows
integration with existing automotive dealer accounting and business
systems such as ADP and Reynolds and Reynolds.
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WEB
DA™
offers features that aid in automobile sales and service such as:
o |
streamlining
and simplifying sales and follow-up processes;
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o |
providing
current and comprehensive information and data for new and used car
inventory, including information regarding competing products, and
customer history with the dealership;
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o |
providing
performance data and analysis on each member of a sales team; and
|
o |
providing
management with valuable and relevant transaction information on
a
real-time basis.
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A
user
can enter client data via the DealerAdvance application running on any desktop.
Data can be entered into the system typed by the user or through drivers license
scanning Data entered by the user is transmitted to the web hosted database
server in real time.
The
system contains a "rules" engine which is triggered at different points in
the
sales process. The rules engine updates the activities scheduled for each
customer based on business rules defined by the dealer. For example, when a
new
customer is entered by a user, the system will schedule a letter to be sent
to
the customer and a follow up phone call for the next day. If that same customer
buys a vehicle, the system will remove the letter and follow up call and replace
it with activities appropriate for follow up.
Users
also have the ability to manually schedule activities with a customer. All
activities are displayed on the user's work plan in chronological order. The
user may select any activity, view the details of the activity and customer
information and complete the activity. WebDA allows users to e-mail customers
directly.
The
system will prompt the user to schedule additional activities when completing
follow up with a customer. For example, if the user completes a follow up call
the system will prompt the user to set an appointment. The user can enter a
date
and time for the appointment, schedule an additional follow up call or indicate
that no additional activities are required at this time.
The
system offers a variety of reports to management to show the volume of traffic
at the dealership and if those prospects are receiving follow up in a timely
fashion. Reports also show ratios for data in the system, such as Calls made
to
Appointments Set, Appointments Set to Appointments Shown, etc All reports can
be
customized based on the data that a dealer would want to review.
The
system has the following features:
o |
Prospect
capture which allows the user to input the required information,
reverse
phone lookup, duplicate record checking, electronic guest sheet and
capture signatures electronically for credit card processing.
|
o |
The
system tracks compliance with National Registry and Dealership specific
DNC list. Customers marked "DNC" have phone number hidden to avoid
accidental calling. In addition, the dealer can print a report to
insure
compliance.
|
o |
The
system can scan and authenticate driver licenses while capturing
both the
front and back image and inserting it into guest details.
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o |
Provides
a call management system for follow ups.
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o |
Provides
daily workplan and appointment scheduling which appointments, calls,
letters and emails for salespeople.
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o |
Generate
prospect reports, scoreboard, appointment calendar and activity reports
sorted by salesperson, sales team, or individual dealership.
|
o |
Receive
leads from all internet lead sources including adf format and manage
follow up from WEB DA™ . Features include: route leads to a specific user
based on lead source, auto responders, templates, customers using
multiple
lead sources, lead protection.
|
We
installed Version 1.0 of the DealerAdvance Sales Solution(TM) in six pilot
dealerships during 2001 in New Jersey, California and Connecticut. The initial
release contained the ability to capture and display information about a
prospective customer, search the dealership inventory, display competitive
product information, a financial calculator, and paging functionality from
a
wireless handheld. Drivers license scanning, from a desktop station, was
introduced for the State of California. Stronghold introduced Version 2.0 of
DealerAdvance Sales Solution(TM) at all of its sites by the end of September
2001. Version 2.0 offered an electronic desk log, email and internet access
from
the handheld, printing of correspondence (forms letters) , a reporting engine,
the printing of sales forms, and the ability to import prospect records from
3rd
party sources.
We
introduced Version 3.0 of our software and installed another 3 dealership sites
in the quarter ended March 31, 2002, adding customers in New York. Version
3.0
introduced the CRM rules engine, which allowed the system to automatically
schedule and manage customer follow up activities for salespeople based on
rules
established by the dealership management. Other features included DMS deal
creation (allowing a user to pass information from DealerAdvance to the DMS),
management reporting, and the expansion of drivers license scanning to include
39 states (through a partnership with Intellicheck).
In
the
quarter ended June 30, 2002, through our wholly owned subsidiary, we installed
another 7 sites, adding customers in Arizona, Southern California and South
Carolina and introduced Version 3.1 of its software to improve the communication
protocol between the handheld and the DealerAdvance Server. In the quarter
ended
September 30, 2002, through our wholly owned subsidiary, we implemented another
10 sites, adding customers in Virginia, Florida, South Carolina and Central
California. In the fourth quarter ending December 31, 2002, through our wholly
owned subsidiary, we installed an additional 13 dealerships, adding customers
in
Texas, Indiana and Michigan. Overall, in 2002, through our wholly owned
subsidiary, we installed DealerAdvance Sales Solution(tm), in a total of 33
dealerships sites representing Toyota, Honda, Ford, Chevrolet, Nissan,
Volkswagen, Buick, Pontiac, Cadillac, Chrysler, Dodge, Kia and Hyundai.
In
the
first quarter of 2003, we installed in 11 dealerships and released Version
3.2.
New features included reverse phone lookup (via partnership with Axicom),
searches for duplicate customer records, wireless PDA trade appraisal,
electronic buyers order, nightly download of sold customers from the DMS, and
customer search. Additional functionality was added to the rules engine, forms
printing, management functions were added to the PDA, 3rd party data imports,
and customer tracking. In the quarter ended June 30, 2003, we installed another
11 systems in 9 dealerships in California, Nevada, Indiana, Washington, Ohio,
and Michigan. We implemented our goal to expand our direct sales network and
operational support personnel for coverage of 14 major cities from nine at
the
end of 2002. Additionally, in the second quarter we realigned our sales force
into geographic markets and hired several experienced industry veterans as
regional business development managers.
We
plan
to utilize our direct sales force to market the DealerAdvance Sales Solution(tm)
on a national basis. We have established a strong presence in most regions
of
the United States, and are continuing to add business development and operations
offices pursuant to an organized growth plan. As of December 31, 2003, we had
employees in Northern New Jersey, San Francisco, Washington, DC, Atlanta, Los
Angeles, Phoenix, Miami, Seattle, Cleveland, and Dallas.
Version
3.3, released in August 2003 introduced the concept of a work-plan, which
assists the user in prioritizing follow up for prospective customers. The
work-plan generates a simple daily "to-do" list for each salesperson, which
can
be viewed and updated on the handheld. Version 3.3 also introduced the concept
of "prompted follow up" to guide the salesperson through best of breed follow
up
processes. The salesperson is prompted to indicate the action taken to complete
an activity
and
to
enter a next activity for the customer with the goal of scheduling a next
activity for a prospective customer until they either purchase a vehicle or
indicate they are no longer in the market.
Version
3.4 released in January 2004 introduced integration with WhosCalling and Call
Bright, the two leading providers of phone call management services. The dealer
is assigned several toll free numbers to place in a specific advertising outlet
(newspaper, TV, radio, etc). When the customer dials the toll free number,
the
call management service identifies the callers’ information (name, address,
demographics) and records the call. The call information and a link to the
call
recording are passed by the call management service to DealerAdvance. Version
3.4 introduced the ability to receive Internet leads in DealerAdvance. An
Internet Manager can view leads and follow up via email with prospective
customers that view the dealer's web site or are passed by 3rd party lead
providers. Through a subscription service, in Version 3.4, the dealer can
maintain their compliance with the National Do Not Call Regulations managed
by
the FTC. DealerAdvance will automatically determine which customers are safe
to
call based on the "established business relationship" rules defined in the
regulations. The system can produce the documentation required to demonstrate
compliance.
In
January 2004, we also introduced an application that lessens potential
violations of the 2003 federal Do Not Call regulations. Our system automatically
and regularly compares the prospect and customers within the system to the
Do
Not Call registry data base. The application also allows the dealership
personnel to log prospect and customer requests not to be contacted. The system
deletes from the database telephone numbers that match numbers in the Do Not
Call database. Version 4.0 released in April 2004 introduced The Dealer Advance
(DA) Campaign Manager feature, designed to provide for the simple, quick, and
easy creation of targeted marketing activities. With DA Campaign Manager, a
dealership Sales Manager or BDC/CDC Manager can define a sales campaign,
including:
|
§
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Personalized
content (text, graphics, web links for click
thru)
|
|
§
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Campaign
Media (letter, email, call, other,
combinations)
|
The
4.0
release is designed to enable a campaign that is a collection of data which
define a marketing initiative. The software enables the client to create a
Campaign to potential clients captured by the CRM software that include the
Campaign
Target List,
Campaign Material, Content and Client preferences.
From
2002
through 2005, we generally granted a 60-day performance guarantee period for
each new installation. If performance goals were met, the contracts became
noncancellable for their terms, usually 36 months. In 2006 the Company
discontinued the 60-day performance guarantee and focused efforts on developing
the new web based application software system. As of December 31, 2006, a total
of 32 dealers were using the DealerAdvance Sales Solution(tm), down from 83
as
of December 31, 2005.
This
net
reduction of 51 clients represents contracts that came to their term that were
not renewed. Additionally during 2006, we added no new clients as we were
focused on the development of our new web based software system that was not
completed until January of 2007. As a result of the reversal in growth, the
Company has taken proactive measures to reprice and reintroduce the software
to
the buying marketplace and reduce the capital expenditure and time required
to
utilize the old system.
OUR
REVENUES
Our
revenues in 2006 were primarily received from the maintenance contracts earned
through the use of the DealerAdvance™ system by 32 client dealerships in 2006.
The typical maintenance contract for the old system is for 36 months and is
$750.00 per month. The average total 36 month maintenance portion of the contact
is $27,000. In the operating period from 2002 through to 2005, approximately
50%
of all our customers have prepaid the maintenance fees through a third party
leasing finance company and have generated deferred revenue liability on the
balance sheet as a result of receiving these advance payments.
Prior
to
2006 the Company’s revenues were primarily generated from the installation of
the previous version of the Dealer Advance system and had an average selling
package price of $70,000.
With
release of the new WebDA™ system announced in January 2007, the Company’s
revenue model has changed to provide for competitive pricing advantages made
available with the new wed based system. Our revenues moving forward will be
primarily generated from a one-time up-front payment and monthly recurring
fees
covering software licenses. Our license agreements will be provided in twelve,
twenty-four and thirty-six month terms. A $2,500 down payment and a monthly
fee
of $1,500 over a twelve month term will be booked as revenue at an average
annual fee of $20,500, inclusive of the down payment.
COST
OF GOODS SOLD
Our
Cost
of Goods Sold in 2006 was primarily attributed to supporting the maintenance
portion of contracts as referenced above in the revenues section and were
comprised of hardware components, software licensing and labor. Additional
Cost
of Goods Sold was recognized for Software Development of the new WebDA ™ system.
In total, Cost of Goods Sold as a percentage of revenues in 2006 was
14.889%.
Prior
to
2006, Cost of Goods Sold as a percentage of revenue was greater due to the
fact
that the Company had generated revenues from new software systems and incurred
installation expenses. The total Cost of Goods Sold as a percentage of revenue
in 2005 was 34.37%.
With
the
release of the new WebDATM
system
announced in Jan 2007, the company we will incur new categories of Cost of
Goods
Sold for hosting and servicing of the new product of approximately 20% of the
estimated new estimated monthly revenue per customer of $2,500.
With
release of the new WebDATM
system
announced in Jan 2007 the company we will incur cost of sales attributed to
the
hosting and servicing of this new product. Estimated cost of sales is estimated
to be approximately 20% of the new monthly fee of $2,500.
SELLING,
GENERAL AND ADMINISTRATIVE OPERATING EXPENSES
Our
selling, general operating expenses are primarily comprised of:
o |
General
and Administrative; and
|
o |
Development
& Operations.
|
MARKETING
AND SELLING EXPENSE
Our
marketing and selling expenses include all labor, sales commissions and
non-labor expenses of selling and marketing of our products and services.
As
a
means to conserve capital and deploy an effective and efficient sale and
marketing plan, the Company entered into a Letter of Intent, in February of
2006
with one of its distribution partners, Humphries Marketing Group (“HMG”), to
provide executive sales and marketing management services. HMG is a boutique
advertising agency primarily focused on the automobile retail industry and
currently has approximately 20 dealer clients nationwide. Humphries also
provides consulting services to members of the National Automobile Dealers
Agency (“NADA”) for advertising and CRM services.
In
March
2006, the Company entered into a consulting agreement with Humphries Marketing
Group (HMG), a Texas based automotive exclusive advertising agency. As per
that
agreement Steven Humphries, the CEO of HMG, is to serve as President
of the Company, and is to also provide an individual to serve as the Vice
President of Sales of the Company. In July 2006, Mr. Humphries appointed David
Scaturro (HMG’s Chief Operating Officer) as the Vice President of Sales.
GENERAL
and ADMINISTRATIVE EXPENSE
Our
general and administrative expenses include expenses for all facilities,
insurance, benefits, telecommunications, legal and auditing expenses are
included as well as the executive management group wage expense.
RESEARCH
AND DEVELOPMENT EXPENSE
Since
our
inception in September 2000, we have spent approximately $4,300,000 on research
and development activities. While we have been successful in meeting planned
goals in the development and introduction of DealerAdvance Sales Solution(TM),
there can be no assurance that our research and development efforts will be
successful with respect to additional products, or if successful, that we will
be able to successfully commercially exploit such additional products.
Our
development & operations expenses also include the expenses for the Client
Consultant group which advises and supports the installations of our Dealer
Advance(TM) clients.
In
June
2006, the Company hired Rajneesh Sharma as its Chief Information Officer. His
first action as CIO was the closing of the Company’s Virginia technical support
operations office and the termination of its employees based in that office.
This resulted in substantial operational savings for the Company. As a result
of
the closure, in June 2006 the Company began operating its technical support
services from the new Texas based corporate offices. Mr. Sharma’s primary focus
moving forward is the development of the new web-based version of DealerAdvance™
(WebDA™). Mr. Sharma is in the process of hiring a Texas based development team
that will transfer existing application from a server-based product to a fully
functional web-based application. The Company launched the new product (“Web
DA”) in January of 2007. The initial release of WebDA™ will take the existing
DealerAdvance™ software with a few added enhancements and move the product to
the web, thus eliminating the high cost of equipment required by the current
product. The new product will not feature the hand-held wireless technology
utilized previously by the Company, however, should a dealer desire the benefit
of the technology, it will be provided at an additional cost to the dealer.
In
the first month of each quarter moving forward, a new release will be provided
to dealers of WebDA™, beginning with 1.0.
COMPETITION
RELATED TO HANDHELD TECHNOLOGY BUSINESS
We
compete with the traditional CRM providers and the emerging new CRM providers
in
the retail automotive dealer software market.
Some
of
our potential competitors include:
o |
Automotive
Directions, a division of ADP Dealer Services, and a provider of
PC-based
customer relationship management systems as well as marketing research
and
consulting services;
|
o |
Higher
Gear, a provider of client server based front-end sales and customer
relationship management software which serves the retail automotive
industry exclusively;
|
o |
Autobase,
a provider of PC based front-end software which serves the retail
automotive industry exclusively;
|
o |
Cobalt
Corporation, a provider of ASP sales prospect management systems
and
customer relationship management systems which services the retail
automotive industry exclusively; and
|
We
believe that our proprietary technology is unique and, therefore, places us
at a
competitive advantage in the industry. However, there can be no assurance that
our competitors will not develop a similar product with properties superior
to
our own or at greater cost-effectiveness.
MARKETING
AND SALES
We
have
identified a target market of approximately 21,500 new car automobile
dealerships in the United States that meet the base criteria for our system.
More specifically, we target a primary market of approximately 10,000
dealerships that sell a minimum of 75 new and used cars each month and do not
currently have CRM systems. Generally, our target market consists of midline
dealerships, including brands such as Chevrolet, Ford, Nissan, Volkswagen,
Toyota, Honda, Buick, Pontiac, GMC Trucks, Chrysler and Dodge. The reason for
this is that midline dealers typically have high prospect and customer traffic,
which makes for large untapped prospect opportunities that the client can
leverage through the follow-up process from DealerAdvance. In addition, it
is
estimated that only approximately one-half of the new car dealerships have
made
investments in CRM products.
We
further qualify our market as dealerships with over $15 million in annual
revenue. Obviously, a larger dealership has more traffic, more customer
transactions, more sales people, and can more easily justify the investment.
Finally, we limit our market to dealerships in those parts of the country where
it has sales and support coverage.
As
a
means to conserve capital and deploy an effective and efficient sale and
marketing plan, the Company entered into a Letter of Intent, in February of
2006
with one of its distribution partners, Humphries Marketing Group (“HMG”), to
provide executive sales and marketing management services. HMG is a boutique
advertising agency primarily focused on the automobile retail industry and
currently has approximately 20 dealer clients nationwide. Humphries also
provides consulting services to members of the National Automobile Dealers
Association (“NADA”) 20 Groups for advertising and CRM services.
In
March
2006, the Company entered into a consulting agreement with Humphries Marketing
Group (HMG), a Texas based automotive exclusive advertising agency. As per
that
agreement Steven Humphries, the CEO of HMG, is to serve as President of the
Company, and is to also provide an individual to serve as the Vice President
of
Sales of the Company. In July 2006, Mr. Humphries appointed David Scaturro
(HMG’s Chief Operating Officer) as the Vice President of Sales.
As
part
of Mr. Humphries operating sales strategy, the Company has split the country
into two regions (East and West). The Company hired two Regional Sales Managers;
a Texas based Eastern Manager serving dealers east of Texas and a California
based Western Region Manager serving dealers Texas west. The Regional Managers
are based in the Company’s Texas and California offices, respectfully. The
primary focus of the new sales team is to re-establish the Company’s
relationships with its remaining customers and develop new contacts in
preparation of the launch of its new web-based CRM product “WebDA™” in the
1st
Quarter
of 2007. The Company will employ additional Sales Managers as the Company
implements the launch of its new WebDA™ product.
OUR
INTELLECTUAL PROPERTY
We
have a
trademark for "DealerAdvance(TM)" and have one patent application pending
covering the system for management of information flow in automotive dealerships
using handheld technology. The patent application is currently being reviewed
by
the United States Patent and Trademark Office. We may face unexpected
competition from various sources if our patent is denied however we do not
believe this will have a material impact on our business.
EMPLOYEES
As
of
December 31, 2006, we had a total of 7 full-time employees, of which 4 are
dedicated to marketing and sales and regional customer support. As of December
31, 2006, 1 is in New Jersey, 1 in California, and 4 in Texas. Our CEO and
VP of
Sales, both of whom are based in Texas, provide services under a Consulting
Agreement with Humphries Marketing Group.
We
have
no collective bargaining arrangements with our employees. We believe that our
relationship with our employees is
good.
SAFE
HARBOR STATEMENT
The
statements contained in this Annual Report on Form 10-KSB that are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 ("the Securities Act"), as amended
and the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
In particular, our statements regarding the anticipated growth in the markets
for our technologies, the continued development of our products, the approval
of
our Patent Applications, the successful implementation of our sales and
marketing strategies, the anticipated longer term growth of our business, and
the timing of the projects and trends in future operating performance are
examples of such forward-looking statements. The forward-looking statements
include risks and uncertainties, including, but not limited to, the timing
of
revenues due to the uncertainty of market acceptance and the timing and
completion of pilot project analysis, and other factors, including general
economic conditions, not within our control. The factors discussed herein and
expressed from time to time in our filings with the SEC could cause actual
results to be materially different from those expressed in or implied by such
statements. The forward-looking statements are made only as of the date of
this
filing and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Factors
that Might Affect Our Business, Future Operating Results, Financial Condition
and/or Stock Price
The
more
prominent risks and uncertainties inherent in our business are described below.
However, additional risks and uncertainties may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations may suffer.
Risks
Concerning Our Business
Our
sole
executive officer and director and CEO may be subject to fines, sanctions
and/or
penalties of an indeterminable nature as a result of violations of the Sarbanes
Oxley Act of 2002 in connection with loans made to the sole executive officer
and director.
During
the quarter ended December 31, 2006, we made certain loans to Mr. Steven
Humphries, our sole executive officer and director, or a company controlled
by
Mr. Humphries, aggregating $114,141. During this same period, a portion of
the
loans were repaid through the payment of cash in the amount of $68,000. These
loans made to Mr. Humphries violate Section 402 of the Sarbanes Oxley Act
of
2002. As a result, despite the fact that a portion of such loans were repaid,
our company and/or Mr. Humphries may be subject to fines, sanctions and/or
penalties. At this time, we are unable to determine the amount of such fines,
sanctions and/or penalties that may be incurred by our company and/or Mr.
Humphries. The purpose of such loan was for personal use.
We
Have A
History Of Incurring Net Losses; We Expect Our Net Losses To Continue As A
Result Of Planned Increases In Operating Expenses; And, Therefore, We May Never
Achieve Profitability Which May Cause Us To Seek Additional Financing Or To
Cease Operations.
We
have a
history of operating losses and have incurred significant net losses in each
fiscal quarter since our inception. We had a net loss of $4,444,000 and
$3,632,000 for the fiscal years ended December 31, 2006 and December 31, 2005,
respectively. We have an accumulated net operating loss of approximately
$17,000,000 for the period from May 17, 2002 through December 31, 2006 to offset
future taxable income. Losses prior to May 17, 2002 were passed directly to
the
shareholders and, therefore, are not included in the loss carry-forward. We
expect to continue to incur net losses and negative cash flows for the
foreseeable future. We will need to generate significant additional revenue
to
achieve profitability. Our ability to generate and sustain significant
additional revenues or achieve profitability will depend upon the factors
discussed elsewhere in this "Risk Factors" section, as well as numerous other
factors outside of our control, including:
o |
Competing
products that are more effective or less costly than ours;
|
o |
Our
ability to develop and commercialize our own products and technologies;
and
|
o |
Our
ability to increase sales of our existing products and any new products.
|
It
is
possible that we may never achieve profitability and, even if we do achieve
profitability, we may not sustain or increase profitability in the future.
If we
do not achieve sustained profitability, we may be unable to continue our
operations.
There
Is
A Possibility That We Will Be Unable To Obtain Sufficient Funds, Will Incur
A
Cash Flow Deficit, Therefore Our Business Could Suffer A Loss Of Clients And
Employees As Well As A Decrease In Continued Research And Development Efforts.
We
believe that our current funds and accounts receivable will only be sufficient
for our immediate future, raising substantial doubt about our ability to
continue as a going concern. During 2007, the management of the Company will
rely on receiving the balance of the $900,000 committed by the current investors
of Convertible Notes to provide the company with sufficient working capital
for
the next 12 months. Of the $900,000 committed, $250,000 has already been infused
into the Company leaving a remaining $650,000. In the event that the Company
does not meet its business plan in 2007, the balance of the remaining $900,000
may not satisfy the working capital requirements and the Company may need to
raise additional capital to fund its operations in the third quarter of 2007.
If
the Company is unable to generate sufficient revenues or raise sufficient
additional capital, there could be a material adverse effect on the consolidated
financial position, results of operations and cash flows of the
Company.
Since
our
inception, we have financed all of our operations through sales of private
equity, debt financings and commercial bank loans. Our future capital
requirements depend on numerous factors, including:
o |
The
scope of our research and development;
|
o |
Our
ability to successfully commercialize our technology; and
|
o |
Competing
technological and market developments.
|
We
May
Fail To Gain Market Acceptance Of Our Products, Therefore Our Business And
Results Of Operations Could Be Harmed.
We
are
still in the early marketing stages of our WebDA™ Customer relationship
Management system. The initial version of this development was completed in
January of 2007 and we still have not signed a customer to it and therefore
there is substantial risk of weather or not this product will be
adopted.
We
may
experience design, marketing, and other difficulties that could delay or prevent
our introduction, or marketing of the new product. In addition, the costs of
developing and marketing our products may far outweigh the revenue stream
generated by such products. Finally, our prospects for success will depend
on
our ability to successfully sell our products to key automobile dealerships
that
may be inhibited from doing business with us because of their commitment to
their own technologies and products, or because of our relatively small size
and
lack of sales and production history.
The
nature of our product and technology requires us to market almost exclusively
to
automobile dealerships. Should any particular dealership or group of dealerships
decide not to utilize our services to the extent anticipated, our business
may
be adversely affected. Large and costly consumer products such as automobiles
are sensitive to broad economic trends. Therefore, our business could suffer
if
automobile dealerships are affected by poor economic conditions. If dealer
sales
are trending downward, capital expenditures, like those associated with our
WebDA™ products, may be delayed or abandoned.
We
are
highly dependent on the principal members of our management, research and sales
staff. The loss of their services might significantly delay or prevent the
achievement of our strategic objectives. Our success depends on our ability
to
retain key employees and to attract additional qualified employees. Competition
for personnel is intense, and we cannot assure you that we will be able to
retain existing personnel or attract and retain additional highly qualified
employees in the future.
Risks
Concerning Our Handheld Technology
We
Obtain
Products And Services From Third Parties, Therefore An Interruption In The
Supply Of These Products And Services Could Cause A Decline In Sales Of Our
Products And Services.
We
are
dependant upon certain providers of software, including Microsoft Corporation
and their Pocket PC software, to provide the operating system for our
applications. If there are significant changes to this software, or if this
software stops being available or supported, we will experience a disruption
to
our product and development efforts.
In
designing, developing and supporting our wireless data services, we rely on
mobile device manufacturers, content providers, database providers and software
providers. These suppliers may experience difficulty in supplying us products
or
services sufficient to meet our needs or they may terminate or fail to renew
contracts for supplying us these products or services on terms we find
acceptable. Any significant interruption in the supply of any of these products
or services could cause a decline in sales of our products and services, unless
and until we are able to replace the functionality provided by these products
and services. We also depend on third parties to deliver and support reliable
products, enhance their current products, develop new products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes.
Competition
In The Wireless Technology Industry Is Intense And Technology Is Changing
Rapidly, Therefore We May Be Unable To Compete Successfully Against Our Current
And Future Competitors In The Future.
Many
wireless technology and software companies are engaged in research and
development activities relating to our range of products. The market for
handheld wireless technology is intensely competitive, rapidly changing and
undergoing consolidation. We may be unable to compete successfully against
our
current and future competitors, which may result in price reductions, reduced
profit margins and the inability to achieve market acceptance for our products.
Our competitors in the field are major international car dealership service
companies, specialized technology companies, and, potentially, our joint venture
and strategic alliance partners. Many of our competitors have substantially
greater financial, marketing, sales, distribution and technical resources than
us and have more experience in research and development, sales, service,
manufacturing and marketing. We anticipate increased competition in the future
as new companies enter the market and new technologies become available. Our
technology may be rendered obsolete or uneconomical by technological advances
developed by one or more of our competitors.
We
May
Not Have Adequately Protected Our Intellectual Property Rights, Therefore We
May
Not Be Successful In Protecting Our Intellectual Property Rights.
Our
success depends on our ability to sell products and services for which we do
not
currently have intellectual property rights. We currently do not have patents
on
any of our intellectual property. We have filed for a patent which protects
a
number of developments pertaining to the management of information flow for
automotive dealer-based software. We plan to file an additional patent
application which will address certain proprietary features pertaining to our
systems components, related equipment and software modules. We cannot assure
you
we will be successful in protecting our intellectual property right through
patent law.
We
rely
primarily on trade secret laws, patent law, copyright law, unfair competition
law and confidentiality agreements to protect our intellectual property. To
the
extent that these avenues do not adequately protect our technology, other
companies could develop and market similar products or services, which could
adversely affect our business.
We
May Be
Sued By Third Parties For Infringement Of Their Proprietary Rights, Therefore
We
May Incur Defense Costs And Possibly Royalty Obligations Or Lose The Right
To
Use Technology Important To Our Business.
The
wireless technology and software industries are characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement or other violations of intellectual property rights. As
the
number of participants in our market increases, the possibility of an
intellectual property claim against us could increase. Any intellectual property
claims, whether with or without merit, could be time consuming and expensive
to
litigate or settle and could divert management attention from the administration
of our business. A third party asserting infringement claims against the Company
or our customers with respect to our current or future products may adversely
affect us.
Risks
Concerning Our Capital Structure
Our
former Chief Executive Officer Has Significant Control Of Our Common Stock
And,
Therefore, Could Control Our Actions In A Manner That Conflicts With Our
Interests And The Interests Of Other Stockholders.
We
Have
Shares Eligible for Future Issuance, Therefore Our Stockholders May Suffer
Dilution As A Result.
As
of
December 31, 2006, we had 43,587,393 shares of our Common Stock issued and
outstanding. In addition, we have 3,707,643 shares of Common Stock reserved
for
issuance upon the exercise of all outstanding options, and 10,738,508 shares
of
Common Stock reserved for issuance upon the exercise of certain outstanding
warrants and upon the conversion of certain shares of our Series A and Series
B
Preferred Stock.
We
Do Not
Intend to Pay Cash Dividends On Our Shares of Common Stock, Therefore Our
Stockholders Will Not Be Able to Receive a Return on Their Shares Unless They
Sell Them.
We
have
never declared or paid dividends on our Common Stock and we do not intend to
pay
any Common Stock dividends in the foreseeable future. We intend to retain any
future earnings to finance the development and expansion of our business. We
do
not anticipate paying any cash dividends on our Common Stock in the foreseeable
future. Unless we pay dividends, our stockholders will not be able to receive
a
return on their shares unless they sell them.
Our
Common Stock Is A Penny Stock And Therefore May Be Difficult To Sell.
Our
stock
is a penny stock. The SEC generally defines a penny stock as an equity security
that has a market price of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to specific exemptions. The market price
of
our Common Stock is currently less than $5.00 per share. The SEC "penny stock"
rules govern the trading of our Common Stock. These rules require, among other
things, that any broker engaging in a purchase or sale of our securities provide
its customers with the following:
o |
A
risk disclosure document;
|
o |
Disclosure
of market quotations, if any;
|
o |
Disclosure
of the compensation of the broker and its salespersons in the transaction;
and
|
o |
Monthly
account statements showing the market values of our securities held
in the
customer's accounts.
|
The
broker must provide the bid and offer quotations and compensation information
before effecting the transaction. This information must be contained on the
customer's confirmation. Generally, brokers may be less willing to effect
transactions in penny stocks due to these additional delivery requirements.
This
may make it more difficult for investors to sell our Common Stock. Because
the
broker, not us, prepares this information, we cannot assure that such
information is accurate, complete or current.
We
do not
currently own any real property.
Under
the
terms of a Consulting Agreement between DealerAdvance, Inc. (the “Company”) and
Humphries Marketing Group, LLC (“HMG”) dated April 30, 2006, the Company
reimburses HMG $2,000 per month for shared use of its’ facility in Addison,
Texas. The term is month to month. The Company has a similar arrangement for
shared space in HMG’s Sacramento, CA office at a monthly cost of
$1,000.
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Except as disclosed below,
we are currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our
business,
financial condition or operating results.
The
Company is engaged in arbitration proceedings with Lenard Berger (the
“Claimant”), a former officer, with regard to a claim for damages for the
Company’s failure to remove a restrictive legend from 437,500 shares of common
stock of the Company, additional unpaid salary accrued during his term of
employment and pre-judgment interest on all amounts owing to the Claimant.
On
May 18, 2006, Mr. Berger was awarded the sum of $214,361.52. As of December
31,
2006, a total of $27,030 has been paid against the claim.
During
the course of doing business the Company made certain guarantees to prospective
clients as an inducement to contract for services. These guarantees, although
limited, provided that the Company would pay off client third party equipment
leases after the first 12 months of service if the client was not satisfied
with
the product. As of December 31, 2006, two judgments have been entered against
the Company for failure to honor such guarantees to Wilson-Cornelius Ford and
Great Lakes Ford - Muskegon. Two additional guarantees have been called by
Graff
Chevrolet and Zumwalt Ford. Graff has filed a suit against the Company in Texas
and Zumwalt has made a demand to the Company.
On
January 25, 2007, our Predecessor Entity, Stronghold Technologies, Inc. (NJ)
a
New Jersey corporation and a wholly owned subsidiary of Dealer Advance, Inc.,
filed a voluntary petition for relief under Chapter 7 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern District
of Texas, Case No. 07-30322-sgj7. In connection with the filing, the Subsidiary
has ceased all business activity and operations. The Subsidiary determined
that
it does not have sufficient resources to continue its operations. The
court has appointed a bankruptcy trustee who will be responsible for
the liquidation of the business through the bankruptcy case.
None.
Our
Common Stock is traded on the OTC Bulletin Board, referred to herein as the
OTCBB, under the symbol "DLAV". The following table sets forth the high and
low
bid prices of our Common Stock, as reported by the OTCBB for each quarter since
January 1, 2005. The quotations set forth below reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not represent actual
transactions.
2005
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
January
1, 2005 - March 31, 2005
|
|
$
|
0.230
|
|
$
|
0.020
|
|
April
1, 2005 - June 30, 2005
|
|
$
|
0.090
|
|
$
|
0.010
|
|
July
1, 2005 - September 30, 2005
|
|
$
|
0.100
|
|
$
|
0.040
|
|
October
1, 2005 - December 31, 2005
|
|
$
|
0.040
|
|
$
|
0.030
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
January
1, 2006 - March 31, 2006
|
|
$
|
0.060
|
|
$
|
0.009
|
|
April
1, 2006 - June 30, 2006
|
|
$
|
0.025
|
|
$
|
0.011
|
|
July
1, 2006 - September 30, 2006
|
|
$
|
0.015
|
|
$
|
0.004
|
|
October
1, 2006 - December 31, 2006
|
|
$
|
0.001
|
|
$
|
0.013
|
|
We
have
appointed Continental Stock Transfer & Trust Company, 17 Battery Place, New
York, New York 10004, as transfer agent for our shares of Common Stock.
This
section provides a narrative on the Company's operating performance, financial
condition and liquidity and should be read in conjunction with the accompanying
financial statements. Certain statements under the caption "Management's
Discussion and Analysis and Results of Operation" constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Risk Factors-Cautionary Note Regarding Forward Looking Statements". For a
more
complete understanding of our operations see "Risk Factors" and "Description
of
Business".
OUR
HISTORY
We
were
incorporated as a Nevada corporation on September 8, 2000, under the name TDT
Development, Inc. On May 16, 2002, we acquired Stronghold Technologies, Inc.,
a
New Jersey corporation, referred to herein as our "Predecessor Entity", pursuant
to a merger of Stronghold Technologies into our wholly-owned subsidiary, TDT
Stronghold Acquisition Corp., referred to herein as "Acquisition Sub". Our
company, formerly TDT Development, Inc., was a reporting entity at the time.
Its
principals were Pietro Bortolatti, President, CEO and Chairman, Tiziana DiRocco,
Vice-President and Director of European Operations and David Rector, Director.
The merger was an arms length transaction and none of the parties had a prior
existing relationship. As consideration for the merger, we issued 7,000,000
shares of our common stock valued at $.75 per share to the stockholders of
the
Predecessor Entity in exchange for all of the issued and outstanding shares
of
the
Predecessor
Entity. No fairness opinion was issued in connection with this merger. Following
the merger, Acquisition Sub, the survivor of the merger, changed its name to
Stronghold Technologies, Inc. (NJ) and remains our only wholly-owned subsidiary.
We approved the transaction as the sole shareholder of the Acquisition Sub
as
did the shareholders of the Predecessor Entity.
On
July
11, 2002, we changed our name from TDT Development, Inc. to Stronghold
Technologies, Inc. (NV). On July 19, 2002, we exchanged all of the shares that
we held in our two other wholly-owned subsidiaries, Terre di Toscana, Inc.
and
Terres Toscanes, Inc., which conducted an import and distribution business
specializing in truffle-based food product, for 75,000 shares of our common
stock held by Mr. Pietro Bortolatti, our former president.
On
September 26, 2006, we changed our name to Dealer Advance, Inc. As a result,
symbol on the OTCBB was changed to DLAV.
On
January 25, 2007, our Predecessor Entity filed a voluntary petition for relief
under Chapter 7 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas, Case No. 07-30322-sgj7.
In
connection with the filing, the Subsidiary has ceased all business activity
and
operations. The Subsidiary determined that it does not have sufficient resources
to continue its operations. The court has appointed a bankruptcy trustee
who will be responsible for the liquidation of the business through the
bankruptcy case.
HISTORY
OF OUR CUSTOMER RELATIONSHIP MANAGEMENT TECHNOLOGY BUSINESS
On
May
16, 2002, we entered the handheld wireless technology business via our
acquisition by merger of the Predecessor Entity. The Predecessor Entity was
founded on August 1, 2000 by Christopher J. Carey, our former Chief Executive
Officer and President, and Lenard J. Berger, former Chief Technology Officer
and
Salvatore F. D'Ambra, former Vice President, Product Development, of our
wholly-owned subsidiary. The Predecessor Entity was founded to develop
proprietary handheld wireless technology for the automotive dealer software
market.
Since
the
creation of the new subsidiary and merger of Dealer Advance Inc. and name change
from Stronghold Technologies Inc. to Dealer Advance Inc., , In 2006 we have
ceased from continuing to conduct the Predecessor Entity's handheld wireless
technology business and have developed a new web based platform called WEB
DA
and currently offer the wireless technology created by the predecessor as an
option
Our
Revenues Moving Forward
Beginning
with the 1st Quarter of 2007 the Company’s revenue model will change. Rather
than being hardware driven, the Company will become software driven and will
move its DealerAdvance product from a server based platform to a web based
application, thus eliminating the high cost of maintaining inventory and
installation costs. Our revenues, moving forward will be primarily generated
from a one-time up-front payment and monthly recurring fees covering software
licenses. Our license agreements will be provided in twelve, twenty-four and
thirty-six month terms. A $2,500 down payment and a monthly fee of $1,500 over
a
twelve month term will be booked as revenue at an average annual fee of $20,500,
inclusive of the down payment.
The
Company currently has approximately 32 user contracts at dealerships throughout
the United States. Management believes that the majority of those contracts,
of
which all are to expire in the next 12 to 18 months, will be renewed at the
above-mentioned rates however it cannot provide any guarantee regarding these
renewals.
Additionally,
many of the Company’s client customer base are part of dealer groups comprised
of three or more dealerships. Up until now the Company has not been successful
in leveraging its relationships with these dealers enabling the Company to
place
the DealerAdvance product into those additional group stores. Management now
believes that because of the its new web based product and its newly developed
client relationships, there is an opportunity to add an additional 20 to 25
client contracts over the next 12 to 18 months through these
groups.
COST
OF GOODS SOLD
Our
Cost
of Goods Sold in 2006 was primarily attributed to supporting the maintenance
portion of contracts as referenced above in the revenues section and were
comprised of hardware components, software licensing and labor. Additional
Cost
of Goods Sold was recognized for Software Development of the new WebDA ™ system.
In total, Cost of Goods Sold as a percentage of revenues in 2006 was
14.88%.
Prior
to
2006, Cost of Goods Sold as a percentage of revenue was greater due to the
fact
that the Company had generated revenues from new software systems and incurred
installation expenses. The total Cost of Goods Sold as a percentage of revenue
in 2005 was 34.37%.
With
the
release of the new WebDATM
system
announced in Jan 2007, the company we will incur new categories of Cost of
Goods
Sold for hosting and servicing of the new product of approximately 20% of the
estimated new estimated monthly revenue per customer of $2,500.
GENERAL
AND ADMINISTRATIVE OPERATING EXPENSES
Our
general operating expenses are primarily comprised of:
o |
General
and Administrative; and
|
o |
Development
& Operations.
|
Our
marketing and selling expenses include all labor, sales commissions and
non-labor expenses of selling and marketing of our products and services.
Our
general and administrative expenses include expenses for all facilities,
insurance, benefits, telecommunications, legal and auditing expenses are
included as well as the executive management group wage expense.
Our
development & operations expenses include the expenses for the Client
Consultant group which advises and supports the installations of our Dealer
Advance(TM) clients.
RESEARCH
AND DEVELOPMENT
In
June
the Company hired Rajneesh Sharma as its Chief Information Officer. His first
action as CIO was the closing of the Company’s Virginia technical support
operations office and the termination of its employees based in that office.
This resulted in substantial operational savings for the Company. As a result
of
the closure, in June 2006 the Company began operating its technical support
services from the new Texas based corporate offices. Mr. Sharma’s primary focus
moving forward is the development of the new web-based version of DealerAdvance™
(Web DA). Mr. Sharma is in the process of hiring a Texas based development
team
that will transfer existing application from a server-based product to a fully
functional web-based application. The Company plans to launch the new product
(“Web DA”) in November of 2006. The initial release of WebDA will take the
existing DealerAdvance™ software with a few added enhancements and move the
product to the web, thus eliminating the high cost of equipment required by
the
current product. The new product will not feature the hand-held wireless
technology utilized previously by the Company, however, should a dealer desire
the benefit of the technology, it will be provided at an additional cost to
the
dealer. In the first month of each quarter moving forward, a new release will
be
provided to dealers of WebDA, beginning with 1.0.
SALES
DEVELOPMENT
In
March
2006, the Company entered into a consulting agreement with Humphries Marketing
Group (HMG), a Texas based automotive exclusive advertising agency. As per
that
agreement Steven Humphries, the CEO of HMG, is to serve as President of the
Company, and is to also provide an individual to serve as the Vice President
of
Sales of the Company. In July 2006, Mr. Humphries appointed David Scaturro
(HMG’s Chief Operating Officer) as the Vice President of Sales.
As
part
of Mr. Humphries operating sales strategy, the Company has split the country
into two regions (East and West). The Company and hired two Regional Sales
Managers; Suzanne Hambruch (Eastern Region), serving dealers east of Texas
and
Melissa Markus (Western Region), serving dealers Texas west. The Regional
Managers are based in Stronghold’s Texas and California offices, respectfully.
The primary focus of the new sales team is to re-establish the Company’s
relationships with its remaining customers and develop new contacts in
preparation of the launch of the new “Web DA”.
YEAR
ENDED DECEMBER 31, 2006 AND YEAR ENDED DECEMBER 31, 2005.
Revenue
For
the
year ended December 31, 2006 we had revenue of $479,474 compared with revenue
of
$943,735 for the year ended December 31, 2005 for a decrease of 49%. Revenue
is
generated from software license and system installation, maintenance support
and
service revenues. Revenues for the years ended December 31, 2005 and December
31, 2004 are broken down as follows:
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
Software
License & System Installation
|
|
$
|
33,336
|
|
$
|
288,200
|
|
$
|
(254,864
|
)
|
|
-88
|
%
|
Support
& Maintenance
|
|
$
|
429,658
|
|
$
|
605,723
|
|
$
|
(176,065
|
)
|
|
-29
|
%
|
Services
|
|
$
|
16,480
|
|
$
|
49,812
|
|
$
|
(33,332
|
)
|
|
-67
|
%
|
Total
Revenue
|
|
$
|
479,474
|
|
$
|
943,735
|
|
$
|
(464,261
|
)
|
|
-49
|
%
|
Software
license and system installation revenue decreased $254,864 in 2006 to $33,336
as
compared to $288,200 in 2005 for a decrease of 88%. The company installed no
new
sites in 2006 as compared to 4 sites in 2005, with an average sales price of
$51,000. The primary reasons for the decrease in revenue can be attributed
to 1)
our decision to stop selling our DealerAdvanceTM
software
product and devote our resources to development of our new web-based product,
WebDATM,
and
2)
repeated concerns in the marketplace about the Company’s ability to continue as
a going concern.
Support
and maintenance revenues decreased $176,065 in 2006 to $429,658 as compared
to
$605,723 in 2005 for a decrease of 29%. This decrease was attributable to a
decrease of 44 sites under maintenance contracts from 83 at the end of 2005
to
39 at the end of 2006. Twenty-nine maintenance contracts expired during the
year
ended December 31, 2005.
Services
revenue consisting of 3rd
party
subscription services decreased $33,332 in 2006 to $16,480 as compared to
$49,812 in 2005 for a decrease of 67%. The decrease is attributable to the
expiration of 29 service and support contracts .
Given
that the company has continued to generate losses and are reliant on raising
capital to support operations, the continued loss of momentum may cause us
our
revenues to continue to decrease.
Cost
of Sales
Cost
of
sales on a percentage of revenue basis was decreased to 14.88% of revenue for
the twelve months ended December 31, 2006 as compared to 34.37% of revenue
for
the twelve months ended December 31, 2005. The table below shows the Cost of
Sales and percentage by category and the comparison in dollars and percentage
for the twelve months ended December 31, 2006 and twelve months ended December
31, 2005.
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
Cost
of Sales
|
|
Dollars
|
|
Dollars
|
|
%
of Revenue
|
|
%
of Revenue
|
|
%
Change
|
|
Hardware
Components
|
|
$
|
10,884
|
|
$
|
90,957
|
|
|
2.38
|
%
|
|
9.64
|
%
|
|
-7.26
|
%
|
Client
Software & Licensing
|
|
|
14,649
|
|
|
39,631
|
|
|
3.20
|
%
|
|
4.20
|
%
|
|
-1.00
|
%
|
Distribution
Fees
|
|
|
5,490
|
|
|
3,274
|
|
|
1.20
|
%
|
|
—
|
|
|
1.20
|
%
|
Subcontractors
|
|
|
2,748
|
|
|
21,941
|
|
|
0.60
|
%
|
|
2.32
|
%
|
|
-1.73
|
%
|
Misc
Installation Costs
|
|
|
12,420
|
|
|
4,051
|
|
|
2.71
|
%
|
|
0.43
|
%
|
|
2.28
|
%
|
Installations/Travel
|
|
|
—
|
|
|
29,063
|
|
|
0.00
|
%
|
|
3.08
|
%
|
|
-3.08
|
%
|
Shipping
|
|
|
370
|
|
|
15,630
|
|
|
0.08
|
%
|
|
1.66
|
%
|
|
-1.58
|
%
|
Labor
|
|
|
24,773
|
|
|
119,813
|
|
|
5.41
|
%
|
|
12.70
|
%
|
|
-7.29
|
%
|
Total
Cost of Sales
|
|
$
|
71,334
|
|
$
|
324,360
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Sales % of Revenue
|
|
|
14.88
|
%
|
|
34.37
|
%
|
|
|
|
|
|
|
|
-19.49
|
%
|
Gross
Profits
We
generated $408,141 in gross profits from sales for the year ended December
31,
2006, which was a decrease of $211,234 from the year ended December 31, 2005,
when we generated $619,376 in gross profits. Our gross profit margin percentage
increased by 19.49% from 65.63% in the year ended December 31, 2005 to 85.12%
in
the year ended December 31, 2006.
Selling,
General and Administrative Expenses
Total
Selling, General and Administrative expenses in the year ended December 31,
2006
were $2,517,382, a decrease of 7.89% or $215,572 from the year ended December
31, 2005 of $2,732,954. We reduced our full-time staff from 8 in the year ended
December 31, 2005 to 6 during the year ended 2006, decreasing payroll expenses
by $207,891, however this was offset by an increase in consultant expense of
$206,366. Consolidation of our VA development center to our corporate offices
in
Texas resulted in a decrease of rent expense of $43,243, Other expense
reductions within selling, general and administrative expenses for the year
ended December 31, 2006 and December 31, 2005 included reductions as follows:
o |
Financing
costs of $109,235
|
o |
Accounting
fees of 40,530
|
o |
Employee
benefits of $24,758
|
Our
interest and penalty expense increased from $747,383 in the year ended December
31, 2005 to $911,721 in the year ended December 31, 2006. This increase of
$164,338 is primarily due to interest expense attributed to the callable secured
convertible notes. Additionally, we recorded $85,884 in deferred interest
associated with stock options and warrants issued during the year ended December
31, 2006.
Operating
Loss
The
Company’s operating losses decreased by $4,337 in comparing the year ended
December 31, 2006 to the year ended December 31, 2005, which were $2,109,242and
$2,113,579, respectively.
Net
Loss
We
had a
net loss of $4,443,627 the year ended December 31, 2006 compared to $3,632,448
the year ended December 31, 2005, an increase in net losses of $811,179. This
increase of net losses of 22.33% is attributable to a decrease of
revenue,
increased
interest expense and liquidated damages associated with the convertible debt
Registration Rights Agreement, expensing of settlement costs for judgments
and
pending litigation, and expensing of deferred interest associated with stock
options and warrants issued during the year ended December 31, 2006. Our loss
per share also reduced to $.08 with a weighted average of 37,452,451 shares
outstanding in the year ended December 31, 2006 as compared to $0.17 loss per
share in the year ended December 31, 2005 with a weighted average of 16,997,444
shares outstanding.
We
have
never declared or paid any cash dividends on our common stock. We anticipate
that any earnings will be retained for development and expansion of our business
and we do not anticipate paying any cash dividends in the foreseeable future.
Our board of directors, subject to any restrictions or prohibitions that may
be
contained in our loan or preferred stock agreements, has sole discretion to
pay
dividends based on our financial condition, results of operations, capital
requirements, contractual obligations and other relevant factors.
FINANCIAL
CONDITION
LIQUIDITY
AND CAPITAL RESOURCES
OVERVIEW
As
of
December 31, 2006, our cash balance was $106,556. We had a net loss of
$4,443,627 for the fiscal year ended December 31, 2006. We had a net operating
loss of approximately $17,000,000 for the period from May 17, 2002 through
December 31, 2006 to offset future taxable income. Losses incurred prior to
May
17, 2002 were passed directly to the shareholders and, therefore, are not
included in the loss carry-forward. There can be no assurance, however, that
we
will be able to take advantage of any or all tax loss carry-forwards, in future
fiscal years. Our accounts receivable as of December 31, 2006, was $6,281 and
$103,437 as of the year ended December 31, 2005, less allowances for doubtful
accounts of $60,000. The reason for the decrease in accounts receivable of
$97,156 when comparing accounts receivable as of December 31, 2006 to December
31, 2005 was due to the decrease in revenues and write-off bad debts.
Accounts receivable balances represent amounts owed to us for maintenance and
support.
As
of
December 31, 2006, we had the following financing arrangements:
Debt
Liability Summary Table
|
|
|
|
Current
Debt liabilities
|
|
|
|
Interest
payable, stockholders
|
|
$
|
1,187,088
|
|
Notes
payable, stockholder, current portion
|
|
|
875,000
|
|
Callable
secured convertible notes, current portion
|
|
|
2,344,973
|
|
Total
Debt current liabilities
|
|
$
|
4,407,061
|
|
|
|
|
|
|
Long-term
Debt liabilities
|
|
|
|
|
Notes
payable, stockholders, convertible debt, net of deferred interest
of
$615,923
|
|
$
|
190,986
|
|
Callable
secured convertible notes
|
|
|
4,228,490
|
|
Total
long term Debt liabilities
|
|
$
|
4,419,476
|
|
|
|
|
|
|
FINANCING
NEEDS
To
date,
we have not generated revenues in excess of our operating expenses. We have
not
been profitable since our inception, we expect to incur additional operating
losses in the future and will require additional financing to continue the
development and commercialization of our technology. We have incurred a net
loss
of approximately $4,443,000 and have negative cash flows from operations of
approximately $2,040,000 for the year ended December 31, 2006, and have a
working capital deficit of approximately $7,898,000 and a stockholders' deficit
of approximately $12,304,000 as of
December
31, 2006. These conditions raise substantial doubt about our ability to continue
as a going concern. During 2006, our management will rely on raising additional
capital to fund its future operations. If we are unable to generate sufficient
revenues or raise sufficient additional capital, there could be a material
adverse effect on the consolidated financial position, results of operations
and
we may be unable to continue our operations.
As
of
December 15, 2006, we had a commitment for an additional $900,000 financing
with
the issuance of a convertible note financing of which $250,000 was purchased
in
December 2006 and $125,000 of notes shall be purchased on the final business
day
of each month commencing in January 2007 and ending when the full $900,000
in
Notes has been purchased.
We
expect
that the remaining $900,000 will provide the necessary cash to support
operations through the end of the second quarter of 2007. In the event that
the
company is unable to build its sales volume, collect current receivables and
sustain operations until the final $900,000 is received, we may be unable to
continue operations. Additionally, in the event that the Investors invoke their
right to terminate additional purchases with 30 days notice during the financing
period of the $900,000 detailed above, the Company could find itself without
cash to support operations and unable to perform regular business.
We
expect
our capital requirements to increase significantly over the next several years
as we continue to develop and market the WebDATM
suite
and as we increase marketing and administration infrastructure and develop
capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to,
the
levels and costs of our research and development initiatives, the cost of hiring
and training additional sales and marketing personnel and the cost and timing
of
the expansion of our marketing efforts.
FINANCINGS
We
have
entered into the following financing transactions:
LOANS
FROM CHRISTOPHER J. CAREY, A SHAREHOLDER OF THE COMPANY AND FORMER OFFICER
AND
DIRECTOR.
On
July
31, 2000, the Predecessor Entity entered into a line of credit with Mr. Chris
Carey, our former President and Chief Executive Officer. The terms of the line
of credit made available $1,989,500, which the Predecessor Entity could borrow
from time to time, until August 1, 2001. The outstanding amounts accrued
interest at the per annum rate equal to the floating base rate, as defined
therein, computed daily, for the actual number of days elapsed as if each full
calendar year consisted of 360 days. The first interest payment under the line
of credit was due on August 1, 2001. On such date, the parties agreed to extend
the line of credit for one more year, until August 1, 2002.
On
April
22, 2002, the Predecessor Entity issued 500,000 shares of its common stock
to
Mr. Carey (which converted into 1,093,750 shares of our common stock when we
acquired the Predecessor Entity on May 16, 2002) in exchange for cancellation
of
$1 million of outstanding indebtedness under the July 31, 2000 line of credit
from Mr. Carey.
On
May
16, 2002, the total amount outstanding under the July 31, 2000 line of credit
with Mr. Carey was $2.2 million. On such date, we issued 666,667 shares of
our
common stock to Mr. Carey in exchange for the cancellation of $1 million of
the
then outstanding amount under the line of credit. We agreed to pay Mr. Carey
the
remaining $1.2 million according to the terms of a non-negotiable promissory
note, which was issued on May 16, 2002.
On
September 30, 2002, we renegotiated the $1,200,000 promissory note with Mr.
Carey pursuant to a requirement contained in the promissory note with
UnitedTrust Bank. According to the new terms of the loan, Mr. Carey extended
the
repayment of the principal amount until December 1, 2005. On December 1, 2005
Mr. Carey extended the term of the loan to May 31, 2006.Until such time as
the
principal is paid, we will pay an interest only fee of 12% per year. As of
December 31, 2005, $262,000 was outstanding under the promissory note issued
to
Mr. Carey.
On
September 30, 2002, we entered into a loan agreement with CC Trust Fund to
borrow an amount up to $355,128. Christopher Carey Jr., Mr. Carey's son, is
the
beneficiary of the trust, and Mary Carey, Mr. Carey's wife, is the trustee
of
the trust. This bridge loan was for a period of twelve months, with all
principal due and payable on September 30, 2003. The 12.5% interest on the
outstanding principal is due each year. At the end of the loan period, the
CC
Trust Fund will be
entitled
to exercise 25,000 warrants at $1.50 per share. On September 30, 2003, the
CC
Trust Fund agreed to extend the term of their loan to December 30, 2003. On
December 30, 2003, the CC Trust Fund agreed to extend the term of their loan
to
June 30, 2004. On March 30, 2004, the CC Trust Fund agreed to extend the term
of
their loan to March 31, 2005. On May 1, 2004, the AC Trust Fund agreed to extend
the term of their loan to November 1, 2005. On December 31, 2005 the AC Trust
Fund agreed to extend the term of the loan to May 31, 2006.
On
August
10, 2006, the CC Trust Fund agreed to extend the term of their loan to August
31, 2006. As of June 30, 2006, $355,128 was outstanding under the CC Trust
Fund
loan agreement. On August 14, 2006, the CC Trust Fund (the "CC Fund") entered
into a Settlement Agreement with the Company pursuant to which the CC Fund
waived all rights to a loan made to the Company in the amount of $473,594
including interest. In consideration of this waiver, the Company has agreed
issue the CC Trust Fund 2,381 shares of Series D Convertible Preferred Stock
with an aggregate stated value of $473,594. The shares of Series D Preferred
Stock are convertible by dividing the stated value by the closing bid price
on
the day immediately prior to conversion.
On
September 30, 2002, we entered into a loan agreement with AC Trust Fund to
borrow an amount up to $375,404. Amie Carey, Mr. Carey's daughter, is the
beneficiary of the trust, and Mary Carey, Mr. Carey's wife, is the trustee
of
the trust. This bridge loan is for a period of twelve months, with all principal
due and payable on September 30, 2003. The 12.5% interest on the outstanding
principal is due each year. At the end of the loan period, the Fund will be
entitled to exercise 25,000 warrants at $1.50 per share. On September 30, 2002,
the AC Trust Fund agreed to extend the term of their loan to December 30, 2003.
On December 30, 2003, the AC Trust Fund agreed to extend the term of their
loan
to June 30, 2004. On March 30, 2004, the AC Trust Fund agreed to extend the
term
of their loan to March 31, 2005. On May 1, 2005, the AC Trust Fund agreed to
extend the term of their loan to November 1, 2005. On April 11, 2006 the AC
Trust Fund agreed to extend the term of their loan to May 31, 2006. On August
10, 2006, the AC Trust Fund agreed to extend the term of their loan to August
31, 2006. As of June 30, 2006, $375,404 was outstanding under the AC Trust
Fund
loan agreement. On August 14 2006, the AC Trust Fund (the "AC Fund") entered
into a Settlement Agreement with the Company pursuant to which the AC Fund
waived all rights to a loan made to the Company in the amount of $497,691
including interest. In consideration of this waiver, the Company has agreed
issue the AC Fund 2,502 shares of Series D Convertible Preferred Stock with
an
aggregate stated value of $497,691. The shares of Series D Preferred Stock
are
convertible by dividing the stated value by the closing bid price on the day
immediately prior to conversion.
On
March
18, 2003, we entered into a bridge loan agreement with Christopher J. Carey,
for
a total of $400,000. The agreement stipulates that the Company will pay an
8%
interest rate on a quarterly basis until the loan becomes due and payable on
June 30, 2004. We also issued to Mr. Carey 391,754 warrants exercisable for
common stock for 10 years at a price of $0.97 per share. On December 30, 2003,
Christopher J. Carey agreed to extend the term of the promissory note to June
30, 2004. On May 1, 2004, Christopher J. Carey agreed to extend the term of
the
loan to June 1, 2005. On June 1, 2005 Mr. Carey extended the loan to May 31,
2006. As of December 31, 2005, $394,995, including interest, was outstanding
under the agreement.
On
Feb.
6, 2006 a stockholder converted $150,000 of deferred compensation into
21,428,571 shares of common stock of the Company (the “Shares”).
On
August
14, 2006, Mr. Carey entered into a Settlement Agreement with the Company
pursuant to which Mr. Carey waived all rights to the following:
o |
accrued
salary in the amount of $781,369;
|
o |
a
bridge loan in the amount of
$262,000;
|
o |
a
bridge loan in the amount of
$360,000;
|
o |
auto
allowance payable in the amount of $25,600;
and
|
o |
accrued
interest in the amount of $370,299.
|
In
consideration of this waiver, the Company has agreed to pay Mr. Carey $8,000
a
month over a period of 15 months, issue Mr. Carey a convertible note in the
amount of $661,369 (the "Carey Note") and issue Mr. Carey 5,117 shares of Series
D Convertible Preferred Stock with an aggregate stated value of $1,017,899.
The
Carey Note matures on August 13, 2016, bears no interest and is convertible
at
the option of Mr. Carey at the market price of the Company's common
stock.
The
shares of Series D Preferred Stock are convertible by dividing the stated value
by the closing bid price on the day immediately prior to
conversion.
FINANCINGS
FROM PNC BANK (FORMERLY UNITED TRUST BANK)
On
November 1, 2001, the Predecessor Entity entered into a line of credit with
UnitedTrust Bank (now PNC Bank) pursuant to which the Predecessor Entity
borrowed $1.5 million. This line of credit was due to expire by its terms,
and
all outstanding amounts were due to be paid, on September 30, 2002. On September
30, 2002, the line of credit came due and the bank granted a three-month
extension. On September 30, 2002, we converted the outstanding line of credit
with UnitedTrust Bank into a $1,500,000 promissory note. Such promissory note
is
to be paid in 36 monthly installments, which commenced in February 2003 and
is
due to terminate on January 1, 2006. Interest accrues on the note at the prime
rate, adjusted annually, which is the highest New York City prime rate published
in The Wall Street Journal. The initial prime rate that applied to the
promissory note was 4.750%.
On
August
7, 2003, we entered into a modification of the loan agreement with UnitedTrust
Bank, of which the principal balance was $1,291,666 at the time of closing
of
the modification. Pursuant to the modification agreement, UnitedTrust Bank
agreed to subordinate its lien against our assets to a new lender and reduce
the
monthly payments from $41,666 per month principal plus accrued interest as
follows: (a) from the date of closing through December 15, 2003, $10,000 per
month plus accrued interest (b) from January 15, 2004 through December 15,
2004,
$15,000 per month plus accrued interest, (c) from January 15, 2005 through
December 15, 2005, $20,000 per month plus interest and (d) on the maturity
date
of January 1, 2006, a balloon payment equal to all the outstanding principal
and
accrued interest. We are current with our payment of $15,000 per month.
On
January 9, 2004, we were served with a notice of an event of default by United
Trust Bank, now PNC Bank, a successor by merger effective January 2004 with
United Trust Bank, ("the Bank"), under its Loan Agreement. Pursuant to section
6.01(d) of the Loan Agreement, an Event of Default exists due to the Company's
failure to pay Payroll Tax Obligations aggregating in the amount of $1,089,897
as of December 31, 2003 (including estimated penalties and interest). The
Company continues to make timely scheduled payments pursuant to the terms of
the
loan and is in forbearance negotiations with the Bank with respect to the
default. On April 1, 2004, the Company received a second Notice of Event of
Default stating that the Bank had accelerated the maturity of the Loan and
declared all principal, interest, and other outstanding amounts due and payable.
Because
we were in default under the terms of the loan due primarily to our payroll
tax
default, the Bank has instituted the default rate of interest which is 5% above
the "highest New York City prime rate" stated above. We have entered into an
installment agreement with the United States Internal Revenue Service to pay
the
withholding taxes, under the terms of which we will pay $100,000 by May 31,
2004
and $35,000 each month, commencing June 28, 2004, until we have paid the
withholding taxes due in full.
On
April
27, 2004, PNC Bank, N.A., as successor by merger to UnitedTrust Bank filed
a
complaint in the Superior Court of New Jersey, Law Division, Union County
(Docket No. UNN-L_001522-04) against our company and Christopher J. Carey,
in
his capacity as guarantor, to collect the sums outstanding under the Loan
Agreement, dated as of September 30, 2002.
On
July
15, 2004, we entered into a fully executed forbearance agreement with PNC Bank,
N.A. We made an initial principal payment of $420,000 with the execution of
the
forbearance. Additionally, we are required to make four consecutive monthly
installments of $50,000.00 on August 15, 2004, September 15, 2004, October
15,
2004 and November 15, 2004 followed by the remaining principal on or before
December 15, 2004. Failure to adhere to this schedule may cause the suit to
be
reinstated and PNC Bank may resume collection of the sum under the suit.
On
November 12, 2004, our company and PNC Bank agreed upon terms of an amendment
to
the forbearance agreement whereby by the payment schedule will change to include
interest only payments on November 15, 2004, December 15, 2004 and January
15,
2005. We have made all interest payments.
On
March
31, 2005, the Company paid off and satisfied the note due to PNC bank in the
principal amount of $606,667. All accrued interest in the amount of $16,830
was
all paid off.
FINANCINGS
BY STANFORD VENTURE CAPITAL HOLDINGS, INC.
On
May
15, 2002, we entered into a Securities Purchase Agreement with Stanford Venture
Capital Holdings, Inc., referred to herein as Stanford, in which we issued
to
Stanford (i) such number of shares of our Series A $1.50 Convertible Preferred
Stock, referred to herein as Series A Preferred Stock, that would in the
aggregate equal 20% of the total issued and outstanding shares of our common
stock, and (ii) such number of warrants for shares of our common stock that
would equal the number of shares of Series A Preferred Stock issued to Stanford.
The total aggregate purchase price for the Series A Preferred Stock and warrants
paid by Stanford was $3,000,000. The issuance of the Series A Preferred Stock
and warrants took place on each of four separate closing dates from May 16,
2002
through and July 19, 2002, at which we issued an aggregate of 2,002,750 shares
of our Series A Preferred Stock and warrants for 2,002,750 shares of our common
stock to Stanford.
The
Series A amounts and closing dates are as follows:
CLOSING
DATE
|
|
PURCHASE
PRICE
|
|
May
17, 2002
|
|
$
|
750,000
|
|
July
3, 2002
|
|
$
|
750,000
|
|
July
11, 2002
|
|
$
|
750,000
|
|
July
19, 2002
|
|
$
|
750,000
|
|
The
warrants issued in 2002 were valued at $294,893 using the Black-Scholes model
using the following assumptions and a stock price of $1.50:
o |
Conversion
price $1.50;
|
o |
expected
volatility of 0%;
|
o |
expected
dividend yield rate of 0%;
|
o |
expected
life of 5 years; and
|
o |
a
risk-free interest rate of 4.91% for the period ended June 30, 2002.
|
In
connection with our Series B financing, as partial consideration for the funds
received pursuant to the Series B financing, we agreed to decrease the exercise
price to $.25. With respect to the decrease in the exercise price and the
warrants being treated as a cost of the series B financing, the reduction of
series A warrants was written in to the Series B preferred stock agreements
as
part of the negotiation. At the end of fiscal 2003, Stanford exercised the
warrants for 2,002,750 shares of our common stock.
On
April
24, 2003, we entered into a Securities Purchase Agreement with Stanford Venture
Capital Holdings, Inc. for the issuance of 2,444,444 shares of our Series B
$0.90 Convertible Preferred Stock. The issuance of the Series B Preferred Stock
took place on six separate closing dates beginning on May 5, 2003 through
September 15, 2003. In connection with the Securities Purchase Agreement, we
agreed to modify the previously issued five-year warrants to purchase 2,002,750
shares of our common stock: (i) to reduce the exercise price to $.25 per share;
and (ii) to extend the expiration date through
August
1,
2008. In addition, our President and Chief Executive Officer, Christopher J.
Carey, agreed to convert outstanding loans of $543,000 to 603,333 shares of
our
common stock at a price of $.90 per share. In addition, the Company and Stanford
entered into a Registration Rights Agreement, dated April 30, 2003, in which
the
Company agreed to register the shares of the Company's common stock issuable
upon conversion of the Series A and Series B Preferred Stock with the Securities
and Exchange Commission, no later than November 15, 2003. The Company and
Stanford agreed to extend the date of the filing requirements of the
Registration Rights Agreement to March 14, 2004. We have not yet filed a
registration statement, and are in negotiations with Stanford regarding an
extension of the registration filing date.
On
March
3, 2004 and March 15, 2004 we received loans in the amount of $437,500 each
from
Stanford, resulting in a total loan of $875,000. We have agreed to pay Stanford
an 8% annual dividend on the funds invested and to redeem the securities not
later than three years from the date of funding. The company has not made any
of
these payments to date and the notes are coming due.
PRIVATE
PLACEMENTS WITH ACCREDITED PRIVATE INVESTORS
During
August and September 2002, we entered into 9 subscription agreements with
accredited private investors, as defined in Rule 501 of the Securities Act,
pursuant to which we issued an aggregate of 179,333 shares of our common stock
at $1.50 per share. These private investments generated total proceeds to us
of
$269,000.
In
October 2003, we commenced offerings to accredited investors in private
placements of up to $3,000,000 of our common stock. In the period of October
2003 through January 9, 2004 we raised $225,000 under the terms of these private
placements. The shares offered in the private placement are priced at the 5
trading day trailing average closing price of the common stock on the OTCBB,
less 20%. For each share purchased in the private placements, purchasers
received a warrant to purchase one half (0.5) share of common stock at 130%
of
the purchase price. A minimum of $25,000 was required per investor. The number
shares issued under this placement total 509,559, at an average price of
$0.44/share.
CALLABLE
SECURED CONVERTIBLE NOTES
To
obtain
funding for its ongoing operations, the Company entered into various Securities
Purchase Agreements with the Investors for the sale of callable convertible
secured notes and stock purchase warrants
To
date,
the Investors purchased $6,380,000 in notes, and received warrants to purchase
an aggregate of 4,930,000 shares of the companies stock, in thirteen different
traunches dated June 18, 2004 for $1,000,000, July 21, 2004 for $500,000,
October 22, 2004 for $350,000, March 18, 2005 for $650,000, March 31, 2005
for
$350,000, May 4, 2005 for $300,000, July 18, 2005 for $282,500, August 30,
2005
for $100,000, October 6, 2005 for $210,000, November 9, 2005 for $150,000,
December 31, 2005 for $107,480, February 6, 2006 for $180,000, March 17, 2006
for $250,000, April 12, 2006 for $200,000, on May 12, 2006 for $200,000, on
June
8, 2006 for $200,000, on July 12, 2006 for $200,000 and on August 14, 2006
for
$150,000. On Dec 20, 2005, the Investors converted $1,297 of the convertible
notes into 172,873 shares of common stock. During
the year ended December 31, 2006 the investors converted $5,027 of convertible
notes into 4,698,600 shares of common stock.
The
Notes
bear interest at a rate ranging from 8% to 12%, mature two years from the date
of issuance, and are convertible into our common stock, at the Investors'
option, at the lower of (i) $0.70 or (ii) 75% of the average of the three lowest
intraday trading prices for the Company's common stock during the 20 trading
days before, but not including, the conversion date. The Company may prepay
the
Notes in the event that no event of default exists, there are a sufficient
number of shares available for conversion of the Notes and the market price
is
at or below $0.57 per share. The full principal amount of the Notes is due
upon
default under the terms of Notes. In addition, the Company has granted the
investors a security interest in substantially all of its assets and
intellectual property as well as registration rights.
To
obtain
funding for its ongoing operations, we entered into a Securities Purchase
Agreement (the “Agreement”) with the investors on December 15, 2006 for the sale
of (i) $900,000 in callable secured convertible notes (the “Notes”) and (ii)
stock purchase warrants (the “Warrants”) to buy 5,000,000 shares of our common
stock.
The
following closings have occurred under the Agreement:
o |
On
December 15, 2006, the Investors purchased $250,000 in Notes and
received
Warrants to purchase 1,388,500 shares of the Company’s common stock.
|
o |
On
January 11, 2007, the Investors purchased $150,000 in Notes and
received
Warrants to purchase 850,000 shares of the Company’s common
stock.
|
o |
On
February 12, 2007, the Investors purchased $150,000 in Notes and
received
Warrants to purchase 850,000 shares of the Company’s common
stock.
|
o |
On
March 15, 2007, the Investors purchased $150,000 in Notes and received
Warrants to purchase 850,000 shares of the Company’s common
stock.
|
In
addition, provided that all of the conditions in the Securities Purchase
Agreement are satisfied, on the final business day of each month until the
full
amount under the Agreement has been purchased, the Company will issue to the
Investors and the Investors will purchase $125,000 in Notes and related
Warrants. The Company or a majority in interest of the Investors may terminate
the obligation to issue additional Notes and Warrants upon 30 days
notice.
The
Notes
bear interest at 8%, mature two years from the date of issuance, and are
convertible into our common stock, at the Investors' option, at a conversion
price, equal to the lower of (i) $0.05 or (ii) 25% of the average of the three
lowest intraday trading prices for our common stock during the 20 trading days
before, but not including, the conversion date. As of February 13, 2007, the
average of the three lowest intraday trading prices for our common stock during
the preceding 20 trading days as reported on the Over-The-Counter Bulletin
Board
was $.003 and, therefore, the conversion price for the secured convertible
notes
was $.00075. Based on this conversion price, the Notes in the amount of $150,000
issued on February 12, 2007 were convertible into 200,000,000 shares of our
common stock.
We
may
prepay the Notes in the event that no event of default exists, there are a
sufficient number of shares available for conversion of the callable secured
convertible notes and the market price is at or below $.08 per share. The full
principal amount of the Notes is due upon default under the terms of Notes.
In
addition, we have granted the Investors a security interest in substantially
all
of our assets and intellectual property as well as registration rights.
The
Warrants are exercisable until five years from the date of issuance at a
purchase price of $0.05 per share. In addition, the exercise price of the
Warrants is adjusted in the event we issue common stock at a price below market.
CRITICAL
ACCOUNTING POLICIES AND USE OF ESTIMATES
Financial
Reporting Release No. 60, recently released by the Securities and Exchange
Commission, requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements.
The notes to the consolidated financial statements include a summary of
significant accounting policies and methods used in the preparation of our
Consolidated Financial Statements. In addition, Financial Reporting Release
No.
61 was recently released by the SEC requires all companies to include a
discussion which addresses, among other things, liquidity, off-balance sheet
arrangements, contractual obligations and commercial commitments. The following
is a brief discussion of the more significant accounting policies and methods
used by us.
The
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of financial statements in
accordance with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, including the recoverability of tangible
and
intangible assets, disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period.
On
an
on-going basis, we evaluate our estimates. The most significant estimates relate
to our recognition of revenue and the capitalization of our software
development.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
REVENUE
RECOGNITION POLICY
Revenue
is recognized under the guidelines of Statement of Position SOP 97-2 Software
Revenue Recognition.
All
sales
agreements with clients do not require significant production, modification,
or
customization of software, additionally all the functionality of the product
is
made available upon delivery, therefore the Company recognizes revenue in
accordance with Paragraph 8 of 97-2 when:
1) |
Persuasive
evidence of an arrangement exists as evidenced by a signed contract,
|
2) |
Delivery
has occurred, please note that Stronghold does not recognize revenue
prior
to delivery,
|
3) |
The
price of Stronghold's system is fixed and determinable as evidence
by the
contract, and
|
4) |
Collectability
is highly probable.
|
Previously
in the periods of 2002 through 2005, the Company had also recognized revenue
under the guideline of SFAS No. 48 “Revenue Recognition When Right of Return
Exists”. Consistent with the new revenue plan of a shorter time commitment and
proportionally minimal upfront fees as detailed in the Revenue sections herein,
the Company has discontinued the 60 day trial period and the corresponding
right
of return. Additionally, the Company has also discontinued the third party
long
term lease arrangement that the Company also used from 2002 through 2005.
Consistent with the release of the new WebDATM
product,
there are minimal upfront fees as detailed in the revenue sections
herein.
The
current revenue recognition plan will include a set up and installation fee
for
the software of $2,500.00 and a monthly fee of $2,500.00. The monthly fee will
include both the services associated with the customer relationship management
(CRM) software and the maintenance. Approximately $750.00/month of the
$2,500/month fee will be allocated to maintenance and the remaining
$1,175.00/month will be allocated to customer relationship management (CRM)
software. The allocation to maintenance is consistent with prior evidence of
clients paying this amount for many years.
With
the
release of the new WebDATM
system,
the Company’s revenue model will changed to provide for competitive pricing
advantages. Our revenues moving forward will be primarily generated from a
one-time up-front payment and monthly recurring fees covering software licenses.
Our license agreements will be provided in twelve, twenty-four and thirty-six
month terms. A $2,500 down payment and a monthly fee of $1,500 over a twelve
month term will be booked as revenue at an average annual fee of $20,500,
inclusive of down payment.
DEFERRED
REVENUE
Under
the
Company’s previous revenue model, deferred revenue was recorded as a liability
when the Company received the three year maintenance contract in a one-time
advance payment. The Company will continue to recognize the revenue from the
maintenance portion of the unexpired contracts on a pro rata basis through
the
end of each contract term.
SOFTWARE
DEVELOPMENT CAPITALIZATION POLICY
Software
development costs, including significant product enhancements incurred
subsequent to establishing technological feasibility in the process of software
production, are capitalized according to Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." Costs incurred prior to the establishment of
technological feasibility are charged to research and development expenses.
For
the year ended December 31, 2006, we capitalized zero. During 2006 we fully
amortized and expensed the $490,846 balance of software development costs
recorded as of December 31, 2005. The determination for amortizing the 2005
balance was made in recognition of the Company’s decision to stop marketing the
DealerAdvanceTM
software
which had reached the end to it s life cycle and commence marketing of the
new
WebDATM
DIVIDEND
POLICY
We
have
never declared or paid any cash dividends on our Common Stock. We anticipate
that any earnings will be retained for development and expansion of our business
and we do not anticipate paying any cash dividends in the foreseeable future.
Our board of directors, subject to any restrictions or prohibitions that may
be
contained in our loan or preferred stock agreements, has sole discretion to
pay
dividends based on our financial condition, results of operations, capital
requirements, contractual obligations and other relevant factors.
The
financial statements required to be filed pursuant to this Item 7 are included
in this Annual Report on Form 10-KSB beginning on page F-1. A list of the
financial statements filed herewith is found on page F-1.
None.
Disclosure
Controls and Procedures
The
Company maintains controls and procedures designed to ensure that it is able
to
collect the information it is required to disclose in the reports it files
with
the SEC, and to process, summarize and disclose this information within the
time
periods specified in the rules of the SEC. The Company's Chief Executive and
Chief Financial Officers are responsible for establishing and maintaining these
procedures and, as required by the rules of the SEC, evaluate their
effectiveness. Based on their evaluation of the Company's disclosure controls
and procedures, which took place as of a date within 90 days of the filing
date
of this report, the Chief Executive and Chief Financial Officers believe that
these procedures are effective to ensure that the Company is able to collect,
process and disclose the information it is required to disclose in the reports
it files with the SEC within the required time periods.
Internal
Controls
The
Company maintains a system of internal controls designed to provide reasonable
assurance that: transactions are executed in accordance with management's
general or specific authorization; transactions are recorded as necessary (i)
to
permit preparation of financial statements in conformity with generally accepted
accounting principles and (ii) to maintain accountability for assets. Access
to
assets is permitted only in accordance with management's general or specific
authorization and the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
Since
the
date of the most recent evaluation of the Company's internal controls by the
Chief Executive and Chief Financial Officers, there have been no significant
changes in such controls or in other factors that could have significantly
affected
those
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Not
applicable
Our
executive officers and directors and their respective ages and positions as
of
December 31, 2003 are as follows:
Name
|
|
Age
|
|
Position(s)
|
Steven
E. Humphries
|
|
54
|
|
President,
Chief Executive Officer and
Director
|
On
August
14, 2006, the Board of Directors voted to appoint Steven E. Humphries as a
director, the Chief Executive Officer and Chief Financial Officer of the
Company.
In
March,
2003 Mr. Humphries founded Humphries Marketing Group, LLC ("HMG"),
a full-service automotive exclusive advertising agency located in North Dallas
(Addison), Texas. Prior to forming HMG he was co-founder, member and Chief
Operating Officer of Caballero Television Texas, LLC, which owned MasMusica
TeVe, the first 24 hour Spanish music video network in the United States, which
was recently sold to Viacom. Prior to Caballero, Mr. Humphries served in
executive positions with top US broadcast groups, including Spanish Broadcasting
Systems, Hispanic Broadcasting Corporation (now Univision Radio) and TK
Communications.
Mr. Humphries has managed and/or consulted some of the most successful Spanish
Radio stations in the USA including KLVE-FM Los Angeles, KLAX-FM-Los Angeles,
WSKQ-FM-New York, WPAT-FM-New York, WLEY-Chicago and KXTN-San
Antonio.
EXECUTIVE
OFFICERS
On
April
30, 2006, the Company entered into a Consulting Agreement with Humphries
Marketing Group (“HMG”) pursuant to which HMG has agreed to provide management
and administrative services, including the appointment of Steven Humphries
as an
executive officer.
BOARD
COMMITTEES
As
the
Company currently only has one director it does not have an audit committee,
compensation committee or governance/nominating committee.
CODE
OF ETHICS
Because
we are an early-development stage company with limited resources, we have not
yet adopted a "code of ethics", as defined by the SEC, that applies to our
Chief
Executive Officer, Chief Financial Officer, principal accounting officer or
controller and persons performing similar functions. We are in the process
of
drafting and adopting a Code of Ethics.
The
following table sets forth information concerning the total compensation that
the Company has paid or that has accrued on behalf of Company’s chief executive
officer and other executive officers with annual compensation exceeding $100,000
during the years ended December 31, 2006 and 2005.
Name
& Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards ($)
|
|
Option
Awards ($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Change
in Pension Value and Non-Qualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation
|
|
Total
($)
|
|
Steven
E. Humphries
|
|
|
2006
|
|
|
100,000
|
|
|
—
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
102,000
|
|
President,
Chairman of the Board and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
J. Carey
|
|
|
2006
|
|
|
164,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600
|
|
|
176,277
|
|
President,
Chairman of the Board and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
2005
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600
|
|
|
361,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company has no current employment agreements or long-term compensation
plans.
On
April
30, 2006, DealerAdvance, Inc. (the "Company") entered into a Consulting
Agreement with Humphries Marketing Group, LLC ("HMG") pursuant to which HMG
has
agreed to provide management services, including the appointment of Steven
Humphries as an executive officer and the appointment of a person to act as
the
Vice President of Sales. The Consulting Agreement is for a term of three years.
In consideration for providing such services, the Company shall pay HMG (i)
$15,000 per month unless it has achieved $150,000 in revenue per month, then
the
payment shall be $18,500 per month; (ii) 20% commission on net sales
OUTSTANDING
EQUITY AWARDS
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
Option
Exercise Price ($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units of Other
Rights
That Have Not Vested (#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Unites
or Other Rights That Have Not Vested ($)
|
|
Steven
E. Humphries
|
|
|
666,667
|
|
|
—
|
|
|
|
|
$
|
0.003
|
|
|
12/14/16
|
|
|
See
Note (1
|
)
|
|
|
|
|
|
|
|
|
|
Except
as
set forth above, no other named executive officer has received an equity
award.
(1) |
On
April 30, 2006, the Company entered into a Consulting Agreement with
Humphries Marketing Group, LLC ("HMG") pursuant to which HMG has
agreed to
provide management and administrative services including the appointment
of Steven Humphries as an executive officer and the appointment of
a
person to act as the Vice President of Sales. This agreement included
an
option to purchase shares within the following
parameters:
|
An
option
exercisable at an aggregate price of $1.00 to purchase an amount of shares
of
common stock of the Company, which vest on the 12 month anniversary of entering
into the consulting agreement (the "First Anniversary Date"), equal to 10%
of
the total outstanding shares of the Company as of the First Anniversary Date
and
a second option to purchase shares of common stock of the Company equal to
10%
of the total outstanding shares of the Company as of the date the Company has
generated positive net income for four consecutive quarters (the "Net Income
Date"), which shall vest as of the Net Income Date; provided, however, such
options may only be exercised upon New Millennium Capital Partners II, LLC,
AJW
Qualified Partners, LLC, AJW Offshore, Ltd. or AJW Partners, LLC (collectively,
the "Investors") having fully converted their convertible debt outstanding
as of
April 30, 2006 (the "Debt") to shares of common stock of the
Company.
Since
neither the i) positive net income requirement nor the ii) requirement that
the
Investors have fully converted their convertible debt outstanding as of April
30, 2006, the option to HMG cannot be vested and therefore has no value and
is
non-dilutive.
DIRECTOR
COMPENSATION
The
following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year end
December 31, 2006.
Name
|
|
Fees
Earned or Paid in Cash
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensation
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
|
All
Other Compensation
|
|
Total
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
do not
pay directors compensation for their service as directors. We are in the process
of developing a compensation policy for our directors.
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of April 12, 2007. The information in this table provides the
ownership information for each person known by us to be the beneficial owner
of
more than 5% of our Common Stock, each officer and director;
Beneficial
ownership has been determined in accordance with the rules and regulations
of
the SEC and includes voting or investment power with respect to the shares.
Unless otherwise indicated, the persons named in the table below have sole
voting and investment power with respect to the number of shares indicated
as
beneficially owned by them. Common Stock beneficially owned and percentage
ownership is based on 47,751,393 shares outstanding on April 12, 2007, and
assuming the exercise of any options or warrants or conversion of any
convertible securities held by such person, which are presently exercisable
or
will become exercisable within 60 days after April 12, 2007.
|
|
Number
of Shares
|
|
Percentage
|
|
Name
and Address of Beneficial Owner
|
|
Beneficially
Owned
|
|
Outstanding
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
J. Carey
|
|
|
|
|
|
|
|
60
Broadway, PH2
|
|
|
|
|
|
|
|
Brooklyn,
NY 11211
|
|
|
26,559,821
|
|
|
50.87
|
%
|
|
|
|
|
|
|
|
|
Stanford
Venture Capital Holdings
|
|
|
|
|
|
|
|
6075
Poplar Avenue
|
|
|
|
|
|
|
|
Memphis,
TN 38119
|
|
|
10,721,273
|
|
|
20.54
|
%
|
|
|
|
|
|
|
|
|
Other
Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
0.00
|
% |
(1) |
3,937,500
of these shares are owned by Christopher J. Carey and his wife, Mary
Carey, as Joint Tenants with Right of Survivorship.
|
(2) |
The
total beneficial ownership of Stanford Venture Capital Holdings,
Inc. is
10,721,273 shares which consists of: (i) 2,002,750 shares of Common
Stock
issuable upon the conversion of 2,002,750 shares of our Series A
Preferred
Stock; and (ii) 2,444,444 shares of Common Stock issuable upon the
conversion of 2,444,444 shares of our Series B Preferred Stock and
(iii)
6,274,079 shares of Common Stock James
M. Davis has voting and investment control over the securities held
by
Stanford Venture Capital Holdings, Inc., but he disclaims beneficial
ownership of such securities, except to the extent of any pecuniary
interest therein.
|
EQUITY
COMPENSATION IN FISCAL 2006
The
following table provides information about the securities authorized for
issuance under our equity compensation plans as of December 31, 2006.
EQUITY
COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Number
of securities
|
|
|
|
|
|
Remaining
|
|
to
be issued upon
|
|
Weighted-average
|
|
Number
of securities
|
|
issuance
|
|
exercise
of
|
|
exercise
price of
|
|
available
for future
|
|
compensation
plans(2)
|
|
outstanding
options(1)
|
|
outstanding
options
|
|
under
equity
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans
|
|
|
|
|
|
|
|
approved
by security holders
|
|
|
3,707,643
|
|
$
|
0.01
|
|
|
1,714,232
|
|
Equity
compensation plans not
|
|
|
|
|
|
|
|
|
|
|
approved
by security holders
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
|
|
3,707,643
|
|
$
|
0.01
|
|
|
1,714,232
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Issued
pursuant to our 2002 Stock Incentive Plan, our 2002 California Stock
Incentive Plan, our 2000 Stock Option Plan and our DealerAdvance,
Inc.
2007 Incentive Stock Plan
|
(2) |
223,232
shares are available for future issuance pursuant to the 2002 Stock
Incentive Plan, 157,667 shares are available for future issuance
pursuant
to the 2002 California Stock Incentive Plan and 1,333,333 shares
are
available for future issuance pursuant to the DealerAdvance, Inc.
2007
Incentive Stock Plan. We do not intend to issue any additional options
under our 2000 Stock Option Plan.
|
Stronghold
Technologies, Inc., the Predecessor Entity, became our wholly-owned subsidiary
on May 16, 2002 pursuant to a merger with and into Acquisition Sub. Pursuant
to
the merger, the Predecessor Entity's stockholders surrendered all of their
outstanding shares of the Predecessor Entity's common stock in exchange for
a
total of 7,000,000 shares of our common stock. Of these shares, Christopher
J.
Carey, our current President, and his wife received a total of 3,937,500 shares
held jointly, and Mr. Carey received an additional 1,093,750 shares
individually.
Pursuant
to a Securities Purchase Agreement which we entered into on May 15, 2002, with
Stanford, a major shareholder of our company, Pietro Bortolatti, a former
officer and director of our company, and Mr. Carey, we agreed to issue to
Stanford such number of shares of our Series A Preferred Stock that would in
the
aggregate equal 20% of the total issued and outstanding shares of our common
stock, and a warrant to purchase an equal number of shares of our common stock.
The aggregate purchase price for the Series A Preferred Stock and warrants
purchased by Stanford was $3,000,000. The Series A Preferred Stock and warrant
purchase took place on four separate closing dates from May 16, 2002 through
July 19, 2002, in which we issued an aggregate of 2,002,750 shares of our Series
A Preferred Stock to Stanford and warrants for 2,002,750 shares of our common
stock. So long as any shares of Series A Preferred Stock are outstanding and
held by Stanford, Stanford had the right to maintain its percentage ownership
with respect to any additional securities we may issue,
with certain exceptions under the Series A Securities Purchase
Agreement.
Pursuant
to a Securities Purchase Agreement which we entered into on April 24, 2003,
we
agreed to issue to Stanford a total of 2,444,444 shares of our Series B $0.90
Convertible Preferred Stock ("Series B Preferred Stock"). The issuance of the
Series B Preferred Stock occurred on six separate closing dates beginning on
April 24, 2003 and closing on September 15, 2003. In connection with the
Purchase Agreement, we modified the warrants issued in connection with the
Series A offering to reduce the exercise price to $0.25 per share and extend
the
expiration date to August 1, 2008. Stanford was also granted the right to
maintain its percentage ownership with respect to any additional securities
we
may issue, with certain exceptions under the Series B Securities Purchase
Agreement. In addition, we agreed to convert all outstanding loans and
unreimbursed expenses to certain stockholders of our company for 603,000 shares
of our common stock at a price of $0.90 per share. The value of the warrant
modification was treated as additional costs associated with raising capital
and
was shown as a reduction of additional paid-in capital of approximately $557,000
(computed using the Black-Scholes model with the following assumptions: expected
volatility of 0%, expected dividend yield rate of 0%, expected life of 5 years,
and a risk-free interest rate of 4.91% for September 30, 2003).
In
connection with the Series B Purchase Agreement, we entered into a Registration
Rights Agreement with Stanford, dated April 30, 2003, in which we agreed to
register the shares of common stock issuable upon conversion of the Series
B
Preferred Stock, no later than November 15, 2003. Stanford has agreed to extend
the date to register the common stock issuable upon conversion of the Series
B
Preferred Stock until March 15, 2004, which was further extended in June 2004.
In
connection with the Series B Purchase Agreement, we entered into a Consulting
Agreement with Stanford, pursuant to which Stanford has agreed to perform
certain financial consulting and advisory services, in exchange for which we
agreed to pay Stanford a fee of $50,000 per year for two years, payable
quarterly in equal installments of $12,500, with the first such installment
due
on July 1, 2003. Pursuant to the terms of the Consulting Agreement, we may,
at
our sole option, choose to issue shares of our common stock to Stanford in
lieu
of such payments.
On
November 11, 2003, we agreed with Stanford to modify the terms of the Series
A
and Series B Preferred Stock to facilitate acquisitions and other company
actions. The basic terms of the modification are: (i) waiver Section 2(e)(iii)
of the Series A Certificate of Designation, which provides for anti-dilution
protection if we shall issue securities which are convertible into shares of
our
common stock for an exercise price of less than $1.50; (ii) waiver of any rights
of Stanford to Default Warrants (as defined in the Series A Registration Rights
Agreement) due to our failure to register our shares of common stock; and (iii)
modification of the warrants previously issued to Stanford and its assigns
to
purchase 2,002,750 shares of our common stock to reduce the initial exercise
price to $0.25 per share and to extend the expiration date to August 1, 2008.
Pursuant
to the Amended and Restated Series A Certificate of Designation and Series
B
Certificate of Designation, dated November 11, 2003, by and between our company
and Stanford and a Written Notice, Consent, and Waiver Among The Holders Of
Series A $1.50 Convertible Preferred Stock, Series B $.90 Convertible Preferred
Stock and Warrants, our company and Stanford agreed to certain amendments and
restatements including:
(a)
the
filing of an Amended and Restated Certificate of Designation for Series A $1.50
Convertible Preferred Stock substantially in the form attached hereto ("Amended
and Restated Series A Certificate of Designation") pursuant to which Stanford
will (x) waive dilution adjustments for certain issuances of Common Stock and
Common Stock equivalents, (y) reduce for an eighteen month period the Stated
Value and Conversion Price (each as defined therein) to $0.50 and to $0.87
thereafter and (z) forego certain rights to approve acquisitions of fixed
assets, capital stock or capital expenditures, credit facilities and sales
of
shares of our securities. The authorized shares of Series A Preferred Stock
was
reduced from 2,017,200 to 2,002,750 shares.
(b)
the
filing of an Amended and Restated Certificate of Designation Series B $0.90
Convertible Preferred Stock substantially in the form attached hereto pursuant
to which Stanford will (x) waive dilution adjustments for certain issuances
of
Common Stock and Common Stock equivalents, (y) reduce for an eighteen month
period the Stated Value and Conversion Price (each as defined therein) to $0.50
and to $0.87 thereafter and (z) forego certain rights to approve acquisitions
of
fixed assets, capital stock or capital expenditures, credit facilities and
sales
of shares of our securities.
In
connection with the Series B Purchase Agreement, our company and Stanford also
entered into a Registration Rights Agreement, dated April 30, 2003, in which
we
agreed to register the shares of our common stock issuable upon
conversion
of
the
Series B Preferred Stock, no later than November 15, 2003. Stanford has agreed
to extend dare of the filing requirements of the Registration Rights Agreement
to March 14, 2004, which was subsequently extended.
(c)
In
consideration of the Notice and the granting of the Consents and Waivers, we
reduced the exercise price of the Stanford Warrants from $0.25 per share to
$.001. On November 11, 2003, Stanford exercised in full the Stanford Warrant
purchasing 2,002,750 shares of common stock for the purchase price of $2,002.75.
Pursuant
to a Stockholders' Agreement which we entered into on May 16, 2002 with
Stanford, Mr. Carey and his wife, if either Stanford or the Careys should ever
want to sell any shares of our Series A Preferred Stock or common stock, the
other party has a right of first refusal regarding such sale and, if such
non-selling party does not want to exercise its right of first refusal, we
have
the right to purchase such shares, and a right of co-sale under the same terms
and for the same type of consideration. In the case of a material adverse event
related to our company, the Careys agreed to vote their shares as directed
by
Stanford, including removing and replacing the members of the board with
designees nominated by Stanford. Finally, Stanford has the right to nominate
one
member to our board of directors and the Carey's have agreed to vote for such
nominee.
Stanford
is an affiliate of Stanford Financial Group, which is the majority stockholder
of TWS International, Inc. Luis Delahoz, one of our outside directors, is the
president and chief executive officer of TWS International, Inc. and is
Stanford's representative on our board of directors.
On
July
31, 2000, the Predecessor Entity entered into a line of credit loan arrangement
with our President, Christopher Carey, who is also president of Stronghold.
Mr.
Carey made available $1,989,500, which the Predecessor Entity could borrow
from
time to time until August 1, 2001. Outstanding amounts accrued interest at
the
rate of interest per annum equal to the floating Base Rate, computed daily,
for
the actual number of days elapsed as if each full calendar year consisted of
360
days. Overdue amounts accrued interest at an annual rate of 2% greater than
the
base rate, which is 2% above the floating base rate announced from time to
time
by Citibank, N.A. Under the agreement, the first payment was due on August
1,
2001. On such date, the line of credit was extended for one more year, until
August 1, 2002. On April 22, 2002, the Predecessor Entity issued 500,000 shares
of its common stock (which converted into 1,093,750 shares of our common stock
when we acquired the Predecessor Entity on May 16, 2002) in exchange for
cancellation of $1 million of outstanding debt under such line of credit. On
May
16, 2002, the total amount outstanding under the line of credit was $2.2
million. On such date, we issued 666,667 shares of our Common Stock to Mr.
Carey
in exchange for cancellation of $1 million of the then outstanding amount.
We
will pay Mr. Carey the remaining $1.2 million according to the terms of a
non-negotiable promissory note, which was issued on May 16, 2002, and amended
and restated in September 2002. The terms of the amended and restated note
stipulate that the Company may not make principle payments to Mr. Carey until
the retirement of the United Trust Bank loan. Until such time as the principal
is paid, we will pay an interest only fee of 12% per year. Mr. Carey's
promissory note is expressly subordinated in right of payment to the prior
payment in full of all of our senior indebtedness.
On
August
14, 2006, Mr. Carey entered into a Settlement Agreement with the Company
pursuant to which Mr. Carey waived all rights to the following:
o |
accrued
salary in the amount of $781,369;
|
o |
a
bridge loan in the amount of
$262,000;
|
o |
a
bridge loan in the amount of
$360,000;
|
o |
auto
allowance payable in the amount of $25,600;
and
|
o |
accrued
interest in the amount of $370,299.
|
In
consideration of this waiver, the Company has agreed to pay Mr. Carey $8,000
a
month over a period of 15 months, issue Mr. Carey a convertible note in the
amount of $661,369 (the "Carey Note") and issue Mr. Carey 5,117 shares of Series
D Convertible Preferred Stock with an aggregate stated value of $1,017,899.
The
Carey Note matures on August 13, 2016, bears no interest and is convertible
at
the option of Mr. Carey at the market price of the Company's common stock.
The
shares of Series D Preferred Stock are convertible by dividing the stated value
by the closing bid price on the day immediately prior to
conversion.
On
September 14, 2000, we issued 5,000,000 shares of our common stock to our former
president, Pietro Bortolatti, in exchange for the transfer from Mr. Bortolatti
of all of the outstanding shares of Terre di Toscana, Inc. to us. The assets
of
Terre di Toscana, Inc. included rights in several customer agreements. We valued
the 5,000,000 shares issued to Mr.
Bortolatti
at par value, $.0001 per share. As part of our merger with the Predecessor
Entity and the exchange of shares for our truffle business, Mr. Bortolatti
has
surrendered or exchanged all of such shares.
In
August
2002, one of our outside directors, Robert Cox, purchased 60,000 shares of
our
common stock at a purchase price of $1.50 per share for aggregate proceeds
to us
of $90,000. Such purchase was pursuant to a Subscription Agreement in which
Mr.
Cox made certain investment representations and warranties. The price paid
by
Mr. Cox had been negotiated by third parties in an arms-length transaction.
The
third parties who negotiated the transaction purchased a number of shares
concurrently with Mr. Cox.
In
January 2004, our outside director, Robert Cox, purchased an additional 147,059
shares and a warrant to purchase 73,529 shares at $0.59/share. The price of
$0.59/share was based on 130% of the trailing five day closing price of our
common stock on the effective purchase date of January 9, 2004.
Lenard
Berger, our Chief Technology Officer and Vice President and James Cummiskey,
our
Vice President of Sales and Marketing, received 200,000 shares of common stock
from the Predecessor Entity as founders of such entity, at a per share price
of
$0.005. Such shares converted into 437,400 shares of our Common Stock.
On
September 30, 2002, we entered into a loan agreement with CC Trust Fund to
borrow an amount up to $355,128. This bridge loan was for a period of twelve
months, with all principal due and payable on September 30, 2003. The 12.5%
interest on the outstanding principal is due each year. At the end of the loan
period, the CC Trust Fund will be entitled to exercise 25,000 warrants at $1.50
per share. As of March 31, 2003, $355,128 was outstanding under the CC Trust
Fund loan agreement. On September 30, 2003, the CC Trust Fund agreed to extend
the term of their loan to December 30, 2003. On December 30, 2003, the CC Trust
Fund agreed to extend the term of their loan to March 31, 2004. On March 30,
2004, the CC Trust Fund agreed to extend the term of their loan to March 31,
2005. As of December 31, 2003, $355,128 was outstanding under the CC Trust
Fund
loan agreement. Christopher Carey Jr., Mr. Carey's son, is the beneficiary
of
the trust, and Mary Carey, Mr. Carey's wife, is the trustee of the trust. On
August 14, 2006, the CC Trust Fund (the "CC Fund") entered into a Settlement
Agreement with the Company pursuant to which the CC Fund waived all rights
to a
loan made to the Company in the amount of $473,594 including interest. In
consideration of this waiver, the Company has agreed issue the CC Trust Fund
2,381 shares of Series D Convertible Preferred Stock with an aggregate stated
value of $473,594. The shares of Series D Preferred Stock are convertible by
dividing the stated value by the closing bid price on the day immediately prior
to conversion.
On
September 30, 2002, we entered into a loan agreement with AC Trust Fund to
borrow an amount up to $375,404. This bridge loan is for a period of twelve
months, with all principal due and payable on September 30, 2003. The 12.5%
interest on the outstanding principal is due each year. At the end of the loan
period, the AC Trust Fund will be entitled to exercise 25,000 warrants at $1.50
per share. On September 30, 2002, the AC Trust Fund agreed to extend the term
of
their loan to December 30, 2003. On December 30, 2003, the AC Trust Fund agreed
to extend the term of their loan to March 31, 2004. On March 30, 2004, the
AC
Trust Fund agreed to extend the term of their loan to March 31, 2005. As March
31, 2005 Mr. Carey extended the term of the loan to May 31, 2006. As of December
31, 2005, $375,404 was outstanding under the AC Trust Fund loan agreement.
Amie
Carey, Mr. Carey's daughter, is the beneficiary of the trust, and Mary Carey,
Mr. Carey's wife, is the trustee of the trust. On
August
14 2006, the AC Trust Fund (the "AC Fund") entered into a Settlement Agreement
with the Company pursuant to which the AC Fund waived all rights to a loan
made
to the Company in the amount of $497,691 including interest. In consideration
of
this waiver, the Company has agreed issue the AC Fund 2,502 shares of Series
D
Convertible Preferred Stock with an aggregate stated value of $497,691. The
shares of Series D Preferred Stock are convertible by dividing the stated value
by the closing bid price on the day immediately prior to
conversion.
During
the fourth quarter of 2006, DealerAdvance, Inc. entered into financing
transactions with the following officers, directors or the Related Parties:
On
December 20, 2006, the Company issued a promissory note in the aggregate
principal amount of $81,800 to Steven Humphries. Mr. Humphries is the President,
CEO and Director of the Company. The note bears interest equal to the prime
rate
and is due on or before June 30, 2007. As of December 31, 2006, $31,800 was
outstanding under the promissory note.
On
December 20, 2006, the Company issued a promissory note in the aggregate
principal amount of $32,341 to Humphries Marketing Group, of which Steven
Humphries is an owner and Chief Executive Officer. The note bears interest
equal
to the prime rate and is due on or before June 30, 2007. As of December 31,
2006, $19,341 was outstanding under the promissory note.
We
believe that the terms of all of the above transactions are commercially
reasonable and no less favorable to us than we could have obtained from an
unaffiliated third party on an arm's length basis. Our policy requires that
all
related parties recuse themselves from negotiating and voting on behalf of
our
company in connection with related party transactions.
These
loans made to Mr. Humphries violate Section 402 of the Sarbanes Oxley Act of
2002. As a result, despite the fact that a portion of such loans were repaid,
our company and/or Mr. Humphries may be subject to fines, sanctions and/or
penalties. At this time, we are unable to determine the amount of such fines,
sanctions and/or penalties that may be incurred by our company and/or Mr.
Humphries. The purpose of such loan was for personal use.
Exhibit
Number |
Description |
2.1(1)(4) |
Merger
Agreement and Plan of Merger, dated May 15, 2002, by and among TDT
Development, Inc., Stronghold Technologies, Inc., TDT Stronghold
Acquisition Corp., Terre Di Toscana, Inc., Terres Toscanes, Inc.,
certain
stockholders of TDT Development, Inc. and Christopher J.
Carey.
|
2.2(5) |
Stock
Purchase Agreement, dated July 19, 2002, by and between TDT Development,
Inc. and Mr. Pietro Bortolatti.
|
3.1(2) |
Articles
of Incorporation, as amended on July 11,
2002.
|
3.3(18) |
Certificate
of Amendment filed on January 13, 2006
(18)
|
3.3(20) |
Certificate
of Designation filed on April 12,
2006(20)
|
4.1(2) |
Certificate
of Designations filed on May 16,
2002.
|
4.2(5) |
Specimen
Certificate of Common Stock.
|
4.3(8) |
Promissory
Note for $300,000, dated March 18, 2003, made by Stronghold Technologies,
Inc. in favor of Christopher J.
Carey.
|
4.4(8) |
Promissory
Note for $100,000, dated March 18, 2003, made by Stronghold Technologies,
Inc. in favor of Christopher J.
Carey.
|
4.5(8) |
Form
of Warrant with Christopher J.
Carey.
|
4.6(10) |
Amended
and Restated Certificate of Designation of Series A $1.50 Convertible
Preferred Stock of Stronghold Technologies,
Inc.
|
4.7(10) |
Amended
and Restated Certificate of Designation of Series B $0.90 Convertible
Preferred Stock of Stronghold Technologies,
Inc.
|
4.8(11) |
Securities
Purchase Agreement dated June 18, 2004 between the Company and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC
|
4.9(11) |
Callable
Secured Convertible Note in the name of New Millennium Capital Partners
II, LLC dated June 18, 2004
|
4.10(11) |
Callable
Secured Convertible Note in the name of AJW Qualified Partners, LLC
dated
June 18, 2004
|
4.11(11) |
Callable
Secured Convertible Note in the name of AJW Offshore, Ltd. dated
June 18,
2004
|
4.12(11) |
Callable
Secured Convertible Note in the name of AJW Partners, LLC dated June
18,
2004
|
4.13(11) |
Stock
Purchase Warrant in the name of New Millennium Capital Partners II,
LLC
dated June 18, 2004
|
4.14(11) |
Stock
Purchase Warrant in the name of AJW Qualified Partners, LLC dated
June 18,
2004
|
4.15(11) |
Stock
Purchase Warrant in the name of AJW Offshore, Ltd. dated June 18,
2004
|
4.16(11) |
Stock
Purchase Warrant in the name of AJW Partners, LLC dated June 18,
2004
|
4.17(11) |
Registration
Rights Agreement dated June 18, 2004 between the Company and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC
|
4.18(11) |
Security
Agreement dated June 18, 2004 between the Company and New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd.
and AJW Partners, LLC
|
4.19(11) |
Intellectual
Property Security Agreement dated June 18, 2004 between the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners,
LLC
|
4.20 |
Callable
Secured Convertible Note in the name of New Millennium Capital Partners
II, LLC dated July 27, 2004 (16)
|
4.21 |
Callable
Secured Convertible Note in the name of AJW Qualified Partners, LLC
dated
July 27, 2004 (16)
|
4.22 |
Callable
Secured Convertible Note in the name of AJW Offshore, Ltd. dated
July 27,
2004 (16)
|
4.23 |
Callable
Secured Convertible Note in the name of AJW Partners, LLC dated July
27,
2004(16)
|
4.24 |
Stock
Purchase Warrant in the name of New Millennium Capital Partners II,
LLC
dated July 27, 2004(16)
|
4.25 |
Stock
Purchase Warrant in the name of AJW Qualified Partners, LLC dated
July 27,
2004(16)
|
4.26 |
Stock
Purchase Warrant in the name of AJW Offshore, Ltd. Dated July 27,
2004(16)
|
4.27 |
Stock
Purchase Warrant in the name of AJW Partners, LLC dated July 27,
2004(16)
|
4.28 |
Callable
Secured Convertible Note in the name of New Millennium Capital (16)
Partners II, LLC dated October 22,
2004
|
4.29 |
Callable
Secured Convertible Note in the name of AJW Qualified Partners, LLC
dated
October 22, 2004 (16)
|
4.30 |
Callable
Secured Convertible Note in the name of AJW Offshore, Ltd. dated
October
22, 2004 (16)
|
4.31 |
Callable
Secured Convertible Note in the name of AJW Partners, LLC dated October
22, 2004(16)
|
4.32 |
Stock
Purchase Warrant in the name of New Millennium Capital Partners II,
LLC
dated October 22, 2004(16)
|
4.33 |
Stock
Purchase Warrant in the name of AJW Qualified Partners, LLC dated
October
22, 2004(16)
|
4.34 |
Stock
Purchase Warrant in the name of AJW Offshore, Ltd. Dated October
22,
2004(16)
|
4.35 |
Stock
Purchase Warrant in the name of AJW Partners, LLC dated October 22,
2004(16)
|
4.36 |
Callable
Secured Convertible Note in the name of New Millennium Capital Partners
II, LLC dated March 18, 2005(16)
|
4.37 |
Callable
Secured Convertible Note in the name of AJW Qualified Partners, LLC
dated
March 18, 2005 (16)
|
4.38 |
Callable
Secured Convertible Note in the name of AJW Offshore, Ltd. dated
March 18,
2005 (16)
|
4.39 |
Callable
Secured Convertible Note in the name of AJW Partners, LLC dated March
18,
2005 (16)
|
4.40 |
Stock
Purchase Warrant in the name of New Millennium Capital Partners II,
LLC
dated March 18, 2005(16)
|
4.41 |
Stock
Purchase Warrant in the name of AJW Qualified Partners, LLC dated
March
18, 2005(16)
|
4.42 |
Stock
Purchase Warrant in the name of AJW Offshore, Ltd. dated March 18,
2005(16)
|
4.43 |
Stock
Purchase Warrant in the name of AJW Partners, LLC dated March 18,
2005(16)
|
4.44 |
Amendment
No. 2 to the Securities Purchase Agreement dated March 4, 2005 by
and
among the Company and New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC(16)
|
4.45 |
Letter
of Agreement dated March 4, 2005 by and among the Company and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(16)
|
4.46 |
Amendment
No. 1 to the Securities Purchase Agreement dated October 22, 2004
by and
among the Company and New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(16)
|
4.47 |
Securities
Purchase Agreement dated March 31, 2005 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
(17)
|
4.48 |
Form
of Callable Secured Convertible dated March 31, 2005
(17)
|
4.49 |
Form
of Stock Purchase Warrant dated March 31,
2005(17)
|
4.50 |
Registration
Rights Agreement dated March 31, 2005 by and among the Company and
New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
(17)
|
4.51 |
Security
Agreement dated March 31, 2005 by and among the Company and New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd.
and AJW Partners, LLC (17)
|
4.52 |
Intellectual
Property Security Agreement dated March 31, 2005 by and among the
Company
and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC,
AJW Offshore, Ltd. and AJW Partners, LLC
(17)
|
4.53 |
Securities
Purchase Agreement dated February 6, 2005 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(18)
|
4.54 |
Form
of Callable Secured Convertible dated February 6, 2006
(18)
|
4.55 |
Form
of Stock Purchase Warrant dated February 6, 2006
(18)
|
4.56 |
Registration
Rights Agreement dated February 6, 2006 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(18)
|
4.57 |
Security
Agreement dated March February 6, 2006 by and among the Company and
New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
(18)
|
4.58 |
Intellectual
Property Security Agreement February 6, 2006 by and among the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners, LLC
(18)
|
4.59 |
Securities
Purchase Agreement dated March 17, 2006 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(19)
|
4.60 |
Form
of Callable Secured Convertible Note dated March 17, 2006
(19)
|
4.61 |
Form
of Stock Purchase Warrant dated March 17, 2006
(19)
|
4.62 |
Registration
Rights Agreement dated February 6, 2006 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(19)
|
4.63 |
Security
Agreement dated March 17, 2006 by and among the Company and New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd.
and AJW Partners, LLC (19)
|
4.64 |
Intellectual
Property Security Agreement February 6, 2006 by and among the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners, LLC
(19)
|
4.65 |
Callable
Secured Convertible Note in the name of AJW Partners, LLC dated April
11,
2006 (21)
|
4.66 |
Form
of Callable Secured Convertible Note dated June 8, 2006
(23)
|
4.67 |
Form
of Callable Secured Convertible Note dated July 18, 2006
(24)
|
4.68 |
Securities
Purchase Agreement dated December 15, 2006 by and among the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners,
LLC(25)
|
4.69 |
Form
of Callable Secured Convertible Note dated December 15,
2006(25)
|
4.70 |
Form
of Stock Purchase Warrant dated December 15,
2006(25)
|
4.71 |
Registration
Rights Agreement dated December 15, 2006 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners,
LLC(25)
|
4.72 |
Security
Agreement dated March December 15, 2006 by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
(25)
|
4.73 |
Intellectual
Property Security Agreement December 15, 2006 by and among the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners, LLC
(25)
|
10.1(2) |
2002
Stock Incentive Plan.
|
10.2(2) |
Form
of Incentive Stock Option Agreement to be issued under the 2002 Stock
Incentive Plan.
|
10.3(2) |
Form
of Nonstatutory Stock Option Agreement to be issued under the 2002
Stock
Incentive Plan.
|
10.4(5) |
California
2002 Stock Incentive Plan.
|
10.5(5) |
Form
of Incentive Stock Option Agreement to be issued under the California
2002
Stock Incentive Plan.
|
10.6(5) |
Form
of Nonstatutory Stock Option Agreement to be issued under the California
2002 Stock Incentive Plan.
|
10.7(2) |
Executive
Employment Agreement by and between Stronghold Technologies, Inc.
and
Christopher J. Carey, dated May 15,
2002.
|
10.8(2) |
Employment
and Non-Competition Agreement by and between Stronghold Technologies,
Inc.
and Lenard Berger, dated August 1,
2000.
|
10.9(2) |
Employment
and Non-Competition Agreement by and between Stronghold Technologies,
Inc.
and Salvatore D'Ambra, dated July 10,
2000.
|
10.10(2) |
Employment
and Non-Competition Agreement by and between Stronghold Technologies,
Inc.
and James J. Cummiskey, dated August 14,
2000.
|
10.11(2) |
Business
Loan Agreement by and between Stronghold Technologies, Inc. and
UnitedTrust Bank, dated June 30,
2002.
|
10.12(2) |
Promissory
Note issued by Stronghold Technologies, Inc. made payable to UnitedTrust
Bank, Dated June 30, 2002.
|
10.13(2) |
Commercial
Security Agreement by and between Stronghold Technologies, Inc. and
UnitedTrust Bank, dated June 30,
2002.
|
10.14(2) |
Promissory
Note issued by Stronghold Technologies, Inc. made payable to Christopher
J. Carey, dated May 16, 2002.
|
10.15(4) |
Securities
Purchase Agreement, dated May 15, 2002, by and among TDT Development,
Inc., Stanford Venture Capital Holdings, Inc., Pietro Bortolatti,
Stronghold Technologies, Inc. and Christopher J.
Carey.
|
10.16(4) |
Registration
Rights Agreement, dated May 16, 2002, by and among TDT Development,
Inc.
and Stanford Venture Capital Holdings,
Inc.
|
10.17(4) |
Lock-Up
Agreement, dated May 16, 2002, by and among TDT Development,
Inc.
|
10.18(4) |
Stockholders'
Agreement, dated May 16, 2002, by and among TDT Development, Inc.,
Christopher J. Carey, Mary Carey and Stanford Venture Capital Holdings,
Inc.
|
10.19(4) |
Form
of Warrant to be issued pursuant to the Securities Purchase Agreement
(Exhibit 10.11).
|
10.20(6) |
Loan
Agreement by and among Stronghold Technologies, Inc., its subsidiary
and
UnitedTrust Bank, dated September 30,
2002.
|
10.21(6) |
Commercial
Loan Note issued by Stronghold Technologies, Inc. and its subsidiary
made
payable to UnitedTrust Bank, dated September
30,2002
|
10.22(6) |
Security
Agreement by and between Stronghold Technologies, Inc. and UnitedTrust
Bank, dated September 30, 2002.
|
10.23(6) |
Security
Agreement by and between Stronghold's subsidiary and UnitedTrust
Bank,
dated September 30, 2002.
|
10.24(6) |
Subordination
Agreement by and among Christopher J. Carey, Stronghold Technologies,
Inc.
and UnitedTrust Bank, dated September 30,
2002.
|
10.25(6) |
Subordination
Agreement by and among Christopher J. Carey, Stronghold's subsidiary
and
UnitedTrust Bank, dated September 30,
2002.
|
10.26(6) |
Guaranty
by Christopher J. Carey in favor UnitedTrust Bank, dated September
30,
2002.
|
10.27(6) |
Loan
Agreement by and among Stronghold Technologies, Inc., its subsidiary
and
AC Trust Fund, dated September 30,
2002.
|
10.28(6) |
Loan
Agreement by and among Stronghold Technologies, Inc., its subsidiary
and
CC Trust Fund, dated September 30,
2002.
|
10.29(6) |
Form
of Subscription Agreement by and between Stronghold Technologies,
Inc. and
each of the parties listed on the schedule of purchasers attached
thereto.
|
10.30(6) |
Promissory
Note issued by Stronghold Technologies, Inc. made payable to Christopher
J. Carey, dated September 30. 2002.
|
10.31(7) |
Securities
Purchase Agreement, dated April 30, 2003, by and between Stronghold
Technologies, Inc. and Stanford Venture Capital Holdings,
Inc.
|
10.32(7) |
Registration
Rights Agreement, dated April 30, 2003, by and between Stronghold
Technologies, Inc. and Stanford Venture Capital Holdings,
Inc.
|
10.33(7) |
Consulting
Agreement, dated April 30, 2003, by and between Stronghold Technologies,
Inc. and Stanford Venture Capital Holdings,
Inc.
|
10.34(9) |
First
Modification to Loan Agreement and Note among Stronghold Technologies,
Inc., Christopher J. Carey and UnitedTrust Bank, dated July 31,
2003.
|
10.35(13) |
Lease
Agreement entered between the Company and APA Properties No. 2,
LP
|
10.36(13) |
Sublease
Agreement between Clark/Bardes Consulting, Inc. and the
Company
|
10.37(14) |
Forbearance
Agreement entered by and between the Company and PNC
Bank
|
10.38(14) |
Amendment
No. 1 to the Forbearance Agreement entered by and between the Company
and
PNC Bank
|
10.39(22) |
Consulting
Agreement, dated April 30, 2006, by and between Stronghold Technologies,
Inc. and Humphries Marketing Group,
LLC.
|
10.40 |
DealerAdvance,
Inc. 2007 Incentive Stock
Plan
|
10.41 |
Promissory
Note issued by Steven E. Humphries, made payable to DealerAvance,
Inc.,
dated December 20, 2006.
|
10.42 |
Promissory
Note issued by Humphries Marketing Group, LLC, made payable to
DealerAdvance, Inc., dated December 20,
2006.
|
16.1 |
Letter
on change in certifying accountant dated March 15, 2006 (incorporated
by
reference to the Form 8-K Current Report filed on March 16,
2006.
|
21(5) |
Subsidiaries
of the Registrant.
|
31.1 |
Certification
by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1 |
Certification
by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2 |
Certification
by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
(1) |
The
exhibits and schedules to the Merger Agreement have been omitted
from this
filing pursuant to Item 601(b)(2) of Regulation S-K. The Company
will
furnish copies of any of the exhibits and schedules to the U.S. Securities
and Exchange Commission upon
request
|
(2) |
Incorporated
herein by reference to the exhibits to Registrant's Quarterly Report
on
Form 10-QSB for the fiscal quarter ended June 30,
2002.
|
(3) |
Incorporated
herein by reference to the exhibits to the Registrant's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on February 1, 2001 (No.
333-54822).
|
(4) |
Incorporated
herein by reference to the exhibits to the Registrant's Current Report
on
Form 8-K dated May 16, 2002.
|
(5) |
Incorporated
herein by reference to the exhibits to the Registrant's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on September 24, 2002.
|
(6) |
Incorporated
herein by reference to the exhibits to Registrant's Annual Report
on Form
10-KSB for the fiscal year ended December 31,
2002.
|
(7) |
Incorporated
by reference to Exhibit 99.3 to the Company's Form 8-K as filed with
the
Securities and Exchange Commission on May 8,
2003.)
|
(8) |
Incorporated
by reference to the exhibits to Registrants Quarterly Report on Form
10-QSB for the quarterly period ended March 31,
2003.
|
(9) |
Incorporated
by reference to the exhibits to Registrants Quarterly Report on Form
10-QSB for the quarterly period ended June 30,
2003.
|
(10) |
Incorporated
by reference to the exhibits to Registrants Form 10-KSB for the year
ended
December 31, 2003.
|
(11) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
June 28, 2004.
|
(12) |
Incorporated
by reference to the exhibits to Registrants Form SB-2 Registration
Statement filed July 21, 2004.
|
(13) |
Incorporated
by reference to the exhibits to Registrants Quarterly Report on Form
10-QSB for the quarterly period ended September 30,
2004.
|
(14) |
Incorporated
by reference to the exhibits to Registrants Form SB-2 Registration
Statement filed February 11, 2005.
|
(15) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
June 28, 2004.
|
(16) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
March 25, 2005.
|
(17) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
April 11, 2005.
|
(18) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
February 10, 2006.
|
(19) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Currrent Report
filed
March 23, 2006.
|
(20) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on April 12, 2006
|
(21) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on April 21, 2006
|
(22) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on June 8, 2006
|
(23) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on June 6, 2006
|
(24) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on July 18, 2006
|
(25) |
Incorporated
by reference to the exhibits to Registrants Form 8-K Current Report
filed
on December 15, 2006
|
The
following table presents the aggregate fees billed for professional services
rendered by Rothstein, Kass & Company, P.C. in 2005 and Paritz and Company,
P.A. in 2005. Other than as set forth below, no professional services were
rendered or fees billed by Rothstein, Kass & Company, P.C. or Paritz &
Company, P.A.during 2005 or 2006.
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Audit
Fees (1)
|
|
$
|
18,200
|
|
$
|
24,500
|
|
Tax
Fees (2)
|
|
$
|
0
|
|
$
|
3,000
|
|
Other
Fees
|
|
$
|
3,750
|
|
$
|
500
|
|
TOTAL
|
|
$
|
21,950
|
|
$
|
28,000
|
|
|
|
|
|
|
|
|
|
(1) |
Audit
fees consist of professional services rendered for the audit of the
Company's annual financial statements and the reviews of the quarterly
financial statements.
|
(2) |
Tax
fees consist of fees for services rendered to the Company for tax
compliance, tax planning and advice.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized this 17th day of April, 2007.
By:
/s/ Steven E. Humphries
Steven
E. Humphries, President and
Chief Executive Officer
and
Principal Financial/Accounting
Officer
To
the
Board of Directors and Shareholders DealerAdvance, Inc.
We
have
audited the accompanying consolidated balance sheet of DealerAdvance, Inc.
and
Subsidiary as of December 31, 2006, and the related consolidated statements
of
operations, stockholders' deficit, and cash flows for the years ended December
31, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2, the
Company's ability to continue in the normal course of business is dependent
upon, among other things, its success in raising additional capital and
achieving profitable operations. The Company has recurring losses, substantial
working capital and stockholders' deficits and negative cash flows from
operations. These conditions among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 2. These consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Dealer Advance, Inc.
and
Subsidiary as of December 31, 2006, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
2006, in conformity with accounting principles generally accepted in the
United
States of America.
|
|
|
/s/
Paritz & Company, P.A.
|
Hackensack,
New Jersey
April
5, 2007
DEALERADVANCE,
INC. AND SUBSIDIARY, FORMERLY STRONGHOLD TECNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEET
|
|
December
31,
|
|
ASSETS
|
|
2006
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash
|
|
$
|
106,556
|
|
Accounts
receivable
|
|
|
6,281
|
|
Notes
receivable, related party
|
|
|
51,566
|
|
Prepaid
expenses
|
|
|
69,109
|
|
Total
current assets
|
|
|
233,512
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
2,824
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
Deferred
charge, loan acquisition costs, net of amortization
|
|
|
9,736
|
|
Other
|
|
|
1,000
|
|
Total
other assets
|
|
|
10,736
|
|
|
|
$
|
247,072
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable
|
|
$
|
381,252
|
|
Interest
payable, stockholders
|
|
|
1,187,088
|
|
Notes
payable, stockholders, current portion
|
|
|
875,000
|
|
Callable
secured convertible notes, current portion
|
|
|
2,344,973
|
|
Deferred
revenue
|
|
|
94,283
|
|
Liquidated
damages payable
|
|
|
1,991,587
|
|
Accrued
expenses and other current liabilities
|
|
|
1,257,572
|
|
Total
current liabilities
|
|
|
8,131,755
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
Notes
payable, stockholders, convertible debt, net of deferred interest
of
$615,923
|
|
|
190,986
|
|
Callable
secured convertible notes, less current portion
|
|
|
4,228,490
|
|
Total
long term liabilities
|
|
|
4,419,476
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
|
|
Preferred
stock, Series A, $.0001 par value; authorized 5,000,000
|
|
|
|
|
shares,
2,002,750 issued and outstanding (aggregate liquidation preference
of
$3,004,125)
|
|
|
|
|
and
preferred stock, Series B, $.0001 par value; 2,444,444 shares authorized,
issued and
|
|
|
|
|
outstanding
(aggregate liquidation preference $2,200,000) and preferred stock,
Series
D,
|
|
|
|
|
$.01
par value; authorized 10,000 shares authorized, issued and outstanding
(aggregate
|
|
|
|
|
liquidation
preference $1,989,200)
|
|
|
545
|
|
Common
stock, $.0001 par value, authorized 8,500,000,000
|
|
|
|
|
shares,
43,587,393 issued and outstanding
|
|
|
4,359
|
|
Additional
paid-in capital
|
|
|
10,853,275
|
|
Accumulated
deficit
|
|
|
(23,162,338
|
)
|
Total
stockholders' deficit
|
|
|
(12,304,159
|
)
|
|
|
$
|
247,072
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
DEALERADVANCE,
INC. AND SUBSIDIARY, FORMERLY STRONGHOLD TECHNOLOGIES,
INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Sales
|
|
$
|
479,474
|
|
$
|
943,735
|
|
Cost
of sales
|
|
|
71,333
|
|
|
324,360
|
|
Gross
profit
|
|
|
408,141
|
|
|
619,375
|
|
|
|
|
|
|
|
|
|
Selling,
general and
|
|
|
|
|
|
|
|
administrative
|
|
|
2,517,383
|
|
|
2,732,954
|
|
Loss
from operations
|
|
|
(2,109,242
|
)
|
|
(2,113,579
|
)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
911,721
|
|
|
747,383
|
|
Settlement
of Litigation
|
|
|
334,294
|
|
|
—
|
|
Liquidated
damages
|
|
|
1,088,370
|
|
|
771,486
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
(4,443,627
|
)
|
$
|
(3,632,448
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per
|
|
|
|
|
|
|
|
common
share
|
|
$
|
(0.08
|
)
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
37,452,451
|
|
|
16,997,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
DEALERADVANCE,
INC. AND SUBSIDIARY, FORMERLY STRONGHOLD TECHNOLOGIES,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years
ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,443,627
|
)
|
$
|
(3,632,448
|
)
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
Provision
for returns and allowances
|
|
|
(60,000
|
)
|
|
(159,891
|
)
|
Depreciation
and amortization
|
|
|
533,971
|
|
|
533,171
|
|
Interest
payable, stockholders
|
|
|
772,955
|
|
|
181,452
|
|
Interest
payable, convertible debt
|
|
|
|
|
|
421,809
|
|
Liquidated
damages payable
|
|
|
1,088,368
|
|
|
771,486
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
97,156
|
|
|
420,252
|
|
Inventories
|
|
|
18,095
|
|
|
26,610
|
|
Prepaid
expenses
|
|
|
(42,071
|
)
|
|
63,446
|
|
Accounts
payable
|
|
|
(126,807
|
)
|
|
(111,121
|
)
|
Software
development costs
|
|
|
|
|
|
(65,455
|
)
|
Accrued
expenses and other current liabilities
|
|
|
402,843
|
|
|
(362,079
|
)
|
Deferred
Revenue
|
|
|
(264,676
|
)
|
|
250,987
|
|
Other
Assets
|
|
|
(16,711
|
)
|
|
32,939
|
|
Net
cash used in operating activities
|
|
|
(2,040,504
|
)
|
|
(1,628,842
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock, net of financing costs
|
|
|
|
|
|
79,461
|
|
Proceeds
from notes payable, stockholders
|
|
|
|
|
|
155,000
|
|
Principal
repayments of notes payable, stockholders
|
|
|
|
|
|
(50,496
|
)
|
Proceeds
from notes payable, convertible debt
|
|
|
2,080,000
|
|
|
2,151,575
|
|
Principal
repayments of notes payable
|
|
|
|
|
|
(606,667
|
)
|
Principal
payments for obligations under capital leases
|
|
|
—
|
|
|
(33,471
|
)
|
Net
cash provided by financing activities
|
|
|
2,080,000
|
|
|
1,695,402
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
39,496
|
|
|
66,560
|
|
Cash,
beginning of year
|
|
|
67,060
|
|
|
500
|
|
Cash,
end of year
|
|
$
|
106,556
|
|
$
|
67,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
DEALERADVANCE,
INC. AND SUBSIDIARY, FORMERLY STRONGHOLD TECHNOLOGIES,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS - Continued
Supplementary
schedule of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
Years
Ended December
31,
|
|
|
|
2006
|
|
2005
|
|
Supplemental
disclosure of cash flow information, cash
paid during the period for interest
|
|
|
—
|
|
|
80,235
|
|
Supplemental
disclosures of noncash investing and financing
activities
|
|
|
|
|
|
|
|
During
the year ended December 31, 2006, the Company entered into an
agreement to
convert $150,000 of accrued officer’s compensation into 21,428,571 shares
of common stock.
|
|
|
|
|
|
|
|
During
the year ended December 31, 2006, the Company entered into two
agreements
to convert $806,909 of accrued compensation into convertible
notes
|
|
|
|
|
|
|
|
During
the year ended December 31, 2006, the Company entered into three
separate
agreements to convert $1,352,532 of notes payable, stockholders
and
$636,652 of accrued interest, stockholders, into 10,000 shares
of
preferred stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
DEALERADVANCE,
INC. AND SUBSIDARY, FORMERLY STRONGHOLD TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDER’S DEFICIT
Years
Ended December 31, 2006 and
2005
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
|
|
Additional
|
|
Stock
|
|
|
|
Total
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
D
|
|
Common
Stock
|
|
Paid-in
|
|
Subscription
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December
31, 2004
|
|
|
2,002,750
|
|
$
|
201
|
|
|
2,444,444
|
|
$
|
244
|
|
|
|
|
|
|
|
$
|
16,087,349
|
|
$
|
1,609
|
|
|
7,924,928
|
|
$
|
(3,000
|
)
|
$
|
(15,086,263
|
)
|
$
|
(7,162,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,873
|
|
|
17
|
|
|
5,152
|
|
|
|
|
|
|
|
|
5,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for interest due, net of costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
|
120
|
|
|
74,309
|
|
|
|
|
|
|
|
|
74,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of stock subscription
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,632,448
|
)
|
|
(3,632,448
|
)
|
Balances,
December 31, 2005
|
|
|
2,002,750
|
|
|
201
|
|
|
2,444,444
|
|
|
244
|
|
|
|
|
|
|
|
|
17,460,222
|
|
|
1,746
|
|
|
8,004,389
|
|
|
|
|
|
(18,718,711
|
)
|
$
|
(10,712,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,884
|
|
|
|
|
|
|
|
|
85,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,698,600
|
|
|
470
|
|
|
880
|
|
|
|
|
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of stockholder notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
100
|
|
|
|
|
|
|
|
|
1,989,083
|
|
|
|
|
|
|
|
|
1,989,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Issued for compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,428,571
|
|
|
2,143
|
|
|
147,857
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed
interest from noninterest bearing notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625,182
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,443,627
|
)
|
|
(4,222,491
|
)
|
Balances,
December 31, 2006
|
|
|
2,002,750
|
|
$
|
201
|
|
|
2,444,444
|
|
$
|
244
|
|
|
10,000
|
|
$
|
100
|
|
|
43,587,393
|
|
$
|
4,359
|
|
$
|
10,853,275
|
|
|
|
|
$
|
(23,162,338
|
)
|
$
|
(12,304,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
On
October 2, 2006 DealerAdvance, Inc. , a newly formed wholly owned subsidiary
was
merged into Stronghold Technologies, Inc. Stronghold Technologies, Inc. changed
its name to Dealer Advance, Inc.
The
Company is in the business of selling, marketing and installing a web based
application software and database system that manages the auto dealer-client
relationship. The Company's suite of Customer Relationship Management ("CRM")
software has been designed to assist auto dealerships in collecting client
contact information, following up on sales prospects and aiding dealership
sales
personnel in finalizing the sale of its automobiles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. The Company incurred a net loss
of
approximately $4,444,000 and had negative cash flows from operations of
approximately $2,040,000 for the year ended December 31, 2006, and had a working
capital deficit of approximately $7,898,000 and a stockholders’ deficit of
approximately $12,304,000 as of December 31, 2006. These conditions, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern. During 2007, management of the Company will attempt to raise
additional capital to fund future operations. If the Company is unable to
generate sufficient revenues or raise sufficient additional capital, there
would
be a material adverse effect on the consolidated financial position, results
of
operations and cash flows of the Company. The accompanying consolidated
financial statements do not include any adjustments that might be necessary
if
the Company is unable to continue as a going concern.
3.
|
Summary
of significant accounting
policies
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation for equipment, software and
furniture is provided for financial reporting and tax purposes using declining
balance methods. Leasehold improvements are amortized by the straight line
method.
Maintenance,
repairs and minor renewals are charged to expenses when incurred. Replacements
and major renewals are capitalized.
Accounts
Receivable
The
Company records its accounts receivable at cost. On a periodic basis, the
Company evaluates its accounts receivable and establishes an allowance for
doubtful accounts, based on a history of past write-offs and collections and
current credit conditions. Accounts are written off as uncollectible at the
discretion of management. No allowance for doubtful accounts is recorded as
of
December 31, 2006.
Software Development
Costs
Capitalized
software development costs, including significant product enhancements incurred
subsequent to establishing technological feasibility in the process of software
development and production, are capitalized according to Statement of Financial
Accounting Standards (SFAS) No. 86, “Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed.” Costs incurred prior to the
establishment of technological feasibility are charged to research and
development expenses as incurred. The capitalized software is amortized over
a
three year period using the straight-line method. As of December 31, 2006,
all
capitalized software development costs were fully amortized.
Fair
Value of Financial Instruments
Financial
instruments held by the Company include cash, accounts receivable, notes payable
and accounts payable. The book value of cash, accounts receivable and accounts
payable are considered to be representative of fair value because of the short
maturity of these instruments. The fair values of the notes payable approximate
book values primarily because the contractual interest rates approximate
prevailing market rates.
Impairment
of Long-Lived Assets
The
Company periodically assesses the recoverability of the carrying amounts of
long-lived assets, including intangible assets. A loss is recognized when
expected undiscounted future cash flows are less than the carrying amount of
the
asset. The impairment loss is the difference by which the carrying amount of
the
asset exceeds its fair value.
Retirement
Plan
The
Company has a retirement plan under Section 401(k) of the Internal Revenue
Code
(“the Plan”), which covers all eligible employees and provides for voluntary
deduction of the employee’s salary, subject to limitations. The Company can make
a matching contribution to the Plan, which is at the discretion of the Company
and is determined annually. There were no matching contributions for the years
ended December 31, 2006 and 2005.
Deferred
income taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) which requires that deferred tax assets
and liabilities be recognized for future tax consequences attributable to
differences between financial statement carrying amounts of existing assets
and
liabilities and their respective tax bases. In addition, SFAS 109 requires
recognition of future tax benefits, such as carryforwards, to the extent that
realization of such benefits is more likely than not and that a valuation
allowance be provided when it is more likely than not that some portion of
the
deferred tax asset will not be realized.
Stock-Based
Compensation
In
December 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment,
which
is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation.
SFAS
No. 123(R) requires all share-based payments to employees and directors,
including grants of stock options, to be recognized in the financial statements
based on their fair values. We adopted SFAS No. 123(R) on January 1, 2006,
under
the modified prospective method, in which the requirements of SFAS No. 123(R)
are to be applied to new awards and to previously granted awards that are not
fully vested on the effective date. The modified prospective method does not
require restatement of previous years’ financial statements.
The
fair
value of the Company’s stock options was estimated using the Black-Scholes
option pricing model. Prior
to
the adoption of SFAS No. 123(R), we accounted for share-based compensation
using
the intrinsic value-based method of accounting in accordance with Accounting
Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.
The
following table presents net income (loss) and earnings per share if the fair
value method had been applied to all outstanding and unvested stock options
for
fiscal year 2006 and 2005, respectively:
|
|
2006
|
|
2005
|
|
Net
loss applicable to common
|
|
|
|
|
|
shareholders,
as
reported
|
|
$
|
(4,443,627
|
)
|
$
|
(3,632,448
|
)
|
|
|
|
|
|
|
|
|
Add
|
|
|
|
|
|
|
|
Total
stock-based compensation
|
|
|
|
|
|
|
|
expense
determined under fair
|
|
|
|
|
|
|
|
value
method for all awards, net
|
|
|
|
|
|
|
|
of
related tax effect
|
|
|
7,122
|
|
|
12,647
|
|
Pro
forma
|
|
$
|
(4,450,749
|
)
|
$
|
(3,645,095
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted EPS
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.08
|
)
|
$
|
(0.14
|
)
|
Pro
forma
|
|
$
|
(0.08
|
)
|
$
|
(0.14
|
)
|
The
fair
value of issued stock options is estimated on the date of grant using the
Black-Scholes option-pricing model including the following assumptions: expected
volatility of approximately 50.6%, expected dividend yield rate of 0%, expected
life of 10 years, and a risk-free interest rate of 4.49% and 4.23% for the
years
ended December 31, 2006 and 2005, respectively.
Revenue
Recognition
Revenue
is recognized under the guidelines of Statement of Position SOP 97-2 Software
Revenue Recognition.
All
sales
agreements with clients do not require significant production, modification,
or
customization of software, additionally all the functionality of the product
is
made available upon delivery, therefore the Company recognizes revenue in
accordance with Paragraph 8 of 97-2 when:
|
1)
|
Persuasive
evidence of an arrangement exists as evidenced by a signed contract,
|
|
2)
|
Delivery
has occurred, please note that Dealer Advance does not recognize
revenue prior to delivery,
|
|
3)
|
The
price of Dealer Advance’s system is fixed and determinable as evidence by
the contract, and
|
|
4)
|
Collectability
is highly probable.
|
Deferred
Revenue
Deferred
revenue is recorded as a liability when the Company receives the three year
maintenance contact in a one-time advance payment. The Company then recognizes
the revenue from the maintenance portion of the contract on a pro rata basis
over the term of the contract.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Loss
Per Common Share
Loss
per
common share is based on the weighted average number of common shares
outstanding. The Company complies with SFAS No. 128, “Earnings Per Share,” which
requires dual presentation of basic and diluted earnings (loss) per share.
Basic
earnings (loss) per share exclude dilutions and are computed by dividing net
loss applicable to common stockholders by the weighted average number of common
shares outstanding for the year. Diluted earnings (loss) per share reflects
the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Since
the effect of the outstanding options and warrants are anti-dilutive, they
have
been excluded from the Company’s computation of loss per common
share.
Recently
Issued Accounting Pronouncements
In
May
2005, the FASB SFAS No. 154, “Accounting Changes and Error Corrections, a
Replacement of APB Opinion No. 20 and FASB Statement No. 3”. This statement
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. It carries
forward without change the previous guidance for reporting the correction of
an
error and a change in accounting estimate. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.
4. |
Liquidated
damages payable
|
Pursuant
to the callable secured convertible notes and as a result certain registration
rights granted to investors, the Company incurred damages due to its failure
to
have sufficient issuable shares of common stock registered in accordance
with
the terms of the agreement.
5. |
Property
and Equipment
|
A
summary
of property and equipment at December 31, 2006 and the estimated lives used
in
the computation of depreciation and amortization is as follows:
|
|
|
|
Estimated
|
|
|
|
|
|
Amount
|
|
Useful
Life
|
|
Principal
Method
|
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
|
195,827
|
|
|
5
years
|
|
|
Declining-
Balance
|
|
Computer
software
|
|
|
19,166
|
|
|
3
years
|
|
|
Declining-
Balance
|
|
Furniture
and fixtures
|
|
|
21,717
|
|
|
7
years
|
|
|
Declining-
Balance
|
|
Computer
equipment recorded under capital leases
|
|
|
113,193
|
|
|
5
years
|
|
|
Declining-
Balance
|
|
Leasehold
improvements
|
|
|
7,982
|
|
|
4
years
|
|
|
Straight-line
|
|
|
|
|
357,884
|
|
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(355,060
|
)
|
|
|
|
|
|
|
|
|
|
2,824
|
|
|
|
|
|
|
|
6.
|
Accrued
expenses and other current
liabilities
|
Accrued
expenses and other current liabilities consist of the following at December
31,
2006:
|
|
|
|
|
Payroll
taxes, including penalites and interest
|
|
$
|
467,026
|
|
Commissions
|
|
|
109,786
|
|
Compensation
|
|
|
46,135
|
|
Sales
tax
|
|
|
106,524
|
|
Accrued
officer's compensation
|
|
|
80,000
|
|
Litigation
|
|
|
334,294
|
|
Other
|
|
|
113,807
|
|
|
|
$
|
1,257,572
|
|
7.
|
Notes
payable, stockholders
|
At
December 31, 2006, notes payable, stockholders consists of the
following:
|
|
|
|
|
Note
payable, bearing interest at 8% and due in May, 2007
|
|
$
|
875,000
|
|
Non
interest bearing convertible notes payable, net of interest imputed
at
|
|
|
|
|
15%
per annum of $615,923
|
|
|
190,986
|
|
|
|
|
1,065,986
|
|
Less
current portion
|
|
|
(875,000
|
)
|
|
|
$
|
190,986
|
|
The convertible notes mature on August 13, 2016 and
are
convertible at the option of the stockholder at the market price of the
company’s common stock on the day of the conversion.
8.
|
Callable
secured convertible notes consist of the
following:
|
Callable
secured convertible notes bear interest at a rate
|
|
|
|
|
ranging
from 8% to 12% (weighted average 10.22%)
|
|
|
|
|
and
are due at various dates from April, 2006 to
|
|
|
|
|
December
15, 2009. The notes are secured by the
|
|
|
|
|
company’s
assets
|
|
$
|
6,573,463
|
|
(Less)
current portion
|
|
|
2,344,973
|
|
|
|
$
|
4,228,490
|
|
The
notes
are convertible into our common stock, at the investors’ option, at a conversion
price, equal to the lower of (i) $0.05 or (ii) 25% of the average of the three
lowest intraday trading prices for our common stock during the 20 trading days
before, but not including, the conversion date.
On
December 15, 2006 the Company entered into an agreement with a group of
investors for the sale of $900,000 of callable secured convertible notes and
5,000,000 common stock purchase warrants. As of December 31, 2006, the Company
sold $250,000 of the notes and issued 1,388,000 warrants.
In
February and March, 2007 the company sold an additional $300,000 of notes and
issued 1,700,000 warrants. In addition, provided that all of the conditions
of
the Agreement are satisfied, on the final business day of each month until
the
full $900,000 in Notes has been purchased, the Company will issue to the
Investors and the Investors will purchase $150,000 in notes and related
warrants. The Company or majority interest of the Investors may terminate the
obligation to issue additional notes and warrants upon 30 days
notice.
At
December 31, 2006, the Company had net operating loss carryforwards of
approximately $16,998,000 which expire between 2009 and 2024.
The
Company has a deferred tax asset of approximately $5,780,000 resulting from
available net operating loss carryforwards for which a 100% valuation allowance
has been applied.
A
reconciliation of the credit for income taxes with the amount computed by
applying the statutory Federal income tax rate to loss before income taxes
is as
follows:
|
|
2006
|
|
2005
|
|
Computed
expected tax credit rate
|
|
|
34
|
%
|
|
34
|
%
|
State
income tax credit, net of federal benefit
|
|
|
7
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Deferred
tax valuation allowance
|
|
|
|
) |
|
|
) |
Effective
income tax rate
|
|
|
0
|
%
|
|
0
|
%
|
The
Company has adopted four stock option plans (“Plans”) providing for incentive
stock options (“ISOs”) and non-qualified stock options (“NQSOs”). The Company
has reserved 5,421,875shares of common stock for issuance upon the exercise
of
stock options granted under the Plans. The exercise price of an ISO or NQSO
will
not be less than 100% of the fair market value of the Company’s common stock at
the date of the grant. The exercise price of an ISO granted to an employee
owning greater than 10% of the Company’s common stock will not be less than 110%
of the fair market value of the Company’s common stock at the date of the grant.
The Plans further provide that the maximum period in which stock
options
may be exercised will be determined by the board of directors, except that
they
may not be exercisable after ten years from the date of grant. All stock option
grants vest equally over a three year period.
|
|
|
|
Restated
|
|
Weighted
|
|
|
|
Plan
|
|
Per
Share
|
|
Average
|
|
|
|
Options
|
|
Exercise
Price
|
|
Exercise
Price
|
|
Outstanding
at
|
|
|
|
|
|
|
|
January
1, 2005
|
|
|
1,225,408
|
|
$
|
0.11-$2.00
|
|
$
|
0.850
|
|
Granted
in the year ended
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
4,000
|
|
$
|
0.05
|
|
$
|
0.050
|
|
Terminated
in the year ended
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
(728,277
|
)
|
$
|
0.07-$1.50
|
|
$
|
1.220
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005
|
|
|
501,131
|
|
$
|
0.05-$1.50
|
|
$
|
0.640
|
|
Granted
in the year ended
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
3,666,668
|
|
$
|
0.003
|
|
$
|
0.003
|
|
Terminated
in the year ended
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
(460,156
|
)
|
$
|
0.05-$1.50
|
|
$
|
0.677
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
3,707,643
|
|
$
|
0.003-$1.50
|
|
$
|
0.010
|
|
The
exercise price ranges for options outstanding and exercisable at December 31,
2006 were:
Range
of Exercise Price
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
From
|
|
To
|
|
Number
Outstanding
|
|
Weighted
Remaining
Contractural
Life
|
|
Weighted
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Exercise
Price
|
|
$
0.0001
|
|
|
to
|
|
$
|
0.2000
|
|
|
3,688,543
|
|
$
|
9.93
|
|
$
|
—
|
|
|
3,688,543
|
|
$
|
|
|
$
0.2001
|
|
|
to
|
|
$
|
0.2000
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
$
0.4001
|
|
|
to
|
|
$
|
0.6000
|
|
|
10,000
|
|
$
|
6.30
|
|
$
|
0.57
|
|
|
10,000
|
|
$
|
0.57
|
|
$
0.6001
|
|
|
to
|
|
$
|
0.8000
|
|
|
7,000
|
|
$
|
6.49
|
|
$
|
0.65
|
|
|
7,000
|
|
$
|
0.65
|
|
$
0.8001
|
|
|
to
|
|
Above |
|
|
2,100
|
|
$
|
6.48
|
|
$
|
0.86
|
|
|
2,100
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
3,707,643
|
|
$
|
0.01
|
|
$
|
2.08
|
|
|
3,707,643
|
|
$
|
0.01
|
|
On
Feb.
6, 2006 a stockholder converted $150,000 of deferred compensation into
21,428,571 shares of common stock of the Company (the “Shares”).
On
August
14, 2006, a former officer entered into a Settlement Agreement with the Company
pursuant to which he exchanged accrued salary, interest, auto allowance
aggregating $1,177,268, and two bridge loans of $622,000 for a convertible
note
of $661,369 and 5,117 shares of Series D Convertible Preferred Stock with an
aggregate stated value of $1,017,899. The shares of Series D Preferred Stock
are
convertible by dividing the stated value by the closing bid price on the day
immediately prior to conversion.
On
August
14, 2006, the Company entered into a settlement agreement with a lender pursuant
to which the lender exchanged a loan of $473,594 including interest for 2,381
shares of Series D Convertible Preferred Stock with an aggregate stated value
of
$473,594. The shares of Series D Preferred Stock are convertible into common
stock by dividing the stated value by the closing bid price on the day
immediately prior to conversion.
On
August
14 2006, the Company into a settlement agreement with pursuant to which the
lender exchanged a loan of $497,691 including interest for 2,502 shares of
Series D Convertible Preferred Stock with an aggregate stated value of $497,691.
The shares of Series D Preferred Stock are convertible by dividing the stated
value by the closing bid price on the day immediately prior to
conversion
Warrants
During
the year ended December 31, 2006, we issued the following warrants in connection
with callable secured convertible notes (see Note 6 above):
|
|
Warrants
|
|
Exercise
|
|
Expiration
|
|
Date
|
|
Issued
|
|
Price
|
|
Date
|
|
02/06/06
|
|
|
180,000
|
|
|
0.03
|
|
|
02/06/11
|
|
03/17/06
|
|
|
2,900,000
|
|
|
0.05
|
|
|
03/17/11
|
|
05/12/06
|
|
|
200,000
|
|
|
0.05
|
|
|
05/12/11
|
|
12/15/06
|
|
|
1,388,000
|
|
|
0.05
|
|
|
12/15/11
|
|
|
|
|
4,668,000
|
|
|
|
|
|
|
|
The
warrants were valued at approximately $85,884 using the Black-Scholes option
pricing model including the following assumptions: exercise price of
$0.03-$0.05, expected volatility of 43.65%, expected dividend yield rate of
0%,
expected life of 5 years, and a risk free interest rate of 4.41%.
12.
|
Commitments
and contingencies
|
Legal
proceedings
The
Company is subject to legal proceedings and claims which have arisen in the
ordinary course of its business and have not been finally adjudicated. These
actions when ultimately concluded and determined will not, in the opinion of
management, have a material adverse effect on results of operations or the
financial condition of the Company.
A
former
officer of the Company commenced an arbitration proceeding against the Company
claiming, among other things, that he was due unpaid salaries and damages
resulting from the company failing to remove a restrictive legend from shares
of
common stock owned by him. In May , 2006, the arbitrator awarded the former
officer $214,362, of which $27,030 has been paid by December 31, 2006. The
balance is included in accrued expenses and other current liabilities .
In
the
ordinary course of business the Company made certain guarantees to prospective
clients as an inducement to contract for services. These guarantees, although
limited, provided that the Company would pay client third party equipment leases
after the first 12 months of service if the client was not satisfied with our
DealerAdvanceTM
Software
Solution. As of December 31, 2006, two judgments have been entered against
the
Company for failure to honor such guarantees, aggregating $203,419, which is
included in accrued expenses. Two additional claims for failure to honor
guarantees have been filed against the Company. These claims have an approximate
aggregate liability of $53,000 and have been included in accrued expenses.
13.
|
Related
Party Transactions
|
Transactions
with Officers and Directors of DealerAdvance, Inc.
The
Company and/or the Company’s sole executive officer and director and CEO may be
subject to fines, sanctions and/or penalties of an indeterminable nature
as a
result of violations of the Sarbanes Oxley Act of 2002 in connection with
loans
made to the sole executive officer and director.
In
2006
the Company loaned its sole executive officer and director, and a company
controlled by him, $114,141. During this same period, $68,000 of the loans
were
repaid. These loans violate Section 402 of the Sarbanes Oxley Act of 2002.
As a
result, despite the fact that a portion of such loans were repaid, the company
and/or the Company’s sole executive officer and direcor may be subject
to fines, sanctions and/or penalties. At this time, we are unable to determine
the amount of such fines, sanctions and/or penalties that may be incurred
by our
company and/or the officer.
On
January 25, 2007, Stronghold Technologies, Inc. (the “Subsidiary”), a New Jersey
corporation and a wholly owned subsidiary of DealerAdvance, Inc., filed a
voluntary petition for relief under Chapter 7 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of Texas,
Case No. 07-30322-sgj7. In connection with the filing, the Subsidiary has ceased
all business activity and operations. The Subsidiary determined that it does
not
have sufficient resources to continue its operations.