SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended March 31, 2008
Commission
File Number
333-54822
DEALERADVANCE,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
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20-5717448
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(State
or other jurisdiction of
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(IRS
Employer
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Incorporation
or organization)
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Identification
No.)
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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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Registrant's
telephone number, including area code:
(214) 866-0606
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. Check one: Large
accelerated filer o Accelerated
filer o Smaller reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
Number
of
shares outstanding of issuer’s Common Stock, no par value outstanding as of May
14, 2008: 929,514,056.
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TABLE
OF CONTENTS
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(Omits
inapplicable items)
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PART
I
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Item
1.
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Financial
Statements
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3
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Item
2.
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Management’s
Discussion and Analysis of Financial
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Condition
and Results of Operations
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12
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Item
4T.
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Controls
and Procedures
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13
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PART
II
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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15
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Item
6.
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Exhibits
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16
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This
Form 10-Q/A corrects an inadvertent typographical
error in Part I, Item 2.
DealerAdvance,
Inc. and Subsidiary, formerly Stronghold Technologies,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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Three
months ended March 31,
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2008
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2007
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Cash
flows from operating activities
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Net
loss
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($1,497,787
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)
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($1,110,802
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)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
and amortization
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496
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7,169
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Accrued
interest to notes payable, stockholders
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257,323
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148,726
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Stock
issued for services
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140,500
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-
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Stock
issued for compensation
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72,767
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-
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Liquidated
damages payable
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556,465
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361,896
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Changes
in operating assets and liabilities:
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Accounts
receivable
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(21,478
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)
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(4,494
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)
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Prepaid
expenses
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34,222
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54,224
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Accounts
payable
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23,883
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37,331
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Accrued
expenses and other current liabilities
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17,527
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72,488
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Deferred
Revenue
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-
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(36,838
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)
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Other
Assets
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(6,896
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)
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(7,972
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)
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Net
cash used in operating activities
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(422,978
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)
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(478,272
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)
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Cash
flows from financing activities
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Proceeds
from notes payable, convertible debt
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430,000
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450,000
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Net
cash provided by financing activities
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430,000
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450,000
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Net
increase / (decrease) in cash
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7,022
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(28,272
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)
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Cash,
beginning of period
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5,809
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106,556
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Cash,
end of period
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$
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12,831
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$
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78,284
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Supplemental
disclosures of cash flow information:
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Non-cash
financing activities:
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Conversion
of preferred stock to common shares
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23,155
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-
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DealerAdvance,
Inc.
CONSOLIDATED
BALANCE
SHEET
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ASSETS
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-
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Current
Assets
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Cash
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$
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12,831
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Accounts
receivable
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24,178
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Notes
receivable, related party
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49,143
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Prepaid
expenses
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10,322
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Total
Current Assets
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96,474
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Property
and equipment, net
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3,451
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$
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99,925
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities
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Accounts
payable
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$
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487,972
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Interest
payable, stockholders
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1,797,205
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Notes
payable, stockholders, current portion
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875,000
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Callable
secured convertible notes, current portion
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4,874,802
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Liquidated
damages payable
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4,231,205
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Accrued
expenses and other current liabilities
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1,318,655
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Total
current liabilities
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13,584,839
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Long-term
liabilities
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Notes
payable, stockholders, convertible debt, net of imputed interest
of
$576,803
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202,029
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Callable
secured convertible notes, less current portion
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4,480,757
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Total
long term liabilities
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4,682,786
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Commitments
and contingencies
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Stockholders'
deficit
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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
9,803 shares authorized, issued and outstanding (aggregate liquidation
preference $1,950,013)
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543
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Common
stock, $.0001 par value, authorized 8,500,000,000 shares, 510,749,656
issued and outstanding
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51,075
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Additional
paid-in capital
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11,161,797
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Accumulated
deficit
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(29,381,115
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)
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Total
stockholders' deficit
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(18,167,700
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)
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$
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99,925
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DealerAdvance,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
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Three
months ended March 31,
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2008
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2007
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Sales
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$
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44,479
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$
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59,254
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Cost
of sales
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6,584
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19,198
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Gross
profit
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37,895
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40,056
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Selling,
general and administrative
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722,845
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508,186
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Research
and development
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-
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62,890
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Loss
from operations
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(684,950
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)
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(531,020
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)
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Interest
expense
|
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256,372
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217,887
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Liquidated
damages
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556,465
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361,895
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Net
loss applicable to common stockholders
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$
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(1,497,787
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)
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$
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(1,110,802
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)
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Basic
and diluted loss per common share
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$
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(0.004
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)
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$
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(0.024
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)
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Weighted
average number of common shares outstanding
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344,117,983
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45,801,382
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NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
The
accompanying consolidated financial statements have been prepared pursuant
to
the rules and regulations of the Securities and Exchange Commission (the
“SEC”).
These statements are unaudited and, in the opinion of management, include
all
adjustments (consisting of normal recurring adjustments and accruals) necessary
to present fairly the results for the periods presented. Certain information
and
footnote disclosures normally included in financial statements prepared
in
accordance with accounting principles generally accepted in the United
States of
America have been omitted pursuant to applicable SEC rules and regulations.
Operating results for the three month period ended March 31, 2008 is not
necessarily indicative of the results that may be expected for the year
ending
December 31, 2008. These financial statements should be read in conjunction
with
the financial statements and the notes thereto included in the Company’s Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2007.
The
Company designs, develops, markets, sells and installs a web-based application
software and database system that manages the auto dealer-customer relationship.
In January 2007, the Company announced the launch of Web DA™, the new web-based
version of its DealerAdvance™ software for conventional desktop or laptop
computers. The Company began the development of a version of Web DA™ for small
hand-held ultra-mobile personal computers (“UMPC’s”) in March 2007. This product
will enable any car salesperson to complete the entire sales process from
virtually anywhere.
The
Company’s suite of Customer Relationship Management ("CRM") software assists
auto dealerships in collecting customer contact information, follow-up on
sales
prospects, and finalizing sales. Web DA™ affords dealerships a quick turn on,
easy to use, cost effective and accessible CRM system. The software will
allow
dealerships to run programs without a significant investment in new hardware.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. Since the beginning of the
fiscal
year, the Company has incurred a net loss of $1,497,787 and has negative
cash
flows from operations of $422,978 and has a working capital deficit of
$13,488,365 and a stockholders’ deficit of $18,167,700 as of March 31, 2008.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. During 2008, management of the Company will rely on raising
additional capital to fund its operations. 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. 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.
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3.
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SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
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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
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% for the years ended
December 31, 2007 and 2007.
On
February 20, 2008, we issued 50,000,000 shares for consulting services and
25,000,000 shares for legal services.
The
Company terminated the 2007 Incentive Stock Plan effective December 31, 2008.
On
March 4, 2008, the Board of Directors adopted the 2008 Stock Award Plan to
provide incentive compensation to employees, directors, officers and others
who
serve us. The plan provided for the granting of up to 50,000,000 shares of
Common Stock to our personnel on such terms as the directors may determine.
During the quarterly period ended March 31, 2008, 4,300,000 shares were awarded,
including 2,000,000 shares to our Chief Financial Officer and Secretary,
1,000,000 shares issued to our Vice President of Sales and Marketing, and
1,000,000 shares awarded to our Chief information Officer.
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4.
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NOTES
PAYABLE, STOCKHOLDERS
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At
March
31, 2008, notes payable, stockholders consists of the following:
Notes
payable, stockholders:
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Notes
payable bearing interest at 8%
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$
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875,000
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Non-interest
bearing convertible notes payable, net of interest imputed at 15%
per
annum of $576,804
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202,029
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1,077,029
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Less:
current portion
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(875,000
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)
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Long-term
portion
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$
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202,029
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The
8%
interest bearing notes due in May 2007 is currently in default.
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.
Callable
Secured Convertible Notes
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Callable
secured convertible notes bear interest at a rate ranging from
8% to 12%
(weighted average 10.22%) and are due at various dates through
February
28, 2009. The notes are secured by the company's assets.
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$
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9,498,910
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Less:
Current position
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4,874,802
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Long-term
portion
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$
|
4,624,107
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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
5,071,833 common stock purchase warrants in 2007. As of March 31, 2008, the
Company has sold a total of $2,123,232 of additional notes, issuing an
additional 12,031,648 common stock purchase warrants, for a total of $3,023,232
and issued 17,103,481 warrants.
On
August
14, 2006, the former company CEO, Mr. Christopher Carey, entered into a
Settlement Agreement with the Company pursuant to which Mr. Carey waived
of
certain rights. In consideration of this waiver, the Company had agreed to
pay
Mr. Carey $8,000 a month over a period of 15 months (since reduced to $2,155
per
month), 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.
In
April
2008 and in May 2008 the company sold an additional $300,000 of notes and
issued
1,700,000 warrants to purchase common stock.
Since
the
beginning of 2008, we have issued 290,872,800 shares of common stock to four
investors upon the conversion of convertible notes at an aggregate conversion
price of $61,947.
In
the
first quarter of 2008 the Company issued 25,000,000 of common shares for
legal
services and 58,000,000 shares for business development consulting services
to
two consultants under equity compensation plans. An additional 5,971,541
shares
of common stock was issued to two investors upon the conversion of Class
D
Convertible Preferred Stock that they held, and 75,000,000 common shares
for
services to our Chief Executive Officer.
On
March
4, 2008, the Board of Directors adopted the 2008 Stock Award Plan (the "Plan")
to provide incentive compensation to employees, directors, officers and others
who serve us. The Plan provides for the granting of up to 40,000,000 shares
of
Common Stock to our personnel on such terms as the directors may determine.
The
directors may amend the Plan. As of the date hereof, we have granted stock
awards for 11,800,000 shares. The Stock Award Plan supersedes all of our
previous stock option plans. The directors terminated the 2007 Incentive
Stock
Plan effective December 31, 2008.
The
Company adopted an incentive stock option plan (“Plan”) in 2006 providing for
incentive stock options (“ISOs”) for specific employees in 2007. The Company has
reserved 3,666,668 shares of common stock for issuance upon the exercise
of
stock options granted under the Plan. The exercise price of an ISO 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 board of directors will determine the maximum
period in which stock options may be exercised, except that they may not
be
exercisable after ten years from the date of grant. All of the stock option
plans vest when granted, and may be exercised not earlier than one year from
the
grant date, but will expire 90 days following the termination of an employee
with the Company if the options were not exercised. As of the end of fiscal
year
2007, no options were exercised. Additionally, 833,333 ISOs expired due to
termination, and 666,667 ISOs, for a former employee were converted to stock
options under agreement as a consultant upon her termination with the company
with the same terms, except that the exercise price was changed to the market
price per share of the company stock as of the close of trading on June 1,
2007,
or $.00137 per share.
The
remaining ISOs were exercised in January 2008 for issuance of 2,000,001 shares
of the company stock. The only ISOs remaining unexercised are 166,667
options.
|
6.
|
BANKRUPTCY
OF SUBSIDIARY
|
The
case
related to the
wholly owned subsidiary, Stronghold Technologies, Inc., that was
unsuccessful, ceased operations and filed for bankruptcy protection under
Chapter 7 of the United States Bankruptcy Code in 2006, was closed as of
January
29, 2008. The assets of the subsidiary have been segregated and were liquidated,
and its debts discharged, including all court judgments and an arbitration
award.
|
7.
|
RELATED
PARTY TRANSACTIONS
|
Transactions
with Officers and Directors of the Company
The
Company and/or the Company’s director and Chief Executive Officer 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 Chief Executive Officer and director.
The
balance of these loans outstanding as of March 31, 2008 are $34,728 related
to
the Chief Executive Officer and director, and $6,930 related
to the company controlled by the Chief Executive Officer and director. Both
of
these loans were paid-in-full as of May 14, 2008.
Since
the
beginning of 2008, the Company has a new arrangement with a limited liability
company owned and controlled by our director and another one of our officers
to
provide us office, space, equipment, and marketing and sales support on a
turnkey basis in consideration of the payment of $6,750 per month plus a
commission of 20% on sales made by HMG. Our prior consulting agreement with
the
company was terminated.
On
April
4, 2008 the President and Chief Executive Officer was issued 50,000,000 shares
as compensation for services rendered.
In
April
2008, the Company issued 5,000,000 shares of common stock to one investor
upon
the conversion of Class D Convertible Preferred Stock that it held.
Since
March 31, 2008, 45,200,000 shares were awarded under the 2008 Stock Award
Plan,
including 19,100,000 shares issued for legal services, 19,100,000 shares
issued
for consulting services, 5,000,000 shares to our Chief Financial Officer
and
Secretary, and 2,000,000 shares to our Vice President Marketing.
On
April 30, 2008 we adopted the 2008-2 Stock Award Plan to provide for the
granting of up to 100,000,000 shares (the "Plan"). The Plan supersedes all
of
our previous stock option plans. We have not granted any stock awards under
the
Plan.
On
May
12, 2008 Mr. Humphries was issued 180,000,000 shares in consideration of
negotiating approximately $300,000 in additional financing for the Corporation
by means of Callable Secured Convertible Notes and Common Stock Purchase
Warrants issued in a private placement, negotiating distribution agreements,
offering the Corporation up to $250,000 of credit in his discretion and as
the
Corporation may require pursuant to an Advance Demand Promissory Note, and
waiving $10,389 of commissions payable to HMG and all commissions payable
until
we achieve profitability.
Since
the
March 31, 2008, we have issued 163,064,400 shares of common stock to four
investors upon the conversion of convertible notes at an aggregate conversion
price of $17,811.
In
May
2008 the Company filed a proxy statement with the SEC for a special shareholders
meeting to (1) elect a director; (2) adopt an amendment to the articles of
incorporation, including an increase in authorized capital from 8,500,000,000
to
100,000,000,000 shares; and, (3) authorize a 1 to 100 reverse split of the
issued and outstanding common stock.
ITEM
2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Plan
of Operation for 2008
Our
operating activities have not yet generated a positive cash flow. We do
not
expect
that they will generate a positive cash flow by the end of 2008 because
our
expenses far exceed sales. We will require financing in excess of $1,200,000
from external sources during the remainder of 2008 in order to be able to
continue in operation as a going concern and we would like to obtain additional
financing for a proposed acquisition of a software company to complement our
operations. There can be no assurance that we can attract financing in order
to
fulfill our requirements.
In
2004, we entered into an agreement that has to date provided
$9,754,807
from the sale of convertible notes to an investment group. The proceeds were
used to develop our previous product, our new web-based software, and as working
capital for operating expenses and accounts payable. We do not expect the
investment group to provide additional financing. As
of May 11, 2008, the investment group has converted to stock $116,678 of
the notes. The balance due on the remaining convertible notes was $11,230,655 as
of that date.
We
believe without assurance that the investment group will attempt to convert
the
convertible notes to stock. However, the rate of conversion has slowed as a
result of the decrease in our stock price, to which the rate of conversion
is
tied. It does not appear likely that all the new convertible notes will be
not
converted when they become due, and we will be required to pay a significant
portion of the then remaining indebtedness or to refinance it.
In
the second half of 2006, we relocated to our present officers and new executive,
financial and sales management was installed. We redirected our development
and
marketing efforts to our new web-based application software for conventional
desktop and laptop computers and, beginning in March 2007, to Ultra Mobile
Personal Computers. For that purpose, we added a Chief Information Officer,
a
development and technical support staff, and a marketing and sales staff. That
increased our selling, general and administrative expenses. Notwithstanding
these changes, there has been a decline in sales, and Web DA™ has not yet
achieved broad market acceptance, although we expect that it will in 2008-9.
We
believe, without assurance, that we are gaining position with the appropriate
product, marketing network and approach, management, and other personnel to
attain a niche in the CRM software market for auto dealers. Given our vulnerable
financial condition, there can be no assurance that during this turnaround
we
can retain our key personnel, implement our business plan and become profitable.
Our
plan of operation for the remainder of fiscal 2008 is as follows:
To
increase sales of Web DA™, in part by supplementing our internal sales force
with outside distribution arrangements;
To
complete development of Web DA™ 1.5 for release;
To
acquire other complimentary software companies; and,
To
obtain additional debt and equity financing to fund our working capital
deficiency.
To
date our operations have not been self-sustaining. Additional liquidity and
capital resources will be necessary to defray our ongoing expenses that have
risen significantly, while revenue decreased in 2007 and for the year to date.
In the event we are unable to refinance our indebtedness, obtain additional
liquidity through the sale of additional convertible notes or stock, and,
ultimately, to repay, refinance or restructure our indebtedness, we may have
to
file for protection under the federal bankruptcy laws and we may be unable
to
continue in operation as a going concern.
Our
independent registered public accounting firm issued a report to the effect
that
certain conditions raise substantial doubt about our ability to continue as
a
going concern because we incurred recurring losses and had substantial working
capital and stockholder’s deficits and negative cash flow from operations. We
continue to have net losses. Should we be unable to implement our plan of
operation, our expansion plans may be curtailed, and we may not be able to
continue in operation.
Financial
condition at March 31, 2008 and 2007
2008.
Stockholders’ deficit was $18,167,700 and we had a working capital deficiency of
$13,488,365. Principal sources of liquidity in 2008 included net proceeds of
$430,000 from the sale of convertible notes and $37,895 in gross profit from
operations.
2007.
Stockholders’
deficit was $13,412,828 and working capital deficiency was approximately
$9,540,000. Principal sources of liquidity in 2007 included the sale of $450,000
in convertible notes and $40,056 in gross profit from operations.
Results
of operation - March 31, 2008 and 2007
Loss
from operations increased to $684,950
in 2008 from $531,020 in 2007 as a result of decreased revenue and increases
in
general and administrative expenses. Revenue decreased to $44,479 in 2008 from
$59,254
in 2007. The expiration of contracts for our old non-web based product accounted
for most of the decrease. Selling, general and administrative expenses increased
to $722,845 in 2008 from $508,186 in 2007. We incurred no research and
development expense in 2008, this expense was $62,890 in 2007.
Liquidated
damages increased to $556,465 in 2008 from $361,895 in 2007. Interest
expense increased to $256,372 in 2008 from $217,887 in 2007. Interest expense
resulted mainly from the issuance of additional convertible notes and the
conversion of convertible notes. Net loss applicable to common stockholders
increased from $1,110,802 in 2007 to $1,497,787 in 2008 as a result of the
increases in liquidated damages, interest expense and loss from
operations.
Item
4T. Controls and Procedures.
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 Officer 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.
Management’s
Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. We have assessed the effectiveness of
those internal controls as of December 31, 2007, using the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control -
Integrated Framework as a basis for our assessment.
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
A
material weakness in internal controls is a deficiency in internal control,
or
combination of control deficiencies, that adversely affects the Company’s
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with accounting principles generally accepted in
the
United States of America such that there is more than a remote likelihood that
a
material misstatement of the Company’s annual or interim financial statements
that is more than inconsequential will not be prevented or detected. In the
course of making our assessment of the effectiveness of internal controls over
financial reporting, we identified one material weakness in our internal control
over financial reporting. This material weakness consisted of inadequate
staffing within the accounting operations of our company. The small number
of
employees who are responsible for accounting functions (more specifically,
one)
prevents us from segregating duties within our internal control system. The
inadequate segregation of duties is a weakness because it could lead to the
untimely identification and resolution of accounting and disclosure matters
or
could lead to a failure to perform timely and effective reviews.
By
the
Board of Directors
/s/
Steven E. Humphries
Steven
E.
Humphries, Director
PART
II — OTHER INFORMATION
Item
2. Unregistered Sales of Unregistered Securities and Use of
Proceeds.
During
the first quarter of 2008, we issued
$430,000 in Callable Secured Convertible Notes to four investors, and issued
an
additional 127,808,400 shares of common stock to the four investors upon the
conversion of $44,136 in convertible notes pursuant
to the Securities Purchase Agreement described in Item 13.
Certain Relationships and Related Transactions and Director Independence -
Securities Purchase Agreements in
our Form 10-K for the fiscal year ended December 31, 2007.
Since
the end of the first quarter, we issued an additional $300,000 in Callable
Secured Convertible Notes to the four investors and issued an
additional 163,064,400 shares on the conversion of $17,811 of these
convertible notes. We also issued $180,000,000 shares to our President and
Chief
Executive Officer.
We
relied on the exemptions from registration afforded by Section 4(2) of the
Securities Act of 1933 and Rules 506 and 144(k) of Regulation D of the General
Rules and Regulations thereunder for these sales.
Item
6. Exhibits.
Exhibit
31.1
|
Certifications
Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,
as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002 - CEO.
|
31.2
|
Certifications
Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,
as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002 - CFO.
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section1350, as
Adopted
Pursuant to Section 906 of the Sarbanes- Oxley Act of
2002.
|
32.2 |
Certification of Chief Financial Officer Pursuant
to 18
U.S.C. Section1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. |
SIGNATURES
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.
|
|
|
DEALERADVANCE,
INC.
|
|
|
|
May
15, 2008
|
By:
|
/s/
Steven E. Humphries
|
|
|
Steven
E. Humphries, Chief Executive Officer and
Director
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and dates indicated.
|
|
|
May
15, 2008
|
By:
|
/s/
Steven E. Humphries
|
|
|
Steven
E. Humphries, Chief Executive Officer and
Director
|
|
|
|
May
15, 2008
|
By:
|
/s/
David L. Wange
|
|
|
David
L. Wange, President, Chief Financial Officer, Secretary and Director
(Principal Accounting and Financial
Officer)
|