SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
Annual Report Pursuant
to Section 13 or 15(d) of The Securities Exchange Act of 1934
For
the
fiscal year ended December
31, 2007
Commission
File Number 333-54822
DEALERADVANCE,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
20-5717448
|
(State
or other jurisdiction of
|
(IRS
Employer
|
Incorporation
or organization)
|
Identification
No.)
|
|
|
1801
Addison Road, Suite 310, Addison, TX
|
75001
|
(Address
of Principal Executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (214)
866-0606
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common
Stock, no par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark whether the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act. Yes
x
No o
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 disclosure of delinquent filers in response to Item 405
of
Regulation S-K (§229.405 of this Chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K. Yes o No x
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
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the
last
business day of the registrant’s most recently completed second fiscal quarter:
$1,726,354 as
of
June 30, 2007.
Number
of
shares outstanding of issuer’s Common Stock, no par value outstanding as of
March 28, 2008: 490,824,656
List
hereunder the following documents if incorporated by reference and the Part
of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 414(b)
or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). None.
TABLE
OF CONTENTS
|
(Omits
inapplicable items)
|
|
|
|
PART
I
|
Item
1.
|
Business
|
3
|
Item
2.
|
Property
|
4
|
Item
3.
|
Legal
Proceedings
|
4
|
PART
II
|
|
|
|
Item
5.
|
Market
for Common Equity and Related Stockholder Matters
|
5
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
6
|
Item
8.
|
Financial
Statements and Supplementary Data
|
8
|
Item
9A.
|
Controls
and Procedures
|
8
|
|
|
|
PART
III
|
Item
10.
|
Directors
and Executive Officers; Corporate Governance
|
10
|
Item
11.
|
Executive
Compensation
|
11
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
13
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
14
|
Item
14.
|
Principal
Accountant Fees and Services
|
16
|
|
|
|
PART
IV
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
17
|
We
want
to provide you with more meaningful and useful information. This Annual Report
on Form 10-K contains certain "forward-looking statements" (as such term
is
defined in Section 21E of the Securities Exchange Act of 1934, as amended).
These statements reflect our current expectations regarding our possible
future
results of operations, performance and achievements. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
Wherever
possible, we have tried to identify these forward-looking statements by words
such as “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend” and
similar expressions. These statements reflect our current beliefs and are
based
on information currently available to us. Accordingly, these statements are
subject to certain risks, uncertainties, and contingencies, which could cause
our actual results, performance, or achievements to differ materially from
those
expressed in, or implied by, such statements. These risks, uncertainties
and
contingencies include, without limitation, the factors set forth under Item
7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
PART
I
Item
1. Business.
We
design, develop, market, sell and install a web-based application software
and
database system that manages the auto dealer-customer relationship. In
January
2007, we announced the launch of Web DA™, our new web-based version of our
DealerAdvance™ software for conventional desktop or laptop computers. To become
more competitive in the marketplace, we began the development of a version
of
Web DA™ for small hand-held ultra-mobile personal computers (“UMPC’s”) in March
2007. This product, introduced in March of this year, will enable any car
salesperson to complete the entire sales process from virtually anywhere
using
any popular UMPC. We are developing our new release, Web DA™ 1.5 for
introduction later this year that incorporates additional features and
benefits
to the customer.
Our
headquarters in Addison, Texas (near Dallas) houses our executive management,
financial accounting, software development/technical support, and marketing
and
sales operations. We have ten employees: our chief executive officer, our
chief
financial officer, our chief information officer and two other employees
in
software development/technical support, and five in sales and administration,
including our vice president of sales and marketing. All are full-time
employees.
Our
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,
which was required with our former product. Now, with the new web based
technology, users can access Web DA™ on any Microsoft™ Windows Vista Home
Premium™ based UMPC from anywhere where there is an Internet connection at
anytime.
CRM
is a
customer-centric business strategy with the goal of maximizing profitability,
revenue, and customer satisfaction. To support this strategy, a dealer must
capture, store and analyze both customer and internal process information.
Many
auto dealerships still rely on a paper-based process to capture prospects
and
track progress towards the sale. This is difficult to manage due to high
turnover and the lack of certain skills in the typical sales force. Such
a
process does not provide management with adequate tools to determine how
many
prospects have been generated and whether they are receiving follow-up after
leaving the dealership. Our software prompts the salesperson to capture more
information about each prospect and advises them of the appropriate follow
up,
and when a customer is ready to purchase a vehicle, the system aids the
dealership in completing the sale 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™
allows automobile dealers to capture a customer's contact and vehicle
information, purchasing requirements, and gives dealership personnel the
ability
to search inventory at multiple locations in their Dealer Management System,
to
locate a vehicle in stock, and print out the necessary forms to complete
a sale
or lease. Through the integrated CRM application, the system sends detailed
tasks for prospect and customer follow-up on a sales and management level
that
increase the likelihood that a customer will become a repeat customer. Web
DA™
administrators can produce activity and scoreboard reports to measure compliance
and dealership data. The software allows sales professionals to capture customer
leads quickly, improve customer follow-up, and reduce administrative
costs.
In
addition, we host a web application software system that enables users 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 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’s license scanning
station for easy capture of client data.
We
estimate that the market for our CRM software to be approximately 20,000
dealerships. Our competitors include the ADP Dealer Services division of
Automatic Data Processing, Inc., The Cobalt Group, AutoManager, and Autobase,
Inc., among others. These companies all possess
financial, technological and human resources far greater than ours,
as well
as established reputations, that afford them a substantial competitive
advantage. We believe, without assurance, that our unique proprietary technology
and design features can enable us to become competitive in the
marketplace.
Customers
pay a one-time initial payment and monthly recurring license fees for either
a
one, two or three year term. Each installation is expected to generate
approximately $20,000 per year in revenue. We have thirteen customers,
including eleven Web
DA™ customers. Additional Web DA™ installations are pending. At the end of 2006,
we had 32 customers, a decline from 83 at the end of 2005. These declines
resulted from non-renewal of expired contracts for our old non-web based
product.
We
are attempting to capture the critical mass necessary to quickly ramp up
our
sales. As a result of contacts we made at the 2008 National Auto Dealers
Convention and Exposition in San Francisco in February 2008 we are extending
our
internal sales force with other distribution arrangements. Since then,
we have
added a non-exclusive sales representative in Arizona, Colorado, Indiana,
Michigan, New Mexico and Ohio and we added a non-exclusive North American
sales
representative. We are also negotiating a proposed agreement pending with
a
software developer in Calgary, Alberta, to bundle Web DA™ with its inventory
systems for auto dealers.
We
have a trademark for DealerAdvance™ and have one patent pending covering the
system for management of information flow in automotive dealerships using
hand
held technology.
We
were incorporated in Nevada in 2000. Until 2006, we had a wholly owned
subsidiary, Stronghold Technologies, Inc., a New Jersey Corporation, that
developed hand held wireless technology for the automotive dealer market.
The
subsidiary’s business was unsuccessful, it ceased operations and filed for
bankruptcy protection under Chapter 7 of the United States Bankruptcy Code.
The
assets of the subsidiary were liquidated, and its debts discharged, including
all court judgments and an arbitration award.
The bankruptcy case was closed on January 29, 2008.
Item
1A. Risk Factors.
No
Applicable.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Property.
We
sublease our offices and equipment on a month-to-month basis for $6,750
per
month under a turnkey arrangement with a limited liability
company owned and controlled by our Chief Executive Officer and our Vice
President - Marketing and Sales. See Item 13. Certain
Relationships and Related Transactions and Director Independence - Transactions
with Directors, Officers and Principal Shareholders.
Item
3. Legal Proceedings.
There
are
no material pending legal proceedings against us, and no material pending
legal
proceedings known to be contemplated by governmental authorities.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market for the Registrant’s Common Equity and Related Stockholder
Matters.
Market
Prices, Number of Shareholders and Dividends
Our
Common Stock is traded on the OTC Bulletin Board 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, 2006, per
Bloomberg.com.
|
|
|
|
Bid
Price
|
Year
|
|
Quarter
|
|
High
|
|
Low
|
2008
|
|
First
|
$
|
.00431
|
$
|
.001
|
|
|
Second
(though April 12, 2008)
|
$
|
.00131
|
$
|
.001
|
2007
|
|
First
|
$
|
.009
|
$
|
.001
|
|
|
Second
|
$
|
.006
|
$
|
.0005
|
|
|
Third
|
$
|
.00381
|
$
|
.0005
|
|
|
Fourth
|
$
|
.029
|
$
|
.0005
|
2006
|
|
First
|
$
|
.230
|
$
|
.002
|
|
|
Second
|
$
|
.025
|
$
|
.011
|
|
|
Third
|
$
|
.015
|
$
|
.004
|
|
|
Fourth
|
$
|
.013
|
$
|
.00119
|
We
have
approximately 90 shareholders of record and an unknown number that hold shares
in street name.
No
dividends were declared since December 31, 2006. We presently intend to retain
our earnings to fund development of our business. Decisions concerning dividend
payments in the future will depend on income and cash requirements. Holders
of
common stock are entitled to receive such dividends as may be declared by
our
board of directors. There are no contractual restrictions on our ability
to pay
dividends to our shareholders.
Securities
authorized for issuance under equity compensation plans.
The
following is provided with respect to compensation plans (including individual
compensation arrangements) under which equity securities are authorized for
issuance as of the fiscal year ending December 31, 2007.
Equity
Compensation Plan Information
|
|
Number
of
|
|
|
|
Number
of securities
|
|
|
securities
to be
|
|
|
|
remaining
available for
|
|
|
issued
upon
|
|
|
|
future
issuance under
|
|
|
exercise
of
|
|
|
|
equity
compensation
|
|
|
outstanding
|
|
exercise
price of
|
|
plans
(excluding
|
|
|
options,
warrants
|
|
outstanding
options,
|
|
securities
reflected in
|
|
|
and
rights
|
|
warrants
and rights
|
|
column
(a)
|
Plan
category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity
compensation
|
|
|
|
|
|
|
plans
approved by
|
|
24,000,000
|
|
N/A
|
|
4,000,000
|
security
holders
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
plans
not approved
|
|
-0-
|
|
N/A
|
|
N/A
|
by
security
holders
|
|
|
|
|
|
|
Total
|
|
24,000,000
|
|
N/A
|
|
-0-
|
Figures in the table refer to our 2007 Incentive Stock
Plan
and 2007-2 Incentive Stock Plan, under which 20,000,000 shares of Common
Stock
have been issued pursuant to stock awards aggregating 18,000,000 shares
and the
exercise of 2,000,000 options. Please refer to Item 11. Executive
Compensation - Equity Compensation Plans,
for
additional information regarding up to 50,000,000 shares authorized for
issuance
under our 2008 Stock Award Plan, of which 11,800,000 shares have been issued
in
2008 pursuant to stock awards, and 38,200,000 shares remain available for
future
issuance, and 75,000,000 shares awarded in 2008 to our chief executive
officer.
Our shareholders have not approved the 2008 Stock Award
Plan.
In
2008
we also issued 25,000,000 shares issued for legal services and 50,000,000
shares
for business development consulting services in the first quarter of 2008
to two
consultants under equity compensation plans that were not approved by security
holders. There are no shares remaining to be issued under these
plans.
Recent
Sales of Unregistered Securities
In
2007
we issued 1,437,392 shares of Common Stock to an investor upon the conversion
of
Class D Convertible Preferred Stock that he held.
As
of
April 2, 2008, we have issued 5,971,541 shares of Common Stock to two investors
upon the conversion of Class D Convertible Preferred Stock that they held,
and
75,000,000 shares for services to our Chief Executive Officer as described
in
Item
11. Executive Compensation - Compensation and Other Employment-Related
Agreements with Management.
Since
December 2006 we sold additional convertible notes and warrants to certain
purchasers in the transactions described incertain
Relationships and Related Transactions and Director Independence - Securities
Purchase Agreements.
We
relied
on the exemptions form registration afforded by Section (2) of the Securities
Act of 1933 and Rule 506 of Regulation D of the General Rules and Regulations
thereunder for the sales of shares to investors and the sale of the convertible
notes and warrants and the shares issued to pay debt and for services. We
complied with the manner of sale, access to information and investor
accreditation requirements of such exemptions.
Item
6. Selected Financial Data.
Not
Applicable.
Item
7. Management’s 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 $1,500,000
from external sources in 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 $9,604,807
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 April 2, 2008, the investment group has converted to stock $102,777 of
the notes. The aggregate outstanding principal amount of the remaining
convertible notes was $9,502,030 as
of that date. We
believe without assurance that the investment group will continue to convert
the
rest of the 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 is not likely that all of the remaining debt will be converted.
Certain
notes are past due and in technical default.
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 UMPC’s. 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. 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 softare 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 December 31, 2006 and 2007
December
31, 2007.
Stockholders’ deficit was $16,950,266
and we had a working capital deficiency of $12,216,247. Principal sources
of
liquidity in 2007 included net proceeds of $1,950,000 from the sale of
convertible notes and $197,524 in gross profit from operations.
December
31, 2006. Stockholders’
deficit was $12,304,159 and working capital deficiency was $7,898,243. Principal
sources of liquidity in 2006 included the sale of $2,080,000 in convertible
notes and $408,141 in gross profit from operations.
Results
of operations - December 31, 2006 and 2007
Loss
from
operations decreased to $2,095,157
in 2007 from $2,109,242 in 2006 as a result of decreased revenue and increases
in general and administrative expenses. Revenue decreased to $232,079 in
2007
from $479,474
in 2006. The expiration of contracts for our old non-web based system
accounted for most of the decrease. Selling, general and administrative expenses
decreased to $2,226,751 in 2007 from $2,517,383 in 2006. We incurred research
and development expense of $65,930 in 2007, we did not have this expense
in
2006.
Interest
expense increased to $944,128 in 2007 from $911,721 in 2006. Interest expense
resulted mainly from the issuance of additional convertible notes and the
conversion of convertible notes. Overall net loss increased from $4,443,627
in
2006 to $4,722,436 in 2007 as a result of the increase in loss from operations
and the increase in interest expense.
Results
of operations - December 31, 2005 and 2006
Loss
from
operations remained approximately the same: $2,109,242 in 2006 from $2,113,579
in 2005 as a result of decreased general and administrative expenses that
offset
decreased revenue. Revenue decreased to $479,474 in 2006 from $943,735 in
2005.
The expiration of contracts for our old non-web based system accounted for
most of the decrease. Selling, general and administrative expenses decreased
to
$2,517,383 in 2006 from $2,732,954 in 2005. We incurred no research and
development expenses in either 2005 or 2006.
Interest
expense increased to $911,721 from $747,383. Interest expense resulted mainly
from the issuance of additional convertible notes and the conversion of
convertible notes. Overall net loss increased from 3,632,448
in 2005 to $4,443,627 in 2006 as a result of the increase in loss from
operations and the increase in interest expense.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data.
Attached
to this report beginning on page F-1.
Item
9. Changes in and Disagreements with Accountants on Financial Statement
Disclosure.
None.
Item
9A. 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
|
Item
9(B). Other Information.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Directors
and Executive Officers; Corporate Governance
Name
|
Age
|
Positions
|
Steven
E. Humphries
|
55
|
Chief
Executive Officer, Treasurer and Director
|
David
L. Wange
|
48
|
Chief
Financial Officer and Secretary
|
David
T. Scaturro
|
56
|
Vice
President Marketing and Sales
|
Rajneesh
K. Sharma
|
37
|
Chief
Information Officer
|
Our
Board
of Directors is comprised of one director of one class. Each director is
elected
to hold office until the next annual meeting of shareholders and until his
successor has been elected and qualified. The following is a brief description
of the background and experience of our director and officers.
Steven
E. Humphries
has been Chief Executive Officer, Treasurer and Director since August 2006.
During his thirty-year career in the broadcast industry, Mr. Humphries
gained
extensive executive experience and has started, managed, operated, and
consulted
with numerous radio stations and broadcast groups, specializing in Spanish
language programming. He has been the chief executive officer and owner
of
Humphries Marketing Group, LLC (“HMG”), a full-service automotive boutique
advertising agency he founded in 2003. He
attended the University of Oklahoma from 1970 through 1971.
David
L.Wange
has been Chief Financial Officer since May 2007. Prior thereto he was a
consultant in Dallas, Texas, specializing in Sarbanes-Oxley Act and audit
consulting. His clients included brokerage firms, private equity firms,
retail
merchandizing,
certified public accounting firms, and a major consulting firm. From 2003
through 2005, Mr. Wange was an account executive for RHMHR, Inc., a Dallas
consulting firm. He has been a certified public accountant in Texas since
1996,
and holds a Master of Science in Accounting from the University of Texas
at
Dallas, a Master of Arts in Biblical Studies from Dallas Theological Seminary,
and a Bachelor of Science in Economics from Texas A&M
University.
David
T. Scaturro
has been Vice President Marketing and Sales since July 2007. He has been
the
chief operating officer and co-owner with Mr. Humphries of HMG since 2004.
From
1992 through 2003, Mr. Scaturro was employed by Infinity Broadcasting,
Dallas,
Texas, as general sales manager for various stations. He attended Southern
Illinois University, Edwardsville from 1970 through 1972.
Rajneesh
K. Sharma
has been
Chief Information Officer since July 2007 and has headed our software
development and technical support team since June 2006. Since 1999, he has
been
employed as a software architect and developer with several companies. Mr.
Sharma earned a Bachelor of Science in Electrical Engineering and Software
from
Cogswell Polytechnic in Sunnyvale, California in 2004.
Committees
of the Board of Directors
Audit
Committee. We
have
no audit committee of the Board of Directors. We are exempt from the Securities
and Exchange Commission requirements for a separate audit
committee.
No
Compensation Committee. We
have
no compensation committee of the Board of Directors. The entire board acts
as
our compensation committee. Transactions between Mr. Humphries, HMG, and
us are
not conducted at arm's-length. These include their compensation arrangements
set
forth in Item 11. Executive
Compensation
and the
transactions set forth in Item 13. Certain
Relationships and Related Transactions and Director Independence
below.
Mr. Humphries, without any independent authorization, review or oversight
sets
the terms of these arrangements and transactions. There can be no assurance
that
the terms thereof are comparable to those that would be negotiated at
arm's-length or otherwise fair and reasonable, despite the good faith belief
of
Mr. Humphries that they are.
Meetings
of Directors
There
were no formal meetings of the Board of Directors and no formal meeting of
committees thereof in 2007. The board acted by unanimous consent five
times
in
2007. We have adopted a policy that all directors must attend the annual
meeting
of directors following the shareholders meeting and two-thirds of all other
meetings of directors.
Codes
of Ethics
During
2008, we adopted a Code of Business Conduct and Ethics that addresses, among
other things, conflicts of interest, corporate opportunities, confidentiality,
fair dealing, protection and use of company assets, compliance with laws
(including insider trading laws), and reporting of unethical behavior. The
Code
of Business Conduct and Ethics is applicable to our directors, officers and
all
employees.
In
addition, we have adopted a Finance Code of Ethics that requires honest and
ethical business conduct, full, accurate and timely financial disclosures,
compliance with all laws, rules and regulations governing our business, and
prompt internal reporting of any violations of the code. The Finance Code
of
Ethics is applicable to our Chief Executive Officer, Chief Financial Officer,
Controller (there is no Controller at this time) and all finance employees.
We
intend to satisfy the disclosure requirements under Item 10 of Form 8-K
regarding any amendment to or waiver of the Code of Ethics with respect to
our
Chief Executive Officer, Chief Financial Officer, Controller, and persons
performing similar functions, by posting such information on our website.
Compliance
with Section 16(a) of the Exchange Act
Our
directors and executive officers failed to file on a timely basis reports
required by Section 16(a), including Forms 3, 4 and 5 during the three most
recent fiscal years and the year to date. With respect to Mr. Humphries there
were seven late reports covering four transactions that were not reported
on a
timely basis. With respect to Mr. Wange, there were three late
reports covering one transaction that was not reported on a timely basis.
With
respect to Mr. Scaturro, there were four late reports covering three
transactions that were not reported on a timely basis. With respect to Mr.
Sharma, there were four late reports covering two transactions that were
not
reported on a timely basis. As of the date hereof, all reports required by
Section 16(a) have been filed and are available on our web site
www.dealeradvance.com.
Item
11. Executive Compensation.
Summary
Compensation Table
The
following table sets forth certain information about the compensation paid
to
management during the 2006 through 2007 fiscal years:
|
|
Annual
Compensation
|
|
Long
Term Compensation
|
|
Name
and
|
|
|
|
|
|
Other
annual
|
|
|
|
|
|
|
|
All
other
|
|
principal
|
|
|
|
|
|
compensation
|
|
|
|
|
|
|
|
compensation
|
|
position
|
|
Year
|
|
Salary
($)
|
|
($)*
|
|
Awards
|
|
Payouts
|
|
($)
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
Securities
|
|
LTIP
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
underlying
|
|
payouts
|
|
|
|
|
|
|
|
|
|
|
|
award(s)
|
|
options/SAR
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
(#)
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
115,000
|
|
$
|
20,000
|
|
$
|
84,400
|
|
|
-0-
|
|
$
|
-0-
|
|
$ |
-0- |
|
Chief
Executive Officer,
|
|
|
2006
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
|
666,667
|
|
$
|
-0-
|
|
$ |
-0- |
|
Treasurer
and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
L. Wange, Chief
|
|
|
2007
|
|
$
|
47,588
|
|
$
|
10,500
|
|
$
|
-0-
|
|
|
-0-
|
|
$
|
-0-
|
|
$ |
-0- |
|
Financial
Officer and
|
|
|
2006
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
|
-0-
|
|
$
|
-0-
|
|
$ |
-0- |
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
T. Scaturro, Vice
|
|
|
2007
|
|
$
|
45,000
|
|
$
|
1,500
|
|
$
|
-0-
|
|
|
-0-
|
|
$
|
-0-
|
|
$ |
-0- |
|
|
|
|
2006
|
|
$
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
666,667
|
|
$
|
-0-
|
|
$ |
-0- |
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rajneesh
K. Sharma,
|
|
|
2007
|
|
$
|
126,550
|
|
$
|
1,500
|
|
$
|
-0-
|
|
|
-0-
|
|
$
|
-0-
|
|
$ |
-0- |
|
Chief
Information Officer
|
|
|
2006
|
|
$
|
50,726
|
|
|
-0-
|
|
|
-0-
|
|
|
666,667
|
|
$
|
-0-
|
|
$ |
-0- |
|
*
Consists of cash bonuses.
Equity
Compensation Plan Information
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 50,000,000 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 supercedes all of our previous stock option plans. The directors
terminated the 2007 Incentive Stock Plan effective December 31,
2008.
Option
Grants to Management in 2007
There
were no option grants to management during 2007.
Option
Exercises and Year-End Values
The
following table sets forth certain values with respect to stock options
exercised and held by management at the end of 2007:
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
|
|
|
|
|
|
|
Options/SAR’s
at
|
|
|
|
|
|
Share
Acquired
|
|
|
|
FY-end
(#)
|
|
|
|
|
|
on
|
|
Value
|
|
Exercisable/
|
|
|
|
Name
|
|
Exercise
(#)
|
|
Realized
|
|
Unexercisable
|
|
Unexercisable
|
|
|
|
|
-0-
|
|
|
N/A
|
|
|
666,667
|
|
|
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer,
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
L. Wange,
|
|
|
-0-
|
|
|
N/A
|
|
|
-0-
|
|
|
N/A
|
|
Chief
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
T. Scaturro,
|
|
|
-0-
|
|
|
N/A
|
|
|
666,667
|
|
|
|
|
Vice
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
and Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rajneesh
K. Sharma,
|
|
|
-0-
|
|
|
N/A
|
|
|
666,667
|
|
|
|
|
Chief
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each
of
these options was exercised for $2,000 in January 2008.
Employment
and Other Compensation-Related Agreements with Management
On
November 20, 2007, Mr. Humphries was issued 5,000,000 shares of Common
Stock in
consideration of services rendered valued at $84,400. On March 4, 2008,
Mr.
Humphries was issued 25,000,000 shares of Common Stock in consideration
for
services rendered valued at $50,000. On April 4, 2008, Mr. Humphries was
issued
50,000,000 shares in consideration of services rendered valued at
$56,000.
Mr.
Humphries’ current salary is $20,000 per month.
On
March
4, 2008, Mr. Wange was issued 2,000,000 shares of Common Stock in consideration
for services rendered valued at $4,000. On April 4, 2008, Mr. Wange was
issued
5,000,000 shares in consideration of services rendered valued at $5,600.
Mr.
Wage’s current salary is $10,000 per month.
The
current annual salary of Mr. Scaturro is $60,000. On March 4, 2008, Mr.
Scaturro
was issued 1,000,000 shares of Common Stock in consideration for services
rendered valued at $2,000. On April 4, 2008, Mr. Scaturro was issued 2,500,000
shares in consideration of services rendered valued at $2,800.
On
March
4, 2008, Mr. Sharma was issued 1,000,000 shares of Common Stock in consideration
for services rendered valued at $2,000. Mr.
Sharma’s current salary is $11,666 per month.
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters
The
following table sets forth information, as of March 28, 2008, with respect
to
the beneficial ownership of our common stock by each person known to be the
beneficial owner of more than five percent of the outstanding common stock,
and
by our director and four executive officers, individually and as a group.
Name
and Address
|
|
Numbers
of Shares
Beneficially
Owned (1)
|
|
%
|
Steven
E.
Humphries,
5709
Walden Drive,
Addison,
TX 75093
|
|
80,666,667
(1)
|
|
15.43%
|
Christopher
J. Carey,
450
Claremont Road
Bernardville,
NJ 07924
|
|
26,798,571
(2)
|
|
5.13%
|
David
L. Wange
2201
Rolling Oak Lane,
Garland,
TX 75044
|
|
7,000,000(3)
|
|
|
David
T. Scaturro
6301
Thorn Branch Drive
Plano,
TX 75093
|
|
4,436,667(1)
|
|
0.85%
|
Rajneesh
K. Sharma
5945
West Parker Road #1011,
Plano,
Texas 75093
|
|
1,666,667
|
|
0.32%
|
Directors
and Executive Officers
as
a Group (four persons)
|
|
|
|
17.94%
|
|
(1)
|
Includes
25,000,000 shares issued to Mr. Humphries after March 17,
2008.
|
(2)
|
Includes
3,937,500 shares held by Mr. Carey as joint tenants with his wife
Mary
Carey, and 218,750 shares held by his son, Christopher Carey, Jr.,
who has
the same residence address as Mr. Carey.
|
(3)
|
Includes
5,000,000 shares issued to Mr. Wange after March 28,
2008.
|
(4)
|
Includes
2,500,000 shares issued to Mr. Scaturro after March 28,
2008.
|
Item
13. Certain Relationships and Related Transactions and Director
Independence.
Transactions
with Directors, Officers and Principal Shareholders
We
now
have an arrangement with HMG 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. On April
30,
2006, we entered into a three year consulting agreement with HMG to provide
management services for $15,000 plus a 20% commission on net sales. During
2007,
we paid $120,750 to Humphries Marketing Group under the agreement, including
sales commissions.
The
agreement was terminated effective December 31, 2007.
On
December 20, 2006, the Company issued a promissory note in the aggregate
principal amount of $81,800 to Mr. Humphries. The note bears interest equal
to
the prime rate and is due on or before June 30, 2007. As of December 31,
2007,
$34,014 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 HMG. The note bears interest equal to the
prime
rate and is due on or before June 30, 2007. As of December 31, 2007, $6,787
was
outstanding under the promissory note.
On
August
14, 2006, Mr. Carey a former director and officer and a principal shareholder,
entered into a Settlement Agreement with the Company pursuant to which
Mr.
Carey, waived all rights to the following: accrued salary in the amount
of
$781,369; a bridge loan in the amount of $262,000; a bridge loan in the
amount
of $360,000; auto allowance payable in the amount of $25,600; and, accrued
interest in the amount of $370,299. In consideration of this waiver, the
Company
agreed to pay Mr. Carey $8,000 a month over a period of 15 months, now
modified
to $2,150 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.
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. However, the loans violate
Section 402 of the Sarbanes Oxley Act of 2002. As a result, despite the
fact
that a portion of such loans was repaid, we and/or Mr. Humphries and HMG
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. The purpose of such loan was for personal use and for marketing
services rendered.
For
additional transactions with management, see also Item 11. Executive
Compensation – Employment
and
Other Compensation-Related Agreements with Management.
Securities
Purchase Agreements
2006-2008
Securities Purchase Agreements
Effective
February 8, 2006, we entered into a series of Securities Purchase Agreement
(the
“2006-2008 Securities Purchase Agreements”) with AJW Offshore, Ltd., AJW
Partners, LLC, AJW Qualified Partners, LLC, and New Millennium Capital Partners
II (the “Investors”) and ancillary agreements. Under the 2006-2008 Securities
Purchase Agreement, we sold the Investors a total of $5,103,232 in Callable
Secured Convertible Notes (the "2006-2008 Convertible Notes") due in two
years,
respectively, with 8% annual interest payable quarterly. The Investors may
convert the 2006-2008 Convertible Notes into shares at the lower of $.05
per
share or 15% of the three lowest intraday trading prices during the twenty
trading days prior to conversion. We issued the Investors for no additional
cash
consideration Stock Purchase Warrants (the "2006-2008 Warrants") to purchase
an
aggregate of 26,773,260 shares at $.0001 per share. The 2006-2008 Warrants
expire seven years from the date issued.
$5,103,232
of the proceeds from the 2006-2008 Convertible Notes was used for working
capital and expenses.
As
of
April 2, 2008, the Investors have converted $102,777 of the 2006 Convertible
Notes into 335,767,803 shares of Common Stock. Based on the conversion price
of
$.00016 on April 2, 2008 the remaining principal amount of 2006-2008 Convertible
Notes can be converted into a minimum of 59,387,687,500 shares. Additional
shares may be issued if accrued interest is converted. Management believes
that
the actual conversion price may be lower and more than the minimum number
of
shares may be issued when the Convertible Notes are converted.
2004
Securities Purchase Agreement
Effective
June 18, 2004, we entered into a Securities Purchase Agreement (the “2004
Securities Purchase Agreement”) with the Investors and ancillary agreements.
Under the 2004 Securities Purchase Agreement, we sold the Investors a total
of
$3,000,000 in Callable Secured Convertible Notes (the "2004 Convertible Notes")
due beginning June 18, 2006 with 12% annual interest payable quarterly, the
first four months interest to be prepaid from proceeds of the Convertible
Notes.
The 2004 Convertible Notes are past due, and they are in technical default.
The
Investors may convert the Convertible Notes into shares at the lower of $.70
per
share or 50% of the three lowest intraday trading prices during the twenty
trading days prior to conversion.
We
agreed
to issue to the Investors for no additional cash consideration 3,000,000
Stock
Purchase Warrants (the "2004 Warrants") to purchase one share at $.57 per
share
for each one dollar of Convertible Notes purchased by the Investors. The
2004
Warrants expire five years from the date issued.
To
date,
the Investors have not converted any of the 2004 Convertible Notes into shares.
Additional shares may be issued if accrued interest is converted. Management
believes that the actual conversion price may be lower and more than the
minimum
number of shares may be issued when the Convertible Notes are
converted.
The
proceeds from the Convertible Notes were used for working capital and general
business expenses. We also used the proceeds to repay principal and interest
on
other outstanding notes and accounts payable, fees, and business development
purposes, including development of WebDA™.
Common
Provisions of the Transaction Agreements
The
Investors will be entitled to exercise the Warrants on a cashless basis
if the
shares of common stock underlying the Warrants are not then registered
pursuant
to an effective registration statement. In the event that an Investor exercises
the Warrants on a cashless basis, then we will not receive any proceeds.
In
addition, the exercise price of the Warrants will be adjusted in the event
we
issue common stock at a price below market, with the exception of any securities
issued as of the date of the Warrant or issued in connection with the
Convertible Notes issued pursuant to the Securities Purchase Agreement.
Upon the
issuance of shares of common stock below the market price, the exercise
price of
the Warrants will be reduced accordingly. The market price is determined
by
averaging the last reported sale prices for our shares of common stock
for the
five trading days immediately preceding such issuance as set forth on our
principal trading market. The exercise price shall be determined by multiplying
the exercise price in effect immediately prior to the dilutive issuance
by a
fraction. The numerator of the fraction is equal to the sum of the number
of
shares outstanding immediately prior to the offering plus the quotient
of the
amount of consideration received by us in connection with the issuance
divided
by the market price in effect immediately prior to the issuance. The denominator
of such issuance shall be equal to the number of shares outstanding after
the
dilutive issuance.
In
addition, the conversion price of the Convertible Notes and the exercise
price
of the Warrants will be adjusted in the event that we issue common stock
at a
price below the fixed conversion price or below market price, with the
exception
of any securities issued in connection with the Securities Purchase Agreement.
The conversion price of the Convertible Notes and the exercise price of
the
Warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into
a greater
or lesser number of shares, or take such other actions as would otherwise
result
in dilution of the Investors’ positions.
Payment
of the Convertible Notes is secured by all of our assets pursuant to a Security
Agreement and an Intellectual Property Security Agreement.
Pursuant
to a Registration Rights Agreement we agreed to file a registration statement
to
register on request by the Investors the shares underlying the Notes and
Warrants. We will be subject to the payment of certain penalties and damages
in
the event we do not satisfy our obligations under the Transaction Agreements
including those with respect to registration of the shares underlying the
Convertible Notes and Warrants.
Item
14. Principal Accountant Fees and Services.
The
following table presents fees for professional services rendered by Paritz
&
Company, P.A. to us for 2007 and 2006:
|
|
Year
Ended
|
|
Year
Ended
|
|
Types
of Fees
|
|
December
31, 2007
|
|
December
31, 2006
|
|
Audit
Fees (a)
|
|
$
|
17,525
|
|
$
|
18,200
|
|
Tax
Fees (b)
|
|
$
|
-0-
|
|
$
|
-0-
|
|
Other
Fees (c)
|
|
$
|
3,039
|
|
$
|
3,750
|
|
To
safeguard the continued independence of the independent auditors, the Board
has
adopted a policy that expands our existing policy preventing our independent
auditors from providing services to us that are prohibited under Section
10A(g)
of the Securities Exchange Act of 1934, as amended. This policy also provides
that independent auditors are only permitted to provide services to the Company
that have been pre-approved by the Board of Directors. Pursuant to the policy,
all audit services require advance approval by the directors. All other services
by the independent auditors that fall within certain designated dollar
thresholds, both per engagement as well as annual aggregate, have been
pre-approved under the policy. Different dollar thresholds apply to the three
categories of pre-approved services specified in the policy (Audit Related
services, Tax services and other services). The directors must approve all
services that exceed the dollar thresholds in advance.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
3.1
|
Articles
of Incorporation, as amended (1)
|
|
|
3.2
|
Bylaws
(1)
|
|
|
4.1
|
Form
of Securities Purchase Agreement, Callable Secured Convertible
Note,
Security Agreement, Intellectual Property Security Agreement,
Subsidiary
Guaranty, Registration Rights Agreement, and Common Stock Purchase
Warrant
by and among or, issued by the Registrant to, the Investors
(2)
|
|
|
23.1
|
Consent
of Paritz & Company, P.A. dated April 15,
2008 (1)
|
|
|
31.1
|
Certification
of Periodic Report - Steven E. Humphries (1)
|
|
|
31.2
|
Certification
of Periodic Report - David L. Wange (1)
|
|
|
32.1
|
Certifications
Pursuant to 18 U.S.C. Section 1350 - Steven E. Humphries (1)
|
|
|
32.2
|
Certifications
Pursuant to 18 U.S.C. Section 1350 - David L. Wange (1)
|
_____________
(1)
|
Filed
herewith.
|
|
|
(2)
|
Incorporated
by reference to the Registrant’s Form 10-QSB filed with the Securities and
Exchange Commission on November 22,
2004.
|
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.
April
14, 2008
|
|
|
|
DealerAdvance,
Inc.
|
|
|
|
|
By:
|
/s/Steven
E. Humphries
|
|
|
Steven
E. Humphries, Chief Executive
|
|
|
Officer,
President 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.
|
|
|
April
14, 2008
|
|
|
|
By:
|
/s/
Steven E. Humphries
|
|
|
Stephen
E. Humphries, Chief Executive Officer, President and
Director
|
|
|
|
April
14, 2008
|
|
|
|
By:
|
/s/
David L. Wange
|
|
|
David
L. Wange, Chief Financial Officer, Treasurer and Director (Principal
Accounting
and Financial Officer)
|
|
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board
of
Directors
Dealer
Advance, Inc. and subsidiary
We
have
audited the accompanying consolidated balance sheets of Dealer Advance
Inc. and
Subsidiary as of December 31, 2007 and the related consolidated statements
of
operations, changes in stockholders’deficit
and cash flows for the years ended December 31, 2007 and 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with auditing 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
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 financial statements have been prepared assuming that the
Company
will continue as a going concern. As shown on the accompanying financial
statements, the Company has incurred a net loss of $4,722,436 and has negative
cash flows from operations of $2,050,747 and has a working capital deficit
of
$12,216,247 as of December 31, 2007 and a stockholders’
deficit
of $16,950,266 These circumstances, among others, raise substantial doubt
about
its ability to continue as a going concern. The 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
Subsidiaries as of December 31, 2007, and the results of its operations
and its
cash flows for the years ended December 31, 2007 and 2006 in conformity
with
accounting principles generally accepted in the United States.
/s/
Paritz & Company, P.A.
Hackensack,
New Jersey
April
11,
2008
DEALERADVANCE,
INC. AND SUBSIDIARY
formerly
Stronghold Technologies, Inc.
CONSOLIDATED
BALANCE SHEET
December
31, 2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
|
$
|
5,809
|
|
Accounts
receivable
|
|
|
2,700
|
|
Notes
receivable, related party
|
|
|
40,801
|
|
Prepaid
expenses
|
|
|
44,544
|
|
Total
Current Assets
|
|
|
93,854
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,947
|
|
|
|
$
|
97,801
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable
|
|
$
|
464,089
|
|
Interest
payable, stockholders
|
|
|
1,548,299
|
|
Notes
payable, stockholders, current portion
|
|
|
875,000
|
|
Callable
secured convertible notes, current portion
|
|
|
4,446,845
|
|
Liquidated
damages payable
|
|
|
3,674,740
|
|
Accrued
expenses and other current liabilities
|
|
|
1,301,128
|
|
Total
current liabilities
|
|
|
12,310,101
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
Notes
payable, stockholders, convertible debt, net of imputed interest
of
$585,222
|
|
|
216,765
|
|
Callable
secured convertible notes, less current portion
|
|
|
4,521,201
|
|
Total
long term liabilities
|
|
|
4,737,966
|
|
|
|
|
|
|
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, 237,669,715
issued and outstanding
|
|
|
23,767
|
|
Additional
paid-in capital
|
|
|
10,910,196
|
|
Accumulated
deficit
|
|
|
(27,884,774
|
)
|
Total
stockholders' deficit
|
|
|
(16,950,266
|
)
|
|
|
$
|
97,801
|
|
DEALERADVANCE,
INC. AND
SUBSIDIARY
formerly
Stronghold Technologies, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Year
End
|
|
Year
End
|
|
|
|
December
31, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
|
Sales
|
|
$
|
232,079
|
|
$
|
479,474
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
34,555
|
|
|
71,333
|
|
Gross
profit
|
|
|
197,524
|
|
|
408,141
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
2,226,751
|
|
|
2,517,383
|
|
Research
and development
|
|
|
65,930
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,095,157
|
)
|
|
(2,109,242
|
)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
944,128
|
|
|
911,721
|
|
Net
loss from Operations
|
|
|
(3,039,285
|
)
|
|
(3,020,963
|
)
|
|
|
|
|
|
|
|
|
Settlement
of Litigation
|
|
|
—
|
|
|
334,294
|
|
Liquidated
damages
|
|
|
1,683,151
|
|
|
1,088,370
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(4,722,436
|
)
|
$
|
(4,443,627
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.07
|
)
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
72,237,234
|
|
|
37,452,451
|
|
DEALERADVANCE,
INC. AND
SUBSIDIARY
formerly
Stronghold Technologies, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
December
31, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
($4,722,436
|
)
|
|
($4,443,627
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Allowance
for returns and doubtful accounts
|
|
|
—
|
|
|
(60,000
|
)
|
Depreciation
and amortization
|
|
|
11,506
|
|
|
533,971
|
|
Accrued
interest to notes payable, stockholders
|
|
|
948,675
|
|
|
772,955
|
|
Stock
issued for services
|
|
|
23,000
|
|
|
|
|
Liquidated
damages payable
|
|
|
1,683,151
|
|
|
1,088,368
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
3,581
|
|
|
97,156
|
|
Inventories
|
|
|
—
|
|
|
18,095
|
|
Prepaid
expenses
|
|
|
24,565
|
|
|
(42,071
|
)
|
Accounts
payable
|
|
|
82,837
|
|
|
(126,807
|
)
|
Accrued
expenses and other current liabilities
|
|
|
(20,061
|
)
|
|
402,843
|
|
Deferred
Revenue
|
|
|
(94,056
|
)
|
|
(264,676
|
)
|
Other
Assets
|
|
|
8,491
|
|
|
(16,711
|
)
|
Net
cash used in operating activities
|
|
|
(2,050,747
|
)
|
|
(2,040,504
|
)
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable, convertible debt
|
|
|
1,950,000
|
|
|
2,080,000
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,950,000
|
|
|
2,080,000
|
|
|
|
|
|
|
|
|
|
Net
increase / (decrease) in cash
|
|
|
(100,747
|
)
|
|
39,496
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
106,556
|
|
|
67,060
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
5,809
|
|
$
|
106,556
|
|
DEALERADVANCE,
INC. AND
SUBSIDIARY
formerly
Stronghold Technologies, Inc.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’
DEFICIT
Years
Ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
D
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
— |
|
$
|
625,182
|
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,443,627
|
)
|
|
(4,443,627
|
)
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with debt
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
$
|
—
|
|
Conversion
of convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
notes
to common stock
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
178,644,930
|
|
|
17,864
|
|
|
30,543
|
|
|
— |
|
$
|
48,407
|
|
Conversion
of stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loan
to common stock
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,437,392
|
|
|
144
|
|
|
4,779
|
|
|
— |
|
$
|
4,922
|
|
Stock
Issued for interest due
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,000,000
|
|
|
900
|
|
|
14,600
|
|
|
— |
|
$
|
15,500
|
|
Stock
Issued for compensation
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,000,000
|
|
|
500
|
|
|
7,000
|
|
|
— |
|
$
|
7,500
|
|
Net
loss
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,722,436
|
)
|
$
|
(4,722,436
|
)
|
Balances,
December 31, 2007
|
|
|
2,002,750
|
|
$
|
201
|
|
|
2,444,444
|
|
$
|
244
|
|
|
10,000
|
|
|
100
|
|
|
237,669,715
|
|
$
|
23,767
|
|
$
|
10,910,196
|
|
|
(27,884,774
|
)
|
|
(16,950,266
|
)
|
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
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
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 $4,722,436 and has negative
cash
flows from operations of $2,050,747 and has a working capital deficit of
$12,216,247 and a stockholders’ deficit of $16,950,266 as of December 31, 2007.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. During 2007, management of the Company will rely on raising
additional capital to fund its future 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.
|
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
straight-line balance methods.
Maintenance,
repairs and minor renewals are charged to expenses when incurred. Replacements
and major renewals are capitalized.
Accounts
Receivable
The
Company carries 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.
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. 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. All subsequent research
and
development costs during fiscal year 2007 have been immaterial and were expensed
as incurred.
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. The Plan provides for
voluntary deduction of the employee’s salary, subject to Internal Revenue Code
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, 2007.
Income
Taxes
The
Company complies with SFAS No. 109, “Accounting for Income Taxes,” which
requires an asset and liability approach to financial accounting and reporting
for income
taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will
result
in future taxable or deductible amounts, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to
reduce
deferred tax assets to the amount expected to 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
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.
No
stock
options were exercised in 2007.
The
President and Chief Executive Officer was awarded 5,000,000 million shares
in
November 2007.
Revenue
Recognition
Since
revenue for the WebDA software is based upon either initial set-up fees and
monthly subscription fees, revenue is recognized on the accrual basis when
earned. In the case of customers that have pre-paid balances from the
predecessor company, revenue is recognized as deferred revenue earned, and
is
recognized monthly as accrued revenue.
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 DealerAdvance, Inc. does not recognize
revenue prior to delivery;
|
|
3.
|
The
price of either the DA or WebDaA systems are fixed and determinable
as
evidenced by the contract; and,
|
|
4.
|
Collection
of revenues is highly probable.
|
Deferred
Revenue
Deferred
revenue was recorded by the predecessor company as a liability when the Company
received a three year maintenance contact in an a one-time advance payment.
The
Company then recognized 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.
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. Liquidated damages associated with the Convertible
Notes increased from $1,088,370 in the year ended December 31, 2006 to
$1,683,151 in the year ended December 31, 2007. The $594,781 increase is
due to
an approximate $2.4 million increase in Convertible Notes issued and subject
to
liquidated damages during 2007.
Deferred
income taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (ASFAS
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 carry forwards, 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.
At
December 31, 2007, the Company had net operating loss carry forward of
approximately $21,000,000 which expire between 2009 and 2025.
The
Company has a deferred tax asset of approximately $7,150,000 resulting from
available net operating loss carry forward for which a 100% valuation allowance
has been applied.
New
Accounting Pronouncements
In
July
2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109,”
(“FIN
48”), which seeks to reduce the diversity in practice associated with the
accounting and reporting for uncertainty in income tax positions. This
interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. An uncertain tax position
will be recognized if it is determined that it is more likely than not to
be
sustained upon examination. The tax position is measured as the largest amount
of benefit that is greater than fifty percent likely of being realized upon
ultimate settlement.
The
cumulative effect of applying the provisions of this interpretation is to
be
reported as a separate adjustment to the opening balance of retained earnings
in
the year of adoption. FIN 48 is effective for fiscal years beginning after
December 15, 2006.
In
September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements”.
The
objective of SFAS 157 is to increase consistency and comparability in fair
value
measurements and to expand disclosures about fair value measurements. SFAS
157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements
that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS No. 157 are effective for fair
value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on the
Company's future reported financial position or results of
operations.
In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No.
159, “The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115”.
This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. Most of the provisions of SFAS No. 159
apply
only to entities that elect the fair value option. However, the amendment
to
SFAS No. 115 “Accounting
for Certain Investments in Debt and Equity Securities”
applies
to all entities with available-for-sale and trading securities. SFAS No.
159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also
elects
to apply the
provision
of SFAS No. 157, “Fair
Value Measurements”.
The
adoption of this statement did not have a material effect on the Company's
financial statements.
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No.
160, “Non-controlling
Interests in Consolidated Financial Statements - an amendment of ARB No.
51”.
This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require the ownership interests in subsidiaries held by parties other than
the
parent and the amount of consolidated net income attributable to the parent
and
to the non-controlling interest be clearly identified and presented on the
face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained non-controlling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures
that
clearly identify and distinguish between the interests of the parent and
the
interests of the non-controlling owners. SFAS No. 160 affects those entities
that have an outstanding non-controlling interest in one or more subsidiaries
or
that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years,
and
interim periods within those fiscal years, beginning on or after December
15,
2008. Early adoption is prohibited. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.
|
4.
|
ACCRUED
EXPENSES AND OTHER CURRENT
LIABILITIES
|
Accrued
expenses and other current liabilities consist of the following at December
31,
2007:
Accrued
expenses and other current liabilities:
|
|
DealerAdvance,
Inc.
|
|
Stronghold
Technologies, Inc.
|
|
Consolidated
|
|
Sales
Taxes Payable
|
|
$
|
0
|
|
$
|
106,524
|
|
$
|
106,524
|
|
Accrued
Paid-Time-Off
|
|
|
13,880
|
|
|
0
|
|
|
13,880
|
|
Payroll
Taxes Payable
|
|
|
12,571
|
|
|
425,037
|
|
|
437,608
|
|
Accrued
Employee Compensation
|
|
|
0
|
|
|
46,135
|
|
|
46,135
|
|
Accrued
Commissions
|
|
|
5,191
|
|
|
109,786
|
|
|
114,977
|
|
Accrued
Officer's Compensation
|
|
|
19,380
|
|
|
0
|
|
|
19,380
|
|
Other
Accrued Expense
|
|
|
124,127
|
|
|
375,106
|
|
|
499,233
|
|
Accrued
Interest
|
|
|
0
|
|
|
63,391
|
|
|
63,391
|
|
TOTAL
|
|
$
|
175,149
|
|
$
|
1,125,979
|
|
$
|
1,301,128
|
|
Payroll
Tax Payment Agreement with IRS
On
April
30, 2004, the Company’s predecessor, Stronghold Technologies, Inc., (the
“Subsidiary”) a New Jersey corporation and a wholly owned subsidiary of Dealer
Advance, Inc., entered into an installment agreement with the United States
Internal Revenue Service (“IRS”) to pay overdue payroll taxes and penalties of
totaling $1,233,101 under the terms of which the Company will pay a minimum
of
$35,000 each month, commencing June 28, 2004, until it has paid the withholding
taxes due in full, to
be
completed in thirty-six month period by April 30, 2007. If the Subsidiary
is
unable to fulfill this agreement, the IRS would revert the amount owed to
the
original unpaid balance and could take possession of the Subsidiary’s assets.
The Subsidiary defaulted on the agreement in September, 2006 with an unpaid
balance of $388,931.
DealerAdvance,
Inc. owes approximately $12,000 in overdue payroll taxes, which were paid
in
full April 3, 2008.
|
5.
|
NOTES
PAYABLE, STOCKHOLDERS
|
At
December 31, 2007, notes payable, stockholders consists of the
following:
Notes
payable, stockholders:
|
|
|
|
Notes
payable bearing interest at 8%
|
|
$
|
875,000
|
|
Non-interest
bearing convertible notes payable, net of interest imputed at 15%
per
annum of $593,331
|
|
|
216,765
|
|
|
|
|
1,091,765
|
|
Less:
current portion
|
|
|
(875,000
|
)
|
Long-term
portion
|
|
$
|
216,765
|
|
The
8%
interest bearing notes due in May 2007 are 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
|
|
|
|
Callable
secured convertible notes bear interest at a rate ranging from
8% to 12%
(weighted average 10.93%) and are due at various dates through
December
15, 2009. The notes are secured by the company's assets.
|
|
$
|
8,968,046
|
|
Less:
Current position
|
|
|
4,446,845
|
|
Long-term
portion
|
|
$
|
4,521,201
|
|
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 December 31, 2007,
the
Company has sold a total of $1,793,232 of additional notes, issuing an
additional 9,594,981 common stock purchase warrants, for a total of $2,693,232
and issued 14,666,814 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, 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.
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 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 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 Karen Jackson, 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 2,000,001shares
of
the company stock. The only ISOs remaining unexercised are 166,667
options.
|
7.
|
BANKRUPTCY
OF SUBSIDIARY
|
Until
2006, the Company had a wholly owned subsidiary, Stronghold Technologies,
Inc.,
a New Jersey Corporation, that developed hand held wireless technology for
the
automotive dealer market. The subsidiary’s business was unsuccessful, it ceased
operations and filed for bankruptcy protection under Chapter 7 of the United
States Bankruptcy Code. The assets of the subsidiary were liquidated during
2007. The bankruptcy case was closed on January 29, 2008.
|
8.
|
RELATED
PARTY TRANSACTIONS
|
Transactions
with Officers and Directors of DealerAdvance, Inc.
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 December 31, 2007 are $34,014 related
to the Chief Executive Officer and director, and $6,787 related to the company
controlled by the Chief Executive Officer and director.
In
connection with the callable secured convertible notes (see note 7 above),
in
February 2008 and in April 2008 the company sold an additional $508,000 of
notes
and issued 3,286,667 warrants to purchase common stock.
Since
the
beginning of 2008, we have issued 152,251,400shares of common stock to four
investors upon the conversion of convertible notes at an aggregate conversion
price of $48,047.
The
case
related to the
wholly
owned subsidiary, Stronghold Technologies, Inc., that 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.
In
the
first quarter of 2008 the Company also issued 25,000,000 of common shares
for
legal services and 50,000,000 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 50,000,000 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.
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.