Unassociated Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2008
 
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.)
 
16801 Addison Road, Suite 310, Addison, TX
75001
(Address of Principal Executive offices)
(Zip Code)
 
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 August 11, 2008: 2,861,667,525.
 
 
 
TABLE OF CONTENTS
  
 
(Omits inapplicable items)
  
     
 
PART I
  
Item 1.
Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3
Item 4T.
Controls and Procedures
4
 
PART II
  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6
Item 4.
Submission of Matters to a Vote of Security Holders
6
Item 6.
Exhibits
7
 
2

 
 
  
 
  
 
  
 
  
CONSOLIDATED BALANCE SHEET
  
 
  
 
  
 
  
 
  
 
  
June 30, 2008
  
 
  
 
  
           
 
  
As of
  
As of
  
 
June 30,
  
December 31,
  
 
  
2008
  
2007
  
ASSETS
          
Current Assets
  
 
  
 
  
Cash
  
$
12,586
  
$
5,809
 
Accounts receivable
    
29,734
   
2,700
 
Notes receivable, related party
    
0
   
40,801
 
Prepaid expenses
    
12,588
   
44,544
 
Total current assets
    
54,908
   
93,854
 
Property and equipment, net
    
2,955
   
3,947
 
   
$
57,863
  
$
97,801
 
 
          
LIABILITIES AND STOCKHOLDERS' DEFICIT
          
 
          
Current liabilities
          
Accounts payable
  
$
469,874
  
$
464,089
 
Interest payable, stockholders
    
2,055,154
   
1,548,299
 
Notes payable, stockholders, current portion
    
875,000
   
875,000
 
Callable secured convertible notes, current portion
    
5,500,833
   
4,446,845
 
Liquidated damages payable
    
4,815,593
   
3,674,740
 
Accrued expenses and other current liabilities
    
1,277,143
   
1,301,128
 
Total current liabilities
    
14,993,597
   
12,310,101
 
 
          
Long-term liabilities
          
Notes payable, stockholders, convertible debt, net of imputed interest of $568,067
    
196,707
   
216,765
 
Callable secured convertible notes, less current portion
    
4,278,695
   
4,521,201
 
Total long term liabilities
    
4,475,402
   
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 9,690 shares authorized, issued and outstanding (aggregate liquidation preference $1,927,535)
    
542
   
545
 
Common stock, $.0001 par value, authorized 8,500,000,000 shares, 1,368,370,856 issued and outstanding as of June 30, 2008; 237,669,715 issued and outstanding as of December 31, 2007
    
136,837
   
23,767
 
Additional paid-in capital
    
11,224,037
   
10,910,196
 
Accumulated deficit
   
(30,772,553
)
  
(27,884,774
)
Total stockholders' deficit
    
(19,411,137
)
  
(16,950,266
)
   
$
57,862
  
$
97,801
 
 
F-1
 
DealerAdvance, Inc. and Subsidiary, formerly Stronghold Technologies, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
  
Six months
ended June 30,
  
Six months
ended June 30,
  
 
  
2008
  
2007
  
Cash flows from operating activities
  
 
  
 
  
Net loss
   $
(2,889,225
)
 $
(2,078,553
)
Adjustments to reconcile net loss to net cash used in operating activities:
          
Depreciation and amortization
    
992
   
10,513
 
Accrued interest to notes payable, stockholders
    
524,010
   
371,916
 
Stock issued for services
    
183,788
   
-
 
Stock issued for compensation
    
127,167
   
-
 
Liquidated damages payable
    
1,140,853
   
630,572
 
Changes in operating assets and liabilities:
          
Accounts receivable
    
(27,034
)
  
30,140
 
Prepaid expenses
    
42,187
   
63,775
 
Accounts payable
    
5,784
   
79,645
 
Accrued expenses and other current liabilities
    
(23,985
)
  
2,882
 
Deferred Revenue
    
-
   
(64,726
)
Other Assets
    
1,439
   
(21,516
)
Net cash used in operating activities
    
(914,024
)
  
(975,352
)
 
          
Cash flows from financing activities
          
Proceeds from notes payable, convertible debt
    
880,000
   
950,000
 
Collection of notes receivable, related parties
    
40,801
   
-
 
Net cash provided by financing activities
    
920,801
   
950,000
 
 
          
Net increase / (decrease) in cash
    
6,777
   
(25,352
)
 
          
Cash, beginning of period
    
5,809
   
106,556
 
Cash, end of period
  
$
12,586
  
$
81,204
  
 
          
Supplemental disclosures of cash flow information:
          
Non-cash financing activities:
          
Conversion of preferred stock to common shares
   $
37,216
   
-
 
Conversion of notes payable to common shares
   $
70,167
  $
3,616
 
 
F-2
 
DealerAdvance, Inc.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
  
Three months ended June 30,
  
Six months ended June 30,
  
 
  
2008
  
2007
  
2008
  
2007
  
Sales
  
$
20,856
  
$
68,843
  
$
65,335
  
$
128,097
  
Cost of sales
    
11,321
   
3,691
   
17,905
   
22,890
 
Gross profit
    
9,535
   
65,152
   
47,430
   
105,207
 
 
                          
Selling, general and administrative
    
550,193
   
529,702
   
1,273,038
   
1,037,888
 
Research and development
   
-
   
4,800
   
-
   
67,690
 
Loss from operations
    
(540,658
)
  
(469,350
)
  
(1,225,608
)
  
(1,000,371
)
Interest expense
    
266,392
   
229,735
   
522,764
   
447,612
 
Liquidated damages
    
584,388
   
268,675
   
1,140,853
   
630,570
 
 
                          
Net loss applicable to common stockholders
  
$
(1,391,438
)
$
(967,760
)
$
(2,889,225
)
$
(2,078,553
)
 
                          
Basic and diluted loss per common share
  
$
(0.002
)
$
(0.019
)
$
(0.005
)
$
(0.04
)
 
                          
Weighted average number of common shares outstanding
    
792,452,689
   
51,200,259
   
568,285,336
   
50,643,371
 
 
F-3
 
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 six-month period ended June 30, 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-K for the fiscal year ended December 31, 2007.

 
1.
NATURE OF OPERATIONS

The Company designs, develops, markets, sells and installs a web-based application software and database system that manages the auto dealer-customer relationship. The Company’s suite of Customer Relationship Management software assists auto dealerships in collecting customer contact information, follow-up on sales prospects, and finalizing sales. 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 in March 2007. This product will enable any car salesperson to complete the entire sales process from virtually anywhere.
 
 
2.
GOING CONCERN
 
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 $2,889,225 and has negative cash flows from operations of $914,024 and has a working capital deficit of $14,938,689 and a stockholders’ deficit of $19,411,137 as of June 30, 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.
 
 
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.
 
F-4

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 the six months ended June 30, 2008.

During the six-month period ended June 30, 2008 we issued an aggregate of 255,000,000 shares of common stock to our director and chief executive officer for services valued at $107,500.
 
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. On June 27, 2008, the Board of Directors adopted the 2008-2 Stock Award Plan, identical to the earlier plan except that it provides for the granting of up to 240,000,000 shares. During the period ended June 30, 2008, we issued an aggregate of 170,000,000 shares valued at $156,685 pursuant to these plans, including 7,000,000 shares to our Chief Financial Officer, 3,500,000 shares to our Vice President - Marketing and Sales, and 1,000,000 shares to our Chief Information Officer. There are 120,000,000 shares remaining available for stock awards pursuant to the 2008-2 Stock Award Plan.
 
NOTES PAYABLE, STOCKHOLDERS, AND SERIES D CONVERTIBLE PREFERRED STOCK
 
At March 31, 2008, 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 $568,067
    
196,707
  
     
1,071,707
  
Less: current portion
    
(875,000
)
Long-term portion
  
$
196,707
  
 
F-5
 
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 10.22%) and are due at various dates through April 23, 2009. The notes are secured by the company's assets.
  
$
9,779,528
  
Less: Current position
    
(5,500,833
)
Long-term portion
  
$
4,278,695
  

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) 15% of the average of the three lowest intraday trading prices for our common stock during the 20 trading days prior to the conversion date.

On December 15, 2006 we entered into an agreement with a group of investors for the sale of callable secured convertible notes and common stock purchase warrants in 2007. As of June 30, 2008, we sold a total of $2,123,232 of additional notes and 12,031,648 warrants under this arrangement, for a total of $3,023,232 notes and 17,103,481 warrants to this group of investors. These foregoing figures include $880,000 in notes and warrants sold during the six months ended June 30, 2008.

During the six months ended June 30, 2008, we issued 559,729,600 shares of common stock to this group of investors upon the conversion of $70,167 in convertible notes.

On August 14, 2006, our former CEO, Mr. Christopher Carey, entered into a Settlement Agreement with the Company pursuant to which Mr. Carey waived certain rights. In consideration of this waiver, the Company 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 issued 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. 

During the six months ended June 30, 2008 we issued 113,208,210 shares of common stock to three investors upon the conversion of 231 shares of Class D Convertible Preferred Stock including 2,861,515 shares to Mr. Carey upon the conversion of 130 shares of Class D Convertible Preferred Stock.
 
F-6
 
 
4.
STOCK OPTION PLANS

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, 1,000,000 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. All other options have expired and no options are outstanding.
 
 
5.
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.

 
6.
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. However, the balance of these loans outstanding related to the Chief Executive Officer and director and related to the company controlled by the Chief Executive Officer and director 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. Our prior consulting agreement with the company was terminated.
 
F-7

 
7.
SUBSEQUENT EVENTS

Since June 30, 2008, we issued 191,060,000 shares of common stock to four investors upon the conversion of convertible notes at an aggregate conversion price of $1,911.

We issued 1,200,000,000 shares to an investor group upon conversion of $60,000 in convertible notes formerly owned by Mr. Carey; however this investor group failed to pay Mr. Carey for these notes. We are seeking to recover these shares that are still outstanding. Subsequently, we issued 1,200,000 shares to another investor group upon conversion of the same notes, and we are currently anticipating the receipt of the proceeds of this sale of notes.

At a special shareholders meeting held July 21, 2008, the shareholders approved 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 a 1 to 100 reverse split of the issued and outstanding common stock. We have not filed the amendment pending a determination of the board of directors of the best number of authorized shares and whether the reverse split is advisable.

We entered into a consulting agreement with the objective of promoting and developing our business, identifying potential acquisition targets and sources of funds, including institutional sources, and developing new business strategies, including a reorganization. We agreed to pay the consulting firm over the two-year term of the agreement a monthly fee of $12,000,shares of common stock having a fair market value of $25,000 each quarter, and a success fee of 10% of the proceeds of certain financings.
 
F-8
 
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 $9,904,807 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 the date hereof, the investment group has converted to stock $126,808 of the notes. The balance due on the remaining convertible notes is $9,779,528.
 
We believe without assurance that the investment group will attempt to convert the new 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 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. However, sales have been negligible compared with expenses. New sales agreements from this year have not produced significant revenue, and publicly-announced estimates of anticipated revenues from these agreements will not be achieved in 2008. 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 be unable to continue in operation as a going concern. Should we be unable to continue in operation, we will be forced to sell our business, seek a reverse merger or file for protection under the federal bankruptcy laws.
 
3

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 June 30, 2008 and December 31, 2007

The consolidated balance sheets raise concerns about our solvency. Stockholders’ deficit increased to $19,411,137 from $16,950,266. We had a large increase in working capital deficiency, $12,210,247 as of June 30, 2008 compared with $12,152,857 at year-end 2007. Most of the increase in working capital deficiency results from the reclassification as current liabilities of $1,053,988 in convertible debt that is nearing its due date, and a $506,855 increase in interest payable. Principal sources of liquidity in 2008 included $880,000 from the sale of convertible notes to an investor group and the issuance of $321,185 in company common shares for compensation and services. The current shortage of liquidity severely hampers our ability to pay our debts as they become due and may have an undermining effect on our continued operations.

Results of operation - six months ending June 30, 2008 and 2007

Loss from operations increased to $2,889,225 from $2,078,553 as a result of decreased revenue and increases in general and administrative expenses. Revenue decreased to $65,335 from $128,097. The expiration of contracts for our old non-web based product accounted for most of the decrease. Selling, general and administrative expenses increased to $1,273,038 from $1,037,888. We incurred no research and development expense in 2008, this expense was $67,690 in 2007.

Interest expense increased to $522,764 from $447,612. Interest expense resulted mainly from the issuance of additional convertible notes and the conversion of convertible notes. Liquidated damages increased to $1,140,853 from $630,570. Overall net loss increased from $2,078,553 to $2,889,225 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.
 
4

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.
 
5

PART II — OTHER INFORMATION
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
During the second quarter of 2008, we issued $450,000 in Callable Secured Convertible Notes along with warrants to purchase 2,550,000 shares to four investors, and issued an additional 191,060,000 shares to the four investors upon the conversion of $1,911 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. We also issued 113,208,210 shares to investor upon conversion of 231 shares of Series D Preferred Stock.
 
Since the end of the second quarter, we attempted a transaction that resulted in the issuance of an additional 1,200,000 shares that was to be the result of the conversion of $60,000 of convertible notes. As of this date, the proceeds of the sale of the notes did not occur, and recovery of the shares issued is being pursued. Subsequently, we issued 1,200,000 shares to another investor group upon conversion of the same notes, and we are currently anticipating the receipt of the proceeds of this sale of notes.

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 the sale of convertible notes, warrants and the issuance of shares upon conversion of convertible notes and Series D Convertible Preferred Stock.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
We held a special meeting of shareholders on July 21, 2008. The shareholders elected Steven E. Humphries as our director. The shareholders also approved Restated Articles of Incorporation with Amendments increasing our authorized capital stock and a First Amendment to Restated Articles of Incorporation with Amendments for a one for 100 reverse stock split.
 
Under the Restated Articles of Incorporation with Amendments, our authorized capital stock may now include up to 100,000,000,000 shares of common stock. Previously, our authorized capital was 8,500,000,000 shares of common stock and 1,000,000,000 shares of preferred stock. Under the First Amendment to Restated Articles of Incorporation with Amendments, each 100 shares of common stock will be exchanged for one share of common stock. We have not filed the amendments pending a determination by the board of directors of the best number of authorized shares and whether the reverse split is advisable.
 
Of the 997,505,656 shares eligible to vote at the meeting, 527,469,561 (52.88%) of the shares voted, a quorum. The following table summarizes the voting.
 
Matter
 
For
 
Withheld/Against
 
Abstain
 
% For
  
Election of Directors Steven E. Humphries
    
513,373,049
 
 
437,500
 
 
13,659,012
 
 
97.33
%
Amendment to Restated Articles
    
507,497,930
 
 
19,971,631
 
 
-0-
 
 
96.21
%
Reverse Split
    
510,702,649
 
 
16,741,912
 
 
25,000
 
 
96.82
%
 
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Item 6. Exhibits.

Exhibit No.
  
Description
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.
     
 
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.
 
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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.
 
 		  
 		  
 
August 18, 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.
 
     
August 18, 2008
 By:  
/s/ Steven E. Humphries 
 
Steven E. Humphries, Chief Executive Officer and
Director
 
     
August 18, 2008
 By:  
/s/ David L. Wange 
 
David L. Wange, President, Chief Financial Officer,
Secretary and Director (Principal
Accounting and Financial Officer)
 
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