UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
2003 Commission File No. 333-54822
STRONGHOLD TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 22-376235
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
450 Claremont Road, Bernardsville, NJ 07924
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(Address of Principal Executive Offices) (Zip Code)
(908) 630-9696
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(Registrant's Telephone Number, Including Area Code)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of April 30, 2003:
Class Number of Shares
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Common Stock, $0.0001 par value 9,857,000
Transitional Small Business Disclosure Format
Yes: No: X
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TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
as of March 31, 2003 (unaudited) ............................... 1
CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended
March 31, 2003 and 2002
(unaudited) .................................................... 2
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended
March 31, 2003 and 2002
(unaudited) .................................................... 3
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited) ......................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 7
Liquidity and Capital Resources ................................ 20
Results of Operations .......................................... 22
Changes to Critical Accounting Policies, Estimates and Risks ... 23
Item 3. Controls and Procedures ........................................ 27
PART II. OTHER INFORMATION
Item 2. Changes in Securities .......................................... 28
Item 5. Other Information .............................................. 30
Item 6. Exhibits and Reports on Form 8-K ............................... 32
SIGNATURES AND CERTIFICATIONS .................................................. 34
-i-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET as of March 31, 2003 (unaudited)
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ASSETS
Current assets
Cash $ 5,681
Accounts receivable, less allowance for doubtful
accounts of $200,000 1,161,234
Inventories 181,412
Prepaid expenses 28,883
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Total current assets 1,377,210
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Property and equipment, net 162,068
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Other assets
Software development costs 397,309
Other 30,660
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Total other assets 427,969
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$ 1,967,247
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 694,040
Accrued expenses and other current liabilities 795,349
Interest payable, stockholders 254,742
Notes payable, stockholders, current portion 1,059,280
Note payable, current portion 500,000
Obligations under capital leases, current portion 15,033
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Total current liabilities 3,318,444
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Long-term liabilities
Notes payable, stockholders, less current portion 1,201,419
Note payable, less current portion 916,667
Obligations under capital leases, less current portion 17,932
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Total long-term liabilities 2,136,018
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Commitments and contingencies
Stockholders' deficit
Preferred stock, $.0001 par value; authorized 5,000,000
shares, 2,002,750 issued and outstanding
(aggregate liquidation preference of $3,004,125) 201
Common stock, $.0001 par value, authorized 50,000,000
shares, 9,857,000 issued and outstanding 986
Additional paid-in capital 4,934,634
Stock subscription receivable (3,000)
Accumulated deficit (8,420,036)
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Total stockholders' deficit (3,487,215)
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$ 1,967,247
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STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended March 31, 2003 2002
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Sales $ 919,010 $ 317,921
Cost of sales 323,704 160,385
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Gross profit 595,306 157,536
Selling, general and administrative 1,108,814 1,007,364
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Loss from operations (513,508) (849,828)
Interest expense 107,646 56,040
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Net loss $ (621,154) $ (905,868)
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Basic and diluted loss per
common share $ (0.06) $ (0.15)
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Weighted average number of
common shares outstanding 9,857,000 5,906,250
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STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended March 31, 2003 2002
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Cash flows from operating activities
Net loss $ (621,154) $ (905,868)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for doubtful accounts 69,000
Depreciation and amortization 15,000 6,926
Non-cash interest expense for issuance of warrants 23,750
Increase (decrease) in cash attributable to
changes in operating assets and liabilities:
Accounts receivable 31,217 (635,902)
Inventories 47,000 (87,261)
Prepaid expenses (8,977) 4,885
Other (3,585)
Accounts payable (157,620) 161,368
Accrued expenses and other current liabilities 283,444 (304,051)
Interest payable, stockholders 61,624 173,033
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Net cash used in operating activities (329,301) (1,517,870)
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Cash flows from investing activities
Payments for purchase of property and equipment (3,325) (36,785)
Payments for software development costs (174,085)
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Net cash used in investing activities (177,410) (36,785)
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Cash flows from financing activities
Proceeds from notes payable, stockholders 606,200 998,585
Principal repayments of notes payable, stockholders (20,000)
Principal repayments of notes payable (83,333)
Principal payments for obligations under capital leases (3,859)
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Net cash provided by financing activities 499,008 998,585
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Net decrease in cash (7,703) (556,070)
Cash, beginning of period 13,384 38,267
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Cash, end of period $ 5,681 $ (517,803)
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Supplemental disclosure of cash flow information,
cash paid during the period for interest $ 22,272 $ 17,409
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Supplementary schedule of non-cash financing activities,
warrants issued in connection with debt $ 95,000 $ --
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). These statements are unaudited and, in the opinion of management,
include all adjustments (consisting of normal recurring adjustments and
accruals) necessary to present fairly the results for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to applicable SEC
rules and regulations. Operating results for the three-month period ended March
31,2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report of Form 10-KSB for the fiscal year ended December 31,
2002.
2. Inventories
Inventories, which are comprised of hardware for resale, are stated at cost, on
an average cost basis, which does not exceed market value.
3. 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 excludes dilutions and is 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 diluted loss per common share.
4. New accounting pronouncements
In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146 "Accounting for Costs Associated with Exit or Disposal Activities", which
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier application encouraged. The Company does not anticipate that
this pronouncement will have a significant impact on its consolidated financial
position, results of operations or cash flows.
5. Stock-based compensation
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amended SFAS No. 123, "Accounting
for Stock-Based Compensation." This Statement provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. It also amends the disclosure provisions to
require more prominent disclosure about the effects on reported net income
(loss) of an entity's accounting policy decisions with respect to stock-based
employee compensation. As permitted by the Statement, the Company does not plan
to adopt the fair value recognition provisions of SFAS No. 123 at this time.
However, the Company has adopted the disclosure provisions of the Statement.
The Company accounts for its stock-based employee compensation plans under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized in the accompanying consolidated statements of operations, as
all options granted under those plans had an exercise price equal to or in
excess of the market value of the underlying common stock at the date of grant.
Had compensation cost for these options been determined consistent with the fair
value method provided by SFAS No. 123, the Company's net loss and net loss per
common share would have been the following pro forma amounts for the three-month
periods ended March 31, 2003 and 2002.
2003 2002
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Net loss applicable to common
shareholders, as reported $(621,154) $(905,868)
Deduct
Total stock-based compensation
expense determined under fair
value method for all awards, net
of related tax effect 19,031 593
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Pro forma $(640,185) $(906,461)
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Basic and diluted EPS
As reported $ (0.06) $ (0.15)
Pro forma $ (0.06) $ (0.15)
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 0%, expected dividend yield rate of 0%, expected life of
10 years, and a risk-free interest rate of 3.81% and 5.28% for March 31, 2003
and 2002, respectively.
Going concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred a
net loss of approximately $621,000 and has negative cash flow from operations of
approximately $244,000 for the three-month period ended March 31, 2003, and has
a working capital deficit of approximately $1,941,000 and a stockholders'
deficit of approximately $3,487,000 as of March 31, 2003. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
During 2003, 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.
6. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following at March
31, 2003:
Deferred maintenance fees $297,160
Commissions 165,188
Compensation 100,112
Payroll taxes 232,889
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$795,349
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7. Subsequent event
On April 30, 2003, we entered into a Securities Purchase Agreement with Stanford
Venture Capital Holdings, Inc. for the issuance of 2,444,444 shares of our
Series B $.90 Convertible Preferred Stock. The issuance of the Series B
Preferred Stock will take place on six separate closing dates beginning on May
5, 2003 through September 15, 2003. In connection with the Securities Purchase
Agreement, we agreed to modify the previously issued five-year warrants assigned
to Stanford to purchase 2,002,750 shares of our Common Stock at an exercise
price of $1.50 for the first 1,001,375 shares and $2.25 for the remaining
shares: (i) to reduce the exercise price to $.25 per share; and (ii) to extend
the expiration date through August 1, 2008. In addition, our President and Chief
Executive Officer, Christopher J. Carey agreed to convert outstanding loans of
$543,000 to 603,333 shares of our common stock at a price of $.90 per share.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The following discussion should be read in conjunction with our
financial statements and the accompanying notes appearing subsequently under the
caption "Financial Statements", along with other financial and operating
information included elsewhere in this annual report. Certain statements under
this caption "Management's Discussion and Analysis and Results of Operation"
constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. See "Risk Factors-Cautionary Note Regarding Forward Looking
Statements".
Our History
We were incorporated on September 8, 2000 in the State of Nevada, under
the name TDT Development, Inc. On May 16, 2002, we acquired Stronghold
Technologies, Inc., a New Jersey corporation, referred to herein as the
"Predecessor Entity", pursuant to a merger of such entity into our wholly-owned
subsidiary, TDT Stronghold Acquisition Corp., referred to herein as "Acquisition
Sub". As consideration for the merger, we issued 7,000,000 shares of our Common
Stock, par value $0.0001 per share, to the stockholders of the Predecessor
Entity in exchange for all of the issued and outstanding shares of the
Predecessor Entity. After the closing of the merger, Acquisition Sub, the
survivor of the merger, changed its name to Stronghold Technologies, Inc. and
remains our wholly owned subsidiary. On July 11, 2002, we changed our name from
TDT Development, Inc. to Stronghold Technologies, Inc. Finally, on July 19,
2002, we exchanged all of the shares that we held in our two other wholly owned
subsidiaries, Terre di Toscana, Inc. and Terres Toscanes, Inc., for 75,000
shares of our Common Stock held by Mr. Pietro Bortolatti, our former president.
These subsidiaries conducted an import and distribution business specializing in
truffle-based food products.
All references to "we," "us," "our," or similar terms used herein refer
to Stronghold Technologies, Inc., a Nevada corporation, formerly known as TDT
Development, Inc. or its wholly-owned subsidiary, Stronghold Technologies, Inc.
a New Jersey entity. All references to "Stronghold" used herein refer to just
our wholly owned subsidiary, Stronghold Technologies, Inc., a New Jersey
corporation. All references to the "Predecessor Entity" refer to the New Jersey
corporation we acquired on May 16, 2002, Stronghold Technologies, Inc., which
was merged with and into Stronghold.
Our principal executive offices are located at 450 Claremont Road,
Bernardsville, NJ 07924. Our telephone number at that location is (908) 630-9696
and our Internet address is www.strongholdtech.com. The information contained on
our website is not incorporated by reference herein.
Summary of Discontinued Truffle Business Operations
From our inception on September 8, 2000, through July 19, 2002, we
imported, marketed and distributed specialized truffle-based food products,
including fresh truffles, truffle oils, truffle pates, truffle creams and
truffle butter, through our former wholly owned subsidiaries, Terre di Toscana,
Inc. and Terres Toscanes, Inc. Our target market included retailers such as
restaurants, specialty food stores, delicatessens and supermarkets. We imported
products directly from Italian producers and marketed our products in the
specialty food industry. We marketed our products primarily in Florida, South
Carolina, North Carolina and California, and also earned commissions on sales
made in Belgium, Holland and Germany.
As a result of our receiving 75,000 shares of Common Stock from Mr.
Bortolatti and the concurrent transfer of our interest in the truffle business
to him, we are no longer involved in the truffle business. The sale of these
subsidiaries was part of our effort to focus on the handheld technology
business.
Overview of Handheld Technology Business
On May 16, 2002, we entered the handheld wireless technology business
via our acquisition by merger of the Predecessor Entity. The Predecessor Entity
was founded on August 1, 2000 by Christopher J. Carey, our current Chief
Executive Officer and President, and two other executive officers of Stronghold:
Lenard J. Berger, Chief Technology Officer and Salvatore F. D'Ambra, Vice
President, Product Development. This founding group has substantial expertise in
systems design, software development, wireless technologies and automotive
dealer software applications. The Predecessor Entity was founded to develop
proprietary handheld wireless technology for the automotive dealer software
market. Since the merger of the Predecessor Entity into our subsidiary, now
Stronghold, Stronghold continues to conduct the Predecessor Entity's handheld
wireless technology business.
Stronghold's DealerAdvance Sales Solution(TM), an enterprise software
system leveraging wireless technologies, includes a Customer Relationship
Management software application, referred to herein as CRM, and has been
designed to maximize the revenues and reduce the operating expenses of
automobile dealerships. Stronghold has completed the development of
DealerAdvance Sales Solution(TM), which is a software suite designed to increase
sales by effectively capturing a greater percentage of unsold customer prospects
and maximizing customer "be-back" (return) and closure rates. We plan to
introduce a full range of enterprise applications for auto dealerships,
including the DealerAdvance Service Solution(TM) and the DealerAdvance Inventory
Management Solution(TM), products designed to increase revenues and maximize
profitability by effectively managing dealer service operations, customer
information and vehicle inventory. These products are similar to the handheld
and wireless systems used in the auto rental industry. Consumers are now
accustomed to a swift car return process wherein the attendant scans the car,
brings up the rental terms, completes the sale and prints out a receipt, all
without having to step over to a counter.
Description of Products
The DealerAdvance Sales Solution(TM) provides automobile dealerships
the following advantages:
o Ease of use associated with handheld mobile communications;
o The handheld unit is both an input and display device;
o The handheld unit is programmed to access competitive and proprietary
industry information from a variety of sources;
o The system provides the capability for immediate management involvement
in the selling process;
o Provides for effective monitoring of sales performance and follow-up by
sales personnel; and
o Enables integration with existing automotive dealer accounting and
business systems.
The DealerAdvance Sales Solution(TM) is a comprehensive CRM system,
providing customer history and contact information, as well as a personal
calendar and instructions on follow-up tasks directly to the handheld, creating
a highly effective communications tool for business development.
The DealerAdvance Sales Solution(TM) offers the following unique
features:
o Enables a high capture rate on walk-in traffic;
o Streamlines all sales and other follow-on processes;
o Provides current and comprehensive information and data for new and
used car inventory (on a real-time basis), all competing products, and
customer history with dealership;
o Provides performance data and analysis on each member of a sales team;
and
o Provides management with valuable and relevant transaction data on a
real-time basis.
The DealerAdvance Sales Solution(TM) offers the following services:
o Customer profiling;
o Drivers license scanning;
o Reverse phone look-up;
o Electronic signature capture;
o Dealer vehicle information and competitive product comparisons;
o Vehicle inventory status;
o Integrated purchase forms completion and printing;
o Used car appraisal;
o Management reports;
o Customer relationship management system functions;
o DMS integration capability; and
o E-mail and Internet access.
Stronghold installed Version 1.0 of the DealerAdvance Sales
Solution(TM) in six pilot dealerships during 2001. These dealerships were spread
throughout New Jersey, California and Connecticut. Stronghold introduced Version
2.0 of DealerAdvance Sales Solution(TM) at all of its sites by the end of
September 2001.
Stronghold introduced Version 3.0 of its software and installed another
3 dealership sites in the first quarter ending March 31, 2002, adding customers
in New York. In the second quarter ending June 30, 2002, Stronghold installed
another 7 sites, adding customers in Arizona, Southern California and South
Carolina. In the third quarter ending September 30, 2002, Stronghold implemented
another 10 sites, adding customers in Virginia, Florida, South Carolina and
Central California, and introduced Version 3.1 of its software. In the fourth
quarter ending December 31, 2002, Stronghold installed an additional 13
dealerships, adding customers in Texas, Indiana and Michigan. Overall, in 2002,
Stronghold installed DealerAdvance Sales Solution(TM), in a total of 33
dealerships sites representing Toyota, Honda, Ford, Chevrolet, Nissan,
Volkswagen, Buick, Pontiac, Cadillac, Chrysler, Dodge, Kia and Hyundai. In the
quarter ended March 31, 2003, the Company installed systems in 11 dealerships in
California, Nevada, Indiana, Washington, Ohio, and Michigan. Stronghold expanded
its representation of automotive brands to include Lincoln/Mercury and
Mitsubishi.
Stronghold plans to utilize its direct sales force to market the
DealerAdvance Sales Solution(TM) on a national basis. Stronghold has established
a strong presence in most regions of the United States, and is continuing to add
business development and operations offices pursuant to an organized growth
plan. Stronghold ended the quarter ended March 31, 2003 with personnel located
in Northern New Jersey, San Francisco, Washington, DC, Atlanta, Los Angeles,
Phoenix, Miami, Seattle, Cleveland, and Dallas.
At March 31, 2003, a total of 44 dealers were using the DealerAdvance
Sales Solution(TM), of which approximately 34 had reached or exceeded the 60-day
performance period associated with installation.
New Product Developments
The Stronghold development staff is currently developing DealerAdvance
Service Solution(TM), a handheld wireless system that allows service advisors to
leave their desks and greet clients at their cars to process their service
order. Initial beta installations of the product are expected to begin in the
fall of 2003, with general availability by the end of 2003.
The DealerAdvance Service Solution(TM) is designed to provide for
improved customer service and reduced vehicle check in time and to allow dealer
representatives to scan a particular vehicle identification number from the
windshield or door. DealerAdvance Service Solution(TM) also is designed to
provide for instant mobile access to client and vehicle history and to allow the
dealer representatives to access warrantee and service period advice instantly.
This product also is expected to include an up-selling application to increase
revenue per repair order and an application to allow service marketing through
the DealerAdvance(TM) CRM application.
The development plan includes the addition of a third product called
DealerAdvance Inventory Management Solution(TM), a handheld wireless system for
the management of new and used car inventory. DealerAdvance Inventory Management
Solution(TM) would provide a handheld device for the scanning of incoming and
outgoing vehicles, immediately adjusting inventory on hand for sale. In
addition, the system would provide for the printing of used car stickers, the
capture of Vehicle Identification Numbers for used car appraisal and estimates,
and the loading of vehicle specifics to the dealer web site.
Research and Development
Since inception, we have spent approximately $2,365,372 on research and
development activities. While we have been successful in meeting planned goals
in the development and introduction of DealerAdvance Sales Solution(TM), there
can be no assurance that our research and development efforts will be successful
with respect to additional products, or if successful, that we will be able to
successfully commercially exploit such additional products.
Competition Related to Handheld Technology Business
The DealerAdvance Sales Solution(TM) is a wireless dealership sales
productivity system that improves sales performance, reduces costs and creates
operational efficiency. Currently, Stronghold does not believe that it has any
direct competition in this specific sector. However, Stronghold expects emerging
competitive players in the wireless handheld solutions market in the future.
Stronghold does compete with the traditional CRM providers and the emerging new
CRM providers in the retail automotive dealer software market. The leading CRM
companies that Stronghold competes against are:
o Automotive Directions, a division of ADP Dealer Services, and a
provider of PC-based customer relationship management systems as well
as marketing research and consulting services;
o Higher Gear, a provider of client server based front-end sales and
customer relationship management software which serves the retail
automotive industry exclusively;
o Autobase, a provider of PC based front-end software which serves the
retail automotive industry exclusively;
o Cowboy Corporation, recently acquired by Cobalt Corporation, and a
provider of ASP sales prospect management systems and customer
relationship management systems which services the retail automotive
industry exclusively; and
o Autotown, a provider of PC and web-based front-end sales systems, which
services the retail automotive industry exclusively.
We believe that our proprietary technology is unique and, therefore,
places us at a competitive advantage in the industry. However, there can be no
assurance that our competitors will not develop a similar product with
properties superior to our own or at greater cost-effectiveness.
Marketing and Sales
Stronghold has defined a target market of approximately 12,000
dealerships that meet the base criteria for potential use of our system. More
specifically, Stronghold has qualified a primary target market of 6,500
dealerships where the potential sale and use of the system is the greatest. The
primary target market includes dealerships that sell a minimum of 75 new and
used cars each month and do not have a CRM system currently installed.
Stronghold distributes its DealerAdvance Sales Solution(TM) through
direct sales, which Stronghold believes is most effective when introducing an
innovative new solution to the marketplace. Stronghold is continuing to grow its
Sales and Marketing team, which is aligned along geographic territory units.
Employees
Stronghold currently has a total of 34 full-time employees and 2
part-time employees, of which 24 are dedicated to marketing and sales and
regional customer support. Stronghold has hired senior and experienced business
development mangers to provide regional market penetration. During the quarter
ended March 31, 2003, Stronghold promoted two Business Development Managers to
Regional Sales Managers and Vice Presidents, to manage the sales force in the
Eastern and Western Regions of the US. Each Regional Manager is responsible for
recruiting, training and managing the Business Development Managers in their
territories. The Regional Managers each finished the quarter ended March 31,
2003 with 3 sales people, and expect to each add 2 more sales people in the
second quarter. These additional sales people will be placed in new metropolitan
areas, to be determined over the next few months.
Stronghold promoted two existing Consultants to the role of Eastern and
Western Regional Manager for Client Services, with the responsibility of
managing Client Consultants in their territories. These Client Consultants are
responsible for providing installation, training and ongoing support services to
Stronghold's new and existing customers. The Regional Managers report to the
National Client Services Manager located in Sterling, Virginia.
Stronghold hired a Vice President of Marketing in the quarter ended
March 31, 2003. The Vice President of Marketing works closely with the CEO and
the Regional Vice Presidents of Sales to execute Stronghold's marketing strategy
and to enhance market awareness of the DealerAdvance Sales Solution(TM). There
are no collective bargaining arrangements among Stronghold employees. We believe
Stronghold's relationship with its employees to be good.
On January 27, 2002, Stronghold terminated its relationship with James
Cummiskey, Vice President of Sales and Marketing. Stronghold does not plan to
hire a new Vice President of Sales and Marketing, as the Vice President of
Marketing and the two Regional Managers will assume the responsibilities of this
post.
Our Intellectual Property
We have been granted a trademark for DealerAdvance(TM) and have a
patent application pending that seeks protection of a number of developments
pertaining to the management of information flow for automotive dealer-based
software. An additional application is currently being planned which will
address certain proprietary features pertaining to systems components, related
equipment and software modules.
Safe Harbor Statement
The statements contained in this Quarterly Report on Form 10-QSB that
are not historical facts are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 ("the Securities Act"), as
amended and the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. In particular, our statements regarding the anticipated growth in
the markets for the our technologies, the continued development of our products,
the approval of the our Patent Applications, the successful implementation of
the our sales and marketing strategies, the anticipated longer term growth of
our business, and the timing of the projects and trends in future operating
performance are examples of such forward-looking statements. The forward-looking
statements include risks and uncertainties, including, but not limited to, the
timing of revenues due to the uncertainty of market acceptance and the timing
and completion of pilot project analysis, and other factors, including general
economic conditions, not within our control. The factors discussed herein and
expressed from time to time in our filings with the Securities and Exchange
Commission could cause actual results to be materially different from those
expressed in or implied by such statements. The forward-looking statements are
made only as of the date of this filing and we undertake no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.
Factors that Might Affect Our Business, Future Operating Results, Financial
Condition and/or Stock Price
The more prominent risks and uncertainties inherent in our business are
described below. However, additional risks and uncertainties may also impair its
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations may suffer.
Risks Concerning Our Business
We have a history of incurring net losses; we expect our net losses to continue
as a result of planned increases in operating expenses; and we may never achieve
profitability.
We have a history of operating losses in our wireless business and have
incurred significant net losses in such business in each fiscal quarter since
our inception. We had a net loss of $621,154 for the quarter ended March 31,
2003. We had a net operating loss of $513,508 for the quarter ended March 31,
2003 and a net operating loss of approximately $4,157,670 for the period from
May 17, 2002 through March 31, 2003 to offset future taxable income. Losses
prior to May 17, 2002 were passed directly to the shareholders and, therefore,
are not included in the loss carry-forward. We expect to continue to incur net
losses and negative cash flows because we intend to increase operating expenses
to develop the Stronghold brand through marketing, promotion and enhancement of
our services. As a result of this expected increase in operating expenses, we
will need to generate significant additional revenue to achieve profitability.
Our ability to generate and sustain significant additional revenues or achieve
profitability will depend upon the factors discussed elsewhere in this "Risk
Factors" section, as well as numerous other factors outside of our control,
including:
o Development of competing products that are more effective or
less costly than ours;
o Our ability to develop and commercialize our own products and
technologies; and
o Our ability to achieve increased sales for our existing
products and sales for any new products.
It is possible that we may never achieve profitability and, even if we
do achieve profitability, we may not sustain or increase profitability on a
quarterly basis in the future. If we do not achieve sustained profitability, we
will be unable to continue our operations.
If We Are Unable To Obtain Sufficient Funds, And Incur A Cash Flow Deficit, Our
Business Could Suffer.
We believe that the funds that were raised through our recent debt and
equity financings will only be sufficient for our needs for the immediate
future, raising doubt about our ability to continue as a going concern. We
anticipate that we will be required to raise additional capital after the second
quarter of 2003 and over the next several years in order to operate according to
our business plan. We may have difficulty obtaining additional funds as and if
needed, and we may have to accept terms that would adversely affect our
stockholders. For example, the terms of any future financings may impose
restrictions on our right to declare dividends or on the manner in which we
conduct our business. Also, lending institutions or private investors may impose
restrictions on future decisions by us to make capital expenditures,
acquisitions or asset sales.
We may not be able to locate additional funding sources at all or on
acceptable terms. If we cannot raise funds on acceptable terms, if and when
needed, we may not be able to develop or enhance our products, grow our business
or respond to competitive pressures or unanticipated requirements, each of which
could seriously harm our business.
Since inception, we have financed all of our operations through private
equity and debt financings and commercial bank loans. Our future capital
requirements depend on numerous factors, including:
o The scope of our research and development;
o Our ability to successfully commercialize our technology; and
o Competing technological and market developments.
We Have A Limited Operating History.
We were formed in September 2000 to import and market truffle oil
products. As of May 16, 2002, our focus shifted to development and marketing of
handheld wireless technology for the automotive dealer software market. We
entered this business through the acquisition of an entity with only 23 months
of operating history. We must, therefore, be considered to be subject to all of
the risks inherent in the establishment of a new business enterprise. Our
limited operating history makes it difficult to evaluate our financial
performance and prospects. We cannot assure you at this time that we will
operate profitably or that we will have adequate working capital to meet our
obligations as they become due. Because of our limited financial history, we
believe that period-to-period comparisons of our results of operations will not
be meaningful in the short term and should not be relied upon as indicators of
future performance.
If We Fail to Gain Market Acceptance of our Products, our Business and Results
of Operations Would be Harmed.
We are still in the verification and validation stages of our
DealerAdvance(TM) suite of products. Our first pilot system for DealerAdvance
Sales Solution(TM) was installed in April 2001 and our sixth and final pilot
system was installed in September 2001. We implemented a total of 33 additional
sites in 2002, and 11 sites in the quarter ended March 31, 2003. We expect to
introduce our DealerAdvance Service Solution(TM) and DealerAdvance Inventory
Management Solution(TM) sometime over the next two years. These solutions are
still in the development stages and are not yet at the point where they are
ready to be installed in test sites. While we have received positive feedback
and market acceptance of DealerAdvance Sales Solution(TM) by the test sites,
fifty systems is a small number and results in such sites may not be indicative
of the overall market acceptance and success of DealerAdvance Sales
Solutions(TM) or our entire DealerAdvance(TM) suite of products. We may
experience design, marketing, and other difficulties that could delay or prevent
our development, introduction, or marketing of these and other new products and
enhancements. In addition, the costs of developing and marketing our products
may far outweigh the revenue stream generated by such products. Finally, our
prospects for success will depend on our ability to successfully sell our
products to key automobile dealerships that may be inhibited from doing business
with us because of their commitment to their own technologies and products, or
because of our relatively small size and lack of sales and production history.
The nature of our handheld product and technology requires us to market
almost exclusively to automobile dealerships. Should any particular dealership
or conglomerate of dealerships favor other providers of similar services or not
utilize our services to the extent anticipated, our business may be adversely
affected. The economy may also have an impact on the market acceptance of our
products. Big-ticket consumer purchases are sensitive to broad economic trends.
Therefore, our business could suffer if our customers, automobile dealerships,
are affected by the continuing poor economic conditions. For example, if dealer
sales are trending downward, capital expenditures, like those associated with
our DealerAdvance (TM) suite of products, may be delayed or abandoned.
If We Fail to Properly Manage Our Growth, Our Business and Results of Operations
Would be Harmed.
We have begun expanding our operations in anticipation of an aggressive
rollout of our DealerAdvance(TM) product suite. In the past twelve months, our
sales, marketing and customer support team has increased from 7 to 24 employees.
We have strategically hired additional sales representatives in the past twelve
months, expanding into Arizona, Virginia, Southern California, Florida, Ohio,
Texas and Georgia. Additionally, we must continue to develop and expand our
systems and operations as the number of automobile dealerships installing our
products and requiring our ongoing services increases. The pace of our
anticipated expansion, together with the level of expertise and technological
sophistication required to provide implementation and support services, demands
an unusual amount of focus on the operational needs of our future customers for
quality and reliability, as well as timely delivery and post-installation and
post-consultation field and remote support. This development and expansion has
placed, and we expect it to continue to place, strain on our managerial,
operational and financial resources.
We may be unable to develop and expand our systems and operations for
one or more of the following reasons:
o We may not be able to locate or hire at reasonable
compensation rates qualified and experienced sales staff and
other employees necessary to expand our capacity on a timely
basis;
o We may not be able to obtain the hardware necessary to meet
the demand by automobile dealership of our products, in a
timely manner;
o We may not be able to expand our customer service, billing and
other related support systems;
o We may not be able to integrate new management and employees
into our overall operations;
o We may not be able to establish improved financial and
accounting systems; and
o We may not be able to successfully integrate our internal
operations with the operations of our product manufacturers,
distributors and suppliers to product and market commercially
viable products.
If we cannot manage our growth effectively, our business and operating
results will suffer. Additionally, any failure on our part to develop and
maintain our wireless technology products during a period of rapid growth could
significantly adversely affect our reputation and brand name which could reduce
demand for our services and adversely affect our business, financial condition
and operating results.
We Depend On Attracting And Retaining Key Personnel.
We are highly dependent on the principal members of our management,
research and sales staff. The loss of their services might significantly delay
or prevent the achievement of our strategic objectives. Our success depends on
our ability to retain key employees and to attract additional qualified
employees. Competition for personnel is intense, and we cannot assure you that
we will be able to retain existing personnel or attract and retain additional
highly qualified employees in the future.
Our subsidiary, Stronghold, has an employment agreement in place with
its President and Chief Executive Officer, Christopher J. Carey, which provides
for vesting of options exercisable for shares of our Common Stock based on
continued employment and on the achievement of performance objectives defined by
the board of directors. Stronghold does not have similar retention provisions in
employment agreements with its other key personnel. If we are unable to hire and
retain personnel in key positions, our business could be significantly and
adversely affected unless qualified replacements can be found.
Our success is dependent on the vision, technological knowledge,
business relationships and abilities of our current president, Mr. Carey. Any
reduction of Mr. Carey's role in the handheld technology business would have a
material adverse effect on us. Mr. Carey's employment contract expires on
December 31, 2004.
Increasing political and social turmoil, such as terrorist and military actions,
increase the difficulty for us and our strategic partners to forecast accurately
and plan future business activities.
Recent political and social turmoil, including the terrorist attacks of
September 11, 2001 and the current conflict in the Middle East, can be expected
to put further pressure on economic conditions in the United States and
worldwide. These political, social and economic conditions may make it difficult
for us to plan future business activities. For example, if the current conflict
in the Middle East continues to escalate, our operations and general economic
conditions could be adversely affected. Specifically, if the current economic
conditions continue to decline, consumers may be less inclined to make large
purchases, such as automobiles. Consequently, if dealer sales suffer,
dealerships may decrease capital expenditures like those associated with our
products.
Risks Concerning Our Handheld Technology
An Interruption In the Supply of Products and Services that We Obtain From Third
Parties Could Cause a Decline in Sales of Our Products and Services.
We are dependant upon certain providers of software, including
Microsoft Corporation and their Pocket PC software, to provide the operating
system for our applications. If there are significant changes to this software,
or if this software stops being available or supported, we will experience a
disruption to our product and to our development effort.
In designing, developing and supporting our wireless data services, we
rely on mobile device manufacturers, content providers, database providers and
software providers. These suppliers may experience difficulty in supplying us
products or services sufficient to meet our needs or they may terminate or fail
to renew contracts for supplying us these products or services on terms we find
acceptable. Any significant interruption in the supply of any of these products
or services could cause a decline in sales of our products and services, unless
and until we are able to replace the functionality provided by these products
and services. We also depend on third parties to deliver and support reliable
products, enhance their current products, develop new products on a timely and
cost-effective basis and respond to emerging industry standards and other
technological changes.
Competition in the Wireless Technology Industry Is Intense and Technology Is
Changing Rapidly.
Many wireless technology and software companies are engaged in research
and development activities relating to our range of products. The market for
handheld wireless technology is intensely competitive, rapidly changing and
undergoing consolidation. We may be unable to compete successfully against our
current and future competitors, which may result in price reductions, reduced
margins and the inability to achieve market acceptance for our products. Our
competitors in the field are companies that include major international car
dealership service companies, specialized technology companies, and,
potentially, our joint venture and strategic alliance partners. Such companies
include: ADP Dealer Services, Reynolds and Reynolds Company, Automotive
Directions, Higher Gear, Autobase, Third Coast Media, Cowboy Corporation and
Autotown, among others. Many of these competitors have substantially greater
financial, marketing, sales, distribution and technical resources than us and
have more experience in research and development, sales, service, manufacturing
and marketing. We anticipate increased competition in the future as new
companies enter the market and new technologies become available. Our technology
may be rendered obsolete or uneconomical by technological advances or entirely
different approaches developed by one or more of our competitors.
We May Not Have Adequately Protected Our Intellectual Property Rights.
Our success depends on our ability to sell products and services for
which we may not have intellectual property rights. We currently do not have
patents on any of our intellectual property. We have filed for a patent, which
protects a number of developments pertaining to the management of information
flow for automotive dealer-based software. An additional application is
currently being planned which will address certain proprietary features
pertaining to our systems components, related equipment and software modules. We
cannot assure you we will be successful in protecting our intellectual property
through patent law.
We rely primarily on trade secret laws, patent law, copyright law,
unfair competition law and confidentiality agreements to protect our
intellectual property. To the extent that intellectual property law does not
adequately protect our technology, other companies could develop and market
similar products or services, which could adversely affect our business.
We May be Sued by Third Parties for Infringement of Their Proprietary Rights and
We May Incur Defense Costs and Possibly Royalty Obligations or Lose the Right to
Use Technology Important to Our Business.
The wireless technology and software industries are characterized by
the existence of a large number of patents and frequent litigation based on
allegations of patent infringement or other violations of intellectual property
rights. As the number of participants in our market increases, the possibility
of an intellectual property claim against us could increase. Any intellectual
property claims, with or without merit, could be time consuming and expensive to
litigate or settle and could divert management attention from the administration
of our business. A third party asserting infringement claims against us or our
customers with respect to our current or future products may adversely affect us
by, for example, causing us to enter into costly royalty arrangements or forcing
us to incur settlement or litigation costs.
Risks Concerning Our Capital Structure
Our Management and Other Affiliates Have Significant Control of Our Common Stock
and Could Control Our Actions in a Manner That Conflicts with Our Interests and
the Interests of Other Stockholders.
As of March 31, 2003, our executive officers and directors beneficially
owned in the aggregate approximately 67%, and together with affiliated entities
beneficially owned approximately 75% of the outstanding shares of our Common
Stock, assuming the exercise of all options, warrants and the conversion of any
convertible securities held by such persons, which were presently exercisable or
will become exercisable within 60 days after March 31, 2003. As a result, these
stockholders, acting together, will be able to exercise considerable influence
over matters requiring approval by our stockholders, including the election of
directors, and may not always act in the best interests of other stockholders.
Such a concentration of ownership may have the effect of delaying or preventing
a change in control, including transactions in which our stockholders might
otherwise receive a premium for their shares over then current market prices.
We Are Controlled by Our President, Which May Result in You Having No Control in
Our Direction or Affairs.
As of March 31, 2003, our president owned approximately 58% of our
current outstanding Common Stock, assuming the exercise of all options, warrants
and the conversion of any convertible securities held by him, which were
presently exercisable or will become exercisable within 60 days after March 31,
2003. As a result, he has the ability to control us and direct our affairs and
business, including the approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control and may make some transactions more difficult or
impossible without the support of these stockholders. Any of these events could
decrease the market price of our Common Stock.
Stockholders May Suffer Dilution as a Result of Shares Eligible for Future
Issuance.
As of March 31, 2003, we had 9,857,000 shares of our Common Stock
issued and outstanding. In addition, we had the potential to issue 1,364,847
shares of our Common Stock upon the exercise of all outstanding options, and
4,005,500 shares of our Common Stock upon the exercise of certain warrants
outstanding and upon the conversion of certain shares of our Series A Preferred
Stock. Consequently, sales of substantial amounts of our Common Stock in the
public market, or the perception that such sales could occur, may adversely
affect the market price of our Common Stock.
Volatility of Trading Market May Affect Your Investment.
The market price for our securities is highly volatile. The following
factors have a significant impact on the market price of our securities: our
financial results; introduction of new products into the marketplace; various
factors affecting the automobile industry and the wireless industry generally,
including extreme volatility and extended steep declines in equity market values
of other wireless-related publicly traded companies; sharp declines in private
equity valuations of wireless-related privately-held companies; the price and
volume volatility affecting small and emerging growth companies in general,
which are not necessarily related to the operating performance of such
companies.
Because We Do Not Intend to Pay Any Cash Dividends On Our Shares of Common
Stock, Our Stockholders Will Not Be Able to Receive a Return on Their Shares
Unless They Sell Them.
We have never paid or declared any cash dividends on our Common Stock
or other securities and intend to retain any future earnings to finance the
development and expansion of our business. We do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future. Unless we pay
dividends, our stockholders will not be able to receive a return on their shares
unless they sell them.
Our Common Stock Is Considered A Penny Stock And May Be Difficult To Sell.
Investing in our stock involves a particular risk that does not exist
with many other companies - our stock is a penny stock. The Securities and
Exchange Commission has adopted regulations, which generally define penny stock
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to specific exemptions.
Presently, the market price of our Common Stock is less than $5.00 per share.
Therefore, the SEC "penny stock" rules govern the trading in our Common Stock.
These rules require, among other things, that any broker engaging in a
transaction in our securities provide its customers with the following:
o A risk disclosure document;
o Disclosure of market quotations, if any;
o Disclosure of the compensation of the broker and its salespersons in
the transaction; and
o Monthly account statements showing the market values of our securities
held in the customer's accounts.
The broker must provide the bid and offer quotations and compensation
information before effecting the transaction. This information must be contained
on the customer's confirmation. Generally, brokers may be less willing to effect
transactions in penny stocks due to these additional delivery requirements. This
may make it more difficult for investors to dispose of our Common Stock. In
addition, the broker prepares the information provided to the broker's customer.
Because we do not prepare the information, we cannot assure you that such
information is accurate, complete or current.
Liquidity And Capital Resources
Overview
As of March 31, 2003, our cash balance was $5,681. We had a net loss of
$621,154 for the fiscal quarter ended March 31, 2003. We had a net operating
loss of $513,508 for the fiscal quarter ended March 31, 2003 and a net operating
loss of approximately $4,157,670 for the period from May 17, 2002 through March
31, 2003 to offset future taxable income. Losses prior to May 17, 2002 were
passed directly to the shareholders and, therefore, are not included in the loss
carry-forward. There can be no assurance, however, that we will be able to take
advantage of any or all tax loss carry-forwards, in future quarters. Our
accounts receivable at March 31, 2003 was $1,161,234 (less allowances for
doubtful accounts of $200,000), as compared to $565,722 for the quarter ended
March 31, 2002. The increase in accounts receivable represents amounts owed to
Stronghold for new installations and maintenance, service, training services,
software customization and additional systems components.
Financing Needs
To date, we have not generated revenues in excess of operating
expenses. We have not been profitable since our inception, we will incur
additional operating losses in the future, and we may require additional
financing to continue the development and subsequent commercialization of our
technology.
We expect our capital requirements to increase significantly over the
next several years as we continue to develop and test the DealerAdvance(TM)
suite of products and as we increase marketing and administration infrastructure
and embark on developing in-house business capabilities and facilities. Our
future liquidity and capital funding requirements will depend on numerous
factors, including, but not limited to, the levels and costs of our research and
development initiatives, the cost of hiring and training additional sales and
marketing personnel to promote our products and the cost and timing of the
expansion of our marketing efforts.
Financings
On July 31, 2000, the Predecessor Entity entered into a line of credit
with our President, Christopher Carey, who is also the President of Stronghold.
According to such line of credit, Mr. Carey made available $1,989,500, which the
Predecessor Entity could borrow from time to time until August 1, 2001. The
outstanding amounts accrued interest at the per annum rate equal to the floating
base rate, as defined therein, computed daily, for the actual number of days
elapsed as if each full calendar year consisted of 360 days. The first interest
payment under the line of credit was due on August 1, 2001. On such date, the
parties agreed to extend the line of credit for one more year, until August 1,
2002.
On November 1, 2001, the Predecessor Entity entered into a line of
credit with UnitedTrust Bank pursuant to which the Predecessor Entity borrowed
$1.5 million. The line of credit was due to expire by its terms, and all
outstanding amounts were due to be paid, on June 30, 2002.
On April 22, 2002, the Predecessor Entity issued 500,000 shares of its
Common Stock to Mr. Carey (which converted into 1,093,750 shares of our Common
Stock when we acquired the Predecessor Entity on May 16, 2002) in exchange for
cancellation of $1 million of outstanding debt under the line of credit.
On May 15, 2002, we entered into a Securities Purchase Agreement with
Stanford Venture Capital Holdings, Inc., referred to herein as Stanford, in
which we agreed to issue to Stanford (i) such number of shares of our Series A
$1.50 Convertible Preferred Stock, referred to herein as Series A Preferred
Stock, that would in the aggregate equal 20% of the total issued and outstanding
shares of our Common Stock, and (ii) such number of warrants for shares of our
Common Stock that would equal the number of shares of Series A Preferred Stock
issued to Stanford. The total aggregate purchase price for the Series A
Preferred Stock and warrants paid by Stanford was $3,000,000. The issuance of
the Series A Preferred Stock and warrants took place on each of four separate
closing dates (May 16, 2002 and July 3, 11, and 19, 2002), at which we issued an
aggregate of 2,002,750 shares of our Series A Preferred Stock and warrants for
2,002,750 shares of our Common Stock to Stanford.
On May 16, 2002, the total amount outstanding under the line of credit
with Mr. Carey was $2.2 million. On such date, we issued 666,667 shares of our
Common Stock to Mr. Carey in exchange for the cancellation of $1 million of the
then outstanding amount under the line of credit. We agreed to pay Mr. Carey the
remaining $1.2 million according to the terms of a non-negotiable promissory
note, which was issued on May 16, 2002.
On June 30, 2002, our line of credit with UnitedTrust Bank expired and
a three-month extension was granted. On September 30, 2002, we converted our
outstanding line of credit with UnitedTrust Bank into a $1,500,000 promissory
note, pursuant to which Stronghold will pay UnitedTrust Bank all amounts
outstanding under the line of credit. Such promissory note will be paid in 36
monthly installments, which will begin in February 2003 and will terminate on
January 1, 2006. Interest accrues on the note at the prime rate, which is the
highest New York City prime rate as is published in The Wall Street Journal. The
initial prime rate that applies to the promissory note is 4.750%.
During August and September 2002, we entered into 9 subscription
agreements with private investors, pursuant to which we issued an aggregate of
179,333 shares of our Common Stock at $1.50 per share. These private investments
generated total proceeds to us of $269,000.
On September 30, 2002, we renegotiated the $1,200,000 promissory note
with Mr. Carey as required by the promissory note with UnitedTrust Bank.
According to the new terms of the loan, Mr. Carey extended the repayment of the
principle amount until December 1, 2005. Until such time as the principle is
paid, we will pay an interest only fee of 12% per month. Mr. Carey's promissory
note is expressly subordinated in right of payment to the prior payment in full
of all of Stronghold's senior indebtedness. Subject to the payment in full of
all senior indebtedness, Mr. Carey is subrogated to the rights of the holders of
such senior indebtedness to receive principle payments or distribution of
assets. As of December 31, 2002, $970,749 was outstanding under the promissory
note issued to Mr. Carey.
On September 30, 2002, we entered into a loan agreement with CC Trust
Fund to borrow an amount up to $355,128. This bridge loan is for a period of
twelve months, with all principle due and payable on September 30, 2003. We will
pay 12.5% interest on the outstanding principle each month. At the end of the
loan period, the Fund will be entitled to exercise 25,000 warrants at $1.50 per
share. As of March 31, 2003, $355,128 was outstanding under the CC Trust Fund
loan agreement. Christopher Carey Jr., Mr. Carey's son, is the beneficiary of
the trust, and Mary Carey, Mr. Carey's wife, is the trustee of the trust.
On September 30, 2002 we entered into a loan agreement with AC Trust
Fund to borrow an amount up to $375,404. This bridge loan is for a period of
twelve months, with all principle due and payable on September 30, 2003. We will
pay 12.5% interest on the outstanding principle each month. At the end of the
loan period, the Fund will be entitled to exercise 25,000 warrants at $1.50 per
share. As of March 31, 2003, $374,404 was outstanding under the AC Trust Fund
loan agreement. Amie Carey, Mr. Carey's daughter, is the beneficiary of the
trust, and Mary Carey, Mr. Carey's wife, is the trustee of the trust.
In October 2002, we issued a promissory note to Christopher J. Carey
for the amount of $165,000. Such promissory note is due on or before December
31, 2003. Until such time as the principle is paid, interest on the note will
accrue at the rate of 12.5%.
On March 18, 2003 we entered into a bridge loan agreement with our
President, Christopher J. Carey, for a total of $400,000. The agreement
stipulates that the company will pay an 8% interest rate on a quarterly basis
until the loan becomes due and payable on June 30, 2004. We also issued to Mr.
Carey 391,754 warrants exercisable for Common Stock for 10 years at a price of
$.97 per share.
On April 30, 2003, we entered into a Securities Purchase Agreement with
Stanford Venture Capital Holdings, Inc. for the issuance of 2,444,444 shares of
our Series B $.90 Convertible Preferred Stock. The issuance of the Series B
Preferred Stock will take place on six separate closing dates beginning on May
5, 2003 through September 15, 2003. In connection with the Securities Purchase
Agreement, we agreed to modify the previously issued five-year warrants assigned
to Stanford to purchase 2,002,750 shares of our Common Stock at an exercise
price of $1.50 for the first 1,001,375 shares and $2.25 for the remaining
shares: (i) to reduce the exercise price to $.25 per share; and (ii) to extend
the expiration date through August 1, 2008. In addition, our President and Chief
Executive Officer, Christopher J. Carey agreed to convert outstanding loans of
$543,000 to 603,333 shares of our common stock at a price of $.90 per share.
We believe we have sufficient cash on hand to support our operating
plan for at least the next nine months. To enable us to fund our research and
development and commercialization efforts during the subsequent months, we may
enter into additional private placement transactions with individual investors.
Results of Operations
Operations through May 16, 2002 were comprised solely of our truffle
business, which was conducted through our wholly owned subsidiaries, Terre di
Toscana, Inc. and Terres Toscanes, Inc. Operations from May 16, 2002 through
June 30, 2002 were comprised of our truffle business (which was divested on July
19, 2002, as described above) and our handheld wireless technology business. Our
results of operations as described below reflect the treatment of the truffle
business as discontinued operations and, therefore, figures from those periods
reflect operations of our handheld wireless technology business only, other than
with respect to other expenses. We believe that a comparison of our truffle
business to our handheld wireless technology business is not a relevant analysis
for purposes of this periodic filing. As a result, we believe that
period-to-period comparisons of our results of operations will not be meaningful
and should not be relied upon as indicators of future performance. Therefore,
results of operations for the fiscal years ended 2001 and 2002 reflect
operations of our handheld wireless technology business only.
We entered the handheld wireless technology business through the
acquisition of the Predecessor Entity, which had only twenty-two months of
operating history. We must, therefore, be considered to be subject to all of the
risks inherent in the establishment of a new business enterprise. Our limited
operating history makes it difficult to evaluate our financial performance and
prospects. We cannot make assurances at this time that we will operate
profitably or that we will have adequate working capital to meet our obligations
as they become due. Because of our limited financial history, we believe that
period-to-period comparisons of our results of operations will not be meaningful
in the short term and should not be relied upon as indicators of future
performance.
Critical Accounting Policies, Estimates and Risks
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The notes to the consolidated financial statements include
a summary of significant accounting policies and methods used in the preparation
of the our Consolidated Financial Statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.
In addition, Financial Reporting Release No. 61 was recently released
by the SEC to require all companies to include a discussion to address, among
other things, liquidity, off-balance sheet arrangements, contractual obligations
and commercial commitments.
The discussion and analysis of our financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of financial statements in accordance with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, including the recoverability of tangible and intangible
assets, disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period.
On an on-going basis, we evaluate our estimates. The most significant
estimates relate to our recognition of revenue and the capitalization of our
software development.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue Recognition Policy
Revenue related to the sale of our products is comprised of one-time
charges to the dealerships for hardware (including server, wireless
infrastructure, desktop PC, printer, interior/exterior access points/antennas
and handheld devices), software licensing fees and installation/training
services. The average installation for DealerAdvance Sales Solution(TM) is
approximately $83,000. The most significant variable in pricing is the number of
handheld devices.
Once DealerAdvance Sales Solution(TM) is installed, Stronghold provides
hardware and software maintenance services for a yearly fee equal to
approximately 10% of the one-time implementation fees. All dealerships contract
these services and pay on a monthly basis. Stronghold provides other services,
including software and report customization, business and operations consulting,
and sales training services. All of these services are contracted on an as
needed basis and typically are charged on a time and expenses basis. In
addition, we offer a sixty-day performance trial period. After this time, a
large portion of the dealerships converts the one-time fee into a third party
lease. Stronghold has entered into a number of relationships with leasing
companies in which the leasing company finances the implementation fees for the
dealership in a direct contractual relationship with the dealership. Stronghold
accepts no liability under these arrangements, and the lease is based on the
creditworthiness of the dealership. The leasing company receives the invoice
from Stronghold, and remits funds upon acceptance by the dealership. Stronghold
receives all funds as invoiced, with all interest costs passed to the
dealership. These leases typically run 36 months in duration, during which time
Stronghold contracts for service and maintenance services. After the initial
installation Stronghold charges separately for future software customization,
for additional training, and for additions to the base system (e.g., more
handheld
devices for additional sales people). Depending upon the dealership arrangement,
the support and maintenance contracts are either billed monthly and recorded as
revenue monthly, or are recorded up front to unearned maintenance fees at the
present value of the 36-month revenue stream and amortized monthly to revenue
over the life of the agreement.
Revenue Restatement
On December 26, 2002, we reclassified our consolidated financial
statements for the first three quarters of 2002. This step was taken on the
advice of Rothstein, Kass & Company, P.C., our accounting firm, to reflect
accounting changes in accordance with revenue recognition guidelines released by
the Securities and Exchange Commission.
Accordingly, our revenue was reclassified such that it may be
recognized in future quarters. For the nine months ended September 30, 2002,
revenue was reclassified from $2,952,076 to $1,898,884.
Historically, we have recorded revenue as a three-stage process: at the
time the equipment and software were delivered, installed and the personnel
trained. We will now recognize each sale with an additional stage as outlined in
the analysis provided by our accounting firm, which includes a fourth stage
defined as, "the system is handed over to the customer to run on their own."
This four-stage delivery process will result in current sales revenues being
carried into future quarters. We estimate that this change will delay the
recognition of revenue from installed dealership sites by 20-50 days.
Software Development Capitalization Policy
Software development costs, including significant product enhancements
incurred subsequent to establishing technological feasibility in the process of
software production, are capitalized according to Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed." Costs incurred prior to the
establishment of technological feasibility are charged to research and
development expenses. For the quarter ended March 31, 2003, Stronghold
capitalized $173,921 of development costs in developing enhanced functionality
of its DealerAdvance(TM) product.
Three Months Ended March 31, 2003 and Three Months Ended March 31, 2002
-----------------------------------------------------------------------
For the quarter ended March 31, 2003, we had revenue of $919,010,
compared to revenue of $317,921 for the quarter ended March 31, 2002. This
represents an increase of $601,089 or 189%. This increase is due to our having
installed 11 dealerships this year versus 3 dealerships last year. In addition,
we are continuing to build our installed base of auto dealerships, which is
resulting in an increase in monthly maintenance revenue. We have also introduced
a number of complementary services, including training and business development
consulting, which has also led to increased revenue.
Revenue is comprised of one-time charges to the dealerships for
hardware (including server, wireless infrastructure, desktop PC, printer,
interior/exterior access points/antennas and handheld devices), software
licensing fees and installation/training services. The average installation is
$80,000. The most significant variable in pricing is the number of handheld
devices. Other sources of revenue include monthly support and maintenance
contracts (required with purchase of DealerAdvance(TM)) and fee-based business
development consulting and sales training services. Depending upon the
dealership arrangement, the support and maintenance contracts are either billed
monthly and recorded as revenue monthly, or are recorded up front to unearned
maintenance fees at the present value of the 36-month revenue stream and
amortized monthly to revenue.
We generated $595,306 in gross profits from sales for the quarter ended
March 31, 2003, which was an increase of $437,770 from the quarter ended March
31, 2002, when we generated $157,536 in gross profits. We were able to improve
our gross profit margin from 49.5% in the quarter ended March 31, 2002 to 64.7%
in the quarter ended March 31, 2003. This is an improvement of 30.7% in gross
profit margin, which was based on our ability to reduce our implementation costs
per dealership. This was attributed to better buying of subcontracted services,
lower software and information licensing costs, lower costs for materials, and
better negotiated prices with customers. With an increase in the number of
installed sites, we realized larger scale to offset certain other fixed costs of
goods sold.
We were able to increase revenue 189% and improve gross profit margins
by 30.7% with a small increase in total Selling, General and Administrative
expenses. Total overhead expenses in the quarter ended March 31, 2003 were
$1,108,814, an increase of 10% or $101,450 from the quarter ended March 31, 2002
of $1,007,364. We substantially completed DealerAdvance Sales Solution(TM), and
we were able to reduce costs associated with software development with the
reduction in development staff. This reduction of costs was offset by an
increase in selling expense with the addition of Business Development Managers
in new territories and Client Consultants to support additional dealerships. We
will continue to enhance our products, and offer customized services to our
customers, and will accomplish this with a smaller software support group. In
subsequent quarters we will consider additional staff to begin new applications
development as increased volume and cash allows.
Our interest expense increased from $56,040 in the quarter ended March
31, 2002 to $107,646 in the quarter ended March 31, 2003. This increase of
$51,606 was based on the increase in loan amounts outstanding, and the expense
of $23,750 attributable to the issuance of warrants attached to a bridge loan of
$400,000 that we completed in this quarter (see later notes on the bridge loan).
The net loss for the quarter ended March 31, 2003 was $621,154, which
is a reduction of 31.4% from the loss for the quarter ended March 31, 2002 of
$905,868. This led to a reduction in the loss per share from a $.15 loss with
5,906,250 shares outstanding in the quarter ended March 31, 2002 to a $.06 loss
per share in the quarter ended March 31, 2003 with 9,857,000 shares outstanding.
Our business operations and financial results for prior periods were
representative of a start-up company in a beta-testing phase and, therefore, not
in a position to generate significant revenue. As we moved out of our
beta-testing phase and into a marketing and sales position, revenues increased
as the number of dealerships installing our DealerAdvance(TM) suite of products
increased. We can offer no assurance, however, that revenues in future
accounting periods will increase at the rate that revenues grew during the
quarter ended March 31, 2003. Notwithstanding the revenue and gross profit
growth, we have yet to generate a profit in any accounting period.
Industry Trends
The automotive industry has identified sales productivity tools and CRM
systems to be of high priority. Many consolidators and independent dealership
owners have begun to explore and pilot some of these solutions to determine the
most effective means for managing and exploiting prospects and customers to
increase car sales. To date, only a small number of the 22,600-dealership sites
in the United States have implemented these systems. There remains substantial
uncertainty as to the type of systems that will be implemented as well as the
pace at which implementation will take place.
Since big-ticket consumer purchases are sensitive to broad economic
trends, our operations may be affected by general economic conditions. Our
business could suffer if Stronghold's customers, automobile dealerships, are
affected by the continuing poor economic conditions. For example, if dealer
sales are trending downward, capital expenditures like those associated with
Stronghold's DealerAdvance(TM) suite of products may be delayed or abandoned.
Dividend Policy
We have never declared or paid any cash dividends on our Common Stock.
We anticipate that any earnings will be retained for development and expansion
of our business and we do not anticipate paying any cash dividends in the
foreseeable future. Our board of directors has sole discretion to pay cash
dividends based on our financial condition, results of operations, capital
requirements, contractual obligations and other relevant factors.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on his
evaluation of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date
within 90 days of the filing date of this Quarterly Report on Form 10-QSB, our
chief executive officer and acting chief financial officer has concluded that
our disclosure controls and procedures are designed to ensure that the
information we are required to disclose in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and are operating in an effective
manner.
We have undertaken a search for a chief financial officer for
Stronghold. We expect to have a chief financial officer in place sometime before
the end of the third quarter. In the interim, supervision of our disclosure
controls and procedures remains with our chief executive officer.
(b) Changes in internal controls. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.
PART II. OTHER INFORMATION
Item 2. Change in Securities
Pursuant to a Securities Purchase Agreement, referred to herein as the
Series B Purchase Agreement, dated as of April 30, 2003, by and between the
Company and Stanford Venture Capital Holdings, Inc., the Company agreed to issue
to Stanford 2,444,444 shares of our Series B $0.90 Convertible Preferred Stock,
$.0001 par value per share. The aggregate purchase price for the Series B
Preferred Stock will be $2,200,000.
According to the terms of the Series B Purchase Agreement, the issuance
of the aforementioned Series B Preferred Stock shall take place on each of six
separate closing dates. At the first closing, which occurred on May 5, 2003, the
Company received $500,000 from Stanford and issued to Stanford 555,556 shares of
Series B Preferred Stock. At each of the second and third closings, which are
scheduled for May 15, 2003 and June 13, 2003, the Company will issue 555,556
shares of Series B Preferred Stock, and Stanford will pay $500,000 upon each
closing for same. On the fourth closing date, which is scheduled for July 15,
2003, the Company will issue 333,332 shares of Series B Preferred Stock, and
Stanford will pay $300,000. At each of the fifth and sixth closings, which are
scheduled for August 15, 2003 and September 15, 2003, the Company will issue
222,222 shares of Series B Preferred Stock, and Stanford will pay $200,000 upon
each closing. For so long as any shares of the Series B Preferred Stock are
outstanding and held by Stanford, if the Company issues additional shares of the
Company's Common Stock, or common stock equivalents, Stanford has the right to
participate in the issuance such that immediately after the subsequent issuance,
Stanford's ownership of the total number of outstanding shares of the Company's
Common Stock (assuming the conversion of all common stock equivalents into the
Company's Common Stock) equals the same percentage of the total shares of the
Company's Common Stock (assuming conversion of all common stock equivalents into
the Company's Common Stock) as Stanford held immediately prior to the subsequent
issuance.
In connection with the Series B Purchase Agreement, the Company and
Stanford also entered into a Registration Rights Agreement, dated April 30,
2003, in which the Company agreed to register the shares of the Company's Common
Stock issuable upon conversion of the Series B Preferred Stock with the
Securities and Exchange Commission, not later than November 15, 2003.
In connection with the Series B Purchase Agreement, the Company and
Stanford entered into a Consulting Agreement, pursuant to which Stanford has
agreed to perform certain financial consulting and advisory services, in
exchange for which the Company has agreed to pay Stanford a fee of $50,000 per
year for two years.
In addition, in connection with the Series B Purchase Agreement, the
Company and Stanford have: (i) waived Section 2(e)(iii) of the Series A
Certificate of Designation, which provides for anti-dilution protection if the
Company shall issue securities which are convertible into shares of the
Company's Common Stock for an exercise price of less than $1.50; (ii) waived any
rights of Stanford to Default Warrants (as defined in the Series A Registration
Rights Agreement) due to the Company's failure to register its shares of Common
Stock; and (iii) modified the warrants previously issued to Stanford and its
assigns to purchase 2,002,750 shares of the Company's Common Stock to reduce the
initial exercise price to $0.25 per share and to extend the expiration date to
August 1, 2008.
In addition, the Company and Stanford have agreed to convert $543,000
of the outstanding debt owed to Christopher J. Carey by the Company into 603,333
shares of Common Stock of the Company at a price of $0.90 per share.
In addition, the Company and Christopher J. Carey have agreed to extend
the maturity dates of the Promissory Notes, dated March 18, 2003, for an
aggregate amount of $400,000, to June 30, 2004.
In addition, the Company, Christopher J. Carey and Mary Carey (as
trustee) have agreed to extend the maturity dates of loans from the Carey family
trusts to the Company in the amount of $730,532, to December 31, 2003.
No underwriter was employed by the Company in connection with the
issuance of the securities described above. We believe that the issuance of the
foregoing securities was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving a public
offering. Each of the recipients were either accredited or sophisticated
investors as defined under Section 501 of the Securities Act, and acquired the
securities for investment purposes only and not with a view to distribution and
had adequate information about the Company. Neither the Company, nor any person
acting on its behalf, offered or sold the securities by means of any form of
general solicitation or general advertising. A legend was placed on the stock
certificates stating that the securities have not been registered under the
Securities Act and cannot be sold or otherwise transferred without an effective
registration or an exemption therefrom.
Item 5. Other Information.
On January 27, 2002, Stronghold terminated its relationship with James
Cummiskey, Vice President of Sales and Marketing. Stronghold does not plan to
hire a new Vice President of Sales and Marketing, as the Vice President of
Marketing and the two Regional Managers will assume the responsibilities of this
post. Mr. Cummiskey has not exercised any of his vested options within the
90-day period following his termination. Accordingly, all such options have
since lapsed.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4.1 Promissory Note for $300,000, dated March 18, 2003, made by
Stronghold Technologies, Inc. in favor of Christopher J.
Carey.
4.2 Promissory Note for $100,000, dated March 18, 2003, made by
Stronghold Technologies, Inc. in favor of Christopher J.
Carey.
4.3 Form of Warrant with Christopher J. Carey.
10.1 Securities Purchase Agreement, dated April 30, 2003, by and
between Stronghold Technologies, Inc. and Stanford Venture
Capital Holdings, Inc. (Incorporated by reference to Exhibit
99.1 to the Company's Form 8-K as filed with the Securities
and Exchange Commission on May 8, 2003.)
10.2 Registration Rights Agreement, dated April 30, 2003, by and
between Stronghold Technologies, Inc. and Stanford Venture
Capital Holdings, Inc. (Incorporated by reference to Exhibit
99.2 to the Company's Form 8-K as filed with the Securities
and Exchange Commission on May 8, 2003.)
10.3 Consulting Agreement, dated April 30, 2003, by and between
Stronghold Technologies, Inc. and Stanford Venture Capital
Holdings, Inc. (Incorporated by reference to Exhibit 99.3 to
the Company's Form 8-K as filed with the Securities and
Exchange Commission on May 8, 2003.)
99.1 Section 906 Certification for principal executive officer and
principal financial officer.
(b) Reports on Form 8-K
Subsequent to the end of the quarter, on May 8, 2003, we filed with the
Securities and Exchange Commission a Current Report on Form 8-K pursuant to Item
5. Other Events. The Form 8-K described the Securities Purchase Agreement dated
as of April 30, 2003, by and between Stronghold Technologies, Inc. and Stanford
Venture Capital Holdings, Inc., pursuant to which the Company, among other
things, agreed to issue to Stanford and Stanford agreed to purchase 2,444,444
shares of the Company's Series B $0.90 Convertible Preferred Stock, $0.0001 par
value per share, for an aggregate purchase price of $2,200,000.
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 this 15th day of May,
2003.
STRONGHOLD TECHNOLOGIES, INC.
By: /s/ Christopher J. Carey
-----------------------------------------
Christopher J. Carey, President,
Chief Executive Officer and Acting Chief
Financial Officer (principal executive
officer and principal financial officer)
By: /s/ Karen S. Jackson
-----------------------------------------
Karen S. Jackson, Controller (principal
accounting officer)
CERTIFICATIONS
I, Christopher J. Carey, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Stronghold
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
Quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Christopher J. Carey
--------------------------------------------
Christopher J. Carey
President, Chief Executive Officer and
Acting Chief Financial Officer
(Principal Executive Officer and Principal
Financial Officer)
Item 6. Exhibit Index
Exhibit
Number Description
------ -----------
4.1 Promissory Note for $300,000, dated March 18, 2003, made by Stronghold
Technologies, Inc. in favor of Christopher J. Carey.
4.2 Promissory Note for $100,000, dated March 18, 2003, made by Stronghold
Technologies, Inc. in favor of Christopher J. Carey.
4.3 Form of Warrant with Christopher J. Carey.
10.1 Securities Purchase Agreement, dated April 30, 2003, by and between
Stronghold Technologies, Inc. and Stanford Venture Capital Holdings,
Inc. (Incorporated by reference to Exhibit 99.1 to the Company's Form
8-K as filed with the Securities and Exchange Commission on May 8,
2003.)
10.2 Registration Rights Agreement, dated April 30, 2003, by and between
Stronghold Technologies, Inc. and Stanford Venture Capital Holdings,
Inc. (Incorporated by reference to Exhibit 99.2 to the Company's Form
8-K as filed with the Securities and Exchange Commission on May 8,
2003.)
10.3 Consulting Agreement, dated April 30, 2003, by and between Stronghold
Technologies, Inc. and Stanford Venture Capital Holdings, Inc.
(Incorporated by reference to Exhibit 99.3 to the Company's Form 8-K as
filed with the Securities and Exchange Commission on May 8, 2003.)
99.1 Section 906 Certification for principal executive officer and principal
financial officer
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of Stronghold
Technologies, Inc. (the "Company") for the period ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned, Christopher J. Carey, President, Chief Executive Officer and
Acting Chief Financial Officer of the Company, hereby certifies, pursuant to 18
U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Christopher J. Carey
----------------------------------------
Dated: May 15, 2003 Christopher J. Carey*
President, Chief Executive Officer and
Acting Chief Financial Officer
(Principal Executive Officer and
Principal Financial Officer)
* A signed original of this written statement required by section 906 has
been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon
request.