Stronghold Technologies Reports Second Quarter 2003 Financial Results
BERNARDSVILLE, N.J.--Aug. 1, 20035, 2003--| Sales Force Adjustments Gaining Traction Completed $2.2 Million Fund Raising Converted $543,000 in Debt to Equity and Restructured Bank Debt |
Stronghold Technologies, Inc. (OTCBB:SGHT), the developer of DealerAdvance(TM), an enterprise software system leveraging wireless technologies for the automotive retail industry, today announced results for the second quarter ended June 30, 2003.
Second Quarter Results
Revenue in the second quarter 2003 was $626,779, compared with revenue of $773,194 in the second quarter 2002. "The impact of the war with Iraq on the overall economy early in the second quarter and the completion of restructuring and rebuilding our sales force during the first half of 2003 impacted revenue and the signing of new dealership customer contracts in the second quarter," said Christopher Carey, Chairman and Chief Executive Officer of Stronghold. "While we pursued our goal to expand our direct sales network and operational support personnel for coverage of 13 major cities from nine at the end of 2002, in the second quarter we segmented our sales force into two regions and replaced several under-performing business development managers with experienced industry veterans.
"Thanks to a strong support organization and an industry-leading value proposition for DealerAdvance(TM), our revitalized sales force quickly made very encouraging progress. Our customer pipeline in the third quarter-to-date strongly suggests that our initiatives to adjust our sales force organization have been successful."
At June 30, 2003, a total of 55 dealers were using DealerAdvance, including system installations in 9 new dealerships located in California, Florida, Maryland, North Carolina, and Texas. In the second quarter, the Company expanded its customer base to include its first Kia dealership, and now has installed DealerAdvance(TM) in dealerships representing 22 major automobile brands.
Gross profit in the second quarter was $349,595, compared to gross profit of $414,130 in the year-ago quarter. As a percentage of revenue, gross profit increased 4.1% from 53.6% in the second quarter 2002 to 55.8% in the same quarter of 2003. This improvement in gross profit reflects the Company's ability to control its prices given its premium product offering and continued efforts to reduce cost of sales. Steps to streamline costs include the transition to a more reliable, lighter and less expensive PDA and reductions in fees paid to third-party information services providers.
Selling, general and administrative (SG&A) expenses were $1.2 million in the second quarter, compared to $1.0 million in the year-earlier period and $1.1 million in the first quarter 2003. SG&A expenses were only slightly higher than in the first quarter as the Company completed its expansion into new markets and payroll increases for additional sales and marketing staff stabilized.
The Company's second quarter 2003 loss from operations was $844,445, compared to a loss of $631,648 in the second quarter 2002. The net loss for the quarter ended June 30, 2003 was $934,665, which is an increase of $249,345 from the loss for the quarter ended June 30, 2002 of $685,320.
There was no change in the loss of $.09 per share in the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. The weighted average number of common shares outstanding for the second quarters of 2003 and 2002 were 10,301,212 and 7,829,459, respectively.
Additional Capital and Debt Restructuring
"We have undertaken a business plan aimed at rapid growth which has required significant resources to design and develop our products and investments in a national sales and support network," said Mr. Carey. "During the second quarter, Stronghold management executed a strategy to improve the Company's liquidity. This strategy included the raising of $2.2 million from Stanford Venture Capital Holdings, Inc., the conversion of $543,000 of debt into equity, and the restructuring of bank debt to reduce principle payments, including the subordination to a future lender."
On July 31, 2003, Stronghold entered into a modification of the loan agreement with United Trust Bank. Pursuant to the agreement, United Trust Bank has agreed to reduce monthly payments from $41,666 per month in 2003 to $10,000 per month in 2003 and subordinate its position to a new lender. The balance of the loan will reflect lower monthly payments in the near term until maturity on January 1, 2006.
As previously announced, Mr. Carey converted $543,000 of personal loans to Stronghold to fund the purchase of 603,333 shares of the Company's common stock at $0.90 per share, which at the time was a premium to market value.
In terms of raising additional capital, as previously announced, Stronghold issued $2.2 million of Series B convertible preferred stock in the second quarter, of which approximately $700,000 in cash will be received in the third quarter.
Positioned For Growth
"Stronghold has achieved industry leadership in its ability to improve prospect capture and follow-up compliance," continued Mr. Carey. "For our customers, this means a substantial increase in vehicle sales. We have established a significant value proposition that is creating a great deal of interest in DealerAdvance(TM), which is reflected in increased proposal activity in the summer months.
"Our existing sales force and sales management can accommodate an increase in customers and revenues to an approximate factor of three with minimal investment. We are well positioned to continue to take market share with a strong product in DealerAdvance(TM), for which we expect to release a substantially improved version in the third quarter, and new applications to follow.
"To maximize the investments we have made and the potential we see in the industry, we are considering the pursuit of opportunistic acquisitions to augment our internal growth. The most desirable acquisition targets would be accretive to earnings and have a similar or complimentary product to accelerate our entry into new dealerships. Proceeds raised from the sale of securities in the second quarter may be used to fund acquisitions. Furthermore, the Company is considering other means of liquidity, including, but not limited to, the establishment of a line of credit secured by our accounts receivable to be used for working capital purposes as well as acquisitions."
Stronghold Technologies, Inc., is an innovator in applying wireless technology and process improvement methods to increase business efficiency and sales. The Company has developed an integrated wireless technology, called DealerAdvance(TM), which, among many features, allows automobile dealers to capture a customer's purchasing requirements, search inventory at multiple locations, locate an appropriate vehicle in stock and print out the necessary forms. Through an integrated CRM (Customer Relationship Management) application, the systems sends detailed tasks for prospect and customer follow-up and produces management reports to measure compliance. DealerAdvance(TM) allows sales professionals to increase sales, improve customer follow-up, and reduce administrative costs.
The statements contained in this press release 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, the 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.
STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
(Unaudited) (Unaudited)
--------- --------- ---------- ----------
Sales $ 626,779 $ 773,194 $1,545,789 $1,091,115
Cost of sales 277,184 359,064 600,888 519,449
Gross Profit 349,595 414,130 944,901 571,666
Selling, general
and administrative 1,194,040 1,045,778 2,302,854 2,060,068
Loss from operations (844,445) (631,648) (1,357,953) (1,488,402)
Interest expense 90,220 53,672 197,866 109,712
Net loss $(934,665) $(685,320) $(1,555,819) $(1,598,114)
Basic and diluted
loss per common
share $ (0.09) $ (0.09) $ (0.15) $ (0.23)
Weighted average
number of common
shares outstanding 10,301,212 7,829,459 10,080,333 6,867,854
STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of June 30, 2003 (Unaudited)
ASSETS
Current assets
Cash $34,583
Accounts receivable, less
allowance for returns and
doubtful accounts of $196,284 1,323,504
Other receivables 67,048
Inventories 55,236
Prepaid expenses 17,547
Total current assets 1,497,918
Property and equipment, net 160,870
Other assets
Software development costs, net 521,179
Other 27,952
Total other assets 549,131
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$2,207,919
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $381,368
Accrued expenses and other
current liabilities 1,158,253
Interest payable, stockholders 305,675
Notes payable, stockholders,
current portion 1,083,030
Note payable, current portion 500,000
Obligations under capital leases,
current portion 18,504
Total current liabilities 3,446,830
Long-term liabilities
Notes payable, stockholders, less
current portion 586,330
Note payable, less current portion 791,667
Obligations under capital leases,
less current portion 18,999
Total long-term liabilities 1,396,996
Commitments and contingencies
Stockholders' deficit
Preferred stock, $.0001 par value;
authorized 5,000,000 shares;
Series A, 2,002,750 issued
and outstanding (aggregate
liquidation preference of
$3,004,125) 201
Series B, 2,444,444 shares, issued
and outstanding 244
Common stock, $.0001 par value; authorized
50,000,000 shares, 10,460,333 issued
and outstanding 1,046
Additional paid-in capital 7,420,299
Stock subscription receivable (703,000)
Accumulated deficit (9,354,697)
Total stockholders' deficit (2,635,907)
-----------
$2,207,919