Stronghold Technologies Reports Record Third Quarter Results
BASKING RIDGE, N.J.--Nov. 1, 20034, 2003--Stronghold Technologies, Inc. (OTC Bulletin Board: SGHT)
-- Revenue Increased 36.3% for Nine Months and 28% for Third
Quarter 2003 Over Prior Year
-- Third Quarter Gross Profit Increased from 46.6% in 2002 to
62.8% in 2003
-- Record Number of DealerAdvance(TM) Contracts Signed From July
Through September 2003
Stronghold Technologies, Inc. (OTC Bulletin Board: SGHT), the developer of DealerAdvance(TM), an enterprise software system using wireless technologies for the automotive retail industry, today announced results for the third quarter ended September 30, 2003.
Third Quarter Results
The Company reported record third quarter revenue in 2003 of $904,204, compared with revenue of $706,486 in the third quarter 2002(1). "Initiatives to strengthen our sales force in the first half of the year are delivering their intended results," said Christopher Carey, Chairman and Chief Executive Officer of Stronghold. "Our third quarter 2003 revenue increased by 44% from the second quarter of 2003 and by 28% from the same period last year."
At September 30, 2003, a total of 63 dealers were using DealerAdvance(TM), including 12 new system installations in dealerships located in the Company's eastern and western regions. A record number of DealerAdvance(TM) contracts were signed from July through September 2003, which includes installations scheduled for after the end of the quarter. In the third quarter, the Company expanded its customer base to include its first Volvo and Lexus dealerships, and now has installed DealerAdvance(TM) in dealerships representing 24 major automobile brands. Both Volvo and Lexus, categorized as luxury or premium automobiles, represent a new growth opportunity for Stronghold as a market the Company had not initially intended to penetrate.
Gross profit in the third quarter was $567,643, compared to gross profit of $329,449 in the year-ago quarter. As a percentage of revenue, gross profit increased from 46.6% in the third quarter 2002 to 62.8% in the third quarter 2003. The improvement in gross profit reflects the Company's increased sales, a concentration of installations with higher margin system configurations, reduced costs for hardware components, and more efficient operations.
Selling, general and administrative (SG&A) expenses were $1,401,070 million in the third quarter, compared to $1,313,249 in the year-earlier period. During the third quarter 2003, the Company completed its near-term market coverage expansion, including the placement of sales and customer support staff. SG&A as a percentage of revenue declined by approximately 15% from the third quarter 2002.
The Company's third quarter 2003 loss from operations was $833,427, compared to a loss of $983,800 in the third quarter 2002. The net loss for the quarter ended September 30, 2003 was $1,056,623, compared to the loss for the quarter ended September 30, 2003 of $1,029,127. The loss for the current quarter included interest and a penalty expense of 223,196, of which approximately $130,000 was a one-time charge.
The net loss for the quarter ended September 30, 2003 was $1,056,623, which is an increase of $27,496 from the loss for the quarter ended September 30, 2002 of $1,029,127. The loss per share decreased by $.01 from $.11 loss per share with a weighted average of 9,787,834 shares outstanding in the quarter ended September 30, 2002 to $.10 loss per share in the quarter ended September 30, 2003 with a weighted average of 10,460,339 shares outstanding.
Nine Months Results
The Company recorded revenues of $2,450,043 for the nine months ended September 30, 2003, which was an increase of $652,442 and 36.3% over the previous year's revenue of $1,797,601. The Company experienced an improvement in gross profit margin from 50.2% to 61.7% for this period, producing an increase of gross profit of $611,429 to $1,512,544. This increase was due to improvements in operations and lower costs of good sold.
SG&A expenses for the first three quarters of 2003 were $3,703,924, compared to $3,373,317 in the year-earlier period. SG&A as a percentage of revenue for the nine months ended September 30, 2003 declined by nearly 20% from same period in 2002. The higher level of SG&A expenses in actual dollars in 2003 reflects an increase in salaries for additional sales and customer support personnel, partially offset by a reduction in overhead costs.
The Company's loss from operations for the first nine months of 2003 was $2,191,380, compared to a loss of $2,472,202 for the same period in 2002. The net loss for the nine months ended September 30, 2003 was $2,612,442 compared to the loss for the 2002 period of $2,627,241.
The loss of $.26 per share for the nine months ended September 30, 2003 was an improvement of 22% from the loss of $.33 for the same period in 2002. The weighted average number of common shares outstanding for the first three quarters of 2003 and 2002 were 10,206,182 and 7,864,625, respectively.
Liquidity and Working Capital
The Company has taken further steps to improve its working capital position to accommodate continued growth and potential acquisitions. To this end, and as previously announced, Stronghold entered into a modification of its loan agreement with United Trust Bank during the third quarter. Pursuant to the agreement, United Trust Bank has agreed to reduce monthly payments and subordinate its collateral to a new lender. In addition, the Company is pursuing a line of credit against its $1.5 million of accounts receivable as of September 30, 2003.
As previously announced, Stanford Financial Group demonstrated its confidence in Stronghold by investing in the Company for the second time in two years through the purchase of $2.2 million of Series B Convertible Preferred Stock in the second quarter 2003. Approximately $700,000 of the investment was received in the third quarter.
Subsequent to the third quarter, Stronghold initiated a private placement in aggregate of up to $3 million of equity and received initial funds from accredited investors.
Growth Prospects
"We have seen continued improvement in our ability to materially affect the profitability of our clients' dealerships," continued Mr. Carey. "In all regions, we have applied best practices to follow-up activities and deal processing to improve performance. Stronghold remains committed to its customers and consistently contributes to their achievement of increased vehicle sales and attainment of market share. We have an enviable position in this industry of producing the most dramatic results with the best service commitment of any technology provider. We are very proud of our growing base of customers and have numerous testimonies validating that Stronghold delivers the best value proposition in the industry.
"Our performance has not gone unnoticed. In fact, our execution is leading to new business referrals from dealership owners, which is generating a strong pipeline, including a contract backlog that is fueling our fourth quarter. Given the Company's scalable business model, while spending on SG&A should remain in the current range in the near term, profitability is expected to improve with an increase in quarterly DealerAdvance(TM) system installations.
"On the development side of our operations, we introduced DealerAdvance(TM) Version 3.3 to several new customers and are rolling out the upgrade to existing customers. Based on the input of our customers, we are preparing to launch several new services by the end of this year, which could generate significant additional streams of recurring revenue. In addition, successful funding efforts should enable us to seek acquisitions to round out our suite of services and broaden our customer base for cross-selling opportunities. Our first acquisition may close as early as the fourth quarter of 2003."
Stronghold Technologies, Inc., is an innovator in applying software, 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. For additional information about Stronghold, please visit the Company's Web site at www.strongholdtech.com.
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.
(1) On December 26, 2002, the Company restated its consolidated financial statements for the first three quarters of the year ended December 31, 2002. The restatement resulted from revision of the Company's revenue recognition policy under Statements of Financial Accounting Standards ("SFAS") No. 48, "Recognizing Revenue with a Right of Return". The revenue restatement was included in the Company's December 31, 2002 year-end audited financial statements and included in the Company's December 31, 2002 10-KSB filing. The corresponding restated September 30, 2002 results were not separately filed in an amended 10-QSB. The comparative financial statements included herein are compared to the corresponding restated September 30, 2002 financial statements.
STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Three months Three months Nine months Nine months
ended ended ended ended
Sep 30, 2003 Sep 30, 2002 Sep 30, 2003 Sep 30, 2002
------------- ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 904,254 706,486 2,450,043 1,797,601
Cost of sales 336,611 377,037 937,499 896,486
------------- ------------ ------------ ------------
Gross profit 567,643 329,449 1,512,544 901,115
Selling, general and
administration 1,401,070 1,313,249 3,703,924 3,373,317
------------- ------------ ------------ ------------
Loss from
operations (833,427) (983,800) (2,191,380) (2,472,202)
Interest and
penalty expense 223,196 45,327 421,062 155,039
------------- ------------ ------------ ------------
Net loss (1,056,623) (1,029,127) (2,612,442) (2,627,241)
Dividends
------------- ------------ ------------ ------------
Net loss applicable
to common
stockholders $(1,056,623) $(1,029,127) $(2,612,442)$(2,627,241)
============= ============ ============ ============
Basic and diluted
loss per common
share $(0.10) $(0.11) $(0.26) $(0.33)
============= ============ ============ ============
Weighted average
number of common
shares
outstanding 10,460,333 9,787,834 10,206,182 7,864,625
STRONGHOLD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of September 30, 2003 (Unaudited)
ASSETS 2003
------------------
(Unaudited)
Current assets
Cash $ 3,229
Accounts receivable, less allowance for returns
and doubtful accounts of $170,172 1,554,533
Other receivables 18,548
Inventories 85,801
Prepaid expenses 12,741
------------
Total current assets 1,674,852
------------
Property and equipment, net 206,994
------------
Other assets
Software development costs, net of amortization 663,016
Other 70,122
------------
Total other assets 733,138
------------
$ 2,614,984
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 610,831
Accrued expenses and other current liabilities 1,670,920
Interest payable, stockholders 361,367
Notes payable, stockholders, current portion 1,106,781
Note payable, current portion 165,000
Obligations under capitalized leases, current
portion 45,827
------------
Total current liabilities 3,960,726
------------
Long-term liabilities
Notes payable, stockholders, less current portion 561,330
Note payable, less current portion 1,096,667
Obligations under capitalized leases, less
current portion 43,794
------------
Total long term liabilities 1,701,791
------------
Commitments and contingencies
Stockholders' deficit
Preferred stock, Series A, $.0001 par value;
authorized 5,000,000 shares, 2,002,750 issued
and outstanding (aggregate liquidation
preference of $3,004,125) and preferred stock,
Series B, $.0001 par value; authorized 2,444,444
shares, 2,444,444 issued and outstanding 445
Common stock, $.0001 par value, authorized
50,000,000
shares, 10,460,333 issued and outstanding 1,046
Additional paid-in capital 7,365,299
Stock subscription receivable (3,000)
Accumulated deficit (10,411,323)
------------
Total stockholders' deficit (3,047,533)
------------
$2,614,984
============