SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 16, 2002
--------------------------
STRONGHOLD TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
333-54822 22-3762835
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(Commission File Number) (IRS Employer Identification No.)
777 Terrace Avenue, Hasbrouck Heights, NJ 07924
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(Address of Principal Executive Offices) (Zip Code)
(201) 727-1464
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(Registrant's Telephone Number, Including Area Code)
TDT DEVELOPMENT, INC.
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(Former Name or Former Address, if Changed Since Last Report)
This Amendment No.1 to Current Report on Form 8-K/A is filed for the purpose of
filing the financial statements of Stronghold Technologies, Inc., a New Jersey
corporation which the Registrant acquired on May 16, 2002 ("Stronghold")
required by Item 7(a) and the pro forma information required by Item 7(b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
-------------------------------------------
The financial statements of Stronghold required by this item are
included as Exhibit 99.1 to this Amendment No. 1 to Current Report on
Form 8-K/A and incorporated herein by reference.
(b) Pro Forma Financial Information
-------------------------------
The pro forma financial information required by this item is included
as Exhibit 99.2 to this Amendment No. 1 to Current Report on Form
8-K/A and incorporated herein by reference.
(c) Exhibits
--------
See the Exhibit Index attached hereto.
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 30, 2002 REGISTRANT
STRONGHOLD TECHNOLOGIES, INC.
By: /s/ Christopher J. Carey
--------------------------
Christopher J. Carey
President
-3-
EXHIBIT INDEX
Exhibit Number Description
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99.1 Financial Statements of Stronghold Technologies, Inc.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements
of Stronghold Technologies, Inc. (formerly TDT Development,
Inc.) and Stronghold Technologies, Inc.
-4-
Exhibit 99.1
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STRONGHOLD TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
MARCH 31, 2002 (unaudited) AND DECEMBER 31, 2001
CONTENTS
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Stronghold Technologies, Inc.
We have audited the accompanying balance sheet of Stronghold Technologies, Inc.
as of December 31, 2001, and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stronghold Technologies, Inc.
as of December 31, 2001, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Roseland, New Jersey
March 1, 2002
1
BALANCE SHEETS
March 31, December 31,
2002 2001
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,769 $ 38,267
Accounts receivable, less allowance for doubtful
accounts of $69,000 in 2002 and nil in 2001 689,889 282,360
Other receivables, current portion 60,000 60,000
Inventories 122,055 81,348
Prepaid expenses 4,885
------------------------------
Total current assets 879,713 466,860
------------------------------
PROPERTY AND EQUIPMENT, net 113,162 95,953
------------------------------
OTHER ASSETS
Other receivables, less current portion 190,139 190,139
Security deposits 27,087 27,087
------------------------------
Total other assets 217,226 217,226
------------------------------
$ 1,210,101 $ 780,039
==============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 219,008 $ 57,641
Accrued expenses and other current liabilities 322,643 262,691
Loan payable 1,500,000 1,500,000
------------------------------
Total current liabilities 2,041,651 1,820,332
------------------------------
LOAN AND ACCRUED INTEREST PAYABLE, STOCKHOLDER 2,730,658 1,924,443
------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, no par value, authorized 10,000,000
shares, issued and outstanding 2,700,000 shares 13,500 13,500
Stock subscription receivable (3,000) (3,000)
Accumulated deficit (3,572,708) (2,975,236)
------------------------------
Total stockholders' deficit (3,562,208) (2,964,736)
------------------------------
$ 1,210,101 $ 780,039
==============================
2
STATEMENTS OF OPERATIONS
Three months Three months Year August 1, 2000
ended ended ended (inception) to
March 31, March 31, December 31, December 31,
2002 2001 2001 2000
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(Unaudited) (Unaudited)
SALES $ 693,638 $ - $ 614,539 $ -
COST OF SALES 209,126 250,465
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GROSS PROFIT 484,512 364,074
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OPERATING EXPENSES
General and administrative 959,945 444,803 2,477,727 542,670
Officer's salary 66,000 30,000 165,000
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1,025,945 474,803 2,642,727 542,670
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LOSS FROM OPERATIONS (541,433) (474,803) (2,278,653) (542,670)
OTHER EXPENSE, interest expense 56,039 21,352 141,435 12,478
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NET LOSS $ (597,472) $ (496,155) $ (2,420,088) $ (555,148)
==============================================================================
3
STATEMENTS OF STOCKHOLDERS' DEFICIT
Stock
Common Stock Subscription Accumulated
Shares Amount Receivable Deficit
BALANCES, August 1, 2000 (inception) $ - $ - $ -
COMMON STOCK ISSUANCE 2,700,000 13,500 (3,000)
NET LOSS (555,148)
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BALANCES, December 31, 2000 2,700,000 13,500 (3,000) (555,148)
NET LOSS 2,420,088)
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BALANCES, December 31, 2001 2,700,000 13,500 (3,000) (2,975,236)
NET LOSS (unaudited) (597,472)
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BALANCES, March 31, 2002 (unaudited) 2,700,000 $ 13,500 $ (3,000) $(3,572,708)
==========================================================================
4
STATEMENTS OF CASH FLOWS
Three months Three months Year August 1,2000
ended ended ended (inception) to
March 31, March 31, December 31, December 31,
2002 2001 2001 2000
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Cash flows from operating activities
Net loss $ (597,472) $ (496,155) $ (2,420,088) $ (555,148)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 6,926 32,986 4,362
Provision for doubtful accounts 69,000
Changes in operating assets and liabilities:
Accounts receivable (476,529) (282,360)
Other receivables (250,139)
Inventories (40,707) (22,456) (81,348)
Prepaid expenses 4,885 2,300 (285)
Other assets (27,502) (7,185) (24,502)
Accounts payable 161,367 22,612 35,528 22,114
Accrued expenses and other
current liabilities 59,952 89,327 222,863 39,827
Accrued interest and expenses
to stockholder 68,215 33,799 344,394
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Net cash used in operating activities (744,363) (398,075) (2,405,634) (513,347)
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Net cash used in investing activities,
purchases of property and equipment (24,135) (53,150) (82,139) (51,162)
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Cash flows from financing activites
Proceeds from loan payable,
stockholder 738,000 445,000 985,000 605,549
Proceeds from loan payable 1,500,000
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Net cash provided by financing
activities 738,000 445,000 2,485,000 605,549
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Net increase (decrease) in cash (30,498) (6,225) (2,773) 41,040
Cash, beginning of period 38,267 41,040 41,040
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Cash, end of period $ 7,769 $ 34,815 $ 38,267 $ 41,040
=============================================================================
Supplemental disclosure of cash
flow information, cash paid
during the period for interest $ 17,409 $ - $ 19,512 $ -
=============================================================================
Supplemental disclosure of noncash
financing activites
Common stock subscribed $ - $ - $ - $ 3,000
=============================================================================
Common stock issued as repayment
of loan payable, stockholder $ - $ - $ - $ 10,500
=============================================================================
5
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
1. NATURE OF OPERATIONS
Stronghold Technologies, Inc. (the "Company") was incorporated in the state of
New Jersey on August 1, 2000. The Company is engaged principally as a developer
of wireless and internet based systems for auto dealers in the United States,
which began operations on April 1, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. The Company provides for depreciation and amortization as follows:
ESTIMATED
ASSET USEFUL LIFE PRINCIPAL METHOD
Computer equipment 5 Years Declining-balance
Computer software 3 Years Declining-balance
Furniture and fixtures 7 Years Declining-balance
Leasehold improvements 10 Years Straight-line
INVENTORIES
Inventories, which are comprised of hardware for resale, are stated at cost, on
an average cost basis, which does not exceed market value.
INCOME TAXES
The Company is an "S" corporation and, as a result, the earnings and losses have
been included in the personal income tax returns of the respective stockholders.
RETIREMENT PLAN
The Company has a retirement plan under Section 401(k) of the Internal Revenue
Code ("the Plan"), which covers all eligible employees. The Plan provides for
voluntary deduction of the employee's salary, subject to Internal Revenue Code
limitations. The Company can make a matching contribution to the Plan which is
at the discretion of the Company and is determined annually. There were no
matching contributions for the three-month periods ended March 31, 2002 and 2001
(unaudited), the year ended December 31, 2001 and the period August 1, 2000
(inception) to December 31, 2000.
REVENUE RECOGNITION
The Company recognizes revenue at the time the product is installed. Sales
revenue and cost of sales reported in the statement of operations is reduced to
reflect estimated returns.
6
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, December 31,
2002 2001
(unaudited)
-----------------------------------
Computer equipment $ 117,165 $ 94,407
Computer software 17,326 16,616
Furniture and fixtures 14,963 14,296
Leasehold improvements 7,982 7,982
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157,436 133,301
Lease accumulated depreciation
and amortization 44,274 37,348
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$ 113,162 $ 95,953
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----------------------------------
4. LOAN AND ACCRUED INTEREST PAYABLE, STOCKHOLDER
Loan and accrued interest payable, stockholder at March 31, 2002 (unaudited) and
December 31, 2001 includes a line of credit under which the Company can borrow
up to $1,989,500 in principal plus accrued interest. The line of credit
agreement was informally increased by the stockholder as of March 31, 2002 to
include the total borrowings of approximately $2,318,000. The loan bears
interest at 2% above the prime rate (4.75% at March 31, 2002 and December 31,
2001) and is due in August 2002. At March 31, 2002 and December 30, 2001 the
loan and accrued interest payable, stockholder is comprised of advances of
approximately $2,318,000 and $1,580,000, expenses paid by the stockholder of
approximately $240,000 and $210,000, and accrued interest of approximately
$173,000 and $134,000, respectively. As a result of the above, the Company has
approximately nil and $409,500 available on the line of credit. Interest expense
amounted to approximately $39,000, $21,000, $122,000 and $13,000 for the
three-month periods ended March 31, 2002 and 2001(unaudited), the year ended
December 31, 20001 and the period August 1, 2000 (inception) to December 31,
2000, respectively (see Note 10).
7
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
5. LOAN PAYABLE
Loan payable is a line of credit under which the Company can borrow up to
$1,500,000 and bear an interest rate equal to the prime rate and is due on
September 30, 2002. The agreement requires monthly payments of accrued interest.
The note is collateralized by substantially all the assets of the Company and is
guaranteed by the majority stockholder of the Company. The loan payable and
accrued interest payable, stockholder is subordinated to this note. Interest
expense relating to this loan amounted to approximately $17,000, nil, $20,000
and nil for the three-month periods ended March 31, 2002 and 2001 (unaudited),
the year ended December 31, 2001 and the period August 1, 2000 (inception) to
December 31, 2000, respectively.
6. STOCK SUBSCRIPTION RECEIVABLE
The stock subscription receivable represents 600,000 shares of the Company's
common stock due from three key employees at $.005 a share.
7. STOCK OPTION PLANS
The Company adopted a stock option plan ("Plan") providing for incentive stock
options ("ISOs") and non-qualified stock options ("NQSOs"). The Company has
reserved 500,000 shares of common stock for issuance upon the exercise of stock
options granted under the Plan. In May 2002, the Board of Directors increased
the shares reserved under the plan to 725,000. The exercise price of an ISO or
NQSO will not be less than 100% of the fair market value of the Company's common
stock at the date of the grant. The exercise price of an ISO granted to an
employee owning greater than 10% of the Company's common stock will not be less
than 110% of the fair market value of the Company's common stock at the date of
the grant. The Plan further provides that the maximum period in which stock
options may be exercised will be determined by the board of directors, except
that they may not be exercisable after ten years from the date of grant.
The status of the Company's stock options are summarized below:
PER SHARE WEIGHTED AVERAGE
PLAN EXERCISE EXERCISE
OPTIONS PRICE PRICE
Outstanding at
January 1, 2001 190,000 $0.10 $0.10
Granted 2001 119,000 $0.15 - $0.25 $0.17
Terminated 2001 (52,000) $0.10 - $0.20 $0.12
----------
Outstanding at
December 31, 2001 257,000 $0.10 - $0.25 $0.12
Granted 2002 70,500 $0.25 - $1.50 $0.70
Terminated 2002 (4,000) $0.15 $0.15
----------
Outstanding at
March 31, 2002 323,500 $0.10 - $1.50 $0.22
==========
There were 8,332 and nil shares exercisable at March 31, 2002 (unaudited) and
December 31, 2001, respectively.
8
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
7. STOCK OPTION PLANS (CONTINUED)
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". SFAS 123 requires compensation expense to be recorded (i) using
the new fair value method or (ii) using existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations with pro forma disclosure of
what net income would have been had the Company adopted the new fair value
method. If the Company adopted the new fair value method using the Black-Scholes
option-pricing model, the Company's net loss would not have been materially
impacted for the three-month periods ended March 31, 2002 and 2001, the year
ended December 31, 2001 and the period August 1, 2000 (inception) to December
31, 2000. The Company accounts for its stock based compensation plans in
accordance with the provisions of APB 25 and, accordingly, no compensation cost
has been recognized because stock options granted under the plan were at
exercise prices which were equal to or above the market value of the underlying
stock at date of grant.
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 4.68% and 5.35% in 2002 and 2001,
respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company rents facilities under leases in New Jersey, Virginia and
California. The Company is obligated under these leases through April 2006. In
addition to the base rent, one lease provides for the Company to pay a
proportionate share of operating costs and other expenses.
Future aggregate minimum annual rent payments under these leases are
approximately as follows:
YEAR ENDING MARCH 31,
2003 $ 135,000
2004 102,000
2005 105,000
2006 108,000
--------------
$ 450,000
==============
Rent expense was approximately $41,000, $37,000, $132,000 and $17,000 for the
three-month periods ended March 31, 2002 and 2001 (unaudited), the year ended
December 31, 2001 and the period August 1, 2000 (inception) to December 31,
2000, respectively.
9
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
The Company is obligated under employment and non-competition agreements with
three key employees through July 2005. The first agreement provides for a base
salary of $180,000 per annum for the first year, increasing to $192,000 per
annum for the second year (through August 13, 2002). The second agreement
provides for a minimum annual salary of $138,000 for the first year, increasing
to $150,000 for the second year, which may increase to $175,000 based on
earnings for such year, and increasing to $175,000 for the third year, which may
increase to $200,000 based on earnings for such year (through July 31, 2003).
The third agreement provides for a base salary of $102,000 for the first year,
increasing to $112,000 for the second year, and increasing to $122,000 for the
third year (through July 9, 2003). Thereafter, for each succeeding year during
the term of these agreements, base salary shall be increased annually by a
percentage equal to the percentage by which the Consumers Price Index has
increased over the preceding year. The agreements further provide for a
commission equal to one percent of net sales during each year of their term. The
agreements also provide for the key employees not to engage in certain
competitive activities for one year after termination of employment.
LICENSE AGREEMENT
On February 27, 2001, the Company entered into a software license agreement
expiring June 30, 2003.
Future aggregate annual payments under this agreement are as follows:
YEAR ENDING MARCH 31,
2003 $ 75,000
2004 18,750
-------------
$ 93,750
=============
In addition, the agreement provides for an option to renew from July 1, 2003 to
June 30, 2005. The Company will be required to pay $100,000 a year plus a
percentage equal to the last published Consumer Price Index.
9. LIQUIDITY
At March 31, 2002 (unaudited) and December 31, 2001, the Company has incurred a
loss from operations of approximately $597,000 and $2,420,000, respectively, has
a working capital deficit of approximately $1,162,000 and $1,353,000,
respectively and a stockholders' deficit of approximately $3,573,000 and
$2,895,000, respectively. The majority stockholder of the Company has committed
to fund additional long-term debt financing, on an as needed basis. Long-term
liquidity is dependent on the Company's ability to obtain additional long-term
financing and attain profitable operations.
10
NOTES TO FINANCIAL STATEMENTS
(Information for the three months ended March 31, 2002 and 2001 is unaudited)
10. SUBSEQUENT EVENTS (unaudited)
MERGER
On May 15, 2002, the Company entered into a Merger Agreement and Plan of Merger
(the "Agreement") with TDT Development, Inc. ("TDT") whereby TDT will issue
7,000,000 shares of its common stock in exchange for all of the Company's
outstanding shares in a transaction accounted for as a reverse purchase
acquisition. As a result, the Company is considered for accounting purposes, to
be the acquiring company since the stockholders of the Company acquired more
than 50% of the issued and outstanding stock of TDT. Pursuant to this Agreement,
the outstanding options of the Company were also converted into options to
purchase TDT Common Stock based on a conversion rate of 2.1875000 as defined in
the Agreement. Subsequent to the merger, TDT changed its name to Stronghold
Technologies, Inc.
STOCK PURCHASE AGREEMENT
The Company, along with TDT, Pietro Bortolatti and Christopher J. Carey,
(together the "Parties") entered into a Securities Purchase Agreement (the
"Purchase Agreement") dated as of May 15, 2002, with Stanford Venture Capital
Holdings, Inc. ("Stanford"). Pursuant to the Purchase Agreement, the Parties
agreed to issue to Stanford a total of 2,002,750 shares of TDT's Series A $1.50
Convertible Preferred Stock ("Series A Preferred Stock"), which is equal to 20%
of the total issued and outstanding shares of TDT's common stock (excluding
certain shares which may be issued upon the occurrence of certain events as
disclosed in the Purchase Agreement), plus five-year warrants to purchase
2,002,750 shares of TDT's common stock at an exercise price of $1.50 or $2.25,
purchased for an aggregate purchase price of $3,000,000. Pursuant to the
Purchase Agreement, the issuance of the Series A Preferred Stock and Warrants
will take place on four separate closing dates beginning on May 16, 2002 and
closing on July 19, 2002.
In connection with the Purchase Agreement, TDT and Stanford entered into a
Registration Rights Agreement, dated May 16, 2002, in which TDT agreed to
register the shares of TDT Common Stock issuable upon conversion of the Series A
Perferred Stock and upon conversion of the Warrants with the Securities and
Exchange Commission within 180 days from the date of the last closing under the
Purchase Agreement, which was July 19, 2002. In addition, certain stockholders
of TDT entered into a Lock-Up Agreement in which the parties agreed not to sell,
assign, transfer, pledge, mortgage, encumber or otherwise dispose of their
shares of TDT capital stock for a period of two years, with certain exceptions,
as defined in the Lock-Up Agreement. Finally, Stanford, Christopher J. Carey and
his wife entered into a Stockholders' Agreement on May 16, 2002 in which each
party agreed that in the event any party desires to sell shares of TDT capital
stock, that party will (i) offer the other parties a right of first refusal of
purchase for proposed sales of TDT capital stock, and (ii) include the other
parties' shares in the proposed sale. The Stockholders' Agreement also addresses
voting of the shares of TDT capital stock owned by each party.
LOAN PAYABLE STOCKHOLDER
On April 22, 2002 and May 16, 2002, the stockholder converted and exchanged an
aggregate of $2,000,000 of borrowings that were outstanding under the line of
credit agreement for an aggregate of 500,000 shares of the Company's common
stock and 666,667 shares of TDT's common stock, at a per share value of $2.00
and $1.50, respectively. The remaining amounts outstanding under the line of
credit, plus accrued interest, accrued officer compensation and unreimbursed
expenses were converted into a promissory note. Principal and accrued interest
are payable in six equal quarterly installments beginning two days after TDT has
filed its Annual Report on Form 10-KSB for the year ending December 31, 2002 and
each subsequent quarterly installment shall be due two business days after the
filing of each subsequent Form 10-QSB or Form 10-KSB. The note provides for the
principal and accrued interest payments to be deferred and amortized over the
remaining periods if the Company meets certain net income criteria and also
provides for a conversion to common stock if the net income does not meet
certain criteria, as defined in the agreement (See Note 4).
11
Exhibit 99.2
------------
STRONGHOLD TECHNOLOGIES, INC.
Unaudited Pro Forma Combined Condensed Financial Statements of TDT Development,
Inc. and Stronghold Technologies, Inc.
On May 15, 2002, TDT Development, Inc. ("TDT") entered into an Agreement and
Plan of Merger with Stronghold Technologies, Inc. ("STRONGHOLD") whereby
STRONGHOLD will merge with and into TDT Stronghold Acquisition Corp.
("Acquisition"), a wholly-owned subsidiary of TDT, with Aquisition being the
surviving corporation and existing as a wholly-owned subsidiary of TDT. Under
the terms of the merger agreement, the outstanding common shares of STRONGHOLD
will be converted into common shares of TDT under an exchange ratio that will
result in the former shareholders of STRONGHOLD holding 7,000,000 of the
outstanding shares of TDT immediately after the effective time of the merger.
As the former shareholders of STRONGHOLD will control TDT after the transaction,
the proposed merger will be accounted for as a reverse acquisition under which,
for accounting purposes, STRONGHOLD is deemed to be the acquirer and TDT is
deemed to be the acquired entity. Under these accounting principles, the
post-merger company financial statements will represent STRONGHOLD on a
historical basis consolidated with the results of operations of TDT from the
effective date of the merger.
The accompanying unaudited pro forma combined condensed balance sheet at March
31, 2002 gives effect to the Merger as if it occurred on March 31, 2002. The
accompanying unaudited pro forma combined condensed statements of operations for
the three months ended March 31, 2002 and the year ended December 31, 2001 gives
effect to the Merger as if it had occurred on January 1, 2002 and January 1,
2001, respectively.
The unaudited pro forma combined condensed balance sheet at March 31, 2002 was
prepared based upon the unaudited historical balance sheets of TDT and
STRONGHOLD. The unaudited pro forma combined condensed statements of operations
for the three months ended March 31, 2002 and the year ended December 31, 2001
were prepared based upon the unaudited and audited, respectively, historical
statements of operations of TDT and STRONGHOLD.
The unaudited pro forma combined condensed financial statements should be read
in conjunction with the historical financial statements of TDT and STRONGHOLD.
Certain amounts in the STRONGHOLD financial statements have been reclassified to
conform to the TDT presentation.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the actual results of operations or financial position
that would have been occurred had the Merger of TDT and STRONGHOLD occurred. All
information contained herein should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in TDT's annual report
filed on Form 10-KSB for the year ended October 31, 2001 and the quarterly
reports filed on Form 10-QSB for the two-month period ended December 31, 2001,
and the three-month period ended March 31, 2002 which have been incorporated by
reference.
Stronghold Technologies, Inc.
Unaudited Pro Forma Combined Condensed Balance Sheet
As of March 31, 2002
Historical
TDT
Development, Stronghold Pro Forma
Inc. and Technologies, Pro Forma Combined
Subsidiaries Inc. Adjustments Company
---------------- ------------------- -------------- ---------------
CURRENT ASSETS:
Cash $ 1,053 $ 7,769 $ 3,000,000 e $ 3,008,822
Accounts recievable, net of allowance
for doubtful accounts of $1,150 and $69,000 24,745 940,028 964,773
Commissions receivable 7,000 7,000
Inventories 42,819 122,055 164,874
---------------- ------------------- ---------------- ---------------
Total current assets 75,617 1,069,852 $ 3,000,000 4,145,469
---------------- ------------------- ---------------- ---------------
PROPERTY AND EQUIPMENT, net 10,527 113,162 123,689
---------------- ------------------- ---------------- ---------------
OTHER ASSETS
Security deposits 160 27,087 27,247
---------------- ------------------- ---------------- ---------------
$ 86,304 $ 1,210,101 $ 3,000,000 $ 4,296,405
=============== =================== ================= ===============
CURRENT LIABILITIES:
Revolving credit line $ 6,222 $ - $ - $ 6,222
Accounts payable 1,151 219,008 220,159
Accrued expenses and other current 30,999 322,643 353,642
liabilities 1,500,000 1,500,000
Loan payable --------------- ------------------- ------------------ ---------------
Total current liabilities 38,372 2,041,651 2,080,023
--------------- ------------------- ------------------ ---------------
LOAN AND ACCRUED INTEREST PAYABLE, STOCKHOLDER 19,952 2,730,658 (2,000,000) a,f 750,610
--------------- ------------------- ------------------ ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.0001 par value; 5,000,000
shares authorized; issued
and outstanding nil shares (historical);
2,002,750 issued and outstanding (post 201 e 201
Securities Purchase Agreement with Stanford)
Common Stock:
TDT Development - $.0001 par value;
50,000,000 shares authorized;
8,381,000 shares issued and outstanding;
(historical); 838 (629)b 976
2,086,000 issued and outstanding (post
surrender); 700 c
9,086,000 issued and outstanding (post
merger); and 67 f
9,752,667 issued and outstanding (post
subsequent debt to equity conversion)
Stronghold Technologies, Inc. - 10,000,000
shares authorized;
2,700,000 shares issued and outstanding; no
par value (historical); 13,500 1,000,000a
3,200,000 shares issued and outstanding
(post debt to equity conversion) (1,013,500)c
Stock subscription receivable (3,000) (3,000)
Additional paid-in capital 305,707 629 b 5,040,303
1,012,800 c
(278,565)d
2,999,799 e
999,933 f
Accumulated deficit (278,565) 3,572,708) 278,565 d (3,572,708)
--------------- ----------------- ------------------ ---------------
Total stockholders' deficit 27,980 (3,562,208) 5,000,000 (1,465,772)
--------------- ----------------- ------------------ ---------------
$ 86,304 $ 1,210,101 $ 3,000,000 $4,296,405
=============== ================= ================== ===============
Stronghold Technologies, Inc.
Unaudited Pro Forma Combined Condensed Statements of Operations
For Three Months Ended March 31, 2002
Pro-Forma
TDT
Development, Stronghold Pro Forma
Inc. and Technologies, Pro Forma Combined
Subsidiaries Inc. Adjustments Company
------------------- -------------- ------------ ------------
REVENUES
Net Sales $ 10,223 $ 693,638 $ - $ 703,861
Cost of Sales 5,395 209,126 214,521
-------------- ------------- ------------ ------------
Gross Profit 4,828 484,512 489,340
OPERATING EXPENSES
General and Administrative 43,031 959,945 1,002,976
Selling Expenses 5,587 5,587
Officers Salaries 66,000 66,000
-------------- ------------- ------------ ------------
TOTAL EXPENSES 48,618 1,025,945 1,074,563
-------------- ------------- ------------ ------------
LOSS FROM OPERATIONS (43,790) (541,433) (585,223)
OTHER INCOME AND EXPENSE
Interest Income 5 5
Interest Expense (498) (56,039) 34,000 g (22,537)
-------------- ------------- ------------ ------------
TOTAL OTHER INCOME AND EXPENSES (493) (56,039) 34,000 (22,532)
-------------- ------------- ------------ ------------
NET LOSS $ (44,283) (597,472) 34,000 (607,755)
============== ============= ============ ============
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.01) $ (0.22) $ (0.06)
============== ============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,381,000 2,700,000 9,752,667
============== ============= ===========
Stronghold Technologies, Inc.
Unaudited Pro Forma Combined Condensed Statements of Operations
For Year Ended December 31, 2001
Historical
TDT
Development, Stronghold
Inc. and Technologies, Pro Forma Combined
Subsidiaries Inc. Adjustments Company
-------------- ------------- ---------------- ---------------
REVENUES
Net sales $ 127,584 $ 614,539 $ - $ 742,123
Cost of Sales 59,305 250,465 309,770
-------------- -------------- ---------------- ---------------
Gross Profit 68,279 364,074 432,353
OPERATING EXPENSES
General and administrative 200,364 2,477,727 2,678,091
Selling Expenses 80,609 80,609
Officers Salaries 165,000 165,000
-------------- -------------- ---------------- ---------------
TOTAL EXPENSES 280,973 2,642,727 2,923,700
-------------- -------------- ---------------- ---------------
LOSS FROM OPERATIONS (212,694) (2,278,653) (2,491,347)
OTHER INCOME AND EXPENSE
Commissions 46,321 46,321
Interest Income 3,688 3,688
Interest Expense (141,435) 122,000 g (19,435)
Other (48) (48)
--------------- -------------- ----------------- --------------
TOTAL OTHER INCOME AND EXPENSES 49,961 (141,435) 122,000 30,526
--------------- -------------- ----------------- ---------------
NET LOSS $ (162,733) $ (2,420,088) $ 122,000 (2,460,821)
=============== ============== ================= ===============
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (0.02) $ (0.90) $ (0.25)
=============== ============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,381,000 2,700,000 9,752,667
=============== ============== ===============
STRONGHOLD TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
PRE MERGER PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed financial statements of TDT and
STRONGHOLD reflect pro forma adjustments for certain transaction that are
required as a condition to the Merger, as if such transactions had occurred as
March 31, 2002 for purposes of the unaudited pro forma combined condensed
balance sheet and at January 1, 2002 and January 1, 2001 for purposes of the
unaudited pro forma combined condensed statements of operations for the three
months ended March 31, 2002 and the year ended December 31, 2001, respectively.
A summary of these transactions is as follows:
Prior to the Merger, a stockholder of Stronghold converted a portion of his
stockholder loan to equity.
STRONGHOLD TRANSACTION:
(a) Reflects the conversion of $1,000,000 in stockholder loans payable to
500,000 shares of Stronghold common stock
TDT TRANSACTION:
(b) Reflects shares surrendered by stockholders of TDT, reducing shares
issued from 8,381,000 to 2,086,000, as follows:
Liabilities and stockholders' deficit:
Reduction of par value for stock surrendered (629)
Increase to additional paid-in capital 629
MERGER PRO FORMA TRANSACTIONS
"Pro Forma Adjustments" to the unaudited combined condensed balance sheet at
March 31, 2002 are as follows:
(c) To reflect the issuance by TDT of 7 million shares of TDT common stock
to STRONGHOLD, in exchange for 100% of the outstanding common stock of
STRONGHOLD.
(d) Reflects the elimination of TDT's historical accumulated deficit; the
historical accumulated deficit of STRONGHOLD has been carried forward
and the remaining equity accounts of STRONGHOLD have been reclassified
to reflect the par value of the TDT stock issued with any differences
reflected as additional paid-in capital.
(e) Reflects the issuance of 2,002,750 shares of TDT's preferred stock to
Stanford for an aggregate purchase price of $3,000,000.
(f) Reflects the conversion of $1,000,000 of stockholder loans payable to
666,667 shares of TDT's common stock.
"Pro Forma Adjustments" to the unaudited combined condensed statements of
operations for the three months ended March 31, 2002 and the year ended December
31, 2001 are as follows:
(g) Represents the elimination of interest expense related to the
stockholder loans payable that were converted to equity.
STRONGHOLD TECHNOLOLGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
MERGER PRO FORMA TRANSACTIONS (CONTINUED)
Unaudited pro forma combined basic and diluted share information of TDT and
STRONGHOLD and earnings per share for the three months ended March 31, 2002 and
the year ended December 31, 2001 are as follows:
March 31, December 31,
2002 2001
TDT historical weighted average shares outstanding 8,381,000 8,381,000
Adjusted for shares surrendered (6,295,000) (6,295,000)
-------------------- --------------
TDT pro forma weighted average shares outstanding 2,086,000 2,086,000
-------------------- --------------
STRONGHOLD historical weighted average shares outstanding 2,700,000 2,700,000
Adjusted for shares issued under debt to equity conversion 500,000 500,000
Increase in weighted average common stock outstanding to
account for the TDT stock given in the merger at the share
converstion rate of 2.1875 for STRONGHOLD common stock 3,800,000 3,800,000
-------------------- --------------
STRONGHOLD pro forma weighted average shares outstanding,
as converted 7,000,000 7,000,000
-------------------- --------------
Post Merger Adjustment:
Increase in weighted average common stock outstanding to
account for shares issued under debt to equity conversion 666,667 666,667
------------------- --------------
Pro forma combined weighted average shares outstanding 9,752,667 9,752,667
-------------------- --------------
-------------------- --------------