**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB/A(Amendment No. 1)**




**ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





For
      the
      fiscal year ended December 31, 2005


Commission
      File No. 333-54822




**STRONGHOLD
        TECHNOLOGIES, INC.**
 (Exact
      Name of Registrant as Specified in Its Charter)








Nevada
            
            22-376235(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or Organization)PO
                Box 523, Mendham, NJ
            
            07945-0523(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(908)
      903-1195


(Registrant's
      Telephone Number, Including
      Area Code)







Securities
      registered under Section 12(b) of the Exchange Act: None.





Securities
      registered under Section 12(g) of the Exchange Act: None.




Check
      whether the Registrant: (1) filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the Registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days.


Yes:
      [X]
      No: [_]





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of Registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. [X]





State
      Registrant's revenues for fiscal year ended December 31, 2005: $943,735




State
      the
      aggregate market value of the common stock held by non-affiliates of the
      Registrant: $855,553 as of April 7, 2006 based on the closing sales price of
      $0.65 on that date.





Indicate
      the number of shares outstanding of each of the Registrant's classes of common
      stock, as of April 7, 2005:





Class
            
            Number
                of SharesCommon
                Stock, $0.0001 par value
            
            
            37,688,793





The
      following documents are incorporated by reference into the Annual Report on
      Form
      10-KSB: None.





**Transitional
      Small Business Disclosure Format**





Yes:
      [_]
      No: [X]











EXPLANATORY
        NOTE
  The
        Company is amending the Form 10KSB for the year
        ended December 31, 2005 in order to include its auditors names on the audit
        reports which were inadvertently left off on the initial
        filing.







TABLE
      OF CONTENTS





Item
            PagePART
                IItem
                1. Business
            1Item
                2. Properties
            16Item
                3. Legal Proceedings
            16Item
                4. Submission of Matters to a Vote of Security
                Holders
            16PART
                IIItem
                5. Market for Common Equity and Related Stockholder
                Matters
            17Item
                6. Management's Discussion and Analysis and Results of
                Operation
            17Item
                7. Financial Statements
            35Item
                8. Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosures
            35Item
                8A. Controls and Procedures
            35PART
                IIIItem
                9. Directors, Executive Officers, Promoters and Control
                Persons; Compliance with Section 16(A) of The Exchange
                Act
            37Item
                10. Executive Compensation
            38Item
                11. Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters
            40Item
                12. Certain Relationships and Related
                Transactions
            41Item
                13. Exhibits
            43Item
                14. Principal Accountant Fees and
                Services
            51SIGNATURES
            52EXHIBIT
                INDEXFINANCIAL
                STATEMENTS
            F-1






-i-





**PART
      I**





**Item
      1. BUSINESS**





**SAFE
      HARBOR STATEMENT**





The
      statements contained in this Annual Report on Form 10-KSB 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 our technologies, the continued development of our products, the approval
      of
      our Patent Applications, the successful implementation of 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 SEC 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.





**OUR
      HISTORY**





We
      were
      incorporated as a Nevada corporation on September 8, 2000, under the name TDT
      Development, Inc. On May 16, 2002, we acquired Stronghold Technologies, Inc.,
      a
      New Jersey corporation, referred to herein as our "Predecessor Entity", pursuant
      to a merger of Stronghold Technologies into our wholly-owned subsidiary, TDT
      Stronghold Acquisition Corp., referred to herein as "Acquisition Sub". Our
      company, formerly TDT Development, Inc., was a reporting entity at the time.
      Its
      principals were Pietro Bortolatti, President, CEO and Chairman, Tiziana DiRocco,
      Vice-President and Director of European Operations and David Rector, Director.
      The merger was an arms length transactions and none of the parties had a prior
      existing relationship. As consideration for the merger, we issued 7,000,000
      shares of our common stock valued at $.75 per share to the stockholders of
      the
      Predecessor Entity in exchange for all of the issued and outstanding shares
      of
      the Predecessor Entity. No fairness opinion was issued in connection with this
      merger. Following the merger, Acquisition Sub, the survivor of the merger,
      changed its name to Stronghold Technologies, Inc. (NJ) and remains our only
      wholly-owned subsidiary. We approved the transaction as the sole shareholder
      of
      the Acquisition Sub as did the shareholders of the Predecessor Entity.





On
      July
      11, 2002, we changed our name from TDT Development, Inc. to Stronghold
      Technologies, Inc. (NV). 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., which conducted an import and distribution business
      specializing in truffle-based food product, for 75,000 shares of our common
      stock held by Mr. Pietro Bortolatti, our former president.





Our
      principal executive offices mailing address is PO Box 523, Mendham, NJ 07945.
      Our telephone number is 908-903-1195 and our Internet address is
      www.strongholdtech.com.





**OVERVIEW
      OF OUR 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 Lenard J. Berger, Chief Technology Officer and
      Salvatore F. D'Ambra, Vice President, Product Development, of our wholly-owned
      subsidiary. 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, we continue to conduct the
      Predecessor Entity's handheld wireless technology business.




-1-





We
      are
      engaged in the business of selling, marketing and installing an Intel based
      server that, together with wireless handheld PDA's, manages the auto
      dealer-client relationship. Our DealerAdvance(TM) suite of Customer Relationship
      Management ("CRM") software has been designed to assist auto dealerships in
      collecting cliental contact information, following up on sales prospects and
      aiding dealership sales person in finalizing the sale of its automobiles. We
      are
      in various stages of development of complimentary CRM systems, including a
      web
      based compliment to DealerAdvance which will provide for the posting of
      dealership inventory and other information for prospective buyers.





**DESCRIPTION
      OF PRODUCTS**





Most
      auto
      dealerships rely on a paper based process to capture its prospects and track
      their progress to purchasing a vehicle. This paper process is difficult to
      manage due to high turnover and skills of the typical sales force. Management
      does not have the tools to determine how many opportunities have been generated
      and if they are receiving follow up after leaving the dealership. DealerAdvance
      prompts the salesperson to capture more information about each prospect and
      advises them of the appropriate follow up activities. When a customer is ready
      to purchase a vehicle, the system aids the dealership in completing the sales
      through features such as forms printing. Management is able to view dealership
      traffic in real-time, by salesperson, and can easily pinpoint deficiencies
      in
      the capture and follow up process. The DealerAdvance Sales Solution(TM) has
      been
      designed to allow sales associates of our customers to maintain on the handheld
      units and on workstations, a personal calendar and instructions on follow-up
      tasks. Sales associates, using the handheld units or a workstation, collect
      customer contact information and other data relevant to the customer's
      automotive needs.





We
      install an Intel based server in a dealership site. The server holds all of
      the
      customer data and connects to other services used by the dealership. These
      services include the legacy IT system used by the dealer (known as the Dealer
      Management System), Internet based services such as Internet Customer leads,
      telephony management services, and customer address lookup services. We provide
      an administrative workstation which includes a driver license scanning station,
      a printer for negotiation and purchase forms, letters and reports, and wireless
      handheld PDA's for each of the sales people. The company installs a wireless
      antennae network (Wi-Fi) with communications coverage of the building and most
      of the car lot. The DealerAdvance client application is installed, on the
      handhelds, on the administrative workstation and on the existing workstations
      in
      the sales department.





The
      DealerAdvance Sales Solution(TM) provides certain advantages to automobile
      dealerships, including:





o
            convenient
                use associated with handheld mobile communications;





o
            use
                from existing workstations;





o
            access
                to competitive and proprietary industry information from a variety
                of
                sources, such as convenient access to vehicle identification numbers,
                drivers license numbers and reverse telephone number information
                which
                provides home addresses;





o
            employee
                access to sales contracts as well as access to sales and performance
                reports; and





o
            allows
                integration with existing automotive dealer accounting and business
                systems such as ADP and Reynolds and Reynolds.





The
      DealerAdvance Sales Solution(TM) has been designed to be a comprehensive CRM
      system implemented through the use of a wireless handheld device or through
      workstations connected to a server that distributes the functional applications
      to the units. Sales associates can also maintain on the handheld units or their
      workstations a personal calendar and instructions on follow-up tasks. Sales
      associates collect customer contact information and other data relevant to
      the
      customer's automotive needs. The DealerAdvance Sales Solution technology aids
      automobile dealerships in making sales transactions quicker and more efficient.





The
      DealerAdvance Sales Solution(TM) offers features that aid in automobile sales
      and service such as:





o
            enabling
                a high sales capture rate on walk-in, phone-in and Internet customers;





o
            streamlining
                and simplifying sales and follow-up processes;





o
            providing
                current and comprehensive information and data for new and used car
                inventory, including information regarding competing products, and
                customer history with the dealership;





o
            providing
                performance data and analysis on each member of a sales team; and





o
            providing
                management with valuable and relevant transaction information on
                a
                real-time basis.






-2-




A
      user
      can enter data via the DealerAdvance application running on any desktop or
      handheld unit. Data can be entered into the system typed by the user, through
      drivers’ license scanning, or via a DealerAdvance Import tool. Data entered by
      the user is transmitted to the server in real time.





The
      system contains a "rules" engine which is triggered at different points in
      the
      sales process. The rules engine updates the activities scheduled for each
      customer based on business rules defined by the dealer. For example, when a
      new
      customer is entered by a user, the system will schedule a letter to be sent
      to
      the customer and a follow up phone call for the next day. If that same customer
      buys a vehicle, the system will remove the letter and follow up call and replace
      it with activities appropriate for follow up.





Users
      also have the ability to manually schedule activities with a customer. All
      activities are displayed on the user's work plan in chronological order. The
      user may select any activity, view the details of the activity and customer
      information and complete the activity.





The
      system will prompt the user to schedule additional activities when completing
      follow up with a customer. For example, if the user completes a follow up call
      the system will prompt the user to set an appointment. The user can enter a
      date
      and time for the appointment, schedule an additional follow up call or indicate
      that no additional activities are required at this time. The system offers
      a
      variety of reports to management to show the volume of traffic at the dealership
      and if those prospects are receiving follow up in a timely fashion.





The
      DealerAdvance Suite includes Master Server Software, which manages all customer
      data and access to third party services. One copy of server software is required
      for each dealership. DealerAdvance Desktop Application, which is used to access
      customer data, present work plans, reports and logs, scan drivers’ licenses, and
      manage user access to the system. This application must be installed on each
      desktop in the dealership. Each Dealership receives a license to install an
      unlimited number of desktops associated with a particular DealerAdvance Server.
      DealerAdvance Handheld Application, which is used to access customer data,
      present work plans, product comparison and available inventory. Each dealership
      must purchase a license of this application for each handheld in use at the
      dealership.





The
      system has the following features:





o
            Prospect
                capture and profiling, which allows the user to input the required
                information, reverse phone lookup, duplicate record checking, electronic
                guest sheet and capture signatures electronically.





o
            The
                system tracks compliance with National Registry and Dealership specific
                DNC (do not call) list. Customers marked "DNC" have phone number
                hidden to
                avoid accidental calling. In addition, the dealer can print a report
                to
                insure compliance.





o
            The
                system can scan and authenticate driver licenses.





o
            Provides
                a call management system for follow ups.





o
            Provides
                daily work plan and appointment scheduling with appointments and
                calls for
                salespeople.





o
            Generates
                prospect reports, scoreboard, appointment calendar and activity reports
                sorted by salesperson.





o
            Receives
                leads from all internet lead sources and manage follow up from DA.
                Features include: route leads to a specific user based on lead source,
                auto responders, templates, customers using multiple lead sources,
                lead
                protection.





DEALERADVANCE
      is compatible with and works with:





o
            Intel
                Based Server running Red Hat Linux





o
            Wireless
                Network Access Points (802.11 - WiFi). We supply a model made by
                Vivato
                but any 802.11b compliant Access Point will work.





o
            Windows
                98, 2000, XP.





o
            Magnetic
                Stripe Reader or 2D Bar Code Scanner.






-3-




We
      use
      commercially available off the shelf products primarily purchased from Dell
      and
      Compaq. All these products are typically available on demand within reasonable
      ordering and receipt cycles that range from one to ten days.





We
      installed Version 1.0 of the DealerAdvance Sales Solution(TM) in six pilot
      dealerships during 2001. The initial release contained the ability to capture
      and display information about a prospective customer, search the dealership
      inventory, display competitive product information, a financial calculator,
      and
      paging functionality from a wireless handheld. Drivers’ license scanning, from a
      desktop station, was introduced for the State of California. Stronghold
      introduced Version 2.0 of DealerAdvance Sales Solution(TM) at all of its sites
      by the end of September 2001. Version 2.0 offered an electronic desk log, email
      and internet access from the handheld, printing of correspondence (forms
      letters), a reporting engine, the printing of sales forms, and the ability
      to
      import prospect records from 3rd party sources.





We
      introduced Version 3.0 of our software in the quarter ended March 31, 2002.
      Version 3.0 introduced the CRM rules engine, which allowed the system to
      automatically schedule and manage customer follow up activities for salespeople
      based on rules established by the dealership management. Other features included
      DMS deal creation (allowing a user to pass information from DealerAdvance to
      the
      DMS), management reporting, and the expansion of drivers’ license scanning to
      include 39 states (through a partnership with Intellicheck).





In
      the
      quarter ended June 30, 2002, through our wholly owned subsidiary, we introduced
      Version 3.1 of the software to improve the communication protocol between the
      handheld and the DealerAdvance Server. In the first quarter of 2003, we released
      Version 3.2 with new features including reverse phone lookup (via partnership
      with Acxiom), searches for duplicate customer records, wireless PDA trade
      appraisal, electronic buyers order, nightly download of sold customers from
      the
      DMS, and customer search. Additional functionality was added to the rules
      engine, forms printing, management functions were added to the PDA, 3rd party
      data imports, and customer tracking.





Version
      3.3, released in August 2003 introduced the concept of a work-plan, which
      assists the user in prioritizing follow up for prospective customers. The
      work-plan generates a simple daily "to-do" list for each salesperson, which
      can
      be viewed and updated on the handheld. Version 3.3 also introduced the concept
      of "prompted follow up" to guide the salesperson through best of breed follow
      up
      processes. The salesperson is prompted to indicate the action taken to complete
      an activity and to enter a next activity for the customer with the goal of
      scheduling a next activity for a prospective customer until they either purchase
      a vehicle or indicate they are no longer in the market.





Version
      3.4 released in January 2004 introduced integration with WhosCalling? and Call
      Bright, the two leading providers of phone call management services. The dealer
      is assigned several toll free numbers to place in a specific advertising outlet
      (newspaper, TV, radio, etc). When the customer dials the toll free number,
      the
      call management service identifies the caller’s information (name, address,
      demographics) and records the call. The call information and a link to the
      call
      recording is passed by the call management service to DealerAdvance. Version
      3.4
      introduced the ability to receive Internet leads in DealerAdvance. An Internet
      Manager can view leads and follow up via email with prospective customers that
      view the dealer's web site or are passed by 3rd party lead providers. Through
      a
      subscription service, in Version 3.4, the dealer can maintain their compliance
      with the National Do Not Call Regulations managed by the FTC. DealerAdvance
      will
      automatically determine which customers are safe to call based on the
      "established business relationship" rules defined in the regulations. The system
      can produce the documentation required to demonstrate compliance.







Version
      4.0 released in April 2004 introduced The Dealer Advance (DA) Campaign Manager
      feature, designed to provide for the simple, quick, and easy creation of
      targeted marketing activities. With DA Campaign Manager, a dealership Sales
      Manager or BDC/CDC Manager can define a sales campaign, including:




§
            Target
                Audience


§
            Personalized
                content (text, graphics, web links for click
                thru)


§
            Campaign
                Media (letter, email, call, other,
                combinations)


§
            Follow
                Up


§
            Sales
                Contact


§
            Frequency






-4-




The
      4.0
      release is designed to enable a campaign that is a collection of data which
      define a marketing initiative. The software enables the client to create a
      Campaign to potential clients captured by the CRM software that include the Campaign
      Target List ,
      Campaign Material, Content and Client preferences.




From
      2002
      through 2005, we generally have granted a 60-day performance guarantee period
      for each new installation. If performance goals were met, the contracts became
      noncancellable for their terms, usually 36 months As of December 31, 2005,
      a
      total of 83
      dealers were using the DealerAdvance Sales Solution(tm), down from 91 as of
      December 31, 2004.





This
      net
      reduction of 8 clients represents 12 contracts that came to their term that
      were
      not renewed and 4 new client installations. As a result of this first time
      reversal in growth, the Company has taken proactive measures to reprice and
      reintroduce the software to the buying marketplace. This is detailed in this
      Revenues section below. Additionally, in 2006 the Company has discontinued
      the
      60-day performance period guarantee to coincide with the new
      program.





We
      will
      continue to utilize our direct sales force to market the DealerAdvance Sales
      SolutionTM on a national basis. We have established a strong presence in several
      regions of the United States, and in 2006 we will add business development
      managers pursuant to an organized growth plan. As of December 31, 2005, we
      had
      employees in Northern New Jersey, San Francisco, Washington, DC, Seattle and
      Dallas.





**NEW
      PRODUCT DEVELOPMENTS**





We
      have
      identified five major prospect and customer sources within an auto dealership
      that can be leveraged for revenue and profit: walk in showroom traffic, call-in
      prospects, internet based leads, the existing owner base of customers and
      service prospects. The vision for





DealerAdvanceTM
      is to provide a single solution to attack all of these groups to increase
      profitability and improve customer service in the dealership. DealerAdvanceTM
provides information captured from prospects, and provides automobile
      dealerships with the ability to manage prospects and customers through a
      disciplined follow-up process.





The
      development plan includes the addition of the following applications and
      functions:





o
            With
                Version 3.4 introduced in January 2004, we introduced a Call Management
                application that allows dealerships to automatically capture and
                track
                prospects that contact the dealership via phone. This program allows
                salespeople to retrieve customer information while talking to the
                customer
                and to conduct a needs analysis for handling prospect phone calls.
                The
                Call Management application automatically generates management logs
                and
                reports designed to identify sales associates that need phone skills
                training. In addition, we have partnered with the two leading Call
                Management Systems providers, Call Bright and Who's Calling, who
                provide
                800 number and web based system forwarding functions to DealerAdvanceTM. We
                have created software to poll the web sites for incoming caller ID
                and
                provide prospect assignment, and comparative analysis relating to
                follow
                up activities. This application is expected to significantly increase
                the
                conversion of call-in prospects to customers.





o
            In
                Version 3.4 we expanded our offerings to include an initial application
                for Internet Lead Management. Most dealerships secure Internet leads
                through multiple sources including their own web site, manufacturers'
                forwarded leads, and subscription services including Autobytel and
                others.
                These lead sources are received through DealerAdvanceTM, which processes a
                quick response via email, and then passes qualified leads to sales
                associates for phone follow-up leading to appointment setting. We
                plan
                several enhancements to this application.





o
            In
                January 2004, we also introduced an application that lessens potential
                violations of the 2003 federal Do Not Call regulations. Our system
                automatically and regularly compares the prospect and customers within
                the
                system to the Do Not Call registry data base. The application also
                allows
                the dealership personnel to log prospect and customer requests not
                to be
                contacted. The system deletes from the database telephone numbers
                that
                match numbers in the Do Not Call database.





o
            In
                2006 we will introduce a web based program that will provide for
                certain
                customized functions for each dealership client to include inventory,
                contact information and a promotional credit pull and response. We
                expect
                to connect the web site functionality to DealerAdvanceTM software and the
                dealership DMS.






-5-


**OUR
      REVENUES**





Our
      revenues are primarily received from system installation, software licenses
      and
      system maintenance.


Since
      the
      inception of the Company through the end of 2005, the approximate average
      selling package price of the software system and installation has been
      approximately $70,000. Additional revenues have been derived from 36 month
      system maintenance agreements that have a monthly fee that has averaged $750
      per
      month and a total contract value of $27,000.





The
      revenues derived from these categories from 2002 through 2005 are summarized
      below:





o
            Software
                License Revenues: This represents the software license portion of
                the
                DealerAdvanceTM system purchased by our customers. The software and
                intellectual property of DealerAdvanceTM has been developed and is owned by
                us. The average upfront license cost to the customer has been
                approximately $35,000.





o
            System
                Installation Revenues: This represents the installation and hardware
                portion of the DealerAdvanceTM system. All project management during the
                installation is performed by us. The installation and hardware portions
                include cable wiring subcontracted services and off the shelf hardware
                and
                handheld computers ("PDA"s). The average upfront installation cost
                to the
                customer has been approximately $35,000.





o
            Monthly
                Recurring Maintenance Revenue: This represents the maintenance and
                support
                contract for the DealerAdvanceTM system that the customer executes with the
                system installation. The typical maintenance contract is for 36 months
                and
                is $750.00 per month. The average total 36 month maintenance portion
                of
                the contact is $27,000. In the four year operating history from 2002
                through 205, approximately 50% of all our customers have prepaid
                the
                maintenance fees through a third party leasing finance company. These
                prepaid maintenance fees have provided additional cash flow to us
                and have
                generated a deferred revenue liability on or balance sheet.





Historically,
      the average gross profit and cost of sales for the revenues associated with
      software licenses and systems installation are summarized in the following
      table:




Approximate
                Average Gross Profit per InstallationSoftware
                License Revenue
            
            $
            35,000System
                Installation Revenue
            
            $
            35,000Gross
                Revenue per Installation:
            
            $
            70,000Gross
                Profit
            
            
            GP
                $
            
            
            GP
                %Software
                License Revenue
            
            $
            31,500
            
            
            90
            %System
                Installation Revenue
            
            $
            12,600
            
            
            36
            %Gross
                Revenue per Installation:
            
            $
            44,100
            
            
            63
            %Cost
                of SalesSoftware
                License Revenue
            
            $
            3,500
            
            
            10
            %System
                Installation Revenue
            
            $
            22,400
            
            
            64
            %Gross
                Revenue per Installation:
            
            $
            25,900
            
            
            37
            %





***New
      Revenue Plan for 2006 and the future***





From
      2002
      through 2005, we generally have granted a 60-day performance guarantee period
      for each new installation. If performance goals were met, the contracts became
      noncancellable for their terms, usually 36 months. As of December 31, 2005,
      a
      total of 83
      dealers were using the DealerAdvance Sales Solution(tm), down from 91 as of
      December 31, 2004.




-6-





This
      net
      reduction of 8 clients represents 12 contracts that came to their term that
      were
      not renewed and 4 new client installations. As a result of this first time
      reversal in growth, the Company has taken proactive measures to reprice and
      reintroduce the software to the buying marketplace. This is detailed in this
      section below. Additionally, in 2006 the Company has discontinued the 60-day
      performance period guarantee to coincide with the new program.





In
      order
      to resume the growth periods of client adoption experienced from 2002 through
      2004 that reversed in 2005, the Company has created a new revenue plan that
      will
      enable the dealer to rapidly deploy the software by purchasing a base package
      that includes a desktop version only and providing the wireless network
      installation as an add on feature.





The
      price
      point of the software has also been reduced thereby enabling the dealer to
      enter
      into a contract to utilize the system with a minimal upfront expense and a
      reduced contract period that previously averaged 36 months to 12
      months.





The
      new
      plan will include a set up and installation fee for the software of $2,500.00
      and a monthly fee of $2,500.00. The monthly fee will include both the services
      associated with the customer relationship management (CRM) software and the
      maintenance. Approximately $750.00/month of the $2,500/month fee will be
      allocated to maintenance and the remaining $1,175.00/month will be allocated
      to
      customer relationship management (CRM) software. The allocation to maintenance
      is consistent with prior evidence of clients paying this amount for many
      years.





The
      Company will recognize the revenue as earned on a monthly basis as the software
      system is used. In the event that a client does not renew use of the system
      after 12 months, then the Company will turn off the software and leave the
      hardware behind.





In
      the
      event that the dealer wishes to purchase the wireless network system and
      handheld devices, Stronghold will only provide a site license for the wireless
      network and a per handheld license. The installation and maintenance of the
      wireless network shall be acquired by the dealer from an outsourced vendor
      not
      related to the Company.





***Cost
      of Sales under new revenue plan***





The
      Cost
      of Goods Sold for new software sales are as follows:










-7-





The
      Gross
      Profit for new software sales are as follows:











**GENERAL
      AND ADMINISTRATIVE OPERATING EXPENSES**





Our
      general operating expenses are primarily comprised of:





o
            Marketing
                and Selling;





o
            General
                and Administrative; and





o
            Development
                & Operations.





**MARKETING
      AND SELLING**





Our
      marketing and selling expenses include all labor, sales commissions and
      non-labor expenses of selling and marketing of our products and services.





As
      a
      means to conserve capital and deploy an effective and efficient sale and
      marketing plan, the Company entered into a Letter of Intent, in February of
      2006
      with one of its distribution partners, Humphries Marketing Group (“HMG”), to
      provide executive sales and marketing management services. HMG is a boutique
      advertising agency primarily focused on the automobile retail industry and
      currently has approximately 20 dealer clients nationwide. Humphries also
      provides consulting services to members of the National Automobile Dealers
      Agency (“NADA”) for advertising and CRM services.





The
      agreement signed is a Letter of Intent and the final definitive documents have
      not yet been executed, however Stronghold and HMG are operating under the terms
      that includes a monthly retainer to HMG of approximately $15,000 per month
      plus
      travel and a 20% commission payable to HMG.





Additionally,
      Russ Stryker, the former VP of Sales of Marketing who was terminated by
      Stronghold Technologies in May of 2005 for budgetary reasons, is a member of
      HMG
      and will also be providing sales management services to the Company through
      HMG.





**GENERAL
      AND ADMINISTRATIVE**





Our
      general and administrative expenses include expenses for all facilities,
      insurance, benefits, telecommunications, legal and auditing expenses are
      included as well as the executive management group wage expense.




-8-





**RESEARCH
      AND DEVELOPMENT**





Since
      our
      inception in September 2000, we have spent approximately $4,265,302 on research
      and development activities. While we have been successful in meeting planned
      goals in the development and introduction of DealerAdvance Sales SolutionTM ,
      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**





We
      do not
      believe that we have direct competition for our handheld product. However,
      we
      expect competitors in the wireless handheld solutions market in the future.
      We
      compete with the traditional CRM providers and the emerging new CRM providers
      in
      the retail automotive dealer software market.





Some
      of
      our potential competitors include:





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
            Cobalt
                Corporation, a provider of ASP sales prospect management systems
                and
                customer relationship management systems which services the retail
                automotive industry exclusively; and





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**





We
      have
      identified a target market of approximately 12,000 automobile dealerships in
      the
      United States that meet the base criteria for our system. More specifically,
      we
      target a primary market of 6,500 dealerships that sell a minimum of 75 new
      and
      used cars each month. Generally, our target market consists of midline
      dealerships, including brands such as Chevrolet, Ford, Nissan, Volkswagen,
      Toyota, Honda, Buick, Pontiac, GMC Trucks, Chrysler and Dodge. The reason for
      this is that midline dealers typically have high prospect and customer traffic,
      which makes for large untapped prospect opportunities that the client can
      leverage through the follow-up process from DealerAdvanceTM. In addition, these
      dealers often have not made significant investments in sales automation and
      in
      Customer Relationship Management systems.





We
      further qualify our market as dealerships with over $15 million in annual
      revenue. Obviously, a larger dealership has more traffic, more customer
      transactions, more sales people, and can more easily justify the investment.
      Finally, we limit our market to dealerships in those parts of the country where
      we have sales support coverage.





As
      a
      means to conserve capital and deploy an effective and efficient sale and
      marketing plan, the Company entered into a Letter of Intent, in February of
      2006
      with one of its distribution partners, Humphries Marketing Group (“HMG”), to
      provide executive sales and marketing management services. HMG is a boutique
      advertising agency primarily focused on the automobile retail industry and
      currently has approximately 20 dealer clients nationwide. Humphries also
      provides consulting services to members of the National Automobile Dealers
      Agency (“NADA”) for advertising and CRM services.





The
      agreement signed is a Letter of Intent and the final definitive documents have
      not yet been executed, however Stronghold and HMG are operating under the terms
      that includes a monthly retainer to HMG of approximately $15,000 per month
      plus
      travel and a 20% commission payable to HMG.





Additionally,
      Russ Stryker, the former VP of Sales of Marketing who was terminated by
      Stronghold Technologies in May of 2005 for budgetary reasons, is a member of
      HMG
      and will also be providing sales management services to the Company through
      HMG.




-9-





**OUR
      INTELLECTUAL PROPERTY**





We
      have a
      trademark for "DealerAdvanceTM" and have one patent application pending covering
      the system for management of information flow in automotive dealerships using
      handheld technology. The patent application is currently being reviewed by
      the
      United States Patent and Trademark Office. We may face unexpected competition
      from various sources if our patent is denied however we do not believe this
      will
      have a material impact on our business.





**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
      primarily in Florida, South Carolina, North Carolina and California, and also
      earned commissions on sales made in Belgium, Holland and Germany. On July 19,
      2002, we exchanged all of the shares that we held in our wholly-owned
      subsidiaries for 75,000 shares of our Common Stock held by Mr. Pietro
      Bortolatti, our former president. As a result of our transfer of our interest
      in
      the truffle business to Mr. Bortolatti 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.





**EMPLOYEES**





As
      of
      December 31, 2005, we had a total of 8 full-time employees, of which 4 are
      dedicated to marketing and sales and regional customer support. As of December
      31, 2005, 2 in New Jersey, 1 in Texas, 4 in Virginia, 1 in Texas and 1 in
      Washington state.





We
      have
      no collective bargaining arrangements with our employees. We believe that our
      relationship with our employees is good.





**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, Therefore, We May
      Never Achieve Profitability Which May Cause Us To Seek Additional Financing
      Or
      To Cease Operations.**





We
      have a
      history of operating losses and have incurred significant net losses in each
      fiscal quarter since our inception. We had a net loss of $3,632,448 and
      $3,029,373 for the fiscal years ended December 31, 2004 and December 31, 2005,
      respectively. We have an accumulated net operating loss of approximately
      $12,000,000 for the period from May 17, 2002 through December 31, 2005 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 for the
      foreseeable future. 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
            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 increase sales of our existing products and 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 in the future.
      If we
      do not achieve sustained profitability, we may be unable to continue our
      operations.




-10-





**There
      Is A Possibility That We Will Be Unable To Obtain Sufficient Funds, Will Incur
      A
      Cash Flow Deficit, Therefore Our**  **Business
      Could Suffer A Loss Of Clients And Employees As Well As A Decrease In Continued
      Research And Development Efforts.**





We
      believe that our current funds and accounts receivable will only be sufficient
      for our immediate future, raising substantial doubt about our ability to
      continue as a going concern. During 2006, the management of the Company will
      rely on receiving the balance of the $1,450,000 committed by the current
      investors of Convertible Notes to provide the company with sufficient working
      capital for the next 12 months. Of the $1,450,000 committed, $250,000 has
      already been infused into the Company leaving a remaining $1,200,000. In the
      event that the Company does not meet its business plan in 2006, the balance
      of
      the remaining $1,200,000 may not satisfy the working capital requirements and
      the Company may need to raise additional capital to fund its operations in
      the
      fourth quarter of 2006. 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.





Since
      our
      inception, we have financed all of our operations through sales of private
      equity, 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; Therefore It Is Difficult To Evaluate Our
      Financial Performance And Prospects.**





We
      were
      formed in September 2000 to import and market truffle oil products. As of May
      16, 2002, our business purpose focus shifted to the development and marketing
      of
      handheld wireless technology for the automotive dealer software market. We
      entered the handheld wireless technology business through the acquisition of
      an
      entity with a 23-month operating history. We are, therefore, subject to all
      of
      the risks inherent in a new business enterprise. Our limited operating history
      makes it difficult to evaluate our financial performance and prospects. We
      cannot assure you that in the future 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.





**We
      May Fail To Gain Market Acceptance Of Our Products, Therefore Our Business
      And
      Results Of Operations Could Be Harmed.**





We
      are
      still in the early marketing stages of our DealerAdvanceTM suite of products. Our
      first pilot system for DealerAdvance Sales SolutionTM 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. As of December 31, 2003,
      a
      total of 64 Dealerships were using the DealerAdvance Sales SolutionTM in 13
      states. As of December 31, 2004 a total of 91 Dealerships were using the
      DealerAdvance Sales SolutionTM and as of December 31, 2005, 83 Dealerships were
      using the DealerAdvance Sales SolutionTM. 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 product and technology requires us to market almost exclusively
      to
      automobile dealerships. Should any particular dealership or group of dealerships
      decide not to utilize our services to the extent anticipated, our business
      may
      be adversely affected. Large and costly consumer products such as automobiles
      are sensitive to broad economic trends. Therefore, our business could suffer
      if
      automobile dealerships are affected by poor economic conditions. If dealer
      sales
      are trending downward, capital expenditures, like those associated with our
      DealerAdvanceTM suite of products, may be delayed or abandoned.




-11-





**We
      Depend On Attracting And Retaining Key Personnel To Maintain Our Competitive
      Advantage, Therefore The Loss Of Their Services May Significantly Delay Or
      Prevent The Achievement Of Our Strategic Objectives.**





In
      2005
      the Company was unable to retain its Chief Technology Officer, Lenard Berger
      and
      its Chief Financial Officer, Robert Nawy, the losses of the services of these
      executives contributes to this risk of preventing the achievement of Strategic
      Objectives.





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
      success is dependent on the vision, technological knowledge, business
      relationships and abilities of our president, Mr. Carey. Any reduction of Mr.
      Carey's role in our business would have a material adverse effect on us. Mr.
      Carey's employment contract expired on December 31, 2004. He continues to
      function as the Chief Executive Officer and Chairmen of the Board of Directors





**Risks
      Concerning Our Technology**





**We
      Obtain Products And Services From Third Parties, Therefore An Interruption
      In
      The Supply Of These Products And Services Could Cause A Decline In Sales Of
      Our
      Products And Services.**





We
      are
      dependant upon certain providers of software, including Microsoft Corporation,
      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 development
      efforts.





In
      designing, developing and supporting our data services, we rely on certain
      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 Technology Industry Is Intense And Technology Is Changing Rapidly,
      Therefore We May Be Unable To Compete Successfully Against Our Current And
      Future Competitors In The Future.**





Many
      technology and software companies are engaged in research and development
      activities relating to our range of products. The market for auto dealership
      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 profit margins
      and the inability to achieve market acceptance for our products. Our competitors
      in the field are major international car dealership service companies,
      specialized technology companies, and, potentially, our joint venture and
      strategic alliance partners. Many of our 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 developed
      by
      one or more of our competitors.





**We
      May Not Have Adequately Protected Our Intellectual Property Rights, Therefore
      We
      May Not Be Successful In Protecting Our Intellectual Property Rights.**





Our
      success depends on our ability to sell products and services for which we do
      not
      currently 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. We plan to file an additional patent
      application 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 right through
      patent law.




-12-





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 these avenues do 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,
      Therefore We May Incur Defense Costs And Possibly Royalty Obligations Or Lose
      The Right To Use Technology Important To Our Business.**





The
      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,
      whether 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 the Company or
      our
      customers with respect to our current or future products may adversely affect
      us.





**Risks
      Relating to Our Current Financing Arrangement:**





There
      Are
      a Large Number of Shares Underlying Our Callable Secured Convertible Notes,
      and
      Warrants That May be Available for Future Sale and the Sale of These Shares
      May
      Depress the Market Price of Our Common Stock.




As
      of
      April 12, 2006, we had 37,688,793 shares of common stock issued and outstanding
      and callable secured convertible notes outstanding or an obligation to issue
      callable secured convertible notes that may be converted into an estimated
      1,026,000,000 shares of common stock at current market prices, and outstanding
      warrants or an obligation to issue warrants to purchase 5,530,000 shares of
      common stock. In addition, the number of shares of common stock issuable upon
      conversion of the outstanding callable secured convertible notes may increase
      if
      the market price of our stock declines. All of the shares, including all of
      the
      shares issuable upon conversion of the notes and upon exercise of our warrants,
      may be sold without restriction. The sale of these shares may adversely affect
      the market price of our common stock. As the market price declines, then the
      callable secured convertible notes will be convertible into an increasing number
      of shares of common stock resulting in dilution to our shareholders.





The
      Continuously Adjustable Conversion Price Feature of Our Callable Secured
      Convertible Notes Could Require Us to Issue a Substantially Greater Number
      of
      Shares, Which Will Cause Dilution to Our Existing Stockholders.




Our
      obligation to issue shares upon conversion of our callable secured convertible
      notes is essentially limitless. The following is an example of the amount of
      shares of our common stock that are issuable, upon conversion of the Notes
      (excluding accrued interest), based on market prices 25%, 50% and 75% below
      the
      average of the three lowest intraday trading prices for our common stock during
      the previous 20 trading days as of April 12, 2006 of $0.02.




NumberNumber
            
            %
                of%
                Below
            
            Price
                Per
            
            With
                Discount
            
            of
                Shares
            
            OutstandingMarket
            
            Share
            
            at
                75%
            
            Issuable
            
            Stock25%
            
            $
            .0150
            
            $
            .0038
            
            
            1,368,000,000
            
            
            97.32
            %50%
            
            $
            .0100
            
            $
            .0025
            
            
            2,052,000,000
            
            
            98.20
            %75%
            
            $
            .0050
            
            $
            .0013
            
            
            4,104,000,000
            
            
            99.09
            %




As
      illustrated, the number of shares of common stock issuable upon conversion
      of
      our secured convertible notes will increase if the market price of our stock
      declines, which will cause dilution to our existing stockholders.




-13-





The
      Continuously Adjustable Conversion Price feature of our Callable Secured
      Convertible Notes May Encourage Investors to Make Short Sales in Our Common
      Stock, Which Could Have a Depressive Effect on the Price of Our Common
      Stock.




The
      callable secured convertible notes are convertible into shares of our common
      stock at a 75% discount to the trading price of the common stock prior to the
      conversion. The significant downward pressure on the price of the common stock
      as the selling stockholder converts and sells material amounts of common stock
      could encourage short sales by investors. This could place further downward
      pressure on the price of the common stock. The selling stockholder could sell
      common stock into the market in anticipation of covering the short sale by
      converting their securities, which could cause the further downward pressure
      on
      the stock price. In addition, not only the sale of shares issued upon conversion
      or exercise of notes, warrants and options, but also the mere perception that
      these sales could occur, may adversely affect the market price of the common
      stock.





The
      Issuance of Shares Upon Conversion of the Callable Secured Convertible Notes
      and
      Exercise of Outstanding Warrants May Cause Immediate and Substantial Dilution
      to
      Our Existing Stockholders.




The
      issuance of shares upon conversion of the callable secured convertible notes
      and
      exercise of warrants may result in substantial dilution to the interests of
      other stockholders since the selling stockholders may ultimately convert and
      sell the full amount issuable on conversion. Although the selling stockholders
      may not convert their callable secured convertible notes and/or exercise their
      warrants if such conversion or exercise would cause them to own more than 4.99%
      of our outstanding common stock, this restriction does not prevent the selling
      stockholders from converting and/or exercising some of their holdings and then
      converting the rest of their holdings. In this way, the selling stockholders
      could sell more than this limit while never holding more than this limit. There
      is no upper limit on the number of shares that may be issued which will have
      the
      effect of further diluting the proportionate equity interest and voting power
      of
      holders of our common stock, including investors in this offering.





**If
      We Are Required for any Reason to Repay Our Outstanding Callable Secured
      Convertible Notes, We Would Be Required to Deplete Our Working Capital, If
      Available, Or Raise Additional Funds. Our Failure to Repay the Callable Secured
      Convertible Notes, If Required, Could Result in Legal Action Against Us, Which
      Could Require the Sale of Substantial Assets.**





We
      entered three Securities Purchase Agreements for the sale of an aggregate of
      $5,130,000 principal amount of callable secured convertible notes. The callable
      secured convertible notes are due and payable, with 12% interest, two years
      from
      the date of issuance, unless sooner converted into shares of our common stock.
      In addition, any event of default such as our failure to repay the principal
      or
      interest when due, our failure to issue shares of common stock upon conversion
      by the holder, our failure to timely file a registration statement or have
      such
      registration statement declared effective, breach of any covenant,
      representation or warranty in the Securities Purchase Agreement or related
      convertible note, the assignment or appointment of a receiver to control a
      substantial part of our property or business, the filing of a money judgment,
      writ or similar process against our company in excess of $50,000, the
      commencement of a bankruptcy, insolvency, reorganization or liquidation
      proceeding against our company and the delisting of our common stock could
      require the early repayment of the callable secured convertible notes, including
      a default interest rate of 15% on the outstanding principal balance of the
      notes
      if the default is not cured with the specified grace period. We anticipate
      that
      the full amount of the callable secured convertible notes will be converted
      into
      shares of our common stock, in accordance with the terms of the callable secured
      convertible notes. If we are required to repay the callable secured convertible
      notes, we would be required to use our limited working capital and raise
      additional funds. If we were unable to repay the notes when required, the note
      holders could commence legal action against us and foreclose on all of our
      assets to recover the amounts due. Any such action would require us to curtail
      or cease operations.




-14-





**Risks
      Relating to Our Common Stock:**





If
      We
      Fail to Remain Current on Our Reporting Requirements, We Could be Removed From
      the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell
      Our Securities and the Ability of Stockholders to Sell Their Securities in
      the
      Secondary Market.







Companies
      trading on the OTC Bulletin Board, such as us, must be reporting issuers under
      Section 12 of the Securities Exchange Act of 1934, as amended, and must be
      current in their reports under Section 13, in order to maintain price quotation
      privileges on the OTC Bulletin Board. If we fail to remain current on our
      reporting requirements, we could be removed from the OTC Bulletin Board. As
      a
      result, the market liquidity for our securities could be severely adversely
      affected by limiting the ability of broker-dealers to sell our securities and
      the ability of stockholders to sell their securities in the secondary
      market.





**Risks
      Concerning Our Capital Structure**




We
      are
      controlled by our President, which, therefore, may result in shareholders having
      no control over our direction or affairs.





As
      of
      December 31, 2005, our President and Chief Executive Officer holds approximately
      61% of the voting power of the Company. 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 could have
      the effect of delaying, deferring or preventing a change in control and may
      make
      some transactions more difficult or impossible without his support. Any of
      these
      events could decrease the market price of our Common Stock.





We
      do not
      intend to pay cash dividends on our shares of Common Stock, therefore our
      stockholders will not be able to receive a return on their shares unless they
      sell them.





We
      have
      never declared or paid dividends on our Common Stock and we do not intend to
      pay
      any Common Stock dividends in the foreseeable future. We 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 A Penny Stock And Therefore May Be Difficult To Sell.**





Our
      stock
      is a penny stock. The SEC generally defines a penny stock as 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. The market price
      of
      our Common Stock is currently less than $5.00 per share. The SEC "penny stock"
      rules govern the trading of our Common Stock. These rules require, among other
      things, that any broker engaging in a purchase or sale of 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 sell our Common Stock. Because
      the
      broker, not us, prepares this information, we cannot assure that such
      information is accurate, complete or current.




-15-





**Item
      2.****DESCRIPTION
      OF PROPERTIES**





We
      do not
      currently own any real property.





The
      Company leases
      facilities under an operating lease which expires in January, 2008 and provides
      for annual base rental of $25,416 plus a proportionate share of operating costs
      and other expenses. Future aggregate minimum annual rent payments under these
      leases are approximately as follows:





**Year
                ending December 31,**2006
            
            $
            25,5862007
            
            
            26,6122008
            
            
            22,910$
            75,108





Rent
      expense was approximately $90,000 and $107,000 for the years ended December
      31,
      2005 and 2004, respectively.




**Item
      3.****LEGAL
      PROCEEDINGS**





From
      time
      to time, we may become involved in various lawsuits and legal proceedings which
      arise in the ordinary course of business. However, litigation is subject to
      inherent uncertainties, and an adverse result in these or other matters may
      arise from time to time that may harm our business. Except as disclosed below,
      we are currently not aware of any such legal proceedings or claims that we
      believe will have, individually or in the aggregate, a material adverse affect
      on our business, financial condition or operating results.





**Item
      4.****SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.




-16-


**PART
      II**





**Item
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





Our
      Common Stock is traded on the OTC Bulletin Board, referred to herein as the
      OTCBB, under the symbol "SGHT". The following table sets forth the high and
      low
      bid prices of our Common Stock, as reported by the OTCBB for each quarter since
      January 1, 2002. The quotations set forth below reflect inter-dealer prices,
      without retail mark-up, markdown or commission and may not represent actual
      transactions.




**2004**
            
            **High**
            
            **Low**January
                1, 2004 - March 31, 2004
            
            $
            0.85
            
            $
            0.45April
                1, 2004 - June 30, 2004
            
            $
            0.60
            
            $
            0.24July
                1, 2004 - September 30, 2004
            
            $
            0.27
            
            $
            0.11October
                1, 2004 - December 31, 2004
            
            $
            0.40
            
            $
            0.11




**2005**
            
            **High**
            
            **Low**January
                1, 2005 - March 31, 2005
            
            $
            0.23
            
            $
            0.02April
                1, 2005 - June 30, 2005
            
            $
            0.09
            
            $
            0.01July
                1, 2005 - September 30, 2005
            
            $
            0.10
            
            $
            0.04October
                1, 2005 - December 31, 2005
            
            $
            0.04
            
            $
            0.03




We
      have
      appointed Continental Stock Transfer & Trust Company, 17 Battery Place, New
      York, New York 10004, as transfer agent for our shares of Common Stock.





**Item
      6.MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF
      OPERATIONS**





This
      section provides a narrative on the Company's operating performance, financial
      condition and liquidity and should be read in conjunction with the accompanying
      financial statements. Certain statements under the 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". For a
      more
      complete understanding of our operations see "Risk Factors" and "Description
      of
      Business".





**OUR
      HISTORY**





We
      were
      incorporated as a Nevada corporation on September 8, 2000, under the name TDT
      Development, Inc. On May 16, 2002, we acquired Stronghold Technologies, Inc.,
      a
      New Jersey corporation, referred to herein as our "Predecessor Entity", pursuant
      to a merger of Stronghold Technologies into our wholly-owned subsidiary, TDT
      Stronghold Acquisition Corp., referred to herein as "Acquisition Sub". Our
      company, formerly TDT Development, Inc., was a reporting entity at the time.
      Its
      principals were Pietro Bortolatti, President, CEO and Chairman, Tiziana DiRocco,
      Vice-President and Director of European Operations and David Rector, Director.
      The merger was an arms length transactions and none of the parties had a prior
      existing relationship. As consideration for the merger, we issued 7,000,000
      shares of our common stock valued at $.75 per share to the stockholders of
      the
      Predecessor Entity in exchange for all of the issued and outstanding shares
      of
      the Predecessor Entity. No fairness opinion was issued in connection with this
      merger. Following the merger, Acquisition Sub, the survivor of the merger,
      changed its name to Stronghold Technologies, Inc. (NJ) and remains our only
      wholly-owned subsidiary. We approved the transaction as the sole shareholder
      of
      the Acquisition Sub as did the shareholders of the Predecessor Entity.





On
      July
      11, 2002, we changed our name from TDT Development, Inc. to Stronghold
      Technologies, Inc. (NV). 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., which conducted an import and distribution business
      specializing in truffle-based food product, for 75,000 shares of our common
      stock held by Mr. Pietro Bortolatti, our former president.




-17-





Our
      principal executive offices mailing address is PO Box 523, Mendham, NJ 07945.
      Our telephone number is 908-903-1195 and our Internet address is
      www.strongholdtech.com.





**OVERVIEW
      OF OUR 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 Lenard J. Berger, Chief Technology Officer and
      Salvatore F. D'Ambra, Vice President, Product Development, of our wholly-owned
      subsidiary. 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, we continue to conduct the
      Predecessor Entity's handheld wireless technology business.





We
      are
      engaged in the business of selling, marketing and installing an Intel based
      server that, together with wireless handheld PDA's, manages the auto
      dealer-client relationship. Our DealerAdvance(TM) suite of Customer Relationship
      Management ("CRM") software, has been designed to assist auto dealerships in
      collecting cliental contact information, following up on sales prospects and
      aiding dealership sales person in finalizing the sale of its automobiles. We
      are
      in various stages of development of complimentary CRM systems for our handheld
      devices, including the DealerAdvance Service Solution(TM), which is designed
      to
      manage dealer service operations, customer information and vehicle inventory.
      We
      are designing our products to be functionally equivalent to the devices used
      by
      automobile rental agencies in which automobile return and checkout is automated
      using scanning and other point of sale technology.





**OUR
      REVENUES**





Our
      revenues are primarily received from system installation, software licenses
      and
      system maintenance.


Since
      the
      inception of the Company through the end of 2005, the approximate average
      selling package price of the software system and installation has been
      approximately $70,000. Additional revenues have been derived from 36 month
      system maintenance agreements that have a monthly fee that has averaged $750
      per
      month and a total contract value of $27,000.





The
      revenues derived from these categories from 2002 through 2005 are summarized
      below:





o
            Software
                License Revenues: This represents the software license portion of
                the
                Dealer Advance Service Solution purchased by our customers. The software
                and intellectual property of Dealer Advance has been developed and
                is
                owned by us. The average upfront license cost to the customer has
                been
                approximately $35,000.





o
            System
                Installation Revenues: This represents the installation and hardware
                portion of the Dealer Advance Service Solution. All project management
                during the installation is performed by us. The installation and
                hardware
                portions include cable wiring subcontracting services and off the
                shelf
                hardware and handheld computers ("PDA"s). The average upfront installation
                cost to the customer has been approximately $35,000.





o
            Monthly
                Recurring Maintenance Revenue: This represents the maintenance and
                support
                contract for the Dealer Advance Service Solution that the customer
                executes with the system installation. The typical maintenance contract
                is
                for 36 months and is $750.00 per month. The average total 36 month
                maintenance portion of the contact is $27,000. In the four year operating
                history from 2002 through 205, approximately 50% of all our customers
                have
                prepaid the maintenance fees through a third party leasing finance
                company. These prepaid maintenance fees have provided additional
                cash flow
                to us and have generated a deferred revenue liability on or balance
                sheet.





Historically,
      Cost of Sales for software licensing with the installation are estimated at
      10%
      of revenue for reproduction, minor customer specific configurations and the
      setup cost of interface with the customers DMS. Cost of sales for the system
      installation has included direct labor and travel, subcontractors and third
      party hardware.




-18-





Historically,
      the average gross profit and cost of sales for the revenues associated with
      software licenses and systems installation are summarized in the following
      table:




Approximate
                Average Gross Profit per InstallationSoftware
                License Revenue
            
            $
            35,000System
                Installation Revenue
            
            $
            35,000Gross
                Revenue per Installation:
            
            $
            70,000Gross
                Profit
            
            
            GP
                $
            
            
            GP
                %Software
                License Revenue
            
            $
            31,500
            
            
            90
            %System
                Installation Revenue
            
            $
            12,600
            
            
            36
            %Gross
                Revenue per Installation:
            
            $
            44,100
            
            
            63
            %Cost
                of SalesSoftware
                License Revenue
            
            $
            3,500
            
            
            10
            %System
                Installation Revenue
            
            $
            22,400
            
            
            64
            %Gross
                Revenue per Installation:
            
            $
            25,900
            
            
            37
            %




***New
      Revenue Plan for 2006 and the future***





From
      2002
      through 2005, we generally have granted a 60-day performance guarantee period
      for each new installation. If performance goals were met, the contracts became
      noncancellable for their terms, usually 36 months. As of December 31, 2005,
      a
      total of 83
      dealers were using the DealerAdvance Sales Solution(tm), down from 91 as of
      December 31, 2004.





This
      reduction net reduction of 8 clients represents 12 contracts that came to their
      term that were not renewed and 4 new client installations. As a result of this
      first time reversal in growth, the Company has taken proactive measures to
      reprice and reintroduce the software to the buying marketplace. This is detailed
      in this section below. Additionally, in 2006 the Company has discontinued the
      60-day performance period guarantee to coincide with the new
      program.





In
      order
      to resume the growth periods of client adoption experienced from 2002 through
      2004 that reversed in 2005, the Company has created a new revenue plan that
      will
      enable the dealer to rapidly deploy the software by purchasing a base package
      that includes a desktop version only and providing the wireless network
      installation as an add on feature.





The
      price
      point of the software has also been reduced thereby enabling the dealer to
      enter
      into a contract to utilize the system with a minimal upfront expense and a
      reduced contract period that previously averaged 36 months to 12
      months.





The
      new
      plan will include a set up and installation fee for the software of $2,500.00
      and a monthly fee of $2,500.00. The monthly fee will include both the services
      associated with the customer relationship management (CRM) software and the
      maintenance. Approximately $750.00/month of the $2,500/month fee will be
      allocated to maintenance and the remaining $1,175.00/month will be allocated
      to
      customer relationship management (CRM) software. The allocation to maintenance
      is consistent with prior evidence of clients paying this amount for many
      years.





The
      Company will recognize the revenue as earned on a monthly basis as the software
      system is used. In the event that a client does not renew use of the system
      after 12 months, then the Company will turn off the software and leave the
      hardware behind.





In
      the
      event that the dealer wishes to purchase the wireless network system and
      handheld devices, Stronghold will only provide a site license for the wireless
      network and a per handheld license. The installation and maintenance of the
      wireless network shall be acquired by the dealer from an outsourced vendor
      not
      related to the Company.




-19-





***Cost
      of Sales under new revenue plan***





The
      Cost
      of Goods Sold for new software sales are as follows:











The
      Gross
      Profit for new software sales are as follows:











**GENERAL
      AND ADMINISTRATIVE OPERATING EXPENSES**





Our
      general operating expenses are primarily comprised of:





o
            Marketing
                and Selling;





o
            General
                and Administrative; and





o
            Development
                & Operations.






-20-





**MARKETING
      AND SELLING**





Our
      marketing and selling expenses include all labor, sales commissions and
      non-labor expenses of selling and marketing of our products and services.





As
      a
      means to conserve capital and deploy an effective and efficient sale and
      marketing plan, the Company entered into a Letter of Intent, in February of
      2006
      with one of its distribution partners, Humphries Marketing Group (“HMG”), to
      provide executive sales and marketing management services. HMG is a boutique
      advertising agency primarily focused on the automobile retail industry and
      currently has approximately 20 dealer clients nationwide. Humphries also
      provides consulting services to members of the National Automobile Dealers
      Agency (“NADA”) for advertising and CRM services.





The
      agreement signed is a Letter of Intent and the final definitive documents have
      not yet been executed, however Stronghold and HMG are operating under the terms
      that includes a monthly retainer to HMG of approximately $15,000 per month
      plus
      travel and a 20% commission payable to HMG.





Additionally,
      Russ Stryker, the former VP of Sales of Marketing who was terminated by
      Stronghold Technologies in May of 2005 for budgetary reasons, is a member of
      HMG
      and will also be providing sales services to the Company through
      HMG.





**GENERAL
      and ADMINISTRATIVE**





Our
      general and administrative expenses include expenses for all facilities,
      insurance, benefits, telecommunications, legal and auditing expenses are
      included as well as the executive management group wage expense.





**DEVELOPMENT
      and OPERATIONS**





Our
      development & operations expenses include the expenses for the Client
      Consultant group which advises and supports the installations of our
      Dealer


Advance(TM)
      clients.





Bad
      debt
      expenses are also included under Selling, General and Administrative Expenses.
      The policy for recognition of bad debt expenses established for the year end
      December 31, 2003 is still in effect for 2005, however with the new Revenue
      plan
      described in the revenue section that includes the discontinuity of the Right
      of
      Retrun, the policy sections regarding the right of return will no longer be
      required in the future.





This
      policy had been established utilizing the amount of future returns estimated
      based on historical calculations, technology obsolescence and return period.
      The
      policy for reserves for doubtful accounts was set at 20% of our accounts
      receivables to accountfor estimated rights of returns and uncollectible
      accounts. This was based on a historical return rate of 18% for 2003 and 16%
      in
      2004. In the first full operating year of 2002 the return rate was 25%. The
      estimate for total returns


in
      the
      life of our company as of September 30, 2005 is 24 returns on 119 sales for
      a
      return rate of 20.16% for the life of operations. In recognizing revenue, we
      consider the following factors:





o
            Our
                price to the buyer is substantially fixed or determinable at the
                date of
                sale as evidenced by the contract signed for each sales and the terms
                and
                conditions of each;





o
            The
                buyer has paid our company and the buyers obligation is not contingent
                on
                resale of the product;





o
            The
                buyer's obligation to our company would not be changed in the event
                of
                theft or physical destruction or damage of the
                product;





o
            The
                buyer acquiring the product for resale has economic substance apart
                from
                that provided by our company;





o
            we
                do not have significant obligations for future performance to directly
                bring about resale of the product by the buyer;
                and





o
            The
                amount of future returns can be reasonably estimated based on historical
                calculations, technology obsolescence and return
                period.






-21-





**YEAR
      ENDED DECEMBER 31, 2005 AND YEAR ENDED DECEMBER 31,
      2004** **.**




**Revenue**




For
      the
      year ended December 31, 2005 we had revenue of $943,735 compared with revenue
      of
      $2,489,790 for the year ended December 31, 2004 for a decrease of 62%. Revenue
      is generated from software license and system installation, maintenance support
      and service revenues. Revenues for the years ended December 31, 2005 and
      December 31, 2004 are broken down as follows:


**2005**
            
            **2004**
            
            **$
                Change**
            
            **%
                Change**Software
                License & System Installation
            
            $
            288,200
            
            $
            1,923,523
            
            $
            (1,635,323
            )
            
            -85
            %Support
                & Maintenance
            
            $
            605,723
            
            $
            528,887
            
            $
            76,835
            
            
            15
            %Services
            
            $
            49,812
            
            $
            37,380
            
            $
            12,432
            
            
            33
            %Total
                Revenue
            
            $
            943,735
            
            $
            2,489,790
            
            $
            (1,546,055
            )
            
            -62
            %




Software
      license and system installation revenue decreased $1,623,323 in 2005to $288,200
      as compared to $1,923,523 in 2004 for a decrease of 85%. The company installed
      4
      sites in 2005 with an average sales price of $51,000 as compared to 27 sites
      in
      2003, with an average sales price of $58,000. The primary reasons for the
      decrease in revenue can be attributed to 1) a reduction in the number of sales
      people due to budget constraints and lack of capital which resulted in fewer
      new
      dealership sales and 2) repeated concerns in the marketplace about the Company’s
      ability to continue as a going concern.





Support
      and maintenance revenues increased $76,835 in 2005 to $605,723 as compared
      to
      $528,887 in 2004 for an increase of 15%. This increase was attributable to
      an
      increase of 9 sites under maintenance contracts from 84 at the end of 2004
      to a
      maximum of 93 during 2005. Eleven maintenance contracts expired in the
      4 th quarter
      of 2005.





Services
      revenue consisting of 3 rd party
      subscription services increased $12,432 in 2005 to $49,812 as compared to
      $37,380 in 2004 for an increase of 45%. The increase is attributable to demand
      for services such as Do Not Call and reverse phone lookup.





Given
      that the company has continued to generate losses and are reliant on raising
      capital to support operations, the continued loss of momentum may cause us
      our
      revenues to continue to decrease.




**Cost
      of Sales**





Cost
      of
      sales on a percentage of revenue basis was increased 0.86%% to 34.37% of revenue
      for the twelve months ended December 31, 2005 as compared to 33.51% of revenue
      for the twelve months ended December 31, 2004. The table below shows the Cost
      of
      Sales and percentage by category and the comparison in dollars and percentage
      for the twelve months ended December 31, 2005 and twelve months ended December
      31, 2004.




-22-




**2005**
            
            **2004**
            
            **2005**
            
            **2004****Cost
                of Sales**
            
            **Dollars**
            
            **Dollars**
            
            **%
                of Revenue**
            
            **%
                of Revenue**
            
            **%
                Change**Hardware
                Components
            
            $
            90,957
            
            $
            341,245
            
            
            9.64
            %
            
            13.71
            %
            
            -4.07
            %Client
                Software & Licensing
            
            
            39,631
            
            
            97,537
            
            
            4.20
            %
            
            3.92
            %
            
            0.28
            %Distribution
                Fees
            
            
            3,274
            
            
            11,810
            
            
            0.35
            %
            
            -
            
            
            0.35
            %Subcontractors
            
            
            21,941
            
            
            28,987
            
            
            2.32
            %
            
            1.16
            %
            
            1.16
            %Misc
                Installation Costs
            
            
            3,971
            
            
            6,661
            
            
            0.42
            %
            
            0.27
            %
            
            0.15
            %Installations/Travel
            
            
            29,063
            
            
            149,243
            
            
            3.08
            %
            
            5.99
            %
            
            -2.91
            %Repairs
            
            
            80
            
            
            895
            
            
            0.01
            %
            
            0.04
            %
            
            -0.03
            %Shipping
            
            
            15,630
            
            
            41,677
            
            
            1.66
            %
            
            1.67
            %
            
            -0.02
            %Labor
            
            
            119,813
            
            
            156,295
            
            
            12.70
            %
            
            6.28
            %
            
            6.42
            %Total
                Cost of Sales
            
            **$**
            **324,360**
            
            **$**
            **834,350**Total
                Cost of Sales % of Revenue
            
            
            **34.37**
            **%**
            
            **33.51**
            **%**
            
            
            
            
            
            
            
            **0.86**
            **%**




**Gross
      Profits**




We
      generated $619,376 in gross profits from sales for the year ended December
      31,
      2005, which was a decrease of $1,036,065 from the year ended December 31, 2004,
      when we generated $1,655,441 in gross profits. Our gross profit margin
      percentage decreased by 1.14% from 66.49% in the year ended December 31, 2004
      to
      65.63% in the year ended December 31, 2005.




**Selling,
      General and Administrative Expenses**




Total
      Selling, General and Administrative expenses in the year ended December 31,
      2005
      were $2,732,954, a decrease of 35.32% or $1,492,698 from the year ended December
      31, 2004 of $4,225,652. The significant reduction in expense is primarily
      attributable to efficiencies gained through the reduction of staff from 21
      on
      December 31, 2004 to 8 in the year ended December 31, 2005. The significant
      reduction in staffing resulted in a reduction of payroll expenses of $701,255,
      which was the largest portion of the $1,492,698 reduction. Other significant
      expense reductions within selling, general and administrative expenses for
      the
      year ended December 31, 2005 and December 31, 2004 included reductions as
      follows:




·
            legal
                expenses of $36,541




·
            printing
                and reproduction expenses of $40,427




·
            travel
                and automobile expenses reductions of
                $175,504




·
            marketing
                expenses of $47,047.




·
            employee
                benefits of $60,192




·
            consultant
                expenses of $26,853




Our
      interest and penalty expense increased from $327,429 in the year ended December
      31, 2004 to $747,383 in the year ended December 31, 2005. This increase of
      $419,954 is primarily due to interest expense attributed to the AJW Convertible
      Notes.




-23-




**Operating
      Loss**




The
      Company’s operating losses decreased by $456,632 in comparing the year ended
      December 31, 2005 to the year ended December 31, 2004, which were $2,113,579
      and
      $2,570,211, respectively. This improvement in operating loss despite the
      significant reduction in revenues is due to the significant reductions of
      selling, general and administrative expenses of $1,492,698.




**Net
      Loss**




We
      had a
      net loss of $3,632,448 for the year ended December 31, 2005 compared to
      $3,029,373 the year ended December 31, 2004, an increase in the net loss of
      $603,075. This increase of net loss of 19.9% is attributable to a decrease
      of
      revenue, increased interest expense and liquidated damages associated with
      the
      convertible debt Registration Rights Agreement. Our loss per share also reduced
      to $.17 loss per share with a weighted average of 16,997,444 shares outstanding
      in the year ended December 31, 2005 as compared to $0.21 loss per share in
      the
      year ended December 31, 2004 with a weighted average of 14,081,263 shares
      outstanding.




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, subject to any restrictions or prohibitions that may
      be
      contained in our loan or preferred stock agreements, has sole discretion to
      pay
      dividends based on our financial condition, results of operations, capital
      requirements, contractual obligations and other relevant factors.





**FINANCIAL
      CONDITION**





**LIQUIDITY
      AND CAPITAL RESOURCES**





**OVERVIEW**





As
      of
      December 31, 2005, our cash balance was $67,060.We had a net loss of $3,632,448
      for the fiscal year ended December 31, 2005. We had a net operating loss of
      approximately $12,000,000 for the period from May 17, 2002 through December
      31,
      2005 to offset future taxable income. Losses incurred 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 fiscal years. Our
      accounts receivable as of December 31, 2005, less allowance for doubtful
      accounts of $60,000, was $43,437, and $523,689 as of the year ended December
      31,
      2004, less allowances for doubtful accounts of $219,891,.The reason for the
      decrease in accounts receivable of $420,252 when comparing accounts receivable
      as of December 31, 2005 to December 31, 2004 was due to the decrease in
      revenues, a faster collection cycle and elimination of 30 to 60 day performance
      period Accounts receivable balances represent amounts owed to us for
      maintenance, service, training services, software customization and additional
      systems components.





As
      of
      December 31, 2005, we had the following financing arrangements:





**Debt
                Liability Summary Table****Current
                Debt liabilities**IRS
                Payment Plan
            
            
            329,830Interest
                payable, stockholders (founding shareholder)
            
            
            1,039,315Notes
                payable, stockholders, current portion (founding
                shareholder)
            
            
            1,352,531Total
                Debt current liabilities
            
            
            3,227,576**Long-term
                Debt liabilities**Notes
                payable, stockholders, less current portion (founding shareholder
                and
                Stanford)
            
            
            875,000Note
                payable, convertible debt
            
            
            4,496,389IRS
                Payment Plan (Long term portion)
            
            
            45,000Total
                long term Debt liabilities
            
            
            5,416,389






-24-





With
      respect to liabilities for real property leases, the following table summarizes
      these obligations:


**Months**
            
            **Balance****Location**
            
            **Date**
            
            **Term**
            
            **Remaining**
            
            **on
                Lease**VA
            
            
            11/4/2005
            
            
            36
                mos
            
            
            34
            
            $
            97,622





**FINANCING
      NEEDS**





To
      date,
      we have not generated revenues in excess of our operating expenses. We have
      not
      been profitable since our inception; we expect to incur additional operating
      losses in the future and will require additional financing to continue the
      development and commercialization of our technology. We have incurred a net
      loss
      of approximately $3,632,000 and have negative cash flows from operations of
      approximately $2,398,000 for the year ended December 31, 2005, and have a
      working capital deficit of approximately $5,879,000 and a stockholders' deficit
      of approximately $10,712,000 as of December 31, 2005. These conditions raise
      substantial doubt about our ability to continue as a going concern. During
      2006,
      our management will rely on raising additional capital to fund its future
      operations. If we are 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 we may be unable to continue
      our
      operations.







As
      of
      April 11, 2006, we had a commitment for an additional $1,200,000 financing
      with
      the issuance of a convertible note financing of which $200,000 shall be
      purchased in April 2006 and May 2006 and $100,000 of notes shall be purchased
      on
      the final business day of each month from the period of June 2006 through
      January 2007.,




We
      expect
      that the remaining $1,200,000 will provide the necessary cash to support
      operations throughout 2005 and throughout the first quarter of 2006. In the
      event that the company is unable to maintain its sales volume, collect current
      receivables and sustain operations until the final $1,200,000 is received,
      we
      may be unable to continue operations. Additionally, in the event that the
      Investors invoke their right to terminate additional purchases with 30 days
      notice during the financing period of the $1,200,000 detailed above, the Company
      could find itself without cash to support operations and unable to perform
      regular business.





We
      expect
      our capital requirements to increase significantly over the next several years
      as we continue to develop and market the DealerAdvanceTM suite and as we increase
      marketing and administration infrastructure and develop 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 and the cost and timing of the expansion of our
      marketing efforts.





**FINANCINGS**





We
      have
      entered into the following financing transactions:





**LOANS
      FROM CHRISTOPHER J. CAREY, AN EXECUTIVE OFFICER, DIRECTOR AND SHAREHOLDER OF
      THE
      COMPANY**





On
      July
      31, 2000, the Predecessor Entity entered into a line of credit with Mr. Chris
      Carey, our President and Chief Executive Officer and the President and Chief
      Executive Officer of Stronghold. The terms of the line of credit 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
      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 indebtedness under the July 31, 2000 line of credit
      from Mr. Carey.




-25-





On
      May
      16, 2002, the total amount outstanding under the July 31, 2000 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
      September 30, 2002, we renegotiated the $1,200,000 promissory note with Mr.
      Carey pursuant to a requirement contained in the promissory note with
      UnitedTrust Bank. According to the new terms of the loan, Mr. Carey extended
      the
      repayment of the principal amount until December 1, 2005. On December 1, 2005
      Mr. Carey extended the term of the loan to May 31, 2006.Until such time as
      the
      principal is paid, we will pay an interest only fee of 12% per year. As of
      December 31, 2005, $262,000 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. 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. This bridge loan was for a period of twelve months, with all
      principal due and payable on September 30, 2003. The 12.5% interest on the
      outstanding principal is due each year. At the end of the loan period, the
      CC
      Trust Fund will be entitled to exercise 25,000 warrants at $1.50 per share.
      On
      September 30, 2003, the CC Trust Fund agreed to extend the term of their loan
      to
      December 30, 2003. On December 30, 2003, the CC Trust Fund agreed to extend
      the
      term of their loan to June 30, 2004. On March 30, 2004, the CC Trust Fund agreed
      to extend the term of their loan to March 31, 2005. On May 1, 2004, the AC
      Trust
      Fund agreed to extend the term of their loan to November 1, 2005. On December
      31, 2005 the AC Trust Fund agreed to extend the term of the loan to May 31,
      2006. As of December 31, 2005, $447,454, including interest, was outstanding
      under the CC Trust Fund loan agreement.





On
      September 30, 2002, we entered into a loan agreement with AC Trust Fund to
      borrow an amount up to $375,404. 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. This bridge loan is for a period of twelve months, with all principal
      due and payable on September 30, 2003. The 12.5% interest on the outstanding
      principal is due each year. At the end of the loan period, the Fund will be
      entitled to exercise 25,000 warrants at $1.50 per share. On September 30, 2002,
      the AC Trust Fund agreed to extend the term of their loan to December 30, 2003.
      On December 30, 2003, the AC Trust Fund agreed to extend the term of their
      loan
      to June 30, 2004. On March 30, 2004, the AC Trust Fund agreed to extend the
      term
      of their loan to March 31, 2005. On May 1, 2004, the AC Trust Fund agreed to
      extend the term of their loan to November 1, 2005. As of December 31, 2005,
      $470,058, including interest, was outstanding under the AC Trust Fund loan
      agreement.





On
      March
      18, 2003, we entered into a bridge loan agreement with 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 $0.97 per share. On December 30, 2003,
      Christopher J. Carey agreed to extend the term of the promissory note to June
      30, 2004. On May 1, 2004, Christopher J. Carey agreed to extend the term of
      the
      loan to June 1, 2005. On June 1, 2005 Mr. Carey extended the loan to May 31,
      2006. As of December 31, 2005, $394,995, including interest, was outstanding
      under the agreement.





On
      April
      24, 2003, 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 in conjunction with the Series B Convertible
      Stock Financing detailed below.





**FINANCINGS
      FROM PNC BANK (FORMERLY UNITED TRUST BANK)**





On
      November 1, 2001, the Predecessor Entity entered into a line of credit with
      UnitedTrust Bank (now PNC Bank) pursuant to which the Predecessor Entity
      borrowed $1.5 million. This line of credit was due to expire by its terms,
      and
      all outstanding amounts were due to be paid, on September 30, 2002. On September
      30, 2002, the line of credit came due and the bank granted a three-month
      extension. On September 30, 2002, we converted the outstanding line of credit
      with UnitedTrust Bank into a $1,500,000 promissory note. Such promissory note
      is
      to be paid in 36 monthly installments, which commenced in February 2003 and
      is
      due to terminate on January 1, 2006. Interest accrues on the note at the prime
      rate, adjusted annually, which is the highest New York City prime rate published
      in The Wall Street Journal. The initial prime rate that applied to the
      promissory note was 4.750%.




-26-





On
      August
      7, 2003, we entered into a modification of the loan agreement with UnitedTrust
      Bank, of which the principal balance was $1,291,666 at the time of closing
      of
      the modification. Pursuant to the modification agreement, UnitedTrust Bank
      agreed to subordinate its lien against our assets to a new lender and reduce
      the
      monthly payments from $41,666 per month principal plus accrued interest as
      follows: (a) from the date of closing through December 15, 2003, $10,000 per
      month plus accrued interest (b) from January 15, 2004 through December 15,
      2004,
      $15,000 per month plus accrued interest, (c) from January 15, 2005 through
      December 15, 2005, $20,000 per month plus interest and (d) on the maturity
      date
      of January 1, 2006, a balloon payment equal to all the outstanding principal
      and
      accrued interest.





On
      January 9, 2004, we were served with a notice of an event of default by United
      Trust Bank, now PNC Bank, a successor by merger effective January 2004 with
      United Trust Bank, ("the Bank"), under its Loan Agreement. Pursuant to section
      6.01(d) of the Loan Agreement, an Event of Default exists due to the Company's
      failure to pay Payroll Tax Obligations aggregating in the amount of $1,089,897
      as of December 31, 2003 (including estimated penalties and interest). The
      Company continued to make timely scheduled payments pursuant to the terms of
      the
      loan. On April 1, 2004, the Company received a second Notice of Event of Default
      stating that the Bank had accelerated the maturity of the Loan and declared
      all
      principal, interest, and other outstanding amounts due and payable.





Because
      we were in default under the terms of the loan due primarily to our payroll
      tax
      default, the Bank instituted the default rate of interest which was 5% above
      the
      "highest New York City prime rate" stated above. We entered into an installment
      agreement with the United States Internal Revenue Service to pay the withholding
      taxes, under the terms of which we will pay $100,000 by May 31, 2004 and $35,000
      each month, commencing June 28, 2004, until we have paid the withholding taxes
      due in full.





On
      April
      27, 2004, PNC Bank, N.A., as successor by merger to UnitedTrust Bank filed
      a
      complaint in the Superior Court of New Jersey, Law Division, Union County
      (Docket No. UNN-L_001522-04) against our company and Christopher J. Carey,
      in
      his capacity as guarantor, to collect the sums outstanding under the Loan
      Agreement, dated as of September 30, 2002.





On
      July
      15, 2004, we entered into a fully executed forbearance agreement with PNC Bank,
      N.A. We made an initial principal payment of $420,000 with the execution of
      the
      forbearance. Additionally, we were required to make four consecutive monthly
      installments of $50,000.00 on August 15, 2004, September 15, 2004, October
      15,
      2004 and November 15, 2004 followed by the remaining principal on or before
      December 15, 2004.





On
      November 12, 2004, our company and PNC Bank agreed upon terms of an amendment
      to
      the forbearance agreement whereby by the payment schedule changed to include
      interest only payments on November 15, 2004, December 15, 2004 and January
      15,
      2005. We made all interest payments.





On
      March
      31, 2005, the Company paid off and satisfied the note due to PNC bank in the
      principal amount of $606,667. All accrued interest in the amount of $16,830
      was
      all paid off.





**FINANCINGS
      BY STANFORD VENTURE CAPITAL HOLDINGS, INC.**





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 issued
      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 from May 16,
      2002
      through and July 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.





The
      Series A amounts and closing dates are as follows:




CLOSING
                DATE
            
            PURCHASE
                PRICEMay
                17, 2002
            
            $
            750,000July
                3, 2002
            
            $
            750,000July
                11, 2002
            
            $
            750,000July
                19, 2002
            
            $
            750,000






-27-





The
      warrants issued in 2002 were valued at $294,893 using the Black-Scholes model
      using the following assumptions and a stock price of $1.50:





o
            Conversion
                price $1.50;





o
            expected
                volatility of 0%;





o
            expected
                dividend yield rate of 0%;





o
            expected
                life of 5 years; and





o
            a
                risk-free interest rate of 4.91% for the period ended June 30, 2002.





In
      connection with our Series B financing, as partial consideration for the funds
      received pursuant to the Series B financing, we agreed to decrease the exercise
      price to $.25. With respect to the decrease in the exercise price and the
      warrants being treated as a cost of the series B financing, the reduction of
      series A warrants was written in to the Series B preferred stock agreements
      as
      part of the negotiation. At the end of fiscal 2003, Stanford exercised the
      warrants for 2,002,750 shares of our common stock.





On
      April
      24, 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
      $0.90 Convertible Preferred Stock. The issuance of the Series B Preferred Stock
      took 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 to purchase 2,002,750
      shares of our common stock: (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. In addition, the Company and Stanford 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 A and Series B Preferred Stock with the Securities and Exchange
      Commission, no later than November 15, 2003. The Company and Stanford agreed
      to
      extend the date of the filing requirements of the Registration Rights Agreement
      to March 14, 2004. We have not yet filed a registration statement, and are
      in
      negotiations with Stanford regarding an extension of the registration filing
      date.





On
      March
      3, 2004 and March 15, 2004 we received loans in the amount of $437,500 each
      from
      Stanford, resulting in a total loan of $875,000. We have agreed to pay Stanford
      an 8% annual dividend on the funds invested and to redeem the securities not
      later than three years from the date of funding.





**PRIVATE
      PLACEMENTS WITH ACCREDITED PRIVATE INVESTORS**





During
      August and September 2002, we entered into 9 subscription agreements with
      accredited private investors, as defined in Rule 501 of the Securities Act,
      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.





In
      October 2003, we commenced offerings to accredited investors in private
      placements of up to $3,000,000 of our common stock. In the period of October
      2003 through January 9, 2004 we raised $225,000 under the terms of these private
      placements. The shares offered in the private placement are priced at the 5
      trading day trailing average closing price of the common stock on the OTCBB,
      less 20%. For each share purchased in the private placements, purchasers
      received a warrant to purchase one half (0.5) share of common stock at 130%
      of
      the purchase price. A minimum of $25,000 was required per investor. The number
      shares issued under this placement total 509,559, at an average price of
      $0.44/share.




-28-





**CALLABLE
      SECURED CONVERTIBLE NOTES**





*Callable
      Secured Convertible Notes*




To
      obtain
      funding for its ongoing operations, Stronghold Technologies, Inc. (the
      "Company") entered into a Securities Purchase Agreement (the "Securities
      Purchase Agreement") with New Millennium Capital Partners II, LLC, AJW Qualified
      Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (collectively, the
      "Investors") on June 18, 2004 for the sale of (i) $3,000,000 in callable
      convertible secured notes (the "Notes") and (ii) stock purchase warrants to
      buy
      3,000,000 shares of the Company's common stock (the "Warrants").





To
      date,
      the Investors purchased $4,930,000 in Notes, and received Warrants to purchase
      an aggregate of 4,930,000 shares of the companies stock, in thirteen different
      traunches dated June 18, 2004 for $1,000,000, July 21, 2004 for $500,000,
      October 22, 2004 for $350,000, March 18, 2005 for $650,000, March 31, 2005
      for
      $350,000, May 4, 2005 for $300,000, July 18, 2005 for $282,500, August 30,
      2005
      for $100,000, October 6, 2005 for $210,000, November 9, 2005 for $150,000,
      December 31, 2005 for $107,480, February 6 2006 for $180,000 and on March 17,
      2006 for $250,000. On Dec 20, 2005 the investors converted $5,186 of the
      convertible notes into 172,873 shares of common stock.





The
      Notes
      bear interest at 12%, mature two years from the date of issuance, and are
      convertible into our common stock, at the Investors' option, at the lower of
      (i)
      $0.70 or (ii) 75% of the average of the three lowest intraday trading prices
      for
      the Company's common stock during the 20 trading days before, but not including,
      the conversion date. The Company may prepay the Notes in the event that no
      event
      of default exists, there are a sufficient number of shares available for
      conversion of the Notes and the market price is at or below $0.57 per share.
      The
      full principal amount of the Notes is due upon default under the terms of Notes.
      In addition, the Company has granted the investors a security interest in
      substantially all of its assets and intellectual property as well as
      registration rights.





The
      Notes
      bear interest at 12%, mature two years from the date of issuance, and are
      convertible into our common stock, at the Investors' option, at the lower of
      (i)
      $0.70 or (ii) 75% of the average of the three lowest intraday trading prices
      for
      the Company's common stock during the 20 trading days before, but not including,
      the conversion date. The Company may prepay the Notes in the event that no
      event
      of default exists, there are a sufficient number of shares available for
      conversion of the Notes and the market price is at or below $0.57 per share.
      The
      full principal amount of the Notes is due upon default under the terms of Notes.
      In addition, the Company has granted the investors a security interest in
      substantially all of its assets and intellectual property as well as
      registration rights.





**Restatement
      of financial statements**





In
      connection with the preparation of the Annual Report on Form 10-KSB of the
      Company for the fiscal year ended December 31, 2005, the Company's management
      reviewed the Securities and Exchange Commission’s release on Dec. 1, 2005
      entitled “Current
      Accounting and Disclosure Issues in the Division of Corporation Finance” as
      Prepared by Accounting Staff Members in the Division of Corporation Finance,
      U.S. Securities and Exchange Commission Washington, D.C., may impact the
      reporting of the Convertible Debenture Notes, Stand Alone Warrants and as a
      result of certain registration rights granted to the investors of these notes,
      potential Liquidated Damages that were not previously recorded.





Specifically,
      the Company deemed the Convertible Debt previously reported under EITF 98-5
      and
      EITF 00-27 must now be reported within the guidelines of EITF 00-19 and
      therefore restatements of previously issued financial statements must be done.
      In preparing the detail for this restatement, the Company concluded that the
      fair value of the debt at all points in time was greater than the fair value
      of
      the Company in total. This conclusion is the basis that there is no value
      attributable to the Conversion Feature of this debt.





After
      reviewing the matter with its current and former independent registered public
      accounting firms, the Company has identified certain adjustments that
      necessitate the restatement of its financial statements for the second and
      third
      quarters of fiscal 2004, the interim periods of fiscal 2005, and for the fiscal
      years 2004.




-29-





These
      adjustments reflect the following with respect to the Convertible Debt and
      Stand
      Alone Warrants:





**Convertible
      Debt:** In
      accordance with EITF 00-19, since
      there is no explicit limit on the number of shares that are to be delivered
      upon
      exercise of the conversion feature, SGHT is not able to assert that it will
      have
      sufficient authorized and unissued shares to settle the conversion option.
      As a
      result, the conversion feature should be accounted for as a derivative
      liability, with changes in fair value recorded in earnings each period and
      therefore the previous reporting in accordance with EITF’s 98-5 and 00-27 for
      the beneficial conversion feature and debt discount should be restated as
      such.





In
      recording the valuation of the Convertible Feature Liability within the
      restatement, the Company has determined that the fair value of this liability
      is
      zero due to the carrying value of the convertible debt exceeding the fair value
      of the Company. The primary impact of adhering to EITF 00-19 is to eliminate
      the
      portion of the debt previously recorded as equity. Additionally, the Company
      has
      written off the loan acquisition costs associated with convertible debt,
      previously recorded as a Deferred Charge asset.





**Stand
      Alone Warrants:** The
      Company determined that the Stand Alone Warrants include a provision in the
      Registration Rights Agreement for  “partial
      relief for the damages to the Investors by reason of any such delay in or
      reduction of their ability to sell the Registrable Securities”. As a result,
      this relief for the investors should be accounted for as a liability and the
      previous reporting should be restated as such.





The
      restatement adjustments to the Company's financial statements for the years
      ended December 31, 2004 and 2003, respectively, are summarized in Note 5 of
      the
      enclosed audited financial statements herein:





The
      Warrants are exercisable until five years from the date of issuance at a
      purchase price of $0.57 per share. In addition, the exercise price of the
      Warrants is adjusted in the event the Company issues common stock at a price
      below market. Since the Company does not intend to issue common stock at below
      market price the warrants were valued at $NIL using the Black- Scholes option
      pricing model including the following assumptions: exercise price of $0.57,
      expected volatility of approximately 15%, expected dividend yield rate of 0%,
      expected life of 5 years, and a risk free interest rate of 4.23% for December
      31, 2004.





The
      Investors have contractually agreed to restrict their ability to convert the
      Notes and exercise the Warrants and receive shares of the Company's common
      stock
      such that the number of shares of the Company's common stock held by them and
      their affiliates after such conversion or exercise does not exceed 4.99% of
      the
      then issued and outstanding shares of the Company's common stock.





All
      shares of the Company's common stock associated with this private placement
      are
      restricted securities in accordance with Rule 144 as promulgated under the
      of
      the Securities Act of 1933.





On
      March,
      18 2005, the Investors purchased an additional $650,000 in Notes and received
      additional Warrants to purchase 650,000 shares of our common stock, completing
      the sale of (i) $3,000,000 in callable secured convertible notes (the "Notes")
      and (ii) stock purchase warrants (the "Warrants") to buy 3,000,0000 shares
      of
      our common stock that was agreed upon on June 18, 2004.





The
      agreement entered into on June 18, 2004 was amended on March 4, 2005, changing
      the conversion price of the convertible notes to the lower of (i) $0.70 or
      (ii)
      25% of the average of the three lowest intraday trading prices for our common
      stock during the 20 trading days before, but not including, the conversion
      date.
      The original agreement had the conversion price as the lower of (i) $0.70 or
      (ii) 50% of the average of the three lowest intraday trading prices for our
      common stock during the 20 trading days before, but not including, the
      conversion date.





**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 Dealer Customer Relationahip Management 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 dealership technology business only, other
      than with respect to other expenses. We believe that a comparison of our truffle
      business to our technology business is not a relevant analysis. Therefore,
      results of operations for the fiscal years ended 2001 and 2002 reflect
      operations of our technology business only.




-30-





We
      entered the Dealership Customer Relationship Management technology business
      through the acquisition of the Predecessor Entity, which had only twenty-two
      months of operating history. We are subject to all of the risks inherent in
      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 AND USE OF ESTIMATES**





Financial
      Reporting Release No. 60, 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 our
      Consolidated Financial Statements. In addition, Financial Reporting Release
      No.
      61 was recently released by the SEC requires all companies to include a
      discussion which addresses, among other things, liquidity, off-balance sheet
      arrangements, contractual obligations and commercial commitments. The following
      is a brief discussion of the more significant accounting policies and methods
      used by us.





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our 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
      is recognized under the guidelines of Statement of Position SOP 97-2 Software
      Revenue Recognition.





All
      sales
      agreements with clients do not require significant production, modification,
      or
      customization of software, additionally all the functionality of the product
      is
      made available upon delivery, therefore the Company recognizes revenue in
      accordance with Paragraph 8 of 97-2 when:





1)
            Persuasive
                evidence of an arrangement exists as evidenced by a signed contract,





2)
            Delivery
                has occurred, please note that Stronghold does not recognize revenue
                prior
                to delivery,





3)
            The
                price of Stronghold's system is fixed and determinable as evidence
                by the
                contract, and





4)
            Collectability
                is highly probable.





Previously
      in the periods of 2002 through 2005, the Company had also recognized revenue
      under the guideline of SFAS No. 48 “Revenue Recognition When Right of Return
      Exists”. Consistent with the new revenue plan of a shorter time commitment and
      proportionally minimal upfront fees as detailed in the Revenue sections herein,
      the Company has discontinued the 60 day trial period and the corresponding
      right
      of return. Additionally, the Company has also discontinued the third party
      long
      term lease arrangement that the Company also used from 2002 through
      2005.





The
      current revenue recognition plan will include a set up and installation fee
      for
      the software of $2,500.00 and a monthly fee of $2,500.00. The monthly fee will
      include both the services associated with the customer relationship management
      (CRM) software and the maintenance. Approximately $750.00/month of the
      $2,500/month fee will be allocated to maintenance and the remaining
      $1,175.00/month will be allocated to customer relationship management (CRM)
      software. The allocation to maintenance is consistent with prior evidence of
      clients paying this amount for many years.




-31-





The
      Company will recognize the revenue as earned on a monthly basis as the software
      system is used. In the event that a client does not renew use of the system
      after 12 months, then the Company will turn off the software and leave the
      hardware behind.





**DEFERRED
      REVENUE**





Deferred
      revenue is recorded as a liability when we receive the three year maintenance
      contact in a one-time advance payment. We then recognize the revenue from the
      maintenance portion of the contract on a pro rata basis over 36 months as the
      service is delivered.





**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 year ended December 31, 2005, we capitalized $65,455 of development costs
      in
      developing enhanced functionality of our DealerAdvanceTM products. This compares
      with $407,585 for the year ended December 31, 2004.




-32-




**INDUSTRY
      TRENDS**





The
      automotive industry has identified sales productivity tools and CRM systems
      as
      high priorities. 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.
      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
      large consumer purchases are sensitive to broad economic trends, our operations
      may be affected by general economic conditions. For example, if dealer sales
      are
      trending downward, capital expenditures like those associated with our
      DealerAdvanceTM suite of products may be delayed or abandoned.





**Our
      Customers**





As
      of
      December 2005, the U.S. retail automotive industry consisted of approximately
      21,000 franchise dealerships covering all domestic and foreign brands. These
      franchises are granted for specific geographic territories and allow the
      franchisee to pursue sales within that territory. In many cases, a franchisee
      with two or more brands will operate at one location or property (e.g.,
      Honda/Acura or Lincoln/Mercury).





Over
      the
      last 10 years, the industry has experienced some consolidation of ownership
      with
      large consolidators (large public and private companies) buying up independently
      owned retail sites and dealer groups. However, the market is still highly
      fragmented with the 100 top consolidators operating approximately 1,800
      dealerships, or only 8.5% of total dealerships.





**The
      Automobile Dealer Software Market**





The
      automotive dealer software industry began as a spin-off of companies providing
      accounting and business forms to dealerships. Today, two major and one minor
      providers control the market for DMS, which is primarily an accounting and
      business system. The major providers are ADP Dealer Services, a unit of ADP,
      Inc. (40% market share) and Reynolds & Reynolds, an $850 million (in
      revenue) public company (35% market share). The minor player is Universal
      Computer Systems (UCS), a privately held company with approximately $150 million
      in revenues (1% market share). Approximately 98% of dealerships utilize some
      form of DMS.




33





**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, subject to any restrictions or prohibitions that may
      be
      contained in our loan or preferred stock agreements, has sole discretion to
      pay
      dividends based on our financial condition, results of operations, capital
      requirements, contractual obligations and other relevant factors.





**Item
      7. FINANCIAL STATEMENTS**





The
      financial statements required to be filed pursuant to this Item 7 are included
      in this Annual Report on Form 10-KSB beginning on page F-1. A list of the
      financial statements filed herewith is found on page F-1.





**Item
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURES**




On
      March
      13, 2006, Stronghold Technologies, Inc. (the "Company") engaged the firm of
      Paritz & Company, PA ("New Auditors") to serve as its independent registered
      public accountants for the fiscal year ending December 31, 2005. On March 10,
      2006 (the "Termination Date"), the Company notified Rothstein, Kass &
Company, P.C. ("Former Auditors") that it was terminating Former Auditors'
      services. The decision to change accountants was recommended and approved by
      the
      Company's Audit Committee and Board of Directors.




During
      the two years ended December 31, 2005, and through the Termination Date, (i)
      there were no disagreements between the Company and Former Auditors on any
      matter of accounting principles or practices, financial statement disclosure
      or
      auditing scope or procedure which, if not resolved to the satisfaction of Former
      Auditors would have caused Former Auditors to make reference to the matter
      in
      its reports on the Company's financial statements, and (ii) except for Former
      Auditors' report on the Company's December 31, 2004 financial statements, which
      included an explanatory paragraph wherein they expressed substantial doubt
      about
      the Company's ability to continue as a going concern, Former Auditors' reports
      on the Company's financial statements did not contain an adverse opinion or
      disclaimer of opinion, or was modified as to uncertainty, audit scope or
      accounting principles. During the two fiscal years ended December 31, 2004
      and
      2003 and through the Termination Date, there were no reportable events as the
      term described in Item 304(a)(1)(iv) of Regulation S-B.




During
      the two fiscal years ended December 31, 2005, and through the Termination Date,
      the Company has not consulted with New Auditors regarding either:




1.
            The
                application of accounting principles to any specific transaction,
                either
                completed or proposed, or the type of audit opinion that might be
                rendered
                on the Company's financial statements, and neither a written report
                was
                provided to New Auditors nor oral advice was provided that New Auditors
                concluded was an important factor considered by the Company in reaching
                a
                decision as to the accounting, auditing or financial reporting issue;
                or




2.
            Any
                matter that was either subject of disagreement
                or event, as defined in Item 304(a)(1)(iv) of Regulation S-B and
                the
                related instruction to Item 304 of Regulation S-B, or a reportable
                event,
                as that term is explained in Item 304(a)(1)(iv) of Regulation S-B.




**Item
      8A. CONTROLS AND PROCEDURES**





As
      of the
      end of the period covered by this report, we carried out an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Exchange Act Rule 13a-15. This evaluation was done under
      the supervision and with the participation of our sole executive officer that
      acts as both the principal executive officer and principal financial officer.
      Based on their evaluation of our disclosure controls and procedures (as defined
      in the Exchange Act Rule 13a-15e), our principal executive officer/principal
      financial officer has concluded that during the period covered by this report,
      such disclosure controls and procedures were not effective to detect the
      inappropriate application of US GAAP rules as more fully described below. This
      was due to deficiencies that existed in the design or operation of our internal
      control over financial reporting that adversely affected our disclosure controls
      and that may be considered to be “material weaknesses.” The Public Company
      Accounting Oversight Board has defined a material weakness as a “significant
      deficiency or combination of significant deficiencies that results in more
      than
      a remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected.”




34





We
      identified deficiencies in our internal controls and disclosure controls related
      to the treatment of our convertible debt and the related liquidated damages.




As
      a
      result of the identification of the misapplication of US GAAP rules, our
      principal executive officer/principal financial officer has concluded that,
      as
      of December 31, 2005, our internal control over financial reporting was not
      effective.





**Remediation
      of Material Weaknesses**





We
      have
      formulated a program to remedy the material weaknesses identified above.





In
      the
      second phase of the program, we expect to (i) engaged additional accounting
      personnel and (ii) increase our auditor’s review work quarterly, as well
      as, increase the areas reviewed and discussed with the audit committee and
      auditors beforehand, on any changes in accounting principles or revenue or
      expense recognition. Specifically, we plan to implement the following
      remediation measures relating to the identified material weaknesses:





We
      plan
      to complete our remediation program during the second and third quarters of
      fiscal 2006. The material weaknesses will not be considered remediated until
      the
      applicable remedial controls operate for a sufficient period of time and
      management has concluded, through testing, that these controls are operating
      effectively.





**Changes
      in Internal Control Over Financial Reporting**





Except
      as
      set forth above, there have been no changes in our internal control over
      financial reporting that occurred during the three months ended
      December 31, 2005 that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.




35





**PART
      III**





**Item
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION16(A) OF THE EXCHANGE ACT**





Our
      executive officers and directors and their respective ages and positions as
      of
      December 31, 2003 are as follows:




Name
            
            Age
            
            Position(s)Christopher
                J. Carey
            
            52
            
            President,
                Chief Executive Officer and
                Director








Christopher
      J. Carey has served as our President and Chief Executive Officer since May
      2002.
      Mr. Carey is also the founder, President and Chief Executive Officer of
      Stronghold, our wholly-owned subsidiary. Since founding Stronghold in 2000,
      Mr.
      Carey has set the strategic direction and corporate vision for Stronghold,
      drawing on over 25 years of experience building technology-focused businesses.
      From 1976 until 1996, Mr. Carey was President and Chief Executive Officer of
      Datatec Industries, Inc., which specialized in the rapid deployment of network
      and computing systems. After negotiating a merger with Glasgal Communications
      in
      1996, Mr. Carey became President of Datatec Systems, Inc., the combined entity
      until May 2002.





**EXECUTIVE
      OFFICERS**





Christopher
      J. Carey has employment contracts with our company that has completed its term.
      Mr. Carey continues to serve as the Chief Executive Officer and Chairman of
      the
      Board.





**BOARD
      COMMITTEES**





Our
      board
      of directors has an audit committee, compensation committee and
      governance/nominating committee. The audit committee reviews the results and
      scope of the audit and other services provided by our independent public
      accountant. The audit committee does not currently have an "audit committee
      financial expert", as defined by the SEC, due to our status as an
      early-development stage company. We are in the process of identifying an audit
      committee financial expert to join its board of directors and audit committee.





The
      compensation committee establishes the compensation policies applicable to
      our
      executive officers and administers and grants stock options pursuant to our
      stock plans. The governance/nominating committee oversees board procedures
      and
      nominates prospective members of the board should a vacancy arise.





**CODE
      OF ETHICS**





Because
      we are an early-development stage company with limited resources, we have not
      yet adopted a "code of ethics", as defined by the SEC, that applies to our
      Chief
      Executive Officer, Chief Financial Officer, principal accounting officer or
      controller and persons performing similar functions. We are in the process
      of
      drafting and adopting a Code of Ethics.





**DIRECTOR
      COMPENSATION**





We
      granted an initial one-time option grant to purchase 40,000 shares of common
      stock to each non-employee board member upon election to our board of directors.
      This one-time grant was awarded to the current non-employee board members on
      October 7, 2003. The options will vest 50% on each of the first and second
      anniversaries of the date of grant. The option is exercisable at $.60 per share.
      In addition, each non-employee director will be granted, on an annual basis,
      an
      option to purchase 30,000 shares of our common stock, which will vest 50% on
      each of the first and second anniversaries of the date of grant. These options
      were granted in November 2004 and have an exercise price of $.25. All stock
      options granted to members of our board of directors will have exercise prices
      equal to the fair market value of the Common Stock on the date of grant. We
      also
      reimburse directors for reasonable out-of-pocket expenses incurred in attending
      meetings of the board of directors and any meetings of its
      committees.




36





**Item
      10.****EXECUTIVE COMPENSATION**





The
      following table sets forth executive compensation for fiscal years ended
      December 31, 2004, 2003, 2002 and 2001. We have not paid any bonuses to any
      of
      our officers from our inception through the date hereof. All of our executive
      officers also serve as officers of and are paid by our operating subsidiary.
      The
      following table shows compensation paid during the fiscal years ended December
      31, 2002 and 2001 by our wholly owned subsidiary to our former president and
      other former executive officers. The table also provides information regarding
      executive compensation for our wholly owned subsidiary's current president
      and
      three other most highly compensated executive officers. We refer to all of
      these
      officers collectively as our "named executive officers."











(1)
            Christopher
                J. Carey became our President and Chief Executive Officer on May
                16, 2002,
                following the merger. Mr. Carey also remains the President, Chief
                Executive Officer and the sole Director of Stronghold. Mr. Carey's
                base
                salary from May 15, 2002 until December 31, 2002 was $260,000, as
                set
                forth in his Employment Agreement with Stronghold. The terms of Mr.
                Carey's Employment Agreement are more fully set forth below. "Other
                Annual
                Compensation" consists solely of the reimbursement of automobile
                expenses.
                All of Mr. Carey's salary for 2002 has been deferred and accrued.
                $201,200
                of Mr. Carey’s salary and other annual compensation was deferred and
                accrued in 2003. $210,800 of Mr. Carey’s salary and other annual
                compensation was deferred and accrued in 2004. $359,600 of Mr. Carey’s
                salary and other annual compensation was deferred and accrued in
                2005.


(2)
            Lenard
                Berger had been our Vice President and Chief Technology Officer since
                the
                merger, and held the same positions with our wholly owned subsidiary.
                Mr.
                Berger's base salary for the period of July 2001 through July 2002
                was
                $112,000, as set forth in his Employment Agreement. As of July 2002,
                Mr.
                Berger's salary increased to $122,000. $36,000 of Mr. Berger’s salary and
                other annual compensation was deferred and accrued in 2004. Mr. Berger
                resigned from his position in July 2005. "Other Annual Compensation"
                consists solely of the reimbursement of automobile expenses.


(3)
            Robert
                Nawy joined Stronghold on July 22, 2003 as Assistant Chief Financial
                Officer and became the Chief Financial Officer in November 2003.
                Mr.
                Nawy's base salary for the period of June 2003 through July 2004
                was
                $180,000, as set out in his Employment Agreement. As of August 1,
                2004,
                Mr. Nawy’s salary increased to $185,400. $15,300 of Mr. Nawy’s salary and
                other annual compensation was deferred and accrued in 2004. Mr. Nawy
                resigned from his position with our wholly owned subsidiary in May
                2005.
                "Other Annual Compensation" consists solely of the reimbursement
                of
                automobile expenses.






37


**OPTIONS
      GRANTS**





There
      were no individual grants of stock options under the 2002 Stock Incentive Plan
      during the fiscal year ended December 31, 2005 to any of the named executive
      officers.




AGGREGATED
      OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
      VALUES




SHARES
            
            
            
            NUMBER
              OF SECURITIESACQUIRED
            
            VALUE
            
            UNDERLYING
              OPTIONS
            
            VALUE
                OF IN-THE-MONEY OPTIONSON
                EXERCISE (#)
            
            REALIZED
                ($)(1)
            
            AT
              YEAR END (#)
            
            AT
                YEAR-END ($)(2)NAME
            
            
            
            
            
            EXERCISABLE
            
            UNEXERCISABLE
            
            EXERCISABLE
            
            UNEXERCISABLEChristopher
                J. Carey
            
            
            —
            
            
            —
            
            
            —
            
            
            200,000
            
            
            —
            
            
            —





(1)
            Based
                on the difference between the option exercise price and the fair
                market
                value of our common stock on the exercise date.


(2)
            Based
                on the difference between the option exercise price and the closing
                sale
                price of $0...03 of our common stock as reported on the OTC Bulletin
                Board
                on December 31, 2005, the last trading day of our 2005 fiscal year.
                None
                of these options are currently in the money.





**EMPLOYMENT
      AGREEMENTS WITH EXECUTIVE OFFICERS**





**CHRISTOPHER
      J. CAREY**





On
      May
      15, 2002, we assumed the employment agreement that was in place between
      Christopher J. Carey and the Predecessor Entity. Under the terms of the
      agreement, Mr. Carey's employment as Chairman of the Board, President and Chief
      Executive Officer continued until December 31, 2004. The agreement may be
      renewed through mutual agreement of the parties. Mr. Carey receives a base
      salary of $260,000 per year. Such base salary was increased effective January
      1,
      2003, to the annualized rate of $300,000 and increased, effective January 1,
      2004, to the annualized rate of $350,000. Such salary will be reviewed annually
      and is subject to increase as determined by our board of directors or the
      Compensation Committee in its sole discretion. Mr. Carey’s employment agreement
      expired on December 31, 2004, however he continues to function as the Chief
      Executive Officer and Chairmen of the Board.





The
      employment agreement provides that each fiscal year after fiscal year 2002,
      Mr.
      Carey will be eligible to receive an annual bonus based upon our meeting and
      exceeding our annual budget, as same has been reviewed and approved by the
      board
      of directors for earnings before interest, taxes, depreciation and amortization,
      referred to as EBITDA. This bonus will be earned according to the following:
      (i)
      if we achieve 90-100% of budgeted EBITDA, Mr. Carey will receive a bonus of
      10%
      of his then current annual base salary; (ii) if we achieve 101-110% of budgeted
      EBITDA, Mr. Carey will receive a total bonus of 20% of his then current annual
      base; and (iii) if we achieve 111-120% of budgeted EBITDA, Mr. Carey will
      receive a total bonus of 30% of his then current annual base salary; (iv) if
      we
      achieve 121-130% of budgeted EBITDA, Mr. Carey will receive a total bonus of
      40%
      of his then current annual base salary; (v) if we achieve 131-140% of budgeted
      EBITDA, Mr. Carey will receive a total bonus of 50% of his then current annual
      base salary; (vi) if we achieve 141-150% of budgeted EBITDA, Mr. Carey will
      receive a total bonus of 55% of his then current annual base salary; and (vii)
      if we achieve 151% or more of budgeted EBITDA, Mr. Carey will receive a total
      bonus of 60% of his then current annual base salary. The bonus, if any, shall
      be
      paid in one lump sum within sixty (60) days after the close of the fiscal year
      for which it was earned. To date, Mr. Carey has not been awarded a
      bonus.




38





In
      accordance with the agreement, the Predecessor Entity granted to Mr. Carey
      stock
      options under the 2000 Stock Option Plan for the purchase of an aggregate of
      200,000 shares of the Predecessor Entity's common stock at an option exercise
      price equal of $1.50 per share, the fair market value of the underlying common
      stock on the date of the grant. Such option converted into an option to purchase
      437,500 shares of our Common Stock when we merged with the Predecessor Entity
      and our wholly-owned subsidiary, Stronghold, assumed the 2000 Stock Option
      Plan.
      While Mr. Carey is employed by our company, the option will become exercisable
      on the earlier of: (i) the seventh anniversary of May 15, 2002; or (ii) the
      achievement of the performance goals set forth above in the paragraph above.





Upon
      a
      change in control of our company, the unvested portion of the options shall
      immediately vest and become exercisable by Mr. Carey. If we terminate Mr.
      Carey's employment (i) after the expiration of the term of employment; or (ii)
      with cause; or if Mr. Carey resigns for no good reason, he will receive all
      accrued compensation and vested benefits. If we terminate his employment without
      cause, Mr. Carey will receive all unpaid accrued compensation, vested benefits
      and a severance benefit equal to his base salary until the earlier of the
      balance of the term of his agreement, the renewal term or twelve months
      following the date of termination.





Mr.
      Carey's agreement contains a confidentiality provision and further provides
      that
      Mr. Carey may not work for, or hold 1% or more of the outstanding capital stock
      of a publicly traded corporation, which is a competing business anywhere in
      the
      world for one year after the conclusion of his employment. Mr. Carey has not
      expressed a desire to leave.




**Item
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of January 31, 2005. The information in this table provides
      the
      ownership information for:





o
            each
                person known by us to be the beneficial owner of more than 5% of
                our
                Common Stock;





o
            each
                of our directors;





o
            each
                of our executive officers; and





o
            our
                executive officers and directors as a group.





Beneficial
      ownership has been determined in accordance with the rules and regulations
      of
      the SEC and includes voting or investment power with respect to the shares.
      Unless otherwise indicated, the persons named in the table below have sole
      voting and investment power with respect to the number of shares indicated
      as
      beneficially owned by them. Common Stock beneficially owned and percentage
      ownership is based on 37,688,793 shares outstanding on April 12, 2006, and
      assuming the exercise of any options or warrants or conversion of any
      convertible securities held by such person, which are presently exercisable
      or
      will become exercisable within 60 days after April 12, 2006.





Number
                of Shares
            
            PercentageName
                and Address of Beneficial Owner
            
            Beneficially
                Owned
            
            Outstanding5%
                StockholdersChristopher
                J. Carey60
                Broadway, PH2Brooklyn,
                NY 11211
            
            
            26,569,821(1
            )
            
            63.04Stanford
                Venture Capital Holdings, Inc.6075
                Poplar AvenueMemphis,
                TN 38119
            
            
            9,521,673(2
            )
            
            22.59Other
                Executive Officers and DirectorsExecutive
                Officers and Directors as a Group (1 person)
            
            
            26,569,821
            
            
            63.04





(1)
            3,937,500
                of these shares are owned by Christopher J. Carey and his wife, Mary
                Carey, as Joint Tenants with Right of Survivorship.


(2)
            The
                total beneficial ownership of Stanford Venture Capital Holdings,
                Inc. is
                9,521,273 shares which consists of: (i) 2,002,750 shares of Common
                Stock
                issuable upon the conversion of 2,002,750 shares of our Series A
                Preferred
                Stock; and (ii) 2,444,444 shares of Common Stock issuable upon the
                conversion of 2,444,444 shares of our Series B Preferred Stock and
                (iii)
                5,074,079 shares of Common Stock.
                James M. Davis has voting and investment control over the securities
                held
                by Stanford Venture Capital Holdings, Inc., but he disclaims beneficial
                ownership of such securities, except to the extent of any pecuniary
                interest therein.






39


**EQUITY
      COMPENSATION IN FISCAL 2004**





The
      following table provides information about the securities authorized for
      issuance under our equity compensation plans as of December 31, 2004.





**EQUITY
      COMPENSATION PLAN INFORMATION**


Number
                  of securitiesto be issued upon
            
            Weighted-average
            
            Number
                  of securities remainingavailable
                or
                  future issuanceexercise
                of
                outstanding
                  options (1)
            
            exercise
                  price ofoutstanding options
            
            under
                equity
              compensation
                plans (2)Equity
                compensation plans approved by security holders
            
            
            501,131
            
            $
            0.64
            
            
            1,765,900Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            501,131
            
            $
            0.64
            
            
            1,765,900





(1)
            Issued
                pursuant to our 2002 Stock Incentive Plan, our 2002 California Stock
                Incentive Plan, and our 2000 Stock Option Plan.


(2)
            1,574,900
                shares are available for future issuance pursuant to the 2002 Stock
                Incentive Plan and 191,000 shares are available for future issuance
                pursuant to the 2002 California Stock Incentive Plan. We do not intend
                to
                issue any additional options under our 2000 Stock Option Plan.





**Item
      12****.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





Stronghold
      Technologies, Inc., the Predecessor Entity, became our wholly-owned subsidiary
      on May 16, 2002 pursuant to a merger with and into Acquisition Sub. Pursuant
      to
      the merger, the Predecessor Entity's stockholders surrendered all of their
      outstanding shares of the Predecessor Entity's common stock in exchange for
      a
      total of 7,000,000 shares of our common stock. Of these shares, Christopher
      J.
      Carey, our current President, and his wife received a total of 3,937,500 shares
      held jointly, and Mr. Carey received an additional 1,093,750 shares
      individually.




Pursuant
      to a Securities Purchase Agreement which we entered into on May 15, 2002, with
      Stanford, a major shareholder of our company, Pietro Bortolatti, a former
      officer and director of our company, and Mr. Carey, we agreed to issue to
      Stanford such number of shares of our Series A Preferred Stock that would in
      the
      aggregate equal 20% of the total issued and outstanding shares of our common
      stock, and a warrant to purchase an equal number of shares of our common stock.
      The aggregate purchase price for the Series A Preferred Stock and warrants
      purchased by Stanford was $3,000,000. The Series A Preferred Stock and warrant
      purchase took place on four separate closing dates from May 16, 2002 through
      July 19, 2002, in which we issued an aggregate of 2,002,750 shares of our Series
      A Preferred Stock to Stanford and warrants for 2,002,750 shares of our common
      stock. So long as any shares of Series A Preferred Stock are outstanding and
      held by Stanford, Stanford had the right to maintain its percentage ownership
      with respect to any additional securities we may issue, with certain exceptions
      under the Series A Securities Purchase Agreement.





Pursuant
      to a Securities Purchase Agreement which we entered into on April 24, 2003,
      we
      agreed to issue to Stanford a total of 2,444,444 shares of our Series B $0.90
      Convertible Preferred Stock ("Series B Preferred Stock"). The issuance of the
      Series B Preferred Stock occurred on six separate closing dates beginning on
      April 24, 2003 and closing on September 15, 2003. In connection with the
      Purchase Agreement, we modified the warrants issued in connection with the
      Series A offering to reduce the exercise price to $0.25 per share and extend
      the
      expiration date to August 1, 2008. Stanford was also granted the right to
      maintain its percentage ownership with respect to any additional securities
      we
      may issue, with certain exceptions under the Series B Securities Purchase
      Agreement. In addition, we agreed to convert all outstanding loans and
      unreimbursed expenses to certain stockholders of our company for 603,000 shares
      of our common stock at a price of $0.90 per share. The value of the warrant
      modification was treated as additional costs associated with raising capital
      and
      was shown as a reduction of additional paid-in capital of approximately $557,000
      (computed using the Black-Scholes model with the following assumptions: expected
      volatility of 0%, expected dividend yield rate of 0%, expected life of 5 years,
      and a risk-free interest rate of 4.91% for September 30, 2003).





In
      connection with the Series B Purchase Agreement, we entered into a Registration
      Rights Agreement with Stanford, dated April 30, 2003, in which we agreed to
      register the shares of common stock issuable upon conversion of the Series
      B
      Preferred Stock, no later than November 15, 2003. Stanford has agreed to extend
      the date to register the common stock issuable upon conversion of the Series
      B
      Preferred Stock until March 15, 2004, which was further extended in June 2004.





In
      connection with the Series B Purchase Agreement, we entered into a Consulting
      Agreement with Stanford, pursuant to which Stanford has agreed to perform
      certain financial consulting and advisory services, in exchange for which we
      agreed to pay Stanford a fee of $50,000 per year for two years, payable
      quarterly in equal installments of $12,500, with the first such installment
      due
      on July 1, 2003. Pursuant to the terms of the Consulting Agreement, we may,
      at
      our sole option, choose to issue shares of our common stock to Stanford in
      lieu
      of such payments.





On
      November 11, 2003, we agreed with Stanford to modify the terms of the Series
      A
      and Series B Preferred Stock to facilitate acquisitions and other company
      actions. The basic terms of the modification are: (i) waiver Section 2(e)(iii)
      of the Series A Certificate of Designation, which provides for anti-dilution
      protection if we shall issue securities which are convertible into shares of
      our
      common stock for an exercise price of less than $1.50; (ii) waiver of any rights
      of Stanford to Default Warrants (as defined in the Series A Registration Rights
      Agreement) due to our failure to register our shares of common stock; and (iii)
      modification of the warrants previously issued to Stanford and its assigns
      to
      purchase 2,002,750 shares of our common stock to reduce the initial exercise
      price to $0.25 per share and to extend the expiration date to August 1,
      2008.




40





Pursuant
      to the Amended and Restated Series A Certificate of Designation and Series
      B
      Certificate of Designation, dated November 11, 2003, by and between our company
      and Stanford and a Written Notice, Consent, and Waiver Among The Holders Of
      Series A $1.50 Convertible Preferred Stock, Series B $.90 Convertible Preferred
      Stock and Warrants, our company and Stanford agreed to certain amendments and
      restatements including:





(a)
      the
      filing of an Amended and Restated Certificate of Designation for Series A $1.50
      Convertible Preferred Stock substantially in the form attached hereto ("Amended
      and Restated Series A Certificate of Designation") pursuant to which Stanford
      will (x) waive dilution adjustments for certain issuances of Common Stock and
      Common Stock equivalents, (y) reduce for an eighteen month period the Stated
      Value and Conversion Price (each as defined therein) to $0.50 and to $0.87
      thereafter and (z) forego certain rights to approve acquisitions of fixed
      assets, capital stock or capital expenditures, credit facilities and sales
      of
      shares of our securities. The authorized shares of Series A Preferred Stock
      was
      reduced from 2,017,200 to 2,002,750 shares.





(b)
      the
      filing of an Amended and Restated Certificate of Designation Series B $0.90
      Convertible Preferred Stock substantially in the form attached hereto pursuant
      to which Stanford will (x) waive dilution adjustments for certain issuances
      of
      Common Stock and Common Stock equivalents, (y) reduce for an eighteen month
      period the Stated Value and Conversion Price (each as defined therein) to $0.50
      and to $0.87 thereafter and (z) forego certain rights to approve acquisitions
      of
      fixed assets, capital stock or capital expenditures, credit facilities and
      sales
      of shares of our securities.





In
      connection with the Series B Purchase Agreement, our company and Stanford also
      entered into a Registration Rights Agreement, dated April 30, 2003, in which
      we
      agreed to register the shares of our common stock issuable upon conversion
      of
      the Series B Preferred Stock, no later than November 15, 2003. Stanford has
      agreed to extend dare of the filing requirements of the Registration Rights
      Agreement to March 14, 2004, which was subsequently extended.





(c)
      In
      consideration of the Notice and the granting of the Consents and Waivers, we
      reduced the exercise price of the Stanford Warrants from $0.25 per share to
      $.001. On November 11, 2003, Stanford exercised in full the Stanford Warrant
      purchasing 2,002,750 shares of common stock for the purchase price of $2,002.75.





Pursuant
      to a Stockholders' Agreement which we entered into on May 16, 2002 with
      Stanford, Mr. Carey and his wife, if either Stanford or the Careys should ever
      want to sell any shares of our Series A Preferred Stock or common stock, the
      other party has a right of first refusal regarding such sale and, if such
      non-selling party does not want to exercise its right of first refusal, we
      have
      the right to purchase such shares, and a right of co-sale under the same terms
      and for the same type of consideration. In the case of a material adverse event
      related to our company, the Careys agreed to vote their shares as directed
      by
      Stanford, including removing and replacing the members of the board with
      designees nominated by Stanford. Finally, Stanford has the right to nominate
      one
      member to our board of directors and the Carey's have agreed to vote for such
      nominee.





Stanford
      is an affiliate of Stanford Financial Group, which is the majority stockholder
      of TWS International, Inc. Luis Delahoz, one of our outside directors, is the
      president and chief executive officer of TWS International, Inc. and is
      Stanford's representative on our board of directors.





On
      July
      31, 2000, the Predecessor Entity entered into a line of credit loan arrangement
      with our President, Christopher Carey, who is also president of Stronghold.
      Mr.
      Carey made available $1,989,500, which the Predecessor Entity could borrow
      from
      time to time until August 1, 2001. Outstanding amounts accrued interest at
      the
      rate of interest per annum equal to the floating Base Rate, computed daily,
      for
      the actual number of days elapsed as if each full calendar year consisted of
      360
      days. Overdue amounts accrued interest at an annual rate of 2% greater than
      the
      base rate, which is 2% above the floating base rate announced from time to
      time
      by Citibank, N.A. Under the agreement, the first payment was due on August
      1,
      2001. On such date, the line of credit was extended for one more year, until
      August 1, 2002. On April 22, 2002, the Predecessor Entity issued 500,000 shares
      of its common stock (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 such line of credit. On
      May
      16, 2002, the total amount outstanding under the line of credit was $2.2
      million. On such date, we issued 666,667 shares of our Common Stock to Mr.
      Carey
      in exchange for cancellation of $1 million of the then outstanding amount.
      We
      will 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, and amended
      and restated in September 2002. The terms of the amended and restated note
      stipulate that the Company may not make principle payments to Mr. Carey until
      the retirement of the United Trust Bank loan. Until such time as the principal
      is paid, we will pay an interest only fee of 12% per year. Mr. Carey's
      promissory note is expressly subordinated in right of payment to the prior
      payment in full of all of our senior indebtedness.


On
      September 14, 2000, we issued 5,000,000 shares of our common stock to our former
      president, Pietro Bortolatti, in exchange for the transfer from Mr. Bortolatti
      of all of the outstanding shares of Terre di Toscana, Inc. to us. The assets
      of
      Terre di Toscana, Inc. included rights in several customer agreements. We valued
      the 5,000,000 shares issued to Mr. Bortolatti at par value, $.0001 per share.
      As
      part of our merger with the Predecessor Entity and the exchange of shares for
      our truffle business, Mr. Bortolatti has surrendered or exchanged all of such
      shares.





In
      August
      2002, one of our outside directors, Robert Cox, purchased 60,000 shares of
      our
      common stock at a purchase price of $1.50 per share for aggregate proceeds
      to us
      of $90,000. Such purchase was pursuant to a Subscription Agreement in which
      Mr.
      Cox made certain investment representations and warranties. The price paid
      by
      Mr. Cox had been negotiated by third parties in an arms-length transaction.
      The
      third parties who negotiated the transaction purchased a number of shares
      concurrently with Mr. Cox.





In
      January 2004, our outside director, Robert Cox, purchased an additional 147,059
      shares and a warrant to purchase 73,529 shares at $0.59/share. The price of
      $0.59/share was based on 130% of the trailing five day closing price of our
      common stock on the effective purchase date of January 9, 2004.




41





Lenard
      Berger, our Chief Technology Officer and Vice President and James Cummiskey,
      our
      Vice President of Sales and Marketing, received 200,000 shares of common stock
      from the Predecessor Entity as founders of such entity, at a per share price
      of
      $0.005. Such shares converted into 437,400 shares of our Common Stock.





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 was for a period of twelve
      months, with all principal due and payable on September 30, 2003. The 12.5%
      interest on the outstanding principal is due each year. At the end of the loan
      period, the CC Trust 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. On September 30, 2003, the CC Trust Fund agreed to extend
      the term of their loan to December 30, 2003. On December 30, 2003, the CC Trust
      Fund agreed to extend the term of their loan to March 31, 2004. On March 30,
      2004, the CC Trust Fund agreed to extend the term of their loan to March 31,
      2005. As of December 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 principal due and payable on September 30, 2003. The 12.5%
      interest on the outstanding principal is due each year. At the end of the loan
      period, the AC Trust Fund will be entitled to exercise 25,000 warrants at $1.50
      per share. On September 30, 2002, the AC Trust Fund agreed to extend the term
      of
      their loan to December 30, 2003. On December 30, 2003, the AC Trust Fund agreed
      to extend the term of their loan to March 31, 2004. On March 30, 2004, the
      AC
      Trust Fund agreed to extend the term of their loan to March 31, 2005. As March
      31, 2005 Mr. Carey extended the term of the loan to May 31, 2006. As of December
      31, 2005, $375,404 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.





We
      believe that the terms of all of the above transactions are commercially
      reasonable and no less favorable to us than we could have obtained from an
      unaffiliated third party on an arm's length basis. Our policy requires that
      all
      related parties recuse themselves from negotiating and voting on behalf of
      our
      company in connection with related party transactions.





**Item
      13. EXHIBITS**





31.1
            Certification
                by the Chief Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





31.2
            Certification
                by the Chief Financial Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





32.1
            Certification
                by the Chief Executive Officer Pursuant to 18 U.S.C.Section
                1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





32.2
            Certification
                by the Chief Financial Officer Pursuant to 18 U.S.C.Section
                1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.




Exhibit
                Number
            Description2.1
                (1)(4)
            Merger
                Agreement and Plan of Merger, dated May 15, 2002, by and among TDT
                Development, Inc., Stronghold Technologies, Inc., TDT Stronghold
                Acquisition Corp., Terre Di Toscana, Inc., Terres Toscanes, Inc.,
                certain
                stockholders of TDT Development, Inc. and Christopher J.
                Carey.2.2
                (5)
            Stock
                Purchase Agreement, dated July 19, 2002, by and between TDT Development,
                Inc. and Mr. Pietro Bortolatti.3.1
                (2)
            Articles
                of Incorporation, as amended on July 11,
                2002.






42




Exhibit
                  Number
              Description


3.2
                (3)
            By-Laws.3.3
                (20)
            Certificate
                of Amendment to the Company’s Certificate of
                Incorporation.3.4
                (21)
            Certificate
                of Designation of Series C Preferred Stock.4.1
                (2)
            Certificate
                of Designations filed on May 16, 2002.4.2
                (5)
            Specimen
                Certificate of Common Stock.4.3
                (8)
            Promissory
                Note for $300,000, dated March 18, 2003, made by Stronghold Technologies,
                Inc. in favor of Christopher J. Carey.4.4
                (8)
            Promissory
                Note for $100,000, dated March 18, 2003, made by Stronghold Technologies,
                Inc. in favor of Christopher J. Carey.4.5
                (8)
            Form
                of Warrant with Christopher J. Carey.4.6
                (10)
            Amended
                and Restated Certificate of Designation of Series A $1.50 Convertible
                Preferred Stock of Stronghold Technologies, Inc.4.7
                (10)
            Amended
                and Restated Certificate of Designation of Series B $0.90 Convertible
                Preferred Stock of Stronghold Technologies, Inc.4.8
                (11)
            Securities
                Purchase Agreement dated June 18, 2004 between the Company and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.9
                (11)
            Callable
                Secured Convertible Note in the name of New Millennium Capital Partners
                II, LLC dated June 18, 20044.10
                (11)
            Callable
                Secured Convertible Note in the name of AJW Qualified Partners, LLC
                dated
                June 18, 20044.11
                (11)
            Callable
                Secured Convertible Note in the name of AJW Offshore, Ltd. dated
                June 18,
                20044.12
                (11)
            Callable
                Secured Convertible Note in the name of AJW Partners, LLC dated June
                18,
                20044.13
                (11)
            Stock
                Purchase Warrant in the name of New Millennium Capital Partners II,
                LLC
                dated June 18, 20044.14
                (11)
            Stock
                Purchase Warrant in the name of AJW Qualified Partners, LLC dated
                June 18,
                20044.15
                (11)
            Stock
                Purchase Warrant in the name of AJW Offshore, Ltd. Dated June 18,
                2004






43




Exhibit
                  Number
              Description


4.16
                (11)
            Stock
                Purchase Warrant in the name of AJW Partners, LLC dated June 18,
                20044.17
                (11)
            Registration
                Rights Agreement dated June 18, 2004 between the Company and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.18(11)
            Security
                Agreement dated June 18, 2004 between the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC4.19(11)
            Intellectual
                Property Security Agreement dated June 18, 2004 between the Company
                and
                New Millennium Capital Partners II, LLC, AJW Qualified Partners,
                LLC, AJW
                Offshore, Ltd. and AJW Partners, LLC4.20
                (16)
            Callable
                Secured Convertible Note in the name of New Millennium Capital Partners
                II, LLC dated July 27, 20044.21(16)
            Callable
                Secured Convertible Note in the name of AJW Qualified Partners, LLC
                dated
                July 27, 20044.22(16)
            Callable
                Secured Convertible Note in the name of AJW Offshore, Ltd. dated
                July 27,
                20044.23
                (16)
            Callable
                Secured Convertible Note in the name of AJW Partners, LLC dated July
                27,
                2004(16)4.24
                (16)
            Stock
                Purchase Warrant in the name of New Millennium Capital Partners II,
                LLC
                dated July 27, 20044.25(16)
            Stock
                Purchase Warrant in the name of AJW Qualified Partners, LLC dated
                July 27,
                2004(16)4.26
                (16)
            Stock
                Purchase Warrant in the name of AJW Offshore, Ltd. Dated July 27,
                2004(16)4.27
                (16)
            Stock
                Purchase Warrant in the name of AJW Partners, LLC dated July 27,
                20044.28
                (16)
            Callable
                Secured Convertible Note in the name of New Millennium Capital Partners
                II, LLC dated October 22, 20044.29
                (16)
            Callable
                Secured Convertible Note in the name of AJW Qualified Partners, LLC
                dated
                October 22, 20044.30
                (16)
            Callable
                Secured Convertible Note in the name of AJW Offshore, Ltd. dated
                October
                22, 20044.31
                (16)
            Callable
                Secured Convertible Note in the name of AJW Partners, LLC dated October
                22, 20044.32
                (16)
            Stock
                Purchase Warrant in the name of New Millennium Capital Partners II,
                LLC
                dated October 22, 20044.33
                (16)
            Stock
                Purchase Warrant in the name of AJW Qualified Partners, LLC dated
                October
                22, 2004






44




Exhibit
                  Number
              Description


4.34
                (16)
            Stock
                Purchase Warrant in the name of AJW Offshore, Ltd. Dated October
                22,
                20044.35
                (16)
            Stock
                Purchase Warrant in the name of AJW Partners, LLC dated October 22,
                20044.36
                (16)
            Callable
                Secured Convertible Note in the name of New Millennium Capital Partners
                II, LLC dated March 18, 20054.37(16)
            Callable
                Secured Convertible Note in the name of AJW Qualified Partners, LLC
                dated
                March 18, 20054.38(16)
            Callable
                Secured Convertible Note in the name of AJW Offshore, Ltd. dated
                March 18,
                20054.39(16)
            Callable
                Secured Convertible Note in the name of AJW Partners, LLC dated March
                18,
                20054.40
                (16)
            Stock
                Purchase Warrant in the name of New Millennium Capital Partners II,
                LLC
                dated March 18, 20054.41(16)
            Stock
                Purchase Warrant in the name of AJW Qualified Partners, LLC dated
                March
                18, 20054.42(16)
            Stock
                Purchase Warrant in the name of AJW Offshore, Ltd. dated March 18,
                20054.43(16)
            Stock
                Purchase Warrant in the name of AJW Partners, LLC dated March 18,
                20054.44
                (16)
            Amendment
                No. 2 to the Securities Purchase Agreement dated March 4, 2005 by
                and
                among the Company and New Millennium Capital Partners II, LLC, AJW
                Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
                LLC4.45
                (16)
            Letter
                Agreement dated March 4, 2005 by and among the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC4.46(16)
            Amendment
                No. 1 to the Securities Purchase Agreement dated October 22, 2004
                by and
                among the Company and New Millennium Capital Partners II, LLC, AJW
                Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
                LLC4.47
                (17)
            Securities
                Purchase Agreement dated March 31, 2005 by and among the Company
                and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.48
                (17)
            Form
                of Callable Secured Convertible dated March 31, 20054.49(17)
            Form
                of Stock Purchase Warrant dated March 31, 2005(17)4.50
                (17)
            Registration
                Rights Agreement dated March 31, 2005 by and among the Company and
                New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC






45




Exhibit
                  Number
              Description


4.51
                (17)
            Security
                Agreement dated March 31, 2005 by and among the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC4.52
                (17)
            Intellectual
                Property Security Agreement dated March 31, 2005 by and among the
                Company
                and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
                LLC,
                AJW Offshore, Ltd. and AJW Partners, LLC4.53
                (18)
            Securities
                Purchase Agreement dated July 15, 2005 by and among the Company and
                New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.54
                (18)
            Form
                of Callable Secured Convertible dated July 15, 20054.55
                (18)
            Form
                of Stock Purchase Warrant dated July 15, 20054.56
                (18)
            Registration
                Rights Agreement dated July 15, 2005 by and among the Company and
                New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.57
                (18)
            Security
                Agreement dated July 15, 2005 by and among the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC4.58
                (18)
            Intellectual
                Property Security Agreement dated July 15, 2005 by and among the
                Company
                and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
                LLC,
                AJW Offshore, Ltd. and AJW Partners, LLC4.59
                (18)
            Escrow
                Agreement dated July 15, 2005 by and among the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC and the Escrow Agent4.60
                (20)
            Securities
                Purchase Agreement dated February 6, 2006 by and among the Company
                and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.61(20)
            Form
                of Callable Secured Convertible dated February 6, 20064.
                62(20)
            Form
                of Stock Purchase Warrant dated February 6, 20064.
                63(20)
            Registration
                Rights Agreement dated February 6, 2006 by and among the Company
                and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.64
                (20)
            Security
                Agreement dated February 6, 2006 by and among the Company and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC






46




Exhibit
                  Number
              Description


4.65
                (20)
            Intellectual
                Property Security Agreement dated February 6, 2006 by and among the
                Company and New Millennium Capital Partners II, LLC, AJW Qualified
                Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC4.66(22)
            Securities
                Purchase Agreement dated March 17, 2006 by and among the Company
                and New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.66(22)
            Form
                of Callable Secured Convertible dated March 17, 20064.67(22)
            Form
                of Stock Purchase Warrant dated March 17, 20064.68(22)
            Registration
                Rights Agreement dated March 17, 2006 by and among the Company and
                New
                Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
                AJW
                Offshore, Ltd. and AJW Partners, LLC4.69(22)
            Security
                Agreement dated March 17, 2006 by and among the Company and New Millennium
                Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
                Ltd.
                and AJW Partners, LLC4.70(22)
            Intellectual
                Property Security Agreement dated March 17, 2006 by and among the
                Company
                and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
                LLC,
                AJW Offshore, Ltd. and AJW Partners, LLC5.1
            Sichenzia
                Ross Friedman Ference LLP Opinion and Consent10.1
                (2)
            2002
                Stock Incentive Plan.10.2
                (2)
            Form
                of Incentive Stock Option Agreement to be issued under the 2002 Stock
                Incentive Plan.10.3
                (2)
            Form
                of Nonstatutory Stock Option Agreement to be issued under the 2002
                Stock
                Incentive Plan.10.4
                (5)
            California
                2002 Stock Incentive Plan.10.5
                (5)
            Form
                of Incentive Stock Option Agreement to be issued under the California
                2002
                Stock Incentive Plan.10.6
                (5)
            Form
                of Nonstatutory Stock Option Agreement to be issued under the California
                2002 Stock Incentive Plan.10.7
                (2)
            Executive
                Employment Agreement by and between Stronghold Technologies, Inc.
                and
                Christopher J. Carey, dated May 15, 2002.10.8
                (2)
            Employment
                and Non-Competition Agreement by and between Stronghold Technologies,
                Inc.
                and Lenard Berger, dated August 1, 2000.






47




Exhibit
                  Number
              Description


10.9
                (2)
            Employment
                and Non-Competition Agreement by and between Stronghold Technologies,
                Inc.
                and Salvatore D'Ambra, dated July 10, 2000.10.10
                (2)
            Employment
                and Non-Competition Agreement by and between Stronghold Technologies,
                Inc.
                and James J. Cummiskey, dated August 14, 2000.10.11
                (2)
            Business
                Loan Agreement by and between Stronghold Technologies, Inc. and
                UnitedTrust Bank, dated June 30, 2002.10.12
                (2)
            Promissory
                Note issued by Stronghold Technologies, Inc. made payable to UnitedTrust
                Bank, Dated June 30, 2002.10.13
                (2)
            Commercial
                Security Agreement by and between Stronghold Technologies, Inc. and
                UnitedTrust Bank, dated June 30, 2002.10.14
                (2)
            Promissory
                Note issued by Stronghold Technologies, Inc. made payable to Christopher
                J. Carey, dated May 16, 2002.10.15
                (4)
            Securities
                Purchase Agreement, dated May 15, 2002, by and among TDT Development,
                Inc., Stanford Venture Capital Holdings, Inc., Pietro Bortolatti,
                Stronghold Technologies, Inc. and Christopher J. Carey.10.16
                (4)
            Registration
                Rights Agreement, dated May 16, 2002, by and among TDT Development,
                Inc.
                and Stanford Venture Capital Holdings, Inc.10.17
                (4)
            Lock-Up
                Agreement, dated May 16, 2002, by and among TDT Development,
                Inc.10.18
                (4)
            Stockholders'
                Agreement, dated May 16, 2002, by and among TDT Development, Inc.,
                Christopher J. Carey, Mary Carey and Stanford Venture Capital Holdings,
                Inc.10.19
                (4)
            Form
                of Warrant to be issued pursuant to the Securities Purchase Agreement
                (Exhibit 10.11).10.20
                (6)
            Loan
                Agreement by and among Stronghold Technologies, Inc., its subsidiary
                and
                UnitedTrust Bank, dated September 30, 2002.10.21
                (6)
            Commercial
                Loan Note issued by Stronghold Technologies, Inc. and its subsidiary
                made
                payable to UnitedTrust Bank, dated September 30,200210.22
                (6)
            Security
                Agreement by and between Stronghold Technologies, Inc. and UnitedTrust
                Bank, dated September 30, 2002.10.23
                (6)
            Security
                Agreement by and between Stronghold's subsidiary and UnitedTrust
                Bank,
                dated September 30, 2002.10.24
                (6)
            Subordination
                Agreement by and among Christopher J. Carey, Stronghold Technologies,
                Inc.
                and UnitedTrust Bank, dated September 30,
                2002.






48




Exhibit
                  Number
              Description


10.25
                (6)
            Subordination
                Agreement by and among Christopher J. Carey, Stronghold's subsidiary
                and
                UnitedTrust Bank, dated September 30, 2002.10.26
                (6)
            Guaranty
                by Christopher J. Carey in favor UnitedTrust Bank, dated September
                30,
                2002.10.27
                (6)
            Loan
                Agreement by and among Stronghold Technologies, Inc., its subsidiary
                and
                AC Trust Fund, dated September 30, 2002.10.28
                (6)
            Loan
                Agreement by and among Stronghold Technologies, Inc., its subsidiary
                and
                CC Trust Fund, dated September 30, 2002.10.29
                (6)
            Form
                of Subscription Agreement by and between Stronghold Technologies,
                Inc. and
                each of the parties listed on the schedule of purchasers attached
                thereto.10.30
                (6)
            Promissory
                Note issued by Stronghold Technologies, Inc. made payable to Christopher
                J. Carey, dated September 30. 2002.10.31
                (7)
            Securities
                Purchase Agreement, dated April 30, 2003, by and between Stronghold
                Technologies, Inc. and Stanford Venture Capital Holdings,
                Inc.10.32
                (7)
            Registration
                Rights Agreement, dated April 30, 2003, by and between Stronghold
                Technologies, Inc. and Stanford Venture Capital Holdings,
                Inc.10.33
                (7)
            Consulting
                Agreement, dated April 30, 2003, by and between Stronghold Technologies,
                Inc. and Stanford Venture Capital Holdings, Inc.10.34
                (9)
            First
                Modification to Loan Agreement and Note among Stronghold Technologies,
                Inc., Christopher J. Carey and UnitedTrust Bank, dated July 31,
                2003.10.35(13)
            Lease
                Agreement entered between the Company and APA Properties No. 2,
                LP10.36(13)
            Sublease
                Agreement between Clark/Bardes Consulting, Inc. and the
                Company10.37(14)
            Forbearance
                Agreement entered by and between the Company and PNC
                Bank10.38
                (14)
            Amendment
                No. 1 to the Forbearance Agreement entered by and between the Company
                and
                PNC Bank10.39(21)
            Agreement
                of Settlement dated February 6, 2006 by and between Christopher Carey
                and
                Stronghold Technologies, Inc.10.40(23)
            Agreement
                of Settlement dated February 6, 2006 by and between Christopher Carey
                and
                Stronghold Technologies, Inc.






49




Exhibit
                  Number
              Description


16.1
            Letter
                on change in certifying accountant dated March 15, 2006 (incorporated
                by
                reference to the Form 8-K Current Report filed on March 16, 2006)21
                (5)
            Subsidiaries
                of the Registrant.31.1
            Certification
                of the Chief Executive Officer and the Principal Financial Officer
                of the
                company pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            Certification
                of the Chief Executive Officer and Principal Financial Officer of
                the
                company Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
                Section
                906 of the Sarbanes-Oxley Act of 2002.





(1)
            The
                exhibits and schedules to the Merger Agreement have been omitted
                from this
                filing pursuant to Item 601(b)(2) of Regulation S-K. The Company
                will
                furnish copies of any of the exhibits and schedules to the U.S. Securities
                and Exchange Commission upon request


(2)
            Incorporated
                herein by reference to the exhibits to Registrant's Quarterly Report
                on
                Form 10-QSB for the fiscal quarter ended June 30, 2002.


(3)
            Incorporated
                herein by reference to the exhibits to the Registrant's Registration
                Statement on Form SB-2 as filed with the Securities and Exchange
                Commission on February 1, 2001 (No. 333-54822).


(4)
            Incorporated
                herein by reference to the exhibits to the Registrant's Current Report
                on
                Form 8-K dated May 16, 2002.


(5)
            Incorporated
                herein by reference to the exhibits to the Registrant's Registration
                Statement on Form SB-2 as filed with the Securities and Exchange
                Commission on September 24, 2002.


(6)
            Incorporated
                herein by reference to the exhibits to Registrant's Annual Report
                on Form
                10-KSB for the fiscal year ended December 31, 2002.


(7)
            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.)


(8)
            Incorporated
                by reference to the exhibits to Registrants Quarterly Report on Form
                10-QSB for the quarterly period ended March 31, 2003.


(9)
            Incorporated
                by reference to the exhibits to Registrants Quarterly Report on Form
                10-QSB for the quarterly period ended June 30, 2003.


(10)
            Incorporated
                by reference to the exhibits to Registrants Form 10-KSB for the year
                ended
                December 31, 2003.


(11)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                June 28, 2004.


(12)
            Incorporated
                by reference to the exhibits to Registrants Form SB-2 Registration
                Statement filed July 21, 2004.


(13)
            Incorporated
                by reference to the exhibits to Registrants Quarterly Report on Form
                10-QSB for the quarterly period ended September 30, 2004.


(14)
            Incorporated
                by reference to the exhibits to Registrants Form SB-2 Registration
                Statement filed February 11, 2005.


(15)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                June 28, 2004.


(16)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                March 25, 2005.


(17)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                April 11, 2005.


(18)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                July 20, 2005.


(19)
            Incorporated
                by reference to the exhibits to Registrants Form SB-2 Registration
                Statement filed August 2, 2005.


(20)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                February 9, 2006.


(21)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                February 14, 2006.


(22)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                March 23, 2006.


(23)
            Incorporated
                by reference to the exhibits to Registrants Form 8-K Current Report
                filed
                April 12, 2006.





**Item
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      following table presents the aggregate fees billed for professional services
      rendered by Rothstein, Kass & Company, P.C. in 2004 and 2005. Other than as
      set forth below, no professional services were rendered or fees billed by
      Rothstein, Kass & Company, P.C. during 2004 or 2005.





2005
            
            2004Audit
                Fees (1)
            
            $
            24,500
            
            $
            25,200Tax
                Fees (2)
            
            $
            3,000
            
            $
            20,000Other
                Fees
            
            $
            500
            
            $
            6,000TOTAL
            
            $
            28,000
            
            $
            51,200





(1)
            Audit
                fees consist of professional services rendered for the audit of the
                Company's annual financial statements and the reviews of the quarterly
                financial statements.


(2)
            Tax
                fees consist of fees for services rendered to the Company for tax
                compliance, tax planning and advice.





All
      work
      performed by Rothstein, Kass & Company, P.C. as described above under the
      caption Audit Fees for the fiscal year ended March 31, 2005, has been approved
      by the Audit Committee.




50


**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 28th day of April, 2006.




**STRONGHOLD
              TECHNOLOGIES, INC.**By:
            /s/ Christopher
              J. CareyName:  
                Christopher J. Carey
              Title:    
                President and Chief Executive
                Officer








51


**POWER
      OF ATTORNEY**





KNOW
      ALL
      MEN BY THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Christopher J. Carey his true and lawful
      attorneys-in-fact and agents, each with full power of substitution and
      resubstitution, for him and in his name, place and stead, in any and all
      capacities, to sign any and all amendments to this registration statement,
      and
      to file the same, with exhibits thereto, and other documents in connection
      therewith, with the Securities and Exchange Commission, granting unto said
      attorneys-in-fact and agents, and each of them, full power and authority to
      do
      and perform each and every act and thing requisite or necessary to be done
      in
      and about the premises, as fully to all intents and purposes as he might or
      could do in person, hereby ratifying and confirming all that each of said
      attorneys-in-fact and agents, or his substitute or substitutes, may lawfully
      do
      or cause to be done by virtue hereof.





Pursuant
      to the requirements of the Securities Act of 1933, this Registration Statement
      has been signed by the following persons in the capacities and on the dates
      indicated.





Signature
            
            Title
            
            Date/s/
                Christopher J. Carey
            
            President
                and, Chief Executive Officer,
            
            April
                28, 2006Christopher
                J. Carey
            
            Principal
                Financial Officer andChairman
                of the Board of Directors/s/
                Karen Jackson
            
            Controller
            
            April
                28, 2006Karen
                Jackson
            
            (Principal
                Accounting Officer)








52




**INDEX
          TO CONSOLIDATED FINANCIAL
          STATEMENTS**




REPORT
              OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
              FIRMS
            F-2
                - F-3**STRONGHOLD
                TECHNOLOGIES, INC. AND SUBSIDIARY**CONSOLIDATED
                BALANCE SHEET
            F-4CONSOLIDATED
                STATEMENTS OF OPERATIONS
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS
            F-6CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' DEFICIT
            F-7NOTES
                TO CONSOLIDATED FINANCIAL
                STATEMENTS
            F-8






F-1


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
  To
        the
        Board of Directors and Shareholders Stronghold Technologies, Inc.
 We
          have
          audited the accompanying consolidated balance sheet of Stronghold Technologies,
          Inc. and Subsidiary as of December 31, 2005, and the related consolidated
          statements of operations, stockholders' deficit, and cash flows for the
          year
          then ended. These consolidated financial statements are the responsibility
          of
          the Company's management. Our responsibility is to express an opinion on
          these
          consolidated financial statements based on our audits.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        Company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company's internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, 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 consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Stronghold Technologies,
        Inc. and Subsidiary as of December 31, 2005, and the results of their operations
        and their cash flows for the year then ended, in conformity with accounting
        principles generally accepted in the United States of America.
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 2, the
        Company's ability to continue in the normal course of business is dependent
        upon, among other things, its success in raising additional capital and
        achieving profitable operations. The Company has recurring losses, substantial
        working capital and stockholders' deficits and negative cash flows from
        operations. These conditions among others, raise substantial doubt about
        the
        Company's ability to continue as a going concern. Management's plans regarding
        these matters are also described in Note 2. These consolidated financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
 /s/ Paritz & Company,
                  P.A.
 Hackensack,
        New Jersey
  Except
        for Note 13, as to which the dates are February 6, 2006 and March 17,
        2006


F-2




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**




To
      the
      Board of Directors and Shareholders Stronghold Technologies, Inc.




We
      have
      audited the accompanying consolidated statements of operations, stockholder's
      deficit, and cash flows of Stronghold Technologies, Inc. and Subsidiary for
      the
      year ended December 31, 2004. These consolidated financial statements are the
      responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company's internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly,
      in all material respects, the results of their operations and their cash
      flows of Stronghold Technologies, Inc. and Subsidiary for the year ended
      December 31, 2004, in conformity with accounting principles generally accepted
      in the United States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2, the
      Company's ability to continue in the normal course of business is dependent
      upon
      the success of future operations. The Company has recurring losses, substantial
      working capital and stockholders' deficit and negative cash flows from
      operations. These conditions raise substantial doubt about the Company's ability
      to continue as a going concern. Management's plans regarding these matters
      are
      also described in Note 2. These consolidated financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.




As
      discussed in Note 14 to the consolidated financial statements, the Company
      has restated its December 31, 2004 consolidated financial statements to reflect
      the proper treatment of its convertible debt and the associated liabilities
      surrounding that debt.






/s/ Rothstein, Kass & Company,
              P.C.




Roseland,
      New Jersey




March
      31,
      2005, except for Note 14, as to which the date is April 7, 2006




F-3




**STRONGHOLD
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  BALANCE SHEET****December
                  31,****ASSETS**
              
              **2005****Current
                  assets**Cash
              
              $
              67,060Accounts
                  receivable, less allowance for returns anddoubtful
                  accounts of $60,000
              
              
              43,437Inventories
              
              
              18,093Prepaid
                  expenses
              
              
              27,038Total
                  current assets
              
              
              155,628**Property
                  and equipment, net**
              
              
              15,635**Other
                  assets**Software
                  development costs, net of accumulated amortization of
                  $888,391
              
              
              490,846Deferred
                  charge, convertible debt loan acquisition costs, net of
                  amortization
              
              
              37,288Other
              
              
              40,193Total
                  other assets
              
              
              568,327$
              739,590**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  liabilities**Accounts
                  payable
              
              $
              508,058Interest
                  payable, stockholders
              
              
              1,039,315Notes
                  payable, stockholders, current portion
              
              
              1,352,531Deferred
                  revenue
              
              
              358,959Liquidated
                  damages payable
              
              
              903,219Accrued
                  expenses and other current liabilities
              
              
              1,873,250Total
                  current liabilities
              
              
              6,035,332**Long-term
                  liabilities**Notes
                  payable, stockholders, less current portion
              
              
              875,000Note
                  payable, convertible debt
              
              
              4,496,389Payroll
                  taxes payable, long term
              
              
              45,000Total
                  long term liabilities
              
              
              5,416,389**Commitments
                  and contingencies****Stockholders'
                  deficit**Preferred
                  stock, Series A, $.0001 par value; authorized 5,000,000shares,
                  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 (aggregate liquidation preference
                  $2,200,000)
              
              
              445Common
                  stock, $.0001 par value, authorized 8,500,000,000shares,
                  17,460,222 issued and outstanding
              
              
              1,746Additional
                  paid-in capital
              
              
              8,004,389Accumulated
                  deficit
              
              
              (18,718,711
              )Total
                  stockholders' deficit
              
              
              (10,712,131
              )$
              739,590


See
        accompanying notes to consolidated financial statements.




F-4




**STRONGHOLD
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF
                  OPERATIONS****Years
                  Ended December 31,**
              
              **2005**
              
              **2004****Sales**
              
              $
              943,735
              
              $
              2,489,790**Cost
                  of sales**
              
              
              324,360
              
              
              834,349**Gross
                  profit**
              
              
              619,375
              
              
              1,655,441**Selling,
                  general and****administration**
              
              
              2,732,954
              
              
              4,225,652**Loss
                  from operations**
              
              
              (2,113,579
              )
              
              (2,570,211
              )**Interest
                  expense**
              
              
              747,383
              
              
              327,429**Liquidated
                  damages**
              
              
              771,486
              
              
              131,733**Net
                  loss applicable to common****stockholders**
              
              $
              (3,632,448
              )
              $
              (3,029,373
              )**Basic
                  and diluted loss per****common
                  share**
              
              $
              (0.17
              )
              $
              (0.21
              )**Weighted
                  average number of****common
                  shares outstanding**
              
              
              16,997,444
              
              
              14,081,263


See
        accompanying notes to consolidated financial statements.




F-5




**STRONGHOLD
                  TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****Years
                  ended December 31,**
              
              **2005**
              
              **2004****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (3,632,448
              )
              $
              (3,029,373
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activities:Provision
                  for returns and allowances
              
              
              (159,891
              )
              
              1,445Depreciation
              
              
              65,520
              
              
              417,583Amortization
              
              
              467,651Stock
                  issued for services
              
              
              —
              
              
              161,441Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              420,252
              
              
              281,545Inventories
              
              
              26,610
              
              
              127,042Prepaid
                  expenses
              
              
              63,446
              
              
              (78,843
              )Other
                  receivables
              
              
              —
              
              
              (3,804
              )Accounts
                  payable
              
              
              (111,121
              )
              
              (62,144
              )Interest
                  payable, stockholders
              
              
              603,261
              
              
              64,875Software
                  development costs
              
              
              (65,455
              )
              
              (407,405
              )Accrued
                  expenses and other current liabilities
              
              
              (362,079
              )
              
              (409,380
              )Deferred
                  revenue
              
              
              250,987
              
              
              250,987Other
                  Assets
              
              
              34,909
              
              
              2,910**Net
                  cash used in operating activities**
              
              
              (2,398,358
              )
              
              (2,683,121
              )**Cash
                  flows from investing activities,**Payments
                  for purchase of property and equipment
              
              
              (1,970
              )
              
              (3,737
              )**Net
                  cash used in investing activities**
              
              
              (1,970
              )
              
              (3,737
              )**Cash
                  flows from financing activities**Proceeds
                  from issuance of common stock, net of financing costs
              
              
              79,461
              
              
              52,000Proceeds
                  from notes payable, stockholders
              
              
              155,000
              
              
              920,000Principal
                  repayments of notes payable, stockholders
              
              
              (50,496
              )
              
              (21,775
              )Proceeds
                  from notes payable, convertible debt
              
              
              2,151,575
              
              
              2,350,000Payments
                  made for loan acquisition cost relating to notes payable,
                  stockholders
              
              
              —
              
              
              (82,095
              )Liquidated
                  damages payable
              
              
              771,486
              
              
              131,733Principal
                  repayments of notes payable
              
              
              (606,667
              )
              
              (625,000
              )Principal
                  payments for obligations under capital leases
              
              
              (33,471
              )
              
              (45,566
              )**Net
                  cash provided by financing activities**
              
              
              2,466,888
              
              
              2,679,297**Net
                  increase (decrease) in cash**
              
              
              66,560
              
              
              (7,561
              )**Cash,
                  beginning of period**
              
              
              500
              
              
              8,161**Cash,
                  end of period**
              
              $
              67,060
              
              $
              600**Supplemental
                  disclosure of cash flow information,**cash
                  paid during the period for interest
              
              $
              80,235
              
              $
              262,554


See
        accompanying notes to consolidated financial statements.




F-6


**STRONGHOLD
                    TECHNOLOGIES, INC. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS' DEFICIT**




**Years
                  Ended December 31, 2005 and 2004****Preferred
                  Stock**
              
              **Preferred
                  Stock**
              
              
              
              
              
              **Additional**
              
              **Stock**
              
              
              
              **Total****Series
                  A**
              
              **Series
                  B**
              
              **Common
                  Stock**
              
              **Paid-in**
              
              **Subscription**
              
              **Accumulated**
              
              **Stockholders'****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Receivable**
              
              **Deficit**
              
              **Deficit****Balances**,
                  December 31, 2003
              
              
              2,002,750
              
              $
              201
              
              
              2,444,444
              
              $
              244
              
              
              13,291,218
              
              $
              1,329
              
              $
              7,711,767
              
              $
              (3,000
              )
              $
              (12,056,889
              )
              $
              (4,346,349
              )—**Issuance
                  of common stock**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              157,059
              
              
              16
              
              
              49,984
              
              
              
              
              
              
              
              
              50,000**Conversion
                  of warrants****to
                  common stock**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,000,000
              
              
              200
              
              
              1,800
              
              
              
              
              
              
              
              
              2,000**Stock
                  issued for services**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              639,072
              
              
              64
              
              
              161,377
              
              
              
              
              
              
              
              
              161,441**Conversion
                  of stockholder****loan
                  to common stock**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —**Net
                  loss**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,029,373
              )
              
              (3,029,373
              )**Balances**,
                  December 31, 2004
              
              
              2,002,750
              
              
              201
              
              
              2,444,444
              
              
              244
              
              
              16,087,349
              
              
              1,609
              
              
              7,924,928
              
              
              (3,000
              )
              
              (15,086,263
              )
              $
              (7,162,281
              )**Conversion
                  of convertible****notes
                  to common stock**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              172,873
              
              
              17
              
              
              5,152
              
              
              
              
              
              
              
              
              5,169**Stock
                  issued for interest due, net of costs**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,200,000
              
              
              120
              
              
              74,309
              
              
              
              
              
              
              
              
              74,429**Payment
                  of stock subscription**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —**receivable**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,000
              
              
              
              
              
              3,000**Net
                  loss**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,632,448
              )
              
              (3,632,448
              )**Balances**,
                  December 31, 2005
              
              
              2,002,750
              
              $
              201
              
              
              2,444,444
              
              $
              244
              
              
              17,460,222
              
              $
              1,746
              
              $
              8,004,389
              
              $
              —
              
              $
              (18,718,711
              )
              
              (10,712,131
              )


See
      accompanying notes to consolidated financial statements.






F-7




**NOTES
      TO****CONSOLIDATED********FINANCIAL
      STATEMENTS**


**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.
  **2.**
              **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 $3,632,000 and has negative cash flows from operations
        of
        approximately $2,400,000 for the year ended December 31, 2005, and has a
        working
        capital deficit of approximately $5,880,000 and a stockholders’ deficit of
        approximately $10,700,000 as of December 31, 2005. These conditions raise
        substantial doubt about the Company’s ability to continue as a going concern.
        During 2006, 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.
  **3.**
              **Summary
                  of significant accounting
                  policies**
 
 *Principles
        of Consolidation*
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary. All significant intercompany balances and transactions
        have been eliminated in consolidation.
 
 *Property
        and Equipment*
 
 Property
        and equipment are recorded at cost. Depreciation for equipment, software
        and
        furniture is provided for financial reporting and tax purposes using declining
        balance methods. Leasehold improvements are amortized by the straight line
        method.
 
 Maintenance,
        repairs and minor renewals are charged to expenses when incurred. Replacements
        and major renewals are capitalized.
 
 *Accounts
        Receivable*
 
 The
        Company carries its accounts receivable at cost less an allowance for doubtful
        accounts. On a periodic basis, the Company evaluates its accounts receivable
        and
        establishes an allowance for doubtful accounts, based on a history of past
        write-offs and collections and current credit conditions. Accounts are written
        off as uncollectible at the discretion of management.
  *Inventories*
 
 Inventories,
        which are comprised of hardware for resale, are stated at cost, on an average
        cost basis, which does not exceed market value.
 
 *Software* ****** *Development
        Costs*
 
 Capitalized
        software development costs, including significant product enhancements, incurred
        subsequent to establishing technological feasibility in the process of software
        development and production, are capitalized according to Statement of Financial
        Accounting Standards (SFAS) 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. The capitalized software is amortized over a three
        year
        period using the straight-line method
 
 *Fair
        Value of Financial Instruments*
 
 Financial
        instruments held by the Company include cash, accounts receivable, notes
        payable
        and accounts payable. The book value of cash, accounts receivable and accounts
        payable are considered to be representative of fair value because of the
        short
        maturity of these instruments. The fair values of the notes payable approximate
        book values primarily because the contractual interest rates approximate
        prevailing market rates.
  F-8
  *Impairment
        of Long-Lived Assets*
 
 The
        Company periodically assesses the recoverability of the carrying amounts
        of
        long-lived assets, including intangible assets. A loss is recognized when
        expected undiscounted future cash flows are less than the carrying amount
        of the
        asset. The impairment loss is the difference by which the carrying amount
        of the
        asset exceeds its fair value.
 
 *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 years ended December 31, 2005 and
        2004.
  *Income
        Taxes*
 
 The
        Company complies with SFAS No. 109, “Accounting for Income Taxes,” which
        requires an asset and liability approach to financial accounting and reporting
        for income taxes. Deferred income tax assets and liabilities are computed
        for
        differences between the financial statement and tax bases of assets and
        liabilities that will result in future taxable or deductible amounts, based
        on
        enacted tax laws and rates applicable to the periods in which the differences
        are expected to affect taxable income. Valuation allowances are established,
        when necessary, to reduce deferred tax assets to the amount expected to be
        realized.
 
 *Stock-Based
        Compensation*
 
 In
        December 2002, the Financial Accounting Standards Board (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 *(see
        Note 10).*
 
 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 years
        ended
        December 31, 2005 and 2004.
 
 **2005**
              
              **2004****Net
                  loss applicable to common****shareholders,**as reported
              
              $
              (3,632,448
              )
              $
              (3,029,373
              )**Add**Total
                  stock-based compensationexpense
                  determined under fairvalue
                  method for all awards, netof
                  related tax effect
              
              
              12,647
              
              
              47,793**Pro
                  forma**
              
              $
              (3,645,095
              )
              $
              (3,077,166
              )**Basic
                  and diluted EPS**As
                  reported
              
              $
              (0.14
              )
              $
              (0.22
              )Pro
                  forma
              
              $
              (0.14
              )
              $
              (0.22
              )
  The
        fair
        value of issued stock options is estimated on the date of grant using the
        Black-Scholes option-pricing model including the following assumptions: expected
        volatility of approximately 15%, expected dividend yield rate of 0%, expected
        life of 10 years, and a risk-free interest rate of 4.23% and 4.27% for the
        years
        ended December 31, 2005 and 2004, respectively.
  F-9
 
 *Revenue
        Recognition*
 
 Revenue
        is recognized under the guidelines of Statement of Position SOP 97-2 Software
        Revenue Recognition.
 
 All
        sales
        agreements with clients do not require significant production, modification,
        or
        customization of software, additionally all the functionality of the product
        is
        made available upon delivery, therefore the Company recognizes revenue in
        accordance with Paragraph 8 of 97-2 when:
 
 1)
              Persuasive
                  evidence of an arrangement exists as evidenced by a signed contract,
 2)
              Delivery
                  has occurred, please note that Stronghold does not recognize revenue
                  prior
                  to delivery,
 3)
              The
                  price of Stronghold’s system is fixed and determinable as evidence by the
                  contract, and
 4)
              Collectability
                  is highly probable.
 
 *Deferred
        Revenue*
 
 Deferred
        revenue is recorded as a liability when the Company receives the three year
        maintenance contact in an a one-time advance payment. The Company then
        recognizes the revenue from the maintenance portion of the contract on a
        pro
        rata basis over the term of the contract.
 
 *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.
 
 *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 exclude dilutions and are 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 loss per common
        share.
 
 *Recently
        Issued Accounting Pronouncements*
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        123(R), “Accounting for Stock-based Compensation (Revised).” SFAS No. 123(R)
        supersedes APB No. 25 and its related implementation guidance. SFAS No. 123(R)
        establishes standards for the accounting for transactions in which an entity
        exchanges its equity instruments for goods or services. It also addresses
        transactions in which an entity incurs liabilities in exchange for goods
        or
        services that are based on the fair value of the entity’s equity instruments or
        tha may be settled by the issuance of those equity instruments. SFAS No.
        123(R)
        focuses primarily on accounting for transactions in which an entity obtains
        employee services in share-based payment transactions. SFAS No. 123(R) requires
        a public entity to measure the cost of employee services received in exchange
        for an award of equity instruments based on the grant-date fair value of
        the
        award (with limited exceptions). That cost will be recognized over the period
        during which an employee is required to provide service in exchange for the
        award the requisite service period (usually the vesting period). No compensation
        costs are recognized for equity instruments for which employees do not render
        the requisite service. The grant-date fair value of employee share options
        and
        similar instruments will be estimated using option-pricing models adjusted
        for
        the unique characteristics of those instruments (unless observable market
        prices
        for the same or similar instruments are available). If an equity award is
        modified after the grant-date, incremental compensation cost will be recognized
        in an amount equal to the excess of the fair value of the modified award
        over
        the fair value of the original award immediately before the modification.
        The
        Company has not completed its evaluation of SFAS No. 123(R) but expects the
        adoption of this new standard will have an impact on operating results due
        to
        the Company’s use of options as employee incentives.
 
 In
        November 2004, the FASB issued SFAS No. 151, “Inventory Costs-an amendment of
        ARB No. 43, Chapter 4”. SFAS No. 151 has been issued to clarify the accounting
        for abnormal amounts of idle facility expense, freight, handling costs, and
        wasted material (spoilage), which requires that those items be recognized
        as
        current-period charges regardless of whether they meet the criterion of “so
        abnormal.” In addition, this Statement requires that allocation of fixed
        production overheads to the costs of conversion be based on the normal capacity
        of the production facilities. Management of the Company does not believe
        the
        effects of SFAS No. 151 have a material effect on the consolidated financial
        statements, as the Company has not incurred any inventory costs that meet
        the
        definition of “so abnormal.”
  F-10
  **4.**
              **Property
                  and equipment**
 
 A
        summary
        of property and equipment at December 31, 2005 and the estimated lives used
        in
        the computation of depreciation and amortization is as follows:
  **Estimated****Amount**
              
              **Useful
                  Life**
              
              **Principal
                  Method**Computer
                  equipment
              
              $
              192,766
              
              
              5
                  years
              
              
              Declining-balanceComputer
                  software
              
              
              19,166
              
              
              3
                  years
              
              
              Declining-balanceFurniture
                  and fixtures
              
              
              21,717
              
              
              7
                  years
              
              
              Declining-balanceComputer
                  equipment recorded under capital leases
              
              
              113,491
              
              
              5
                  years
              
              
              Declining-balanceLeasehold
                  improvements
              
              
              7,982
              
              
              4
                  years
              
              
              Straight-line355,122Less
                  accumulated depreciationand
                  amortization
              
              
              (339,487
              )$
              15,635
  **5.**
              **Accrued
                  expenses and other current
                  liabilities**
 
 Accrued
        expenses and other current liabilities consist of the following at December
        31,
        2005:
 Payroll
                  taxes, including penalties and interest
              
              $
              631,676Commissions
              
              
              116,372Compensation
              
              
              117,395Sales
                  tax
              
              
              105,140Accrued
                  officer's compensation
              
              
              785,974Other
              
              
              116,693$
              1,873,250
  **6.**
              **Notes
                  payable, stockholders**
 
 At
        December 31, 2005, notes payable, stockholders consists of the
        following:
 Note
                  payable bearing interest at 8% and due in March, 2007
              
              $
              875,000Notes
                  payable bearing interest at 12.5% and due in May, 2006
              
              
              992,531Notes
                  payable bearing interest at 8% and due in May, 2006
              
              
              360,000$
              2,227,531Less
                  current portion
              
              
              1,352,531$
              875,000
 
 **7.**
                **Note
                    payable**
 During
        the year ended December 31, 2005 the Company repaid its notes payable to
        a bank
        of $606,667 and interest of $16,830. This note was in default as of December
        31,
        2004 and had been classified short term.
 
 **8.**
              **Callable
                  secured convertible notes**
  To
        obtain
        funding for its ongoing operations, Stronghold Technologies, Inc. (the
        "Company") entered into an agreement with a group of investors pursuant to
        which
        it agreed to sell $4,501,575 in callable convertible secured notes and stock
        purchase warrants to buy 4,501,575 shares of the Company’s common stock (the
“Warrants”)..
  The
        Notes
        bear interest at 12%, mature two years from the date of issuance, and are
        convertible into our common stock, at the Investors' option, at the lower
        of (i)
        $0.70 or (ii) 75% of the average of the three lowest intraday trading prices
        for
        the Company's common stock during the 20 trading days before, but not including,
        the conversion date. The Company may prepay the Notes in the event that no
        event
        of default exists, there are a sufficient number of shares available for
        conversion of the Notes and the market price is at or below $0.57 per share.
        The
        full principal amount of the Notes is due upon default under the terms of
        Notes.
        In addition, the Company has granted the investors a security interest in
        substantially all of its assets and intellectual property as well as
        registration rights.
  F-11
  **9.**
              **Income
                  taxes**
 
 At
        December 31, 2005, the Company had net operating loss carryforwards of
        approximately$12,545,000 which expire between 2009 and 2024.
  As
        of
        December 31, 2005 the valuation of the Company’s deferred tax asset is
        zero.
  A
        reconciliation of the credit for income taxes with the amount computed by
        applying the statuatory Federal income tax rate to loss before income taxes
        is
        as follows:
  **2005**
              
              **2004**Computed
                  expected tax credit rate
              
              
              (34
              )%
              
              (34
              )%State
                  income tax credit, net of federal benefit
              
              
              (7
              )
              
              (7
              )Change
                  in valuation allowance and other
              
              
              41
              
              
              41Effective
                  income tax rate
              
              
              0
              %
              
              0
              %
 **10.**
                **Stock
                    option plans**
 
 The
        Company has adopted three stock option plans (“Plans”) providing for incentive
        stock options (“ISOs”) and non-qualified stock options (“NQSOs”). The Company
        has reserved 2,358,541 shares of common stock for issuance upon the exercise
        of
        stock options granted under the Plans. 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 Plans further provide 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. All of the stock option
        plans vest over a three year period with each year earning 1/3 of total options
        granted as long as the employee is in employment with the Company upon the
        anniversary date.
  The
        status of the Company’s restated stock options per the Plans are summarized
        below:
 **Restated**
              
              **Weighted****Plan**
              
              **Per
                  Share**
              
              **Average****Options**
              
              **Exercise
                  Price**
              
              **Exercise
                  Price****Outstanding
                  at**January
                  1, 2004
              
              
              1,909,309
              
              $
              0.10-$2.25
              
              $
              0.50Granted
                  in the year endedDecember
                  31, 2004
              
              
              113,000
              
              $
              0.11-$0.85
              
              $
              0.59Terminated
                  in the year endedDecember
                  31, 2004
              
              
              (796,901
              )
              $
              0.10-$2.25
              
              $
              0.82**Outstanding
                  at**December
                  31, 2004
              
              
              1,225,408
              
              $
              0.11-$2.00
              
              $
              0.85Granted
                  in the year endedDecember
                  31, 2005
              
              
              4,000
              
              $
              0.05
              
              $
              0.05Terminated
                  in the year endedDecember
                  31, 2005
              
              
              (728,277
              )
              $
              0.07-$1.50
              
              $
              1.22**Outstanding
                  at**December
                  31, 2005
              
              
              501,131
              
              $
              0.05-$1.50
              
              $
              0.64
   F-12
 The
        exercise price ranges for options outstanding and exercisable at December
        31,
        2005 were:
  **Weighted****Number
                  of Shares**
              
              **Number
                  of Shares**
              
              **Weighted**
              
              **Average****Exercise**
              
              **Outstanding
                  as of**
              
              **Exercisable
                  at**
              
              **Average**
              
              **Remaining****Price**
              
              **December
                  31,**
              
              **December
                  31,**
              
              **Exercise**
              
              **Contractual****Range**
              
              **2005**
              
              **2005**
              
              **Price**
              
              **Life**$.05
                  through $.50
              
              
              33,344
              
              
              28,344
              
              $
              0.11
              
              
              8
                  Years$.51
                  through $1.50
              
              
              467,787
              
              
              27,787
              
              $
              0.69
              
              
              9
                  Years$1.51
                  through $2.25
              
              
              0
              
              
              —
              
              $
              0.00
              
              
              9
                  Years501,131
              
              
              56,131
 
 **11.**
              **Stockholders’
                  Equity**
  *Securities
        Purchase Agreements*
  The
        Company, along with Parent, and certain stockholders of the Company (together
        the "Parties"), entered into a Securities Purchase Agreement (the "Series
        A
        Purchase Agreement") dated and executed on May 15, 2002, with Stanford Venture
        Capital Holdings, Inc. ("Stanford"). Pursuant to the Series A Purchase
        Agreement, the Parties agreed to issue to Stanford a total of 2,002,750 shares
        of the Company's Series A $1.50 Convertible Preferred Stock ("Series A $1.50
        Preferred Stock"), plus five-year warrants purchasing 2,002,750 shares of
        the
        Company's common stock at an exercise price of $1.50 for the first 1,001,375
        shares and $2.25 for the remaining shares. The value of the warrants was
        treated
        as a dividend for approximately $295,000 (computed using the Black-Scholes
        model
        with the following assumptions: expected volatility of 0%, expected dividend
        yield rate of 0%, expected life of 5 years, and a risk-free interest rate
        of
        4.03% for December 31, 2002) on May 15, 2002, the date of issuance. Pursuant
        to
        the Series A Purchase Agreement, the issuance of the Series A Preferred Stock
        and Warrants took place on four separate closing dates beginning on May 16,
        2002
        and closing on July 19, 2002.
 
 The
        Parties entered into an additional Securities Purchase Agreement (the "Series
        B
        Purchase Agreement") dated and executed on April 30, 2003 with Stanford.
        Pursuant to the Series B Purchase Agreement, the Parties agreed to issue
        to
        Stanford a total of 2,444,444 shares of the Company's Series B $.90 Convertible
        Preferred Stock ("Series B Preferred Stock"). Pursuant to the Series B Purchase
        Agreement, the issuance of the Series B Preferred Stock took place on six
        separate closing dates beginning on April 30, 2003 and closing on September
        15,
        2003. In connection with the issuance of the Series B Preferred Stock, the
        Series B Purchase Agreement also required the Company to lower the exercise
        price of the 2,002,750 warrants that were issued with the Series A Purchase
        Agreement. The conversion price for these warrants was reduced to $0.25 from
        the
        original conversion prices of $1.50 and $2.25, and was accounted for as a
        cost
        of issuance of the Series B Purchase Agreement.
 
 In
        connection with both the Series A and Series B Purchase Agreements, certain
        stockholders of the Company 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 the Company's capital stock for a period
        of
        two years, with certain exceptions, as defined in the Lock-Up Agreement.
 
 In
        accordance with FAS 129 Paragraph 4, the Company is providing the following
        summary pf the pertinent rights and privileges of these outstanding
        securities:
  Each
        Series A $1.50 preferred share and each Series B convertible $.90 Preferred
        share is convertible into common shares at a predefined “conversion rate”
(described below). There are two ways to convert this Preferred
        stock:
  Optional
        conversion: The holder may at any time convert the preferred shares at the
        stated “conversion rate” rate into Common stock
  Automatic
        conversion: The shares can be converted by: A) at the date of a vote by at
        least
        two-thirds of the outstanding Preferred shares to convert or, B) upon the
        closing of a qualified public offering where the stock is offered to the
        public
        at a price equal to or exceeding $3.00 which generates net proceeds to the
        company equal to or exceeding $15,000,000.
 
 “Conversion
        rate” - each share of the Series A preferred stock and Series B preferred stock
        is convertible into the number of shares of the common stock as shall be
        calculated by dividing the stated value by $1.50 and $.90,
        respectively.
 
 *Warrants*
 
 On
        June
        16, 2004, in consideration of and as an inducement to Stanford for the Company
        to enter into the issuance of the 12% callable secured convertible notes
        (the
“NIR Notes”) referenced below, Stanford has been issued a warrant (the “Stanford
        Warrants”) to purchase an additional 2,000,000 shares of Common Stock, expiring
        in five years, at an exercise price of $.0001 in exchange for i) agreeing
        to a
        waiver of existing registration rights that included a lock up period for
        one
        year after the effective date of a registration statement prohibiting the
        registration and sale of Stanford’s securities and ii) agreeing as holder of
        Stronghold’s Series A $1.50 Convertible Preferred Stock (“Series A Stock”) and
        Series B $.90 Convertible Preferred Stock (“Series B Stock”), to waive any
        dilution protection which would otherwise accrue to the Series A Stock and
        the
        Series B Stock pursuant to the respective certificates of designation filed
        with
        the Secretary of State of the State of Nevada, as amended, as a result of
        the
        conversion of the NIR Notes or exercise of the Stanford Warrants into the
        Company’s common stock. This issuance of the Stanford Warrants has been
        accounted for as an adjustment of capital for the waiving of the dilution
        protection for the Series A and Series B preferred stock. The Stanford Warrants
        were valued at approximately $360,000 using the Black-Scholes option pricing
        model including the following assumptions: exercise price of $0.0001, expected
        volatility of 2.06%, expected dividend yield rate of 0%, expected life of
        5
        years, and a risk free interest rate of 4.73%.
  F-13
  **12.**
              **Commitments
                  and contingencies**
 
 *Leases*
 
 The
        Company leases
        facilities under an operating lease which expires in January, 2008 and provides
        for annual base rental of $25,416 plus a proportionate share of operating
        costs
        and other expenses. Future aggregate minimum annual rent payments under these
        leases are approximately as follows:
 **Year
                  ending December 31,**2006
              
              $
              25,5862007
              
              
              26,6122008
              
              
              22,910$
              75,108
 
 Rent
        expense was approximately $90,000 and $107,000 for the years ended December
        31,
        2005 and 2004, respectively.
  *Legal
        proceedings*
  The
        Company is subject to legal proceedings and claims which have arisen in the
        ordinary course of its business and have not been finally adjudicated. These
        actions when ultimately concluded and determined will not, in the opinion
        of
        management, have a material adverse effect on results of operations or the
        financial condition of the Company.
  **13.**
              **Subsequent
                  events**
 
 *Callable
        Secured Convertible Notes*
  On
        February 6, 2006, to obtain funding for its ongoing operations, the
        "Company" entered into an agreement with a group of investors for the sale
        of
        (i) $180,000 in callable secured convertible notes (the "Notes") and (ii)
        stock
        purchase warrants (the "Warrants") to buy 180,000 shares of our common stock.
  The
        Notes
        bear interest at 12%, mature two years from the date of issuance, and are
        convertible into our common stock, at the Investors' option, at a conversion
        price, equal to the lower of (i) $0.05 or (ii) 25% of the average of the
        three
        lowest intraday trading prices for our common stock during the 20 trading
        days
        before, but not including, the conversion date. As of February 6, 2006, the
        average of the three lowest intraday trading prices for our common stock
        during
        the preceding 20 trading days as reported on the Over-The-Counter Bulletin
        Board
        was $.01 and, therefore, the conversion price for the secured convertible
        notes
        was $.0025. Based on this conversion price, the Notes, excluding interest,
        were
        convertible into 72,000,000 shares of our common stock.
  *Conversion
        of Christopher Carey Stockholder Loan from debt to equity*
 
 On
        Feb.
        6, 2006 a stockholder converted $150,000 of deferred compensation into
        21,428,571 shares of common stock of the Company (the “Shares”) and (ii)
        $781,369 deferred compensation into 10,000 shares of Series C Preferred Stock
        (the “Preferred Shares”),
  *New
        Callable Secured Convertible Notes Issuance*
  On
        March
        17, 2006, to obtain funding for its ongoing operations, the "Company"
        entered into a Securities Purchase Agreement (the "Agreement") with a group
        of
        investors for the sale of (i) $1,450,000 in callable secured convertible
        notes
        (the "Notes") and (ii) stock purchase warrants (the "Warrants") to buy 2,900,000
        shares of our common stock.
  F-14
  On
        March
        17, 2006, the Investors purchased $250,000 in Notes and received Warrants
        to
        purchase 250,000 shares of the Company's common stock. In addition, provided
        that all of the conditions in the Securities Purchase Agreement are satisfied,
        on the final business day of each month commencing in April 2006 and ending
        in
        January 2007, the Company will issue to the Investors and the Investors will
        purchase $200,000 in Notes and related Warrants in April 2006 and May 2006
        and
        $100,000 in Notes and related Warrants thereafter. The Company or a majority
        in
        interest of the Investors may terminate the obligation to issue additional
        Notes
        and Warrants upon 30 days notice.
  The
        Notes
        bear interest at 8%, mature two years from the date of issuance, and are
        convertible into our common stock, at the Investors' option, at a conversion
        price, equal to the lower of (i) $0.05 or (ii) 25% of the average of the
        three
        lowest intraday trading prices for our common stock during the 20 trading
        days
        before, but not including, the conversion date. As of March 21, 2006, the
        average of the three lowest intraday trading prices for our common stock
        during
        the preceding 20 trading days as reported on the Over-The-Counter Bulletin
        Board
        was $.01 and, therefore, the conversion price for the secured convertible
        notes
        was $.0025. Based on this conversion price, the Notes in the amount of $250,000
        issued on March 17, 2006 were convertible into 100,000,000 shares of our
        common
        stock.
  **14.**
              **Restatement
                  of previously issued financial
                  statements**
 
 In
        connection with the preparation of the Annual Report on Form 10-KSB of the
        Company for the fiscal year ended December 31, 2005, the Company's management
        reviewed the Securities and Exchange Commission’s release of December 1,
        2005 entitled “Current
        Accounting and Disclosure Issues in the Division of Corporation Finance” as
        Prepared by Accounting Staff Members in the Division of Corporation Finance,
        U.S. Securities and Exchange Commission Washington, D.C. The Company determine
        that an adjustment was necessary for the reporting of the Convertible Debenture
        Notes, Stand Alone Warrants and as a result of certain registration rights
        granted to the investors of these notes, potential Liquidated Damages that
        were
        not previously recorded.
 
 Specifically,
        the Company deemed the Convertible Debt previously reported under EITF 98-5
        and
        EITF 00-27 must now be reported within the guidelines of EITF 00-19 and
        therefore restatements of previously issued financial statements were necessary.
        In determining the amount of this restatement, the Company concluded that
        the
        fair value of the debt at all points in time was greater than the fair value
        of
        the Company in total. As a result, the Company determined that there is no
        value
        attributable to the Conversion Feature of this debt.
 
 After
        reviewing the matter with its current and former independent registered public
        accounting firms, the Company has identified certain adjustments that
        necessitate the restatement of its financial statements for the second and
        third
        quarters of fiscal 2004, the interim periods of fiscal 2005, and for the
        fiscal
        year end 2004.
 
 These
        adjustments reflect the following with respect to the Convertible Debt:
 
 **Convertible
        Debt:** In
        accordance with EITF 00-19, since
        there is no explicit limit on the number of shares that are to be delivered
        upon
        exercise of the conversion feature,the Company is not able to assert that
        it
        will have sufficient authorized and unissued shares to settle the conversion
        option. As a result, the conversion feature should be accounted for as a
        derivative liability rather than permanent equity, with changes in fair value
        recorded in earnings each period and therefore the previous reporting in
        accordance with EITF’s 98-5 and 00-27 for the beneficial conversion feature and
        debt discount should be restated as such.
 
 In
        recording the valuation of the Convertible Feature Liability within the
        restatement, the Company has now determined that the fair value of this
        liability is zero due to the carrying value of the convertible debt exceeding
        the fair value of the Company. The primary impact of adhering to EITF 00-19
        is
        to eliminate the debt discount previously recorded as equity. Additionally,
        the
        Company had deemed the Convertible Debt to be in default and has written
        off the
        loan acquisition costs associated with convertible debt, previously recorded
        as
        a Deferred Charge asset.
  F-15
 
 The
        restatement adjustments to the Company's financial statements for the year
        ended
        December 31, 2004 are summarized as follows:
 **STRONGHOLD
                  TECHNOLOGIES, INC. AND SUBSIDIARY**NOTES
                  TO FINANCIAL STATEMENTSRESTATED
                  BALANCE SHEET as of 12/31/2004**December
                  31,****As
                  previously**
              
              **Restatement**
              
              **As****Reported**
              
              **Adjustment**
              
              **Restated****ASSETS**
              
              **12/31/04**
              
              **12/31/04**
              
              **12/31/04****Current
                  assets**Cash
              
              $
              500
              
              
              —
              
              
              500Accounts
                  receivable, less allowance for returns and
              
              
              
              
              
              —
              
              
              —doubtful
                  accounts of $219,891
              
              
              303,798
              
              
              —
              
              
              303,798Inventories
              
              
              44,704
              
              
              —
              
              
              44,704Prepaid
                  expenses
              
              
              90,484
              
              
              —
              
              
              90,484Total
                  current assets
              
              
              439,486
              
              
              —
              
              
              439,786**Property
                  and equipment, net**
              
              
              79,185
              
              
              —
              
              
              79,185**Other
                  assets**Software
                  development costs, net of amortization
              
              
              867,786
              
              
              —
              
              
              867,786Deferred
                  charge, convertible debt loan acquisition costs, net of
                  amortization
              
              
              347,608
              
              
              (347,608
              )
              
              0Other
              
              
              137,645
              
              
              —
              
              
              137,645Total
                  other assets
              
              
              1,353,039
              
              
              (347,608
              )
              
              1,005,431$
              871,710
              
              
              (347,608
              )
              
              1,524,100**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  liabilities**Accounts
                  payable
              
              $
              619,178
              
              
              —
              
              
              619,178Accrued
                  expenses and other current liabilities
              
              
              1,172,897
              
              
              —
              
              
              1,172,897Liquidated
                  damages payable
              
              
              —
              
              
              131,733
              
              
              131,733Interest
                  payable, stockholders
              
              
              472,779
              
              
              —
              
              
              472,779Notes
                  payable, stockholders, current portion
              
              
              1,145,530
              
              
              —
              
              
              1,145,530Note
                  payable
              
              
              606,667
              
              
              —
              
              
              606,667Deferred
                  Revenue
              
              
              593,408
              
              
              —
              
              
              593,408Obligations
                  under capitalized leases, current portion
              
              
              25,808
              
              
              —
              
              
              25,808Total
                  current liabilities
              
              
              4,636,267
              
              
              131,733
              
              
              4,767,998**Long-term
                  liabilities**Notes
                  payable, stockholders, less current portion
              
              
              1,129,600
              
              
              —
              
              
              1,129,600Note
                  payable, convertible debt of $2,350,000 net of debt discount of
                  $2,350,000and
                  debt discount amortization of $539,581
              
              
              539,581
              
              
              (539,581
              )
              
              —Note
                  Payable Convertible Debt of $2,350,000
              
              
              
              
              
              2,350,000
              
              
              2,350,000Obligations
                  under capitalized leases, less current portion
              
              
              8,783
              
              
              —
              
              
              8,783Payroll
                  taxes payable, long term
              
              
              430,000
              
              
              —
              
              
              430,000Total
                  long term liabilities
              
              
              2,107,964
              
              
              1,810,419
              
              
              3,918,383**Commitments
                  and contingencies****Stockholders'
                  deficit**Preferred
                  stock, Series A, $.0001 par value; authorized 5,000,000shares,
                  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 (aggregate liquidation preference
                  $2,200,000)
              
              
              445
              
              
              —
              
              
              445Common
                  stock, $.0001 par value, authorized 50,000,000
              
              
              
              
              
              —shares,
                  16,087,349 issued and outstanding
              
              
              1,609
              
              
              —
              
              
              1,609Additional
                  paid-in capital
              
              
              10,274,928
              
              
              (2,350,000
              )
              
              7,924,928Stock
                  subscription receivable
              
              
              (3,000
              )
              
              —
              
              
              (3,000
              )Accumulated
                  deficit
              
              
              (15,146,503
              )
              
              60,240
              
              
              (15,086,263
              )Total
                  stockholders' deficit
              
              
              (4,872,521
              )
              
              (2,289,760
              )
              
              (7,162,281
              )$
              1,871,708
              
              
              347,608
              
              
              1,524,100
   F-16
  STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENTS OF OPERATIONSFOR
                  THE YEAR ENDED December 31, 2004For
                  the
              
              Restatemenmt
              
              For
                  theyear
                  ended
              
              Adjustment
              
              Year12/31/2004
              
              12/31/2004
              
              12/31/2004As
                  previously
              
              Restatement
              
              AsReported
              
              Adjustment
              
              RestatedSales
              
              
              2,489,790
              
              
              —
              
              
              2,489,790Cost
                  of sales
              
              
              834,349
              
              
              —
              
              
              834,349Gross
                  profit
              
              
              1,655,441
              
              
              —
              
              
              1,655,441Selling,
                  general andadministrative
              
              
              3,878,044
              
              
              347,608
              
              
              4,225,652Loss
                  from operations
              
              
              (2,222,603
              )
              
              (347,608
              )
              
              (2,570,211
              )Interest
                  expense
              
              
              867,010
              
              
              (539,581
              )
              
              327,429Liquidated
                  damages
              
              
              —
              
              
              131,733
              
              
              131,733New
                  loss applicable to commonstockholders
              
              
              (3,089,613
              )
              
              60,240
              
              
              (3,029,373
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.22
              )
              
              
              
              
              (0.22
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              14,081,263
              
              
              
              
              
              14,081,263
   **15.**
              **RESTATEMENT
                  OF PREVIOUSLY ISSUED QUARTERLY DATA
                  (UNAUDITED)**
 
 In
        connection with the preparation of the Annual Report on Form 10-KSB of the
        Company for the fiscal year ended December 31, 2005, the Company's management
        reviewed the Securities and Exchange Commission’s release of December 1, 2005
        entitled “Current
        Accounting and Disclosure Issues in the Division of Corporation Finance” as
        Prepared by Accounting Staff Members in the Division of Corporation Finance,
        U.S. Securities and Exchange Commission Washington, D.C. The Company determined
        that an adjustment was necessary for the reporting of the Convertible Debenture
        Notes, Stand Alone Warrants and as a result of certain registration rights
        granted to the investors of these notes, potential Liquidated Damages that
        were
        not previously recorded.
 
 Specifically,
        the Company deemed the Convertible Debt previously reported under EITF 98-5
        and
        EITF 00-27 must now be reported within the guidelines of EITF 00-19 and
        therefore restatements of previously issued financial statements were necessary.
        In determining the amount of this restatement, the Company concluded that
        the
        fair value of the debt at all points in time was greater than the fair value
        of
        the Company in total. As a result the Company determined that there is no
        value
        attributable to the Conversion Feature of this debt.
 
 After
        reviewing the matter with its current and former independent registered public
        accounting firms, the Company has identified certain adjustments that
        necessitate the restatement of its financial statements for the second and
        third
        quarters of fiscal 2004, the interim periods of fiscal 2005, and for the
        fiscal
        year end 2004.
 
 These
        adjustments reflect the following with respect to the Convertible Debt:
 
 **Convertible
        Debt:** In
        accordance with EITF 00-19, since
        there is no explicit limit on the number of shares that are to be delivered
        upon
        exercise of the conversion feature, the Company is not able to assert that
        it
        will have sufficient authorized and unissued shares to settle the conversion
        option. As a result, the conversion feature should be accounted for as a
        derivative liability rather than permanent equity, with changes in fair value
        recorded in earnings each period and therefore the previous reporting in
        accordance with EITF’s 98-5 and 00-27 for the beneficial conversion feature and
        debt discount should be restated as such.
 
 In
        recording the valuation of the Convertible Feature Liability within the
        restatement, the Company has now determined that the fair value of this
        liability is zero due to the carrying value of the convertible debt exceeding
        the fair value of the Company. The primary impact of adhering to EITF 00-19
        is
        to eliminate the debt discount previously recorded as equity. Additionally,
        the
        Company had deemed the Convertible Debt to be in default and has written
        off the
        loan acquisition costs associated with convertible debt, previously recorded
        as
        a Deferred Charge asset.
  F-17
 
 The
        following tables show the effects of the restatement on the Company’s quarterly
        results of operations for the first and second quarters 2004 and the first,
        second and third quarters 2005. In the tables that follow, the columns labeled
        “Restatement Adjustments” represent adjustments for fair value of the conversion
        feature and liquidated damages associated with the Registration Rights
        Agreement.
 
 STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENT OF OPERATIONSFOR
                  THE QUARTER ENDED JUNE 30, 2004As
                  previously
              
              RestatementReported
              
              Adjustment
              
              As
                  RestatedFor
                  the Qtr
              
              For
                  the Qtr
              
              For
                  the QtrEnded
              
              Ended
              
              Ended6/30/2004
              
              6/30/2004
              
              6/30/2004Sales
              
              
              700,250
              
              
              
              
              
              700,250Cost
                  of sales
              
              
              215,358
              
              
              
              
              
              215,358Gross
                  profit
              
              
              484,892
              
              
              
              
              
              484,712Selling,
                  general andadministrative
              
              
              873,550
              
              
              137,512
              
              
              1,011,062Loss
                  from operations
              
              
              (388,658
              )
              
              (137,512
              )
              
              (526,170
              )Interest
                  expense
              
              
              98,609
              
              
              (31,250
              )
              
              67,359Net
                  loss applicable to commonstockholders
              
              
              (487,267
              )
              
              (106,262
              )
              
              (593,529
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.04
              )
              
              (0.01
              )
              
              (0.04
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              13,438,277
              
              
              
              
              
              13,438,277
   F-18
  STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENT OF OPERATIONSFOR
                  THE QUARTER ENDED SEPTEMBER 30,
                  2004
  As
                  previously
              
              RestatementReported
              
              Adjustment
              
              As
                  RestatedFor
                  the Qtr
              
              For
                  the Qtr
              
              For
                  the QtrEnded
              
              Ended
              
              Ended9/30/2004
              
              9/30/2004
              
              9/30/2004Sales
              
              
              475,969
              
              
              
              
              
              475,969Cost
                  of sales
              
              
              175,863
              
              
              
              
              
              175,863Gross
                  profit
              
              
              300,106
              
              
              
              
              
              300,106Selling,
                  general andadministrative
              
              
              947,301
              
              
              (85,838
              )
              
              861,463Loss
                  from operations
              
              
              (647,195
              )
              
              85,838
              
              
              (561,357
              )Interest
                  expense
              
              
              349,988
              
              
              (229,166
              )
              
              120,822Liquidated
                  damages
              
              
              —
              
              
              14,007
              
              
              14,007Net
                  loss applicable to commonstockholders
              
              
              (997,183
              )
              
              300,997
              
              
              (696,186
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.07
              )
              
              (0.02
              )
              
              (0.05
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              14,024,528
              
              
              
              
              
              14,024,528
  
 F-19
  STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENT OF OPERATIONSFOR
                  THE QUARTER ENDED MARCH 31, 2005As
                  previously
              
              RestatementReported
              
              Adjustment
              
              As
                  RestatedFor
                  the Qtr
              
              For
                  the Qtr
              
              For
                  the QtrEnded
              
              Ended
              
              Ended3/31/2005
              
              3/31/2005
              
              3/31/2005Sales
              
              
              261,652
              
              
              
              
              
              261,652Cost
                  of sales
              
              
              118,179
              
              
              
              
              
              118,179Gross
                  profit
              
              
              143,473
              
              
              
              
              
              143,473Selling,
                  general andadministrative
              
              
              800,285
              
              
              
              
              
              800,285Loss
                  from operations
              
              
              (656,812
              )
              
              
              
              
              (656,812
              )Interest
                  expense
              
              
              416,098
              
              
              (302,628
              )
              
              113,470Liquidated
                  damages
              
              
              —
              
              
              136,402
              
              
              136,402Net
                  loss applicable to commonstockholders
              
              
              (1,072,910
              )
              
              166,226
              
              
              (906,684
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.07
              )
              
              0.01
              
              
              (0.06
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              16,394,016
              
              
              
              
              
              16,394,016
   F-20
  STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENT OF OPERATIONSFOR
                  THE QUARTER ENDED JUNE 30, 2005As
                  previously
              
              RestatementReported
              
              Adjustment
              
              As
                  RestatedFor
                  the Qtr
              
              For
                  the Qtr
              
              For
                  the QtrEnded
              
              Ended
              
              Ended6/30/2005
              
              6/30/2005
              
              6/30/2005Sales
              
              
              365,869
              
              
              
              
              
              365,869Cost
                  of sales
              
              
              99,639
              
              
              
              
              
              99,639Gross
                  profit
              
              
              266,230
              
              
              
              
              
              266,230Selling,
                  general andadministrative
              
              
              174,873
              
              
              
              
              
              174,873Loss
                  from operations
              
              
              91,357
              
              
              
              
              
              91,357Interest
                  expense
              
              
              576,557
              
              
              (443,746
              )
              
              132,811Liquidated
                  damages
              
              
              —
              
              
              148,941
              
              
              148,941Net
                  loss applicable to commonstockholders
              
              
              (485,200
              )
              
              294,805
              
              
              (190,395
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.03
              )
              
              0.02
              
              
              (0.01
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              17,287,349
              
              
              
              
              
              17,287,349
   F-21
  STRONGHOLD
                  TECHNOLOGIES INC.RESTATED
                  STATEMENT OF OPERATIONSFOR
                  THE QUARTER ENDED SEPTEMBER 30,
                  2005
  As
                  previously
              
              RestatementReported
              
              Adjustment
              
              As
                  RestatedFor
                  the Qtr
              
              For
                  the Qtr
              
              For
                  the QtrEnded
              
              Ended
              
              Ended9/30/2005
              
              9/30/2005
              
              9/30/2005Sales
              
              
              189,782
              
              
              
              
              
              189,782Cost
                  of sales
              
              
              68,381
              
              
              
              
              
              68,381Gross
                  profit
              
              
              121,401
              
              
              
              
              
              121,401Selling,
                  general andadministrative
              
              
              537,916
              
              
              
              
              
              537,916Loss
                  from operations
              
              
              (416,515
              )
              
              
              
              
              (416,515
              )Interest
                  expense
              
              
              639,773
              
              
              (494,007
              )
              
              145,766Liquidated
                  damages
              
              
              —
              
              
              217,375
              
              
              217,375Net
                  loss applicable to commonstockholders
              
              
              (1,056,288
              )
              
              276,632
              
              
              (779,656
              )Basis
                  and diluted loss percommon
                  share
              
              
              (0.06
              )
              
              0.02
              
              
              (0.05
              )Weighted
                  average number ofcommon
                  shares outstanding
              
              
              17,287,349
              
              
              
              
              
              17,287,349
  The
        Warrants are exercisable until five years from the date of issuance at a
        purchase price of $0.57 per share. In addition, the exercise price of the
        Warrants is adjusted in the event the Company issues common stock at a price
        below market. Since the Company does not intend to issue common stock at
        below
        market price the warrants were valued at $NIL using the Black- Scholes option
        pricing model including the following assumptions: exercise price of $0.57,
        expected volatility of approximately 15%, expected dividend yield rate of
        0%,
        expected life of 5 years, and a risk free interest rate of 4.23% for December
        31,2004.
 
 The
        Investors have contractually agreed to restrict their ability to convert
        the
        Notes and exercise the Warrants and receive shares of the Company's common
        stock
        such that the number of shares of the Company's common stock held by them
        and
        their affiliates after such conversion or exercise does not exceed 4.99%
        of the
        then issued and outstanding shares of the Company's common stock.
 
 All
        shares of the Company's common stock associated with this private placement
        are
        restricted securities in accordance with Rule 144 as promulgated under the
        of
        the Securities Act of 1933.
  F-22