Citadel Computer Systems Reports Third Quarter Revenues Rose 204% Over Same Quarter Last Year.

DALLAS--(BUSINESS WIRE)--Jan. 22, 1997--Citadel Computer Systems Inc. (OTC Bulletin Board:NOFF), today reported that net sales for its fiscal third quarter rose 204 percent from a year ago, despite shipment delays resulting from recent acquisitions and upgrades of certain products.

For the quarter ended Nov. 30, 1996, Citadel's net sales totaled $1.5 million, compared with $495,000 in the same period a year earlier. The company reported third quarter net income of $112,000, or $0.01 per share, in fiscal 1997, compared with a net loss of $294,700, or $0.05 per share, last year. The fiscal 1997 third quarter included a $787,000 non-operating gain from the sale of marketable securities and a $210,000 extraordinary gain on debt settlement.

The company attributed its accelerated third-quarter sales growth to increasing demand for its NetOFF, Server Sentry, and Phantom of the Console software products, as well as to the addition of new vertical marketing channels and expansion of sales and marketing efforts.

"We are greatly encouraged in the third-quarter sales, even as shipments of some products were delayed into the current quarter because of acquisitions and product upgrades. Management believes the ramp-up of new product launches should result in increased fourth quarter net sales," said Steven B. Solomon, chief operating officer.

"Shortly after the third quarter ended, Microsoft Corporation selected Citadel's WinShield product for inclusion in its bundled software product targeted to the education market. We also recently introduced NetOFF 5, our 32-bit NetWare and Windows NT product and began selling our new Network Recovery System. Later this quarter, we expect to launch additional new products and upgrades to facilitate use of our security solutions for Internet and intranet applications on Microsoft and Novell platforms," Solomon said.

He added that Citadel has expanded its sales programs by implementing an enterprise sales group to focus on larger corporate accounts and by opening regional sales offices to service both domestic and international markets. Solomon indicated that the company is progressing its efforts to enter into OEM (original equipment manufacturer) and joint venture relationships with strategic partners.

For the nine months ended Nov. 30, 1996, Citadel reported a net loss of $5.9 million, or $0.46 per share, on revenues totaling $4.4 million, compared with a net loss of $710,000, or $0.11 per share, on revenues of $1.1 million in the same period a year earlier. The company wrote down approximately $4 million in the second quarter of fiscal 1997 in connection with acquisitions and in-process research and development.

Citadel Computer Systems is a developer and marketer of computer software products broadly characterized as network and PC security and management utilities and software management tools. Its products, including NetOFF, Server Sentry, Phantom of the Console, WinShield, FolderBolt and NightWatch, are designed to better manage and provide additional security to individual PCs as well as local area networks using Novell and Microsoft network software. -0-

Note to Editors: Statements contained in this news release that are not statements of historical fact may be construed as forward-looking statements and, as such, involve a number of risks and uncertainties. Actual results of future events in such forward-looking statements could differ materially from those stated in such forward-looking statements.

Among the factors that could cause actual results to differ materially are: general economic conditions; competition; the market for network software products; seasonality of product sales; costs and risk related to integration of acquisitions; uncertainties related to new product development and market acceptance of new products; costs, expenses and delays in sales related to the implementation of new sales methods; software development costs; litigation; and other factors that are set forth in the company's 10-KSB, 10-QSB and other public filings with the Securities and Exchange Commission.

CONTACT: Citadel Computer Systems Inc., Dallas

Steven B. Solomon, 214/520-9292

or

Kalt, Rosen & Associates

Howard Kalt, 415/397-2686