Citadel Security Software Reports First Quarter 2004 Results; Company Reports $2.3 Million in Quarterly Revenue; Citadel Reiterates 2004 Full-year Guidance.Business Editors/High-Tech Writers DALLAS--(BUSINESS WIRE)--May 6, 2004 Citadel Security Software Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CDSS CDSS California Department of Social Services CDSS Clinical Decision Support Systems CDSS Country Dance and Song Society CDSS Canadian Down Syndrome Society CDSS Community Day Secondary Schools (Malawi) ), a leader in full lifecycle vulnerability management and policy enforcement solutions through its automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. vulnerability remediation (AVR (Automatic Voltage Regulation) See voltage regulator. ) technology, today announced financial results for its first quarter ended March 31, 2004. First quarter 2004 revenue was $2,322,000, an increase of 748% versus $274,000 for the first quarter of 2003. The increase was principally a result of higher revenue from licensing of Hercules Hercules, in astronomy Hercules (hûr`kyəlēz'), in astronomy, northern constellation located between Lyra and Corona Borealis. It is traditionally depicted as the hero Hercules in a kneeling position. (R), Citadel's Automated Vulnerability Remediation technology and a follow on order from the Department of Veteran Affairs. After giving effect for the preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. dividends, the net loss to common shareholders for the first quarter of 2004 was $1,721,000 or $0.06 loss per share versus the net loss to common shareholders of $1,238,000 or $0.07 loss per share for the first quarter of 2003. "Our government customers continue to show confidence in our Hercules AVR technology as the Department of Veteran Affairs expanded their enterprise license to cover their worldwide network," said Steve v. t. 1. To pack or stow, as cargo in a ship's hold. See Steeve. Solomon Solomon, d. c.930 B.C., king of the ancient Hebrews (c.970–c.930 B.C.), son and successor of David. His mother was Bath-sheba. His accession has been dated to c.970 B.C. According to the Bible. , Citadel's CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "We have accomplished a lot in a short period of time. During the first quarter, we continued to build our infrastructure to support commercial initiatives in the second half of the year. We continue to make inroads inroads Noun, pl make inroads into to start affecting or reducing: my gambling has made great inroads into my savings inroads npl to make inroads into [+ into the federal government space and see strong demand from the commercial sector for vulnerability management solutions." "The increase in Internet worms (networking, security) Internet Worm - The November 1988 worm perpetrated by Robert T. Morris. The worm was a program which took advantage of bugs in the Sun Unix sendmail program, Vax programs, and other security loopholes to distribute itself to over 6000 computers on the , such as Sasser Sasser is
Contraction of we are. we're we are excited about the upcoming delivery of new patent-pending technology which will extend our ability to address additional security issues," continued Mr. Solomon. "Hercules version 2.2, which we launched last quarter, has been very well received. However, the upcoming release represents the next generation vulnerability management solution that coupled with out new technology we will further extend our leadership position and provide a catalyst for future revenue." The Company closed a $15 million round of financing from Satellite Strategic Finance Associates, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , a private investment fund in February February: see month. 2004 through the issuance of 15,000 shares of Series A Convertible Preferred Stock Convertible Preferred Stock Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Also known as "convertible preferred shares". with a dividend rate of 5% payable in cash or 6% if payable in common stock. The Company ended the first quarter with nearly $14 million in cash and cash equivalents, current accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying of $4 million, net working capital of nearly $13 million and stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. of nearly $17 million. "The financing strengthens our balance sheet so that we can continue to make investments in advancing our AVR technology to build full lifecycle vulnerability management products with a broad range of features, functions and platform support," said Mr. Solomon. "Hercules became the first AVR product that passed Common Criteria (Common Criteria for Information Technology Security) An international standard process for defining security objectives and for evaluating compliance with those objectives. The Common Criteria have largely replaced the Trusted Computer Security Evaluation Criteria (TCSEC), the Canadian EAL EAL English as an Additional Language EAL Evaluation Assurance Level EAL Eastern Airlines EAL Emergency Action Level EAL Environmental Analysis Laboratory EAL Evidence Analysis Library (American Dietetic Association) 3 level testing in March 2004, further demonstrating our commitment to quality and excellence in the design of security software solutions that reduce time and costs for our government and commercial customers. We believe this will further improve our competitive position in the market." Accomplishments during and since the quarter ended March 31, 2004: -- Based on the success of the Hercules rollout, the Company received a follow on order from the Department of Veteran Affairs to expand its enterprise license to cover its networks worldwide for approximately $2.4 million of which $1.8 million is license revenue and the balance is support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services . -- Customer support and services revenues grew by nearly 500% over the first quarter of 2003 to $502,000 demonstrating growth in the installed customer base. -- Seasoned sales, marketing and development professionals have been added to the team with the appointments of David Donovan David Donovan (born April 7th, 1974) is an American professional race car driver. He started his racing career in the NASA American Iron Racing Series in 2004 where he was Rookie of the Year. , VP Public Sector, Terry Mahoney Mahoney could refer to:
Golitz, VP Central Sales Region, Frank Reina Reina (born 1978 in New York City) is a female Dance-pop singer-songwriter. Early life and career The performer began in the music industry as a pre-teen. She was a backup singer for such music artists as Deborah Cox and Corina, became an overnight sensation on the , VP West Sales Region, David Helffrich, VP Engineering, Mike Jones, VP Marketing, Michael Hall Mike Hall (born 13 October, 1965 in Bridgend), is a former Welsh rugby international, now property developer and part time rugby pundit. Just before graduating from University of Cambridge, Hall commenced his international career on 28 May, 1988 against New Zealand in , VP Business Development and Craig Craig , Edward Gordon 1872-1966. British theatrical producer, director, and designer whose innovative productions and simplified stage designs influenced modern theater. Deangelis, VP Professional Services (job) professional services - A department of a supplier providing consultancy and programming manpower for the supplier's products. . Total employees grew to 110 at March 31, 2004. -- The balance sheet has been strengthened further since year end 2003 through the receipt of $15 million of cash in exchange for preferred stock and warrants. The Company is using the proceeds to increase the investment in personnel and infrastructure to achieve its revenue and earnings targets for 2004 and beyond. -- The Company received a commitment and executed a loan agreement for $3.5 million in lines of credit from a bank to fund the capital expenditures at interest rates below those offered by traditional equipment leasing Equipment Leasing is a financing option to lease equipment for a certain amount of time. Leasing Benefits
credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities will support the acceleration of growth in infrastructure planned for 2004. -- New product development. The Company released Hercules version 2.2 and began development on the next release of Hercules scheduled for delivery this quarter. In addition, Citadel will deliver new patent pending technology that will help IT administrators further secure their networks from the latest growing source of cyber threats. Business Outlook: The Company reiterated its expectation to report 2004 revenues of between $18,500,000 and $21,000,000 and expects pre-tax operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. between $700,000 and $1,000,000, depending upon the level of new investment made on infrastructure. The company expects to have approximately 150 employees by year end 2004 and be fully staffed in all disciplines going into 2005. The company does not expect to provide quarterly guidance as revenues are still expected to be concentrated in several large transactions and, therefore, the timing of the revenue could be difficult to forecast on a quarterly basis. To support market demand the hiring of new employees has and is expected to continue to precede the timing of orders; therefore, it is likely that expenses will grow faster in the first half of the year than in the second half of 2004. Mr. Solomon and Richard Connelly, CFO See Chief Financial Officer. will host a conference call and live Webcast at 4:30 p.m. Eastern Time today. Interested participants may call 800-901-5259 when calling within the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. or 617-786-4514 when calling internationally. Please reference participant passcode number 90971911. This call is being webcast by CCBN CCBN Central Coast Bancorp CCBN Charles County Business Network and will be available from the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of the company's corporate website or by going directly to http://www.Citadel.com/1qwebcast/ and via replay beginning two hours after the completion of the call. The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com).
FINANCIAL TABLES
CITADEL SECURITY SOFTWARE INC.
BALANCE SHEETS
March 31,
2004 December 31,
(unaudited) 2003
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,973,407 $ 5,092,161
Accounts receivable - trade,
less allowance of $103,066 and
$78,500 4,019,718 1,699,154
Prepaid expenses and other current
assets 441,412 214,655
------------ ------------
Total current assets 18,434,537 7,005,970
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$1,316,683 and $1,213,427 1,144,039 635,748
CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of
$3,335,104 and $3,145,138 2,830,460 2,075,169
OTHER ASSETS 38,445 17,243
------------ ------------
TOTAL ASSETS $ 22,447,481 $ 9,734,130
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,535,831 $ 1,372,826
Accrued compensation and payroll taxes 1,001,055 768,445
Preferred dividend payable 102,439 -
Deferred revenue 2,890,081 2,805,195
Advances payable to related party 868 16,903
------------ ------------
Total current liabilities 5,530,274 4,963,369
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK - $1,000 stated value,
1,000,000 shares authorized; 15,000
shares issued 10,517,221 -
COMMON STOCK - $0.01 par value;
50,000,000 shares authorized;
29,438,005 and 27,830,511 shares
issued 294,380 278,305
ADDITIONAL PAID-IN CAPITAL 44,412,796 41,109,824
ACCUMULATED DEFICIT (38,307,190) (36,617,368)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,917,207 4,770,761
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 22,447,481 $ 9,734,130
============ ============
CITADEL SECURITY SOFTWARE INC.
UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
-----------------------------
2004 2003
Revenue
License fees $ 1,819,835 $ 187,598
Customer support and services 502,280 86,332
----------- -----------
Total revenue 2,322,115 273,930
Costs of revenue
Software amortization 189,966 46,446
Customer support and services costs 302,665 21,787
Shipping and other costs 4,865 567
----------- -----------
Total costs of revenue 497,496 68,800
Operating expenses
Selling, general and administrative
expense 2,941,464 1,285,645
Product development expense 390,165 65,705
Depreciation expense 103,256 38,044
----------- -----------
Total operating expenses 3,434,885 1,389,394
----------- -----------
Operating loss (1,610,266) (1,184,264)
Interest expense (6,954) (53,418)
Interest and other income 29,837 -
----------- -----------
Loss before income taxes (1,587,383) (1,237,682)
Provision for income taxes - -
----------- -----------
Net loss (1,587,383) (1,237,682)
Preferred stock dividends accrued (102,439) -
Accretion of beneficial conversion feature
of preferred stock (30,771) -
----------- -----------
Net loss to common shareholders $(1,720,593) $(1,237,682)
=========== ===========
Weighted average common shares outstanding
- basic and diluted 28,421,686 18,300,438
=========== ===========
Net loss to common shareholders per share
- basic and diluted $ (0.06) $ (0.07)
=========== ===========
CITADEL SECURITY SOFTWARE INC.
UNAUDITED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
--------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,587,383)$(1,237,682)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 293,222 84,489
Provision for returns, allowances and
bad debts 24,566 1,702
Amortization of debt discount - 35,083
Warrants issued for services - 23,600
Changes in operating assets and
liabilities
Accounts receivable (2,345,130) 33,488
Prepaid expenses and other current
assets (226,757) (71,027)
Other assets (21,202) -
Accounts payable and accrued expenses 163,005 127,370
Accrued compensation and payroll
taxes 232,610 (141,970)
Deferred revenue 84,886 (11,356)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (3,382,183) (1,156,303)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (611,547) (56,176)
Capitalized software development costs (945,257) (486,266)
Payment received on note receivable - 201,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,556,804) (341,442)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of preferred
stock 13,797,283 -
Net proceeds from issuance of common stock - 2,397,467
Proceeds of notes and advances from
related parties - 141,445
Payments of notes and advances from
related parties (16,035) (705,000)
Payments of notes payable - (225,000)
Proceeds from the exercise of stock
options 38,985 -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,820,233 1,608,912
----------- -----------
Net increase in cash and cash equivalents 8,881,246 111,167
Cash and cash equivalents at the beginning
of the period 5,092,161 12,829
----------- -----------
Cash and cash equivalents at the end of
the period $13,973,407 $ 123,996
=========== ===========
Non cash financing items:
Preferred stock dividend accrued $ 102,439 $ -
=========== ===========
Beneficial conversion feature of
convertible preferred stock $ 984,649 $ -
=========== ===========
Accretion of beneficial conversion feature
of convertible preferred stock $ 30,771 $ -
=========== ===========
Fair value of warrants issued in connection
with sale of preferred stock $ 2,326,184 $ -
=========== ===========
Exercise of exchange right $ 15,000 $ -
=========== ===========
Exercise of stock options in exchange for
note payable plus accrued interest due
former director $ - $ 276,000
=========== ===========
About Citadel Citadel Security Software Inc., a leader in full lifecycle vulnerability management solutions powered by AVR technology, helps enterprises effectively neutralize neutralize to render neutral. security vulnerabilities. Citadel's patent-pending, Common Criteria EAL 3 certified See certification. Hercules(R) technology provides users with full control over the automated remediation process, enabling efficient aggregation, prioritization and resolution of vulnerabilities detected by industry-standard vulnerability assessment A Department of Defense, command, or unit-level evaluation (assessment) to determine the vulnerability of a terrorist attack against an installation, unit, exercise, port, ship, residence, facility, or other site. tools. SecurePC(TM) and NetOFF(TM) products enable companies to enforce security policies from a single point of control. Citadel's solutions enable organizations to ensure the confidentiality of information, reduce the time and costs associated with the inefficient manual remediation process, and facilitate compliance with organizational security policies and government mandates such as FISMA FISMA Federal Information Security Management Act of 2002 FISMA Federal Information System Management Act , HIPAA (Health Insurance Portability & Accountability Act of 1996, Public Law 104-191) Also known as the "Kennedy-Kassebaum Act," this U.S. law protects employees' health insurance coverage when they change or lose their jobs (Title I) and provides standards for patient health, and Gramm-Leach-Bliley legislation. For more information on Citadel, visit www.citadel.com, or contact the company at (214) 520-9292. Safe Harbor/Forward-looking Statements: This press release contains forward looking statements that are subject to risks and uncertainties, including the current economic and geopolitical ge·o·pol·i·tics n. (used with a sing. verb) 1. The study of the relationship among politics and geography, demography, and economics, especially with respect to the foreign policy of a nation. 2. a. environment, the current information technology spending trend, the uncertainty of funding of government information technology security projects, a lack of Citadel operating history, uncertainty of product acceptance, uncertainty of ability to compete effectively in a new market and the uncertainty of profitability and cash flow of Citadel, competition, intellectual property rights and dependence on key personnel. These risks and uncertainties may cause actual outcomes and results to differ materially from expectations in this press release. These and other risks are detailed in Citadel's annual report on Form 10-KSB filed for the year ended December 31, 2003. Editors Note: Citadel is a trademark and Hercules is a registered trademark of Citadel Security Software. |
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