Citadel Security Software Reports Third Quarter 2003 Results; Hercules License Fees Double in Third Quarter Over Second Quarter 2003.Business Editors DALLAS--(BUSINESS WIRE)--Nov. 13, 2003 Fourth Quarter Debt Conversions and Warrant Exercises Significantly Increase Cash Position Citadel Security Software Inc. (OTCBB OTCBB See OTC Bulletin Board (OTCBB). :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 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. ) and policy compliance solutions, today announced financial results for its third quarter ended September September: see month. 30, 2003. The company reported revenue of $730,000, a 51% increase versus $483,000 for the third quarter of 2002. The increase was a result of higher revenue from 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), the company's vulnerability remediation product. Revenue for the nine months ended September 30, 2003 was $1,783,000 representing a 73% increase versus the year-earlier period revenue of $1,030,000. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Results: The net loss for the quarter ended September 30, 2003 was $2,439,000, or $0.11 per share, versus a net loss of $584,000, or $0.04 per share, for the quarter ended September 30, 2002. The net loss for the nine months ended September 30, 2003 was $5,053,000, or $0.24 per share, versus a net loss of $1,652,000, or $0.12 per share, for the nine months ended September 30, 2002. Non-GAAP Results: The operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the quarter ended September 30, 2003 was $1,234,000, or $0.05 per share versus a loss of $568,000 or $0.04 per share. The operating loss for the nine months ended September 30, 2003 was $3,503,000 or $0.17 per share, versus an operating loss of $1,633,000 or $0.12 per share, for the similar period of 2002. Non-GAAP results exclude interest expense, other non-operating expenses and the provision for income taxes. A reconciliation of Non-GAAP results to GAAP results follows the financial tables. "We saw Hercules license fees double in the third quarter over the second quarter. The increase came on the growth in Hercules orders from agencies of the US Government, demonstrating the growing need for Hercules as the premium vulnerability management solution in government agencies," 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. . "Our focus for Hercules in 2003 was in the government and healthcare market segments and we continue to see strength in these market segments. We are also seeing growing demand from the corporate sector and continued growth in the federal market. Current security requirements as well as the government and corporate mandates, have positioned the Company to achieve record revenue and strong growth as a leader in AVR." Capital Structure: Citadel raised $2,570,000 from the issuance of convertible notes plus 978,000 shares of common stock. In addition, in October October: see month. and November November: see month. , the Company received $2.5 million in cash proceeds from warrant exercises for 2.0 million shares of common stock. Citadel further improved its balance sheet as a result of the conversion of $2.5 million of notes into 2.1 million restricted shares of common stock. Business Outlook: The Company remains highly confident in its 2003 revenue guidance of $7.5 million. At the end of December December: see month. , the Company expects to have employed up to 80 to 90 full time employees. The Company sees strong growth and record revenue in 2004 and expects to provide 2004 guidance when it announces its fourth quarter results. It expects to hire an additional 50 to 60 employees during 2004 in sales, customer support, and engineering to support projected sales growth and expansion of the Hercules product line. The recent capital transactions and the estimated fourth quarter results of operations will allow the Citadel to enter 2004 with a strong balance sheet with approximately $5 million in cash and no debt. Business Highlights: -- Hercules license fee revenue doubles over the second quarter of 2003. -- Record $4.7 million order for Hercules received in October. -- Citadel and Internet Security ''This article or section is being rewritten at Internet security is the process of protecting data and privacy of devices connected to internet from information robbery, hacking, malware infection and unwanted software. Systems, Inc. (Nasdaq:ISSX ISSX Internet Security Systems Inc. (stock abbreviation, AMEX) ) announced an alliance to deliver combined scanning and remediation solutions to their customers. -- Selected by Federal Computer Week as One of the 10 Hot Companies to Watch for 2003. -- New channel partner program was announced, enabling experienced resellers to deliver Hercules automated vulnerability remediation technology to their customer base. Current resellers participating in the program include Hewlett-Packard (NYSE NYSE See: New York Stock Exchange :HPQ HPQ Hewlett-Packard Corporation (NYSE) HPQ High Priority Queue ), Radical Networks, Intelligent Decisions, Trinity Trinity, doctrine in Christianity Trinity [Lat.,=threefoldness], fundamental doctrine in Christianity, by which God is considered as existing in three persons. Integrated Networks A network that supports both data and voice and/or different networking protocols. See converged network and new public network. and OhioOnline. -- Foundstone and Vigilante vigilante n. someone who takes the law into his/her own hands by trying and/or punishing another person without any legal authority. In the 1800s groups of vigilantes dispensed "frontier justice" by holding trials of accused horse-thieves, rustlers and shooters, and 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. scanner (1) See also antivirus program. (2) An optical device that reads a printed page or transparency and converts it into a graphics image for the computer. The scanner does not recognize or differentiate in any manner the content of the material it is scanning. integration with Hercules released. -- Hercules(R) will undergo 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 (CC) certification to upgrade its status from Evaluation Assurance Level The Evaluation Assurance Level (EAL1 through EAL7) of an IT product or system is a numerical grade assigned following the completion of a Common Criteria security evaluation, an international standard in effect since 1999. (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) ) 2 to EAL 3. By achieving this certification, Hercules will be in compliance with the one of the highest government standards worldwide, making it the only vulnerability remediation tool approved under CC EAL 3 for federal agency purchase. USE OF NON-GAAP FINANCIAL INFORMATION: In addition to reporting financial results in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , or GAAP, we report non-GAAP financial results. Non-GAAP 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. and per share amounts exclude interest expense, other non operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. and provision for income taxes that appear below operating loss in the statements of operations. Management believes these non-GAAP measures are useful to investors because they provide supplemental information that facilitates comparisons to prior periods. We uses these non-GAAP measures to evaluate our results from operations, for comparisons to budgets and to manage cash expenditures. The method we use to produce non-GAAP results is not computed according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which follows the financial tables.
CITADEL SECURITY SOFTWARE INC.
BALANCE SHEETS
September 30, December 31,
2003 2002
------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $247,344 $12,829
Accounts receivable-trade, less
allowance of $35,000 and $20,000 735,489 166,665
Notes receivable from employees 43,301 201,000
Debt issuance costs, net of accumulated
amortization of $111,242 222,483 -
Prepaid expenses and other current
assets 67,355 56,197
------------- -------------
Total current assets 1,315,972 436,691
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,143,245 and $1,005,503 581,707 432,461
CAPITALIZED SOFTWARE DEVELOPMENT COSTS,
net of accumulated amortization of
$2,941,275 and $2,671,257 1,654,841 651,554
OTHER ASSETS 17,243 17,243
------------- -------------
TOTAL ASSETS $3,569,763 $1,537,949
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,714,787 $1,416,196
Payroll tax obligations 218,239 788,562
Accrued compensation 253,570 265,440
Deferred revenue 312,056 150,193
Convertible notes payable to
shareholders, net of unamortized debt
discount of $1,489,644 and $47,083 1,292,356 402,917
Notes and advances payable to related
parties 157,360 841,541
------------- -------------
Total current liabilities 3,948,368 3,864,849
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, $.01 par value per share;
1,000,000 shares authorized; no shares
issued or outstanding
COMMON STOCK, $.01 par value per share;
50,000,000 shares authorized; 23,277,050
and 15,255,577 shares issued and
outstanding 232,770 152,555
ADDITIONAL PAID-IN CAPITAL 35,810,458 28,889,332
ACCUMULATED DEFICIT (36,421,833) (31,368,787)
------------- -------------
STOCKHOLDERS' DEFICIT (378,605) (2,326,900)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $3,569,763 $1,537,949
============= =============
CITADEL SECURITY SOFTWARE INC.
UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue
License fees $619,034 $442,630 $1,492,638 $955,996
Customer support
and services 110,900 40,827 290,287 74,188
------------ ------------ ------------ ------------
Total revenue 729,934 483,457 1,782,925 1,030,184
Costs of revenue
Software
amortization 133,566 39,470 270,018 73,146
Customer support
and services
costs 129,395 81,220 186,505 81,220
Shipping and
other costs 16,837 162 35,289 3,788
------------ ------------ ------------ ------------
Total costs of
revenue 279,798 120,852 491,812 158,154
Operating expenses
Selling, general
and
administrative
expense 1,574,336 849,168 4,444,441 2,254,545
Product
development
expense 51,390 74,207 211,606 220,308
Depreciation
expense 58,548 6,749 137,742 30,183
------------ ------------ ------------ ------------
Total operating
expenses 1,684,274 930,124 4,793,789 2,505,036
------------ ------------ ------------ ------------
Operating loss (1,234,138) (567,519) (3,502,676) (1,633,006)
Interest expense (1,169,206) (16,566) (1,289,870) (18,566)
Other expense (35,500) - (35,500) -
Write-off of note
receivable from
related party - - (225,000) -
------------ ------------ ------------ ------------
Loss before income
taxes (2,438,844) (584,085) (5,053,046) (1,651,572)
Provision for
income taxes - - - -
------------ ------------ ------------ ------------
Net loss $(2,438,844) $(584,085) $(5,053,046) $(1,651,572)
============ ============ ============ ============
Net loss per share
- basic and
diluted $(0.11) $(0.04) $(0.24) $(0.12)
============ ============ ============ ============
Weighted average
shares
outstanding -
basic and diluted 22,498,271 14,417,678 20,725,220 13,572,286
============ ============ ============ ============
Reconciliation of Non-GAAP Statements of Operations to the GAAP
Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Non-GAAP Operating
Loss $(1,234,138) $(567,519) $(3,502,676) $(1,633,006)
Interest expense (1,169,206) (16,566) (1,289,870) (18,566)
Other expense (35,500) - (35,500) -
Write-off of note
receivable from
related party - - (225,000) -
Loss before income
taxes (2,438,844) (584,085) (5,053,046) (1,651,572)
Provision for
income taxes - - - -
------------ ------------ ------------ ------------
Net loss $(2,438,844) $(584,085) $(5,053,046) $(1,651,572)
============ ============ ============ ============
Net loss per share
- basic and
diluted $(0.11) $(0.04) $(0.24) $(0.12)
============ ============ ============ ============
Weighted average
shares
outstanding -
basic and diluted 22,498,271 14,417,678 20,725,220 13,572,286
============ ============ ============ ============
About Citadel Citadel Security Software, Inc., a leader in automated vulnerability remediation and policy enforcement solutions, helps enterprises effectively neutralize neutralize to render neutral. security vulnerabilities. Citadel's patent-pending 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 tools. Winshield(R) 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 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 the Citadel, visit www.citadel.com, or contact the company at 214-520-9292. 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. These risks and uncertainties may cause actual outcomes and results to differ materially from expectations in this presentation. These and other risks are detailed in Citadel's quarterly reports on Form 10-QSB to be filed for the quarter ended September 30, 2003 and on Form 10-QSB filed for the quarter ended June 30, 2003 and Citadel's annual report on Form 10-KSB filed for the year ended December 31, 2002. Editors Note: Citadel is a trademark and Hercules is a registered trademark of Citadel Security Software. |
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