EX-99.1 3 doc2.txt NEWS RELEASE FOR IMMEDIATE RELEASE Contact: Steve Solomon Investor Relations: Citadel Security Software Inc. Ken Sgro (214) 750-2454 CEOcast, Inc. Ssolomon@citadel.com (212) 732-4300 x224 -------------------- Citadel Security Software Reports Second Quarter 2003 Results Reports 149% Sequential Quarterly Increase in Hercules License Fees; Company Affirms 2003 Full-Year Revenue Target of at least $7.5 Million DALLAS, TX -August 12, 2003--Citadel Security Software Inc. (OTCBB:CDSS), a leader in automated vulnerability remediation (AVR) and policy compliance solutions, today announced financial results for the second quarter and six months ended June 30, 2003. Revenue for the second quarter of 2003 increased 70% to $779,000 versus $457,000 for the second quarter of 2002. The net loss for the quarter ended June 30, 2003 was $1,377,000, or ($0.06) per share versus a net loss of $498,000, or ($0.04) per share for the quarter ended June 30, 2002. Revenue for the six months ended June 30, 2003 was $1,053,000 representing a 93% increase versus revenue for the six months ended June 30, 2002 of $547,000. The net loss for the six months ended June 30, 2003 was $2,614,000, or ($0.13) per share, versus a net loss of $1,067,000, or ($0.08) per share, for the six months ended June 30, 2002. "Our operating results for the quarter are very encouraging as we saw Hercules license revenue grow 149% over the first quarter of 2003, demonstrating its growing market acceptance as an effective enterprise solution that enables customers to efficiently manage their vulnerabilities and reduce the security risk of their networks" said Steve Solomon, Citadel's CEO. "As a pioneer in vulnerability management, specifically vulnerability remediation, Citadel is changing how enterprises mitigate security risk in their computing environments. The future and fastest growing segment of security risk mitigation is proactive management of vulnerabilities and our growing list of customers and partners recognize Hercules as an extension to their current vulnerability management offerings." Business Outlook Management offers the following forward-looking guidance for the fiscal third quarter, ending September 30, 2003 and the fiscal year ending December 31, 2003: - Third quarter revenue is expected to be in the range of $2.0 million to $2.5 million. - Revenue for the fiscal year is expected to be at least $7.5 million. The company generated $1.3 million for the entire 2002 fiscal year. Highlights for the first half of 2003: - Orders for Citadel's security software solutions topped $1 million in the second quarter. The bulk of the orders were received from companies and organizations in financial services, healthcare and government which are affected by the mandates of Gramm-Leach-Bliley, Health Insurance Portability and Accountability Act (HIPAA) or the cyber-security initiatives of the federal government administered by the Office of Management and Budget (OMB). Customers this quarter include Washington Mutual Bank, AIG Sun America, The Methodist Hospital, Thomason General Hospital and the US Food and Drug Administration, among others. - Citadel released Hercules 2.0 in May, 2003. The new version of Hercules adds support for UNIX-Solaris and Linux-Red Hat in addition to Windows, addressing the market potential for enterprise organizations running multiple operating system platforms. Hercules 2.1, was released in July 2003 and adds interoperability with Foundstone and Vigilante's vulnerability assessment tools, as well as expanded executive-level reporting such as ROI and trend analysis. Interoperability with a ninth scanner, from SPIDynamics, is planned for release later this year. - Hercules' license fee revenue grew 149% over the first quarter of 2003 and 681% over the second quarter of 2002. - Citadel signed channel partner agreements with two Fortune 100 federal government prime IT contractors, opening up additional avenues for selling to federal government agencies. - During the first half of 2003, Citadel expanded its sales territories with the addition of representatives in San Francisco, Los Angeles, New York and Washington DC. Citadel plans to place sales professionals in the Midwest and the Southeast in the coming months to support the needs of its growing list of customer and partners. ABOUT CITADEL Citadel Security Software Inc., a leader in automated vulnerability remediation and policy enforcement solutions, helps enterprises effectively neutralize 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 and Gramm-Leach-Bliley legislation. For more information on the Citadel, visit www.citadel.com, or contact the company at (214) 520-9292. --------------- # # # Except for the historical information contained herein, this press release contains forward looking statements that are subject to risks and uncertainties, including the current economic and geopolitical environment, information technology spending trends, 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 current report on Form 10-QSB for the quarter ended June 30, 2003 and on Form 10-KSB for the year ended December 31, 2002. Citadel is a trademark and Hercules is a registered trademark of Citadel Security Software.
CITADEL SECURITY SOFTWARE INC. UNAUDITED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2003 2002 2003 2002 ------------- ------------ ------------ ------------ Revenue License fees $ 686,006 $ 425,616 $ 873,604 $ 513,366 Customer support and services 93,055 31,835 179,387 33,361 ------------- ------------ ------------ ------------ Total revenue 779,061 457,451 $ 1,052,991 546,727 Costs of revenue Software amortization 90,006 28,676 136,452 33,676 Customer support and services costs 35,323 - 57,110 - Shipping and other costs 17,885 1,534 18,452 3,626 ------------- ------------ ------------ ------------ Total costs of revenue 143,214 30,210 212,014 37,302 Operating expenses Selling, general and administrative expense 1,584,460 811,215 2,870,105 1,405,377 Product development expense 94,511 105,426 160,216 146,101 Depreciation expense 41,150 6,505 79,194 23,434 ------------- ------------ ------------ ------------ Total operating expenses 1,720,121 923,146 3,109,515 1,574,912 ------------- ------------ ------------ ------------ Operating loss (1,084,274) (495,905) (2,268,538) (1,065,487) Interest expense (67,246) (2,000) (120,664) (2,000) Write-off of note receivable from related party (225,000) - (225,000) - ------------- ------------ ------------ ------------ Loss before income taxes (1,376,520) (497,905) (2,614,202) (1,067,487) Provision for income taxes - - - - ------------- ------------ ------------ ------------ Net loss $ (1,376,520) $ (497,905) $(2,614,202) $(1,067,487) ============= ============ ============ ============ Net loss per share - basic and diluted $ (0.06) $ (0.04) $ (0.13) $ (0.08) ============= ============ ============ ============ Weighted average shares outstanding - basic and diluted 21,330,819 13,772,479 19,824,000 13,142,584 ============= ============ ============ ============
CITADEL SECURITY SOFTWARE INC. BALANCE SHEETS June 30, 2003 December 31, (unaudited) 2002 ------------- ------------- ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 47,733 $ 12,829 Accounts receivable-trade, less allowance of $26,189 and $20,000 350,194 166,665 Note receivable - 201,000 Prepaid expenses and other current assets 127,570 56,197 ------------- ------------- Total current assets 525,497 436,691 PROPERTY AND EQUIPMENT, net 508,286 432,461 CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization of $2,807,708 and $2,671,256 1,417,871 651,554 OTHER ASSETS 17,243 17,243 ------------- ------------- TOTAL ASSETS $ 2,468,897 $ 1,537,949 ============ ============= LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $ 1,774,430 $ 1,416,196 Payroll tax obligations 665,154 788,562 Accrued compensation 369,859 265,440 Deferred revenue 402,162 150,193 Note payable to shareholders, net of debt discount of $47,083 - 402,917 Notes and advances payable to related parties 26,274 841,541 ------------ ------------- Total current liabilities 3,237,879 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; 21,910,498 and 15,255,577 shares issued and outstanding 219,105 152,555 ADDITIONAL PAID-IN CAPITAL 32,994,902 28,889,332 ACCUMULATED DEFICIT (33,982,989) (31,368,787) ------------- ------------- STOCKHOLDERS' DEFICIT (768,982) (2,326,900) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,468,897 $ 1,537,949 ============= =============