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root9B Holdings Announces 2017 First Quarter Financial Results

RTNB | July 11, 2017

PR Newswire

COLORADO SPRINGS, Colo., July 11, 2017

COLORADO SPRINGS, Colo., July 11, 2017 /PRNewswire/ -- root9B Holdings, Inc. (Nasdaq: RTNB) ("RTNB") today announced financial results for the first quarter ended March 31, 2017 ("Q1 2017").

As previously announced, in connection with its shift to a pure-play cybersecurity company, RTNB sold its Control Engineering, Inc. ("CEI") subsidiary on December 31, 2016 and the Investigative Due Diligence Practice of its wholly-owned subsidiary IPSA International Services, Inc. ("IPSA") on April 30, 2017. Accordingly, the financial results of CEI and IPSA have been presented as discontinued operations for all periods presented. The following highlights our financial results from continuing operations for Q1 2017 and 2016, except where noted.

Q1 2017 Financial Overview

Net revenue rose 31% to $2.7 million from $2.0 million in Q1 2016.
Cybersecurity revenue increased 173% to $1.9 million from $0.7 million in Q1 2016.
Revenue at Business Advisory Solutions, which focuses on regulatory risk mitigation, declined to $0.8 million from $1.4 million in Q1 2016, reflecting RTNB's business model shift to pure play cybersecurity services and solutions.
RTNB recorded higher SG&A expenses related to its ongoing investments in root9B, including labor costs, software research and development, and advertising, to support anticipated growth of its cybersecurity business.
Other income decreased by $0.9 million in Q1 2017 from the same period in the prior year due to lower derivative income ($0.5 million) and higher interest expense ($0.4 million) related to increased debt levels from raising additional capital to fund working capital.
Loss from continuing operations totaled $3.8 million in the quarter as compared to $2.7 million in Q1 2016.

Business Overview

In May, RTNB and The Chertoff Group, founded by former U.S. Department of Homeland Security Secretary Michael Chertoff, announced the formation of a multi-faceted strategic partnership to accelerate root9B's growth in cybersecurity. This partnership involves:
- the initiation of a process to raise growth capital, led by investment banking firm Chertoff Capital, a subsidiary of The Chertoff Group.
- the addition of General Michael Hayden to root9B's Advisory Board. General Hayden is a retired four-star general who served as director of the Central Intelligence Agency (2006-2009) and the National Security Agency (1999-2005).
Sold IPSA's Investigative Due Diligence Practice for total consideration of $6.0 million and up to an additional $4.0 million by way of a three-year earn-out (April). The Proceeds were reduced by a Working Capital Adjustment currently estimated at $1.4 million and $0.7 million related to an escrow account and closing costs.
Released ORKOS 2.0, a unique credential risk assessment and remediation solution (May).
RTNB was ranked #1 on the Cybersecurity 500 for the sixth consecutive quarter (June).
RTNB was added to the Russell Microcap® Index, effective close of business on June 23, 2017.

"Q1 2017 cybersecurity revenue nearly tripled from the same period last year, the result of the industry's understanding that a shift to active cybersecurity tools from passive cyber software is mandatory," said Eric Hipkins, Chief Executive Officer of RTNB. "Given our ongoing business development activities, new product introductions, and the rising threat of cybercrime in the government and commercial space, we continue to expect improved operating results in 2017."

"We spent the last several quarters taking steps to sharpen our business focus to pure play cybersecurity, streamline our operations, strengthen our capital base, and create a solid foundation for growth. Although there is still much work to be done, we are confident in our outlook, our ability to advance root9B's pioneering approach of manned information security, and support the continuing roll-out of HUNT and cybersecurity-as-a-service business model," said Dan Wachtler, RTNB's President.

Form 10-Q

RTNB filed its Quarterly Report on Form 10-Q with the Securities and Exchange Commission on July 6, 2017. Investors are encouraged to read this document which provides further details related to our operations and financial condition including that the Company continues to have a "going concern" designation. In addition, please refer to information provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 in Part 1, Item 1A labeled "Risk Factors."

About root9B

Ranked as the #1 Cybersecurity Company by Cybersecurity Ventures, root9B stands in defiance of the unwanted human presence within our clients' networks by attacking the root of the problem—the adversary's ability to gain entry and remain undetected. root9B's application of advanced technology developed through cutting-edge R&D and engineering and refined through relevant, hands-on training is revolutionary. root9B combines next generation technology, tactics development, specialty tools, and deep mission experience. root9B personnel leverage their extensive backgrounds in the U.S. Intelligence Community to conduct advanced vulnerability analysis, penetration testing, digital forensics, incident response, Industrial Control System (ICS) security, and HUNT (Active Adversary Pursuit) engagements on networks worldwide. For more information, visit www.root9B.com.

About root9B Holdings, Inc.

root9B Holdings is a leading provider of Cybersecurity Services for clients ranging from Fortune 100 companies to mid-sized and owner-managed businesses across industries, as well as local, state and federal government agencies. For more information, visit www.root9bholdings.com.

Forward-looking Statements

Certain statements contained in this press release may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors, and other risks and uncertainties affecting the operation of the Company's business. These risks, uncertainties and contingencies are indicated from time to time in the Company's filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Further, investors should keep in mind that the Company's financial results in any particular period may not be indicative of future results. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

Media Contact:		Investors:
Andrew Hoffman		Dan Wachtler
Zito Partners		President and COO
908-546-7447		root9B Holdings, Inc.
andrew@zitopartners.com		719-661-2735
		dan.wachtler@root9b.com

		Devin Sullivan
		Senior Vice President
		The Equity Group Inc.
		212-836-9608
		dsullivan@equityny.com

ROOT9B HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

	(Unaudited)	(Revised) ⁽¹⁾
	March 31, 2017	December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$ 1,372,028	$ 1,445,028
Accounts receivable, net	1,097,800	1,664,808
Cost and estimated earnings in excess of billings	505,160	298,814
Assets held for sale	8,645,897	10,259,963
Prepaid expenses and other current assets	379,732	369,332

Total current assets	12,000,617	14,037,945
Property and equipment, at cost less accumulated depreciation	2,260,257	2,417,456
OTHER ASSETS:
Goodwill	2,307,700	2,307,700
Intangible assets, net	38,635	49,372
Investment in cost-method investee	100,000	100,000
Deposits and other assets	134,003	130,554
Total other assets	2,580,338	2,587,626
TOTAL ASSETS	$ 16,841,212	$ 19,043,027

	(Unaudited)	(Revised) ⁽¹⁾
	March 31, 2017	December 31, 2016
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable	$ -	$ 1,600,000
Related party notes payable	745,000	500,000
Accounts payable	2,114,779	1,932,813
Billings in excess of costs and estimated earnings	602,760	676,232
Liabilities held for sale	3,009,998	3,713,919
Accrued expenses and other current liabilities	1,775,860	1,900,364
Total current liabilities	8,248,397	10,323,328
Long term debt, net of discount of $3,744,604 and $2,810,103, respectively	5,026,396	2,960,897
Notes payable	1,600,000	-
Derivative liability	929,341	1,692,053
Total noncurrent liabilities	7,555,737	4,652,950
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 30,000,000 shares authorized, 6,100,275 shares issued and outstanding	6,102	6,102
Additional paid-in capital	92,742,310	91,214,763
Deficit	(92,116,930)	(87,574,127)
Accumulated other comprehensive income	405,596	420,011
Total stockholders' equity	1,037,078	4,066,749
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 16,841,212	$ 19,043,027

(1) See the Quarterly Report on Form 10Q filed on July 6, 2017 for further details.

ROOT9B HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2017	2016
Net revenue	$ 2,654,284	$ 2,031,393

Operating expenses:
Direct cost of revenue	2,383,529	2,435,503
Selling, general and administrative	4,168,750	3,321,729
Depreciation and amortization	178,347	167,648
Total operating expenses	6,730,626	5,924,880
Loss from operations	(4,076,342)	(3,893,487)

Other (expense) income:
Derivative income	762,712	1,260,549
Interest expense, net	(441,745)	(76,136)
Other (expense) income	(15,887)	13,219
Total other (expense) income	305,080	1,197,632
Loss from continuing operations before taxes	(3,771,262)	(2,695,855)
Income tax expense	-	(51,905)

Loss from continuing operations	(3,771,262)	(2,747,760)
Loss from discontinued operations, net of taxes	(771,541)	(482,462)
Net loss	(4,542,803)	(3,230,222)
Preferred stock dividends	-	(6,857)
Net loss attributable to common stockholders	$ (4,542,803)	$ (3,237,079)

Basic loss per common share from:
Loss per share from continuing operations	$ (0.62)	$ (0.53)
Loss per share from discontinued operations	$ (0.13)	$ (0.09)
Net loss per share	$ (0.74)	$ (0.62)
Diluted loss per common share from:
Loss per share from continuing operations	$ (0.62)	$ (0.53)
Loss per share from discontinued operations	$ (0.13)	$ (0.09)
Net loss per share	$ (0.74)	$ (0.62)
Weighted average number of shares:
Basic	6,100,275	5,239,400
Diluted	6,100,275	5,239,400