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Stocks Alert: root9B Holdings, Inc. (Nasdaq: RTNB)

root9B Holdings, Inc. (Nasdaq: RTNB) (“RTNB”) recently declared financial results for the first quarter ended March 31, 2017 (“Q1 2017”).
As formerly declared, in connection with its shift to a pure-play cybersecurity company, RTNB sold its Control Engineering, Inc. (“CEI”) partner on December 31, 2016 and the Investigative Due Diligence Practice of its wholly-owned partner IPSA International Services, Inc. (“IPSA”) on April 30, 2017. Accordingly, the financial results of CEI and IPSA have been presented as suspended 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 raised 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, counting labor costs, software research and development, and advertising, to support anticipated growth of its cybersecurity business.
Other income reduced by $0.9 million in Q1 2017 from the same period in the prior year because of lower derivative income ($0.5 million) and higher interest expense ($0.4 million) related to raised debt levels from raising additional capital to fund working capital.
Loss from continuing operations totaled $3.8 million in the quarter as contrast 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, declared the formation of a multi-faceted planned 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 partner of The Chertoff Group.
the addition of General Michael Hayden to root9B’s Advisory Board. General Hayden is a stepped down 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 presently estimated at $1.4 million and $0.7 million related to an escrow account and closing costs.
Released ORKOS 2.0, an exclusive credential risk assessment and remediation solution (May).
RTNB was ranked #1 on the Cybersecurity 500 for the sixth successive 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.

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