Cybersecurity Firm root9B's Assets Up for Sale

Colorado Springs, Colo-based, root9B Holdings, a publicly traded security company (RTNB) led by several former US Department of Defense cybersecurity officials, appears to be on the verge of going out of business.

Creditors seeking to collect on the nearly $10.7 million the company owes them are scheduled to auction off almost all of root9B Holdings' assets and properties on August 31. The proposed foreclosure action comes after root9B defaulted on the borrowing terms of its secured debt, the company said in a statement released Friday.

Root8B Holdings is continuing to work with creditors and other potential investors to raise the capital needed to pay off the debt. But there is no assurance that the company will be able to raise the money in time, said Joseph Grano, root9B Holdings' non-executive chairman of board, former CEO and an individual investor in the secured debt.

"We are disappointed with the foreclosure notice," said Grano, who was chairman of the Homeland Security Advisory Council between 2002 and 2005.

In a Form 8-K filed with the Securities and Exchange Commission (SEC) last week, root9B Holdings said it will try and obtain a waiver from its creditors so it can have additional time to "seek other forms of liquidity and explore restructuring alternatives."

One of those potential alternatives includes working with the Chertoff Group, an advisory firm founded by former DHS Secretary Michael Chertoff. In the event such efforts fail, the creditors will seize and sell substantially all of root9B's assets, the SEC filing noted. Such a development would render the company's stock potentially worthless, root9B warned investors.

Already, the company's stock has dropped from $4.09 on August 9to $1.26 August 21. Even that is double the 60 cents or so to which it dropped last Thursday after news first emerged of the company's financial problems. Last Friday, trading in the stock was so volatile that five-minute halts on trading were imposed a total of 16 times.

The security company bills itself as a provider of a wide range of cybersecurity services including vulnerability assessment, penetration testing, cyber forensics and evidence collecting, SCADA security operations, and compliance testing. It claims customers from within the Fortune 100 list as well as those in the small- to midsized business sectors.

Its board of advisors includes heavyweights like former NYSE chairman and CEO Richard Grasso, former director of US Secret Service Lewis Merletti, former CIA director General Michael Hayden, and Judge William Webster, former FBI director.

Prior to root9B Holdings' announcement of the pending foreclosure, Cybersecurity Ventures had ranked root9B as the hottest and most innovative cybersecurity company for 2017 - ahead of others like Palo Alto Networks and Raytheon Cyber. So far, Cybersecurity Ventures has picked root9B as the cybersecurity industry's hottest and most innovative company six quarters in row.

For the first quarter of 2017 ended March 31, root9B Holdings announced an operating loss of $3.8 million on revenues of $2.7 million. The company's net revenues for 2016, was around $10 million from over $11 million in the year before. The company reported loss from continuing operations of over $18 million last year compared to a loss of $8 million in 2015. At the end of last year, root9B employed about 80 employees.

Over the past year or so, the company has been divesting itself of other businesses including those in the control engineering and energy businesses to focus entirely on cybersecurity.

In 2015, several investors sued the company for making false and misleading claims about its cybersecurity offerings and its performance. That class action lawsuit was later dismissed with prejudice in 2016. Technology blog Seeking Alpha once described the company as a "worthless reverse-merger" with a miniscule and imploding cyber business.

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