A financially troubled Colorado Springs cybersecurity company is one step closer to going out of business, even as it fights to stay alive.
The assets of root9b Holdings Inc. are scheduled to be auctioned off Aug. 31 as its creditors seek to foreclose on $10.7 million in defaulted notes issued by the company. The auction will include "all assets, property and interests" of root9B Holdings that are collateral for the notes, says a Securities and Exchange Commission filing that root9B made Friday.
If the auction takes place as scheduled, root9B likely would go out of business, but whoever buys its assets could use them to keep the company's 154-employee cybersecurity operation alive and continue providing services to government and commercial clients. The auction could be postponed or canceled, and some or all of the assets could be withdrawn from the auction, according to the auction notice included in root9B'sfiling. If the auction is completed, the value of root9B's stock "would decline dramatically or become worthless," according to the filing.
Scottsdale, Ariz.-based Centriole Reinsurance Co. Ltd., an insurance company that represents root9B's 13 noteholders, will conduct the auction in the offices of a Phoenix law firm. Bidders must submit a $50,000 deposit and be able to complete the purchase by 5 p.m. Sept. 1.
Root 9B said Friday in a news release that it is trying to raise enough financing to pay back noteholders and avoid the auction.
Greg Wachtler, president of root9B Holdings and one of the noteholders, said he and root9B Holdings Chairman Joseph Grano Jr. "disagree with the actions being taken by the agent (Centriole) and continue to pursue alternatives to the auction process that we believe will be in the best interests of our company and its shareholders."
Root9B Holdings said it received a default notice Wednesday from Centriole, demanding immediate repayment of the notes. Root9B had sought a waiver to "allow the company additional time to seek other forms of liquidity and explore restructuring alternatives," which Centriole declined.
The announcement came after root9B's stock had more than quadrupled in heavy trading Friday on the Nasdaq Stock Market from 60 cents Thursday to $2.49 amid 16, five-minute trading halts for volatility before a 2½-hour halt pending the SEC filing. The shares declined to $1.08 by the end of the day, with nearly 90 percent of the company's shares changing hands. Root9B shares have plunged from $4.09 on Aug. 10, when the company announced it likely would violate its borrowing covenants.
Root9B reported last month that its losses widened by $1.3 million to $4.54 million, or 74 cents a share, in the first quarter, despite revenue growing 30.7 percent to $2.65 million, because it hadn't landed enough contracts to support its operations. Last year, the company lost $30.5 million, much of it from root9B's aggressive expansion in the Springs by hiring personnel, marketing, building its $2 million operations center in the downtown Wells Fargo Tower, legal fees for trademarks and patents as well as research and development to enhance its software platforms.
Despite its parent company's financial problems root9B's cybersecurity unit, called root9B LLC, continues to top industry rankings of the top 500 cybersecurity providers from New York-based online publication Cybersecurity Ventures, securing the top spot in the last six quarterly lists.
Eric Hipkins, now CEO of root9B Holdings, founded root9B LLC in 2011 in Colorado Springs with four other employees, all with military or intelligence backgrounds, with a small-business loan from Chase Bank and initially focused on cybersecurity training. The fledgling company quickly built a reputation as a top provider of training services, which generated enough revenue to build its cybersecurity software tools and operational capabilities.
Root9B's rapid growth attracted the attention of North Carolina-based Premier Alliance Group Inc., a publicly traded company that acquired root9B in 2013 for $1.75 million in cash and stock and later adopted the root9B name. Root9b Holdings moved its headquarters in December to Colorado Springs.
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