1164552--3/28/2006--CITADEL_SECURITY_SOFTWARE

related topics

{product, market, service}

{stock, price, operating}

{product, candidate, development}

{system, service, information}

{stock, price, share}

{tax, income, asset}

{condition, economic, financial}

{personnel, key, retain}

{acquisition, growth, future}

{regulation, government, change}

{property, intellectual, protect}

{competitive, industry, competition}

{interest, director, officer}

{provision, law, control}

{financial, litigation, operation}

{cost, contract, operation}

{customer, product, revenue}

WE HAVE A HISTORY OF NET LOSSES AND MAY NEED OR DECIDE TO SEEK ADDITIONAL FINANCING TO FUND OPERATIONS. OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY THE UNCERTAIN GEOPOLITICAL ENVIRONMENT AND UNFAVORABLE FACTORS AFFECTING ECONOMIC AND MARKET CONDITIONS. ECONOMIC CONDITIONS AND CONDITIONS AFFECTING THE NETWORK SECURITY MARKET IN PARTICULAR MAY HAVE A NEGATIVE IMPACT ON OUR REVENUES AND MARGINS. CITADEL STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION IF FUTURE EQUITY OFFERINGS ARE USED TO FUND OPERATIONS OR ACQUIRE COMPLEMENTARY BUSINESSES OR RESULT FROM OPTION AND WARRANT EXERCISES. OUR CONVERTIBLE PREFERRED STOCK AND DEBT MAY ADVERSELY IMPACT CITADEL AND OUR COMMON STOCKHOLDERS OR HAVE A MATERIAL ADVERSE EFFECT ON CITADEL. CITADEL HAS A LIMITED OPERATING HISTORY AS AN INDEPENDENT PUBLIC COMPANY AND HAS BEEN AND MAY CONTINUE TO BE UNABLE TO OPERATE PROFITABLY AS A STANDALONE COMPANY. WE RECEIVED A LETTER FROM THE NASDAQ STOCK MARKET CONCERNING A POTENTIAL DELISTING OF OUR COMMON STOCK FROM THE NASDAQ CAPITAL MARKET, AND ANY DELISTING COULD HAVE A MATERIAL ADVERSE EFFECT ON US. OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR CHIEF EXECUTIVE OFFICER OR OUR DIRECTORS, OUR BUSINESS MAY SUFFER. MEMBERS OF CITADEL'S BOARD OF DIRECTORS AND MANAGEMENT MAY HAVE INTERCOMPANY CONFLICTS OF INTEREST AFTER OUR SPIN-OFF. OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO ADAPT OUR DEVELOPMENT TO THESE CHANGES. INTRODUCTION OF NEW OPERATING SYSTEMS MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR FINANCIAL RESULTS AND STOCK PRICE. THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE EFFECTIVELY. WE FACE INTENSE PRICE-BASED COMPETITION FOR LICENSING OF OUR PRODUCTS. WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT OF THE INTERNET IN A TIMELY MANNER. PRODUCT RETURNS MAY AFFECT OUR NET REVENUES. OUR INCREASED USE OF SITE LICENSES MAY INCREASE FLUCTUATIONS IN OUR FINANCIAL RESULTS AND COULD AFFECT OUR BUSINESS. CHANGES MADE TO OUR SALES ORGANIZATION AND SALES STRATEGY COULD ADVERSELY AFFECT OUR FUTURE REVENUES. OUR FINANCIAL FORECASTS MAY NOT BE ACHIEVED, INCLUDING DUE TO THE UNPREDICTABILITY OF END-OF-PERIOD BUYING PATTERNS, WHICH COULD MAKE OUR STOCK PRICE MORE VOLATILE. WE FACE RISKS ASSOCIATED WITH GOVERNMENTAL CONTRACTING. WE ARE HIGHLY DEPENDENT ON REVENUE FROM OUR FLAGSHIP PRODUCT HERCULES. THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN. THE LENGTH OF THE PRODUCT DEVELOPMENT AND SALES CYCLES ARE DIFFICULT TO PREDICT, WHICH MAKES IT DIFFICULT TO PREDICT FUTURE REVENUES AND WHICH MAY CAUSE US TO MISS ANALYSTS ESTIMATES AND INVESTOR EXPECTATIONS AND RESULT IN OUR STOCK PRICE DECLINING. OUR EFFORTS TO DEVELOP AND INTRODUCE HERCULES AS PART OF AN APPLIANCE TO THE MARKET IS UNPROVEN AND MAY NOT BE SUCCESSFUL AND OUR FUTURE REVENUE AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED. IF THE CARRYING VALUE OF OUR LONG-LIVED ASSETS IS NOT RECOVERABLE, AN IMPAIRMENT LOSS MUST BE RECOGNIZED WHICH WOULD ADVERSELY AFFECT OUR FINANCIAL RESULTS. WE MUST MANAGE AND RESTRUCTURE OUR OPERATIONS EFFECTIVELY. WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE. OUR SOFTWARE MAY BE SUBJECT TO DEFECTS AND PRODUCT LIABILITY. OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION. INCREASED CUSTOMER DEMANDS ON OUR TECHNICAL SUPPORT SERVICES MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS. WE RELY ON THIRD PARTY TECHNOLOGIES. WE RELY ON OUTSIDE RESEARCH ORGANIZATIONS AND SCANNING VENDORS. WE FACE AGGRESSIVE COMPETITION IN MANY AREAS OF OUR BUSINESS, AND OUR BUSINESS WILL BE HARMED IF WE FAIL TO COMPETE EFFECTIVELY. WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. WE ARE INVOLVED IN LITIGATION, AND MAY BECOME INVOLVED IN FUTURE LITIGATION, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE AND MAY DIVERT OUR ATTENTION FROM THE IMPLEMENTATION OF OUR BUSINESS STRATEGY. SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE TAKEOVERS. FAILURE TO QUALIFY AS A TAX-FREE TRANSACTION COULD RESULT IN SUBSTANTIAL LIABILITY.

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1164552--3/28/2006--CITADEL_SECURITY_SOFTWARE_INC