CyberDefender Corporation (Nasdaq:CYDE), a leading provider of
direct to consumer remote technical support services, Internet
security software and utilities, today announced financial results
for the second quarter ended June 30, 2011.
Second Quarter 2011 Highlights
- GAAP revenue up 31% year-over-year
- Gross sales (a non-GAAP measure) up 25% year-over-year
- Gross sales of new LiveTech subscriptions increased 39%
year-over-year
- Deferred revenue increased 55% year-over-year to $18.7
million
First Six Months 2011 Highlights
- GAAP revenue up 46% over the same period of 2010
- Gross sales (a non-GAAP measure) up 53% over the same period of
2010
- Gross sales of new LiveTech subscriptions increased 85% over
the same period of 2010
Management Change
On July 29, 2011, the Board of Directors of the company accepted
the resignation of the Chairman and CEO, Gary Guseinov, effective
August 1, 2011. The Board elected current independent board member,
Howard Bain, as Chairman. The Board is actively negotiating with an
Interim CEO candidate, Greg Thomas.
Mr. Thomas has been an independent advisor to the Board and
Company since late May 2011, and has had direct oversight and
management responsibility for all aspects of the Company's
operations relating to call center operations, product development,
marketing, renewals, technology and business development during
this time.
"Over the course of the past two years, our business has evolved
and the opportunity before us today is very different from where we
started; during the second quarter, the company determined that it
was the opportune time to formalize a plan which would enable us to
best capitalize on our strength with direct to consumer marketing
and leverage our position as a leading provider of remote technical
support services," said CyberDefender CFO Kevin Harris.
Strategic Repositioning
Major elements of the new strategic direction include:
- Focus strategic efforts on high-growth LiveTech service
offering
- Discontinue development of proprietary software intended for
sale to consumers
- Improve software product offerings via third party licensing
arrangements
- Increase focus on optimizing operations to accelerate
profitability
- Reduce overhead and call center operational costs while
improving overall customer experience
- CyberDefender's management team is expected to be augmented
with additional expertise from direct response industry veterans
who are charged with a clear focus on results, accountability and
profit performance
- The company expects to continue to operate its own in-house
technical support call center for CyberDefender's LiveTech remote
computer repair service
During the second quarter, the company eliminated substantial
headcount across the entire organization focusing specifically on
software development. Having already identified a number of robust
software product suites that are available to be licensed,
management is underway in negotiations with a highly reputable
prospective security software vendor and targets finalization of
the contract in the coming months.
The company plans to continue to execute on the strategic plan
throughout the third and fourth quarters of 2011, to further
streamline operations.
"While growth for the quarter was weaker than expected,
principally due to challenges impacting the call center operations
and the seasonality associated with direct to consumer marketing,
we believe the company is in a stronger position to more
expediently meet our financial goals, improve our product offerings
and enhance customer satisfaction and retention, all of which
ultimately, enhance stockholder value," concluded Harris.
Results for the Quarter Ended June 30, 2011
GAAP revenue for the second quarter of 2011 grew 31% to $12.7
million, compared to $9.7 million reported in the same quarter of
2010. Gross Sales for the second quarter of 2011 grew 25% to $15.5
million, compared to $12.4 million reported in the same quarter of
2010. The Company defines gross sales (a non-GAAP measure) as GAAP
revenues before returns and before deferring revenue for GAAP
purposes (the Company's use of non-GAAP measures and reconciliation
to GAAP is explained below). The increase in revenue was primarily
attributable to continued momentum in the LiveTech offering.
Cost of revenue was $6.1 million for the second quarter of 2011
compared to $4.0 million for the second quarter of 2010. The
increase from prior year was primarily attributable to expenses
associated with CyberDefender managed call centers required to
support the LiveTech service.
Gross profit for the second quarter of 2011 increased 16% to
$6.6 million compared to $5.7 million in the same quarter of 2010.
Due to a greater mix of LiveTech Services relative to software
sales, gross margins in the second quarter of 2011 were 52% of net
revenue compared to 59% in the same quarter of 2010.
Operating loss decreased to $5.7 million in the second quarter
of 2011 compared with an operating loss of $11.0 million for the
same quarter of 2010.
Net loss for the second quarter of 2011 improved to $6.6
million, or $0.23 per share, compared with a net loss of $12.0
million, or $0.45 per share, in the same quarter of 2010.
CyberDefender exited the quarter with record deferred revenue of
$18.7 million and unrestricted cash of $1.8 million.
Results for the Six Months Ended June 30,
2011
GAAP revenue for the six months ended June 30, 2011 grew 46% to
28.1 million, compared to $19.2 million reported during the same
period of 2010. Gross sales (a non-GAAP measure) for the six months
ended June 30, 2011 grew 53% to $37.1 million, compared to $24.2
million reported during the same period of 2010.
Gross profit in the first six months of 2011 grew 24% to $14.9
million, compared to $12.0 million in the same period of 2010.
The company reported an operating loss of $10.7 million in the
first six months of 2011, compared with an operating loss of $19.1
million in the same quarter of 2010.
Net loss for the first six months of 2011 was $12.6 million or
$0.45 per share, compared with a net loss of $20.3 million, or
$0.78 per share in the same period of 2010.
Financing
The Company believes that its repositioning strategy will allow
the Company to rely on its strong direct to consumer marketing
expertise to strengthen its position as a leading provider of
remote technical support services. However, the implementation of
the new strategy will depend upon the Company's ability to secure
additional financing.
Subsequent to the close of the second quarter, the company
closed a $1.5 million private offering of subordinated convertible
promissory notes to accredited investors. The convertible notes and
related agreements are described in and included as exhibits to a
Form 8-K filed with the Securities and Exchange Commission ("SEC")
on July 29, 2011 (the "Form 8-K").
The Company believes, but cannot ensure, that the $1.5 million
will be sufficient to permit the Company to continue to operate
until it can secure the additional financing during the next 60
days that it requires to continue to operate as a going concern.
Although the Company is exploring a number of sources for the
additional financing, the Company cannot ensure that it will be
able to secure the necessary financing.
Thus far, the Company's unsecured creditors have not asserted
claims against the Company for amounts the Company owes, but it is
not certain that they will continue to do so.
In addition, the Company is in default of certain provisions of
its loan agreements with its senior lender and the Company and the
senior secured lender have entered into a Waiver and Forbearance
Agreement (the "Agreement") which was described in and filed as an
exhibit to the Form 8-K. Pursuant to the Agreement, the senior
secured lender agreed to waive, for a period of 60 days, its rights
and remedies against the Company as a result of the defaults. If
the waiver period is not extended, the senior lender will be able
to pursue all of its rights and remedies against the Company
resulting from the defaults.
The Company is pursuing all strategic and financing
opportunities in order to seek to properly capitalize its
operations and execute its strategic plan.
2011 Guidance
For the full year 2011, CyberDefender expects gross sales to
exceed $70 million and the company anticipates generating positive
cash flow from operations by the end of 2011.
Non-GAAP Financial Measures
Gross sales are a non-GAAP measure that CyberDefender uses in
assessing its operating performance. We define gross sales as total
sales before refunds and uncollectible receivables/cancels and
before deferring revenue for GAAP purposes. We use this non-GAAP
financial measure frequently because we believe it gives a better
indication of our operating performance and the profitability of
our marketing initiatives. We include this non-GAAP financial
measure in our earnings announcements in order to provide
transparency to our investors and enable investors to better
understand our operating performance. However, gross sales alone
should not be used to assess our financial performance or to
formulate investment decisions.
The following is a reconciliation of gross sales to net GAAP
revenue for the three and six months ended June 30, 2011 and June
30, 2010:
|
Three Months Ended June
30, |
|
Six Months Ended June
30, |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Gross Sales |
$ 15,499,723 |
|
$ 12,428,803 |
|
$37,097,607 |
|
$24,242,211 |
Less: Refunds |
(1,718,817) |
|
(1,562,587) |
|
(4,170,560) |
|
(2,955,645) |
Less: Uncollected EZ pay |
(701,396) |
|
(691,956) |
|
(1,910,185) |
|
(794,362) |
Less: Change in deferred revenue |
(358,913) |
|
(461,674) |
|
(2,920,372) |
|
(1,302,288) |
Net revenue |
$12,720,597 |
|
$ 9,712,586 |
|
$28,096,490 |
|
$19,189,916 |
Conference Call Information
The Company will host a conference call to discuss first quarter
2011 results today, Tuesday, August 2, 2011 at 1:30 pm PT/4:30 pm
ET.
To access the live conference call, dial (877) 407-9210 (toll
free) and give the company name, "CyberDefender." Participants are
asked to call the assigned number approximately 10 minutes before
the conference call begins. For those unable to participate in the
live conference call, a replay of the conference call will be
available (starting two hours after the call) by dialing (877)
660-6853 and entering the following account #: 286 and conference
ID #: 376207. International callers may access the replay by
calling (201) 612-7415 and entering the above pass code.
To listen to the live webcast, logon using the link provided in
the events section of the Company's website:
www.cyberdefendercorp.com. An instant replay of the conference
call will be available over the Internet at the same web
address.
About CyberDefender
CyberDefender is a leading provider of remote technical support
services, Internet security software and utilities directly to the
consumer market. CyberDefender's team of highly trained technicians
and sales agents provide customers with efficient, round the clock
remote PC repair services. The company markets
antispyware/antivirus software, PC optimization software and online
backup services. By combining remote live technical support and the
aforementioned software products, CyberDefender offers a complete
Internet security solution to consumers.
CyberDefender directly markets its products and services to
consumers through television and radio via its MyCleanPC®,
MaxMySpeed® and DoubleMySpeed® brands. CyberDefender products are
fully compatible with Microsoft Windows® XP, Vista®, and 7
Operating systems. All products are available at
www.cyberdefender.com. Investor relations information is available
at www.cyberdefendercorp.com.
The CyberDefender Corporation logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7874
Forward Looking Statements
Statements in this public announcement that are not statements
of historical or current fact, including any statement regarding
future growth and profitability, and future revenue targets,
constitute "forward-looking statements" under Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The forward looking
statements include statements concerning the Company's future
business and financial prospects including, but not limited to, the
following: the Company's expectation that it will finalize an
agreement with a security software vendor in the coming months; the
Company's plans to continue to execute on the strategic plan
throughout the third and fourth quarters of 2011; the Company's
ability to meet its financial goals, improve its product offerings
and customer satisfaction and retention; the Company's belief that
the $1.5 million in financing will be sufficient to permit the
Company to continue to operate until it can secure the additional
financing during the next 60 days that it needs to continue to
operate as a going concern; the Company's ability to secure the
additional required financing; and the Company's expectation that
it will generate positive cash flow from operations by the end of
2011. The forward-looking statements involve known and unknown
risks, uncertainties and other unknown factors that could cause
CyberDefender's actual results to be materially different from the
historical results or from any future results expressed or implied
by such forward-looking statements. Factors that could cause
CyberDefender's results to be materially different from the
forward-looking statements include whether CyberDefender will be
able to find financing as required and whether CyberDefender's
revenues eventually will exceed its expenses. The forward-looking
statements also are subject generally to other risks and
uncertainties that are described from time to time in
CyberDefender's reports and registration statements filed with the
Securities and Exchange Commission, which are available for review
at www.sec.gov.
CYBERDEFENDER
CORPORATION |
CONDENSED BALANCE
SHEETS |
(UNAUDITED) |
|
June 30, 2011 |
December 31, 2010 |
ASSETS |
|
|
Current assets |
|
|
Cash |
$ 1,780,231 |
$ 2,649,061 |
Restricted cash |
2,250,000 |
3,079,394 |
Accounts receivable |
1,046,354 |
2,385,920 |
Deferred financing costs,
current |
147,376 |
103,484 |
Prepaid expenses |
252,966 |
195,258 |
Deferred charges, current |
470,652 |
1,147,764 |
|
|
|
Total current assets |
5,947,579 |
9,560,881 |
|
|
|
Property and equipment, net |
1,620,952 |
1,742,675 |
Deferred financing costs, net of current
portion |
-- |
6,377 |
Deferred charges, net of current portion |
72,976 |
402,772 |
Other assets |
252,196 |
269,314 |
|
|
|
Total assets |
$ 7,893,703 |
$ 11,982,019 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
Current liabilities: |
|
|
Accounts payable |
$ 5,964,537 |
$ 6,275,896 |
Accounts payable and accrued
expenses – related party |
3,434,645 |
1,447,257 |
Accrued expenses |
1,922,522 |
1,788,435 |
Deferred revenue, current |
13,932,184 |
11,342,211 |
Convertible notes payable –
related party, net of discount |
9,595,581 |
-- |
Capital lease obligations,
current |
131,722 |
137,435 |
|
|
|
Total current liabilities |
34,981,191 |
20,991,234 |
|
|
|
Deferred rent |
798,388 |
466,920 |
Deferred revenue, less current portion |
4,746,841 |
4,116,442 |
Convertible notes payable – related party,
net of discount |
-- |
9,825,056 |
Capital lease obligations, less current
portion |
111,224 |
168,572 |
|
|
|
Total liabilities |
40,637,644 |
35,568,224 |
|
|
|
Commitments and contingencies |
|
|
|
|
|
Stockholders' deficit: |
|
|
Preferred stock, par value $0.001; 10,000,000
shares authorized; no shares issued and outstanding at June 30,
2011 and December 31, 2010, respectively |
-- |
-- |
Common stock, no par value; 100,000,000
shares authorized 28,170,370 and 27,327,702 shares issued and
outstanding at June 30, 2011 and December 31, 2010,
respectively |
28,170 |
27,328 |
Additional paid-in capital |
64,317,804 |
60,926,037 |
Accumulated deficit |
(97,089,915) |
(84,539,570) |
|
|
|
Total stockholders' deficit |
(32,743,941) |
(23,586,205) |
|
|
|
Total liabilities and stockholders'
deficit |
$ 7,893,703 |
$ 11,982,019 |
|
|
CYBERDEFENDER
CORPORATION |
CONDENSED STATEMENTS OF
OPERATIONS |
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended |
For the Six
Months Ended |
|
June 30,
2011 |
June 30,
2010 |
June 30,
2011 |
June 30,
2010 |
Net revenue: |
|
|
|
|
Services |
$ 8,526,646 |
$ 5,184,857 |
$ 18,537,424 |
$ 9,664,261 |
Software and other |
4,193,951 |
4,527,729 |
9,559,066 |
9,525,655 |
Total net revenue |
12,720,597 |
9,712,586 |
28,096,490 |
19,189,916 |
Cost of revenue: |
|
|
|
|
Services |
5,826,779 |
3,800,144 |
12,653,239 |
6,731,983 |
Software and other |
272,080 |
213,657 |
575,139 |
436,868 |
Total cost of revenue |
6,098,859 |
4,013,801 |
13,228,378 |
7,168,851 |
|
|
|
|
|
Gross profit |
6,621,738 |
5,698,785 |
14,868,112 |
12,021,065 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Media and marketing
services |
5,639,908 |
5,421,145 |
11,929,673 |
10,083,979 |
Media and marketing services –
related party |
330,900 |
6,555,963 |
686,232 |
12,123,060 |
Product development |
828,492 |
963,392 |
1,762,762 |
1,715,519 |
Selling, general and
administrative |
5,428,207 |
3,722,577 |
10,964,283 |
7,149,533 |
Depreciation and
amortization |
113,503 |
54,903 |
205,356 |
75,145 |
Total operating expenses |
12,341,010 |
16,717,980 |
25,548,306 |
31,147,236 |
|
|
|
|
|
Loss from operations |
(5,719,272) |
(11,019,195) |
(10,680,194) |
(19,126,171) |
|
|
|
|
|
Interest expense – related party |
(886,478) |
(276,898) |
(1,754,101) |
(276,698) |
Interest expense, net |
(8,316) |
(713,850) |
(13,333) |
(933,219) |
Loss on securities modifications |
-- |
-- |
(102,717) |
-- |
|
|
|
|
|
Net loss |
$ (6,614,066) |
$ (12,009,943) |
$ (12,550,345) |
$ (20,336,088) |
|
|
|
|
|
Basic and fully diluted net loss per
share |
$ (0.23) |
$ (0.45) |
$ (0.45) |
$ (0.78) |
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
Basic and fully diluted |
28,149,446 |
26,427,048 |
27,876,411 |
26,094,502 |
CONTACT: Investor Relations:
(213) 689-8631 x 401
IR@CyberDefender.com
IR Site: www.CyberDefenderCorp.com
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