U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30 , 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-16423
CITADEL ENVIRONMENTAL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0907969
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
621 17th Street
Denver, Colorado 80293
(Address of Principal Executive Offices) (Zip Code)
(303) 297-9656
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required
o file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the
latest practicable date:
Class Outstanding at October 1, 1998
Common Stock,
no par value 7,122,338
Transitional Small Business Disclosure Format: Yes No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPT 30, DEC 31,
1998 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 1,356 $ 1,548
Deferred expense 215,552 0
------- -----
$ 216,908 $ 1,548
======= =====
LIABILITIES
Current Liabilities:
Accounts payable $ 94,154 $102,017
Accrued expenses 251,225 197,136
Notes payable 252,000 328,000
Other liabilities 1,758 5,340
------- -------
Total current liabilities 599,137 632,494
STOCKHOLDERS' DEFICIENCY
Preferred stock, Series A, $0.01 par value, 1,500,000
shares authorized and issued, no shares outstanding 0 0
Preferred stock, Series B, $0.01 par value, 1,500,000
shares authorized and issued, no shares outstanding 0 0
Preferred stock, Series C, $0.01 par value, 2,000,000
shares authorized and issued, no shares outstanding 0 0
Preferred stock, Convertible, no par value, 1,280,000
shares authorized, 1,199,000 issued and outstanding 953,250 953,250
Common stock, no par value, 25,000,000 shares
authorized, 7,122,338 issued and outstanding 3,891,848 3,353,032
Accumulated deficit (5,227,327) (4,937,228)
---------- ----------
Total stockholders' deficiency (382,229) (630,946)
---------- ----------
$ 216,908 $ 1,548
========== ==========
See notes to condensed consolidated financial statements
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CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
Revenues $ 0 $ 490,201 $ 0 $ 781,055
Selling, general and administrative 128,448 1,089,011 265,162 2,004,477
Net loss $ (128,448)$ (598,810) $(265,162)$(1,223,422)
Net loss per share $(0.02) $(0.10) $(0.04) $ (0.26)
Weighted Average Number of Common
Shares Outstanding 7,076,560 6,279,709 6,663,472 4,726,901
See notes to condensed consolidated financial statements
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CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Current Assets:
Net loss $ (265,162) $ (1,223,422)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 0 45,198
Amortization 43,110 11,682
Decrease in accounts receivable 0 110,123
Increase in current assets 0 (10,372)
Increase (decrease) in accounts payable (7,862) 279,739
Increase in accrued expenses 54,089 435,449
Increase in minority interest 0 1,000
Decrease in other liabilities (3,583) 0
(179,408) (350,603)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 0 (97,288)
Cash effect of consolidation of subsidiary 0 (92,680)
0 (189,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of preferred stock 0 673,250
Proceeds from the sale of common stock 210,216 0
Increase in short-term debt 0 292,000
Increase in long-term debt 0 30,000
Repayment of notes payable (31,000) (319,334)
179,216 675,916
Net increase (decrease) in cash and cash equivalents (192) 135,345
CASH AND CASH EQUIVALENTS:
Beginning of year 1,548 43,256
End of year $ 1,356 $ 178,601
See notes to condensed consolidated financial statements
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CITADEL ENVIRONMENTAL GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements included in this Form 10-QSB have been prepared by
Citadel Environmental Group, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed, or omitted, pursuant to such rules and
regulations. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's December
31, 1997 Form 10-KSB.
The financial statements presented herein reflect in the opinion of
management, all adjustments necessary for a fair presentation of financial
position and the results of operations for the periods presented. The
results of operations for any interim period are not necessarily indicative
of the results for the full year.
2. INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income (loss)
applicable to common stock by the weighted average number of shares of common
stock and common share equivalents outstanding during each period.
3. INCOME TAXES
Income taxes are calculated using the liability method specified by Statement
of Financial Accounting Standards No.109 (SFAS 109), "Accounting for Income
Taxes". Management provides a valuation allowance against its deferred tax
assets to the extent that management concludes that it is more likely than
not that the Company will not benefit from the utilization of such deferred tax
assets.
4. NOTES PAYABLE
During the nine months ending June 30, 1998 the Company repaid short-term
indebtedness of $31,000 and converted $95,000 in short-term indebtedness to
common stock, pursuant to the debtors election to convert such indebtedness.
The Company also incurred additional short-term indebtedness aggregating
$50,000, $25,000 of which was converted into common stock as discussed above.
The new indebtedness bears interest at 10% and is due on demand.
5. COMMON STOCK
Pursuant to the conversion of $30,000 in debt and $5,031 in accrued interest,
64,059 shares of common stock were issued effective March 17, 1998.
Pursuant to the conversion of $25,000 in debt and $185 in accrued interest,
34,722 shares of common stock were issued effective June 16, 1998.
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Pursuant to the conversion of $40,000 in debt and $25,823 in accrued
penalties and interest, 82,500 shares of common stock were issued effective
July 16, 1998.
6. STOCK DIVIDEND
On June 22, 1998 the Citadel Environmental Group, Inc. (the "Company")
authorized a stock dividend in kind to all Citadel common shareholders of
recorders of July 17, 1998. On September 25, 1998 the Board of Directors of
the Company voted to rescind the stock dividend.
7. CONSULTING AGREEMENT
On July 1, 1998 the Company entered into a consulting agreement with Estate
Management Services ("EMS") for business development services. The agreement
expires December 31,2000 and was paid as follows:
Citadel Environmental Group Common Stock 323,328 shares
Alliance Medical Corporation Common Stock 27,250 shares
Based on a fair market value of $0.80 and $0 for the Citadel and Alliance shares
, respectively, the Company recognized $ 258,662 in compensation expense as a
result of this agreement, $ 215,552 of which has been deferred as of
September 30, 1998 and will be amortized over the remaining period of the
contract.
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CITADEL ENVIRONMENTAL GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Citadel's focus is to acquire controlling interest in operating companies in
growth industries and increase the value of the investment by providing or
locating the managerial, administrative and financial assistance necessary to
facilitate growth. The Company is dependent upon additional debt or equity
financing in order to provide these services for the benefit of its
controlled subsidiaries. There is no assurance that the Company will be able
to raise such capital.
On March 6, 1998, the Company acquired a 64.45% interest in Applied Medical
Recovery, Inc. ("AMR"), an Arizona corporation, engaged in reprocessing and
recycling of non-critical medical instruments and devices in exchange for
1,633,608 shares of common stock. In February 1998 Citadel tendered its
investment in AMR to Alliance Medical Corporation ("Alliance"). Alliance
was established for the sole purpose of acquiring controlling interest of
both AMR and a direct competitor, Orris, Inc.
PLAN OF OPERATIONS
The Company intends to assist Alliance's expansion of its medical
reprocessing and recovery activities on a national and international basis
and explore possible new investments.
Citadel expects to assist in the national and international expansion of
Alliance by providing capital (generally in the form of loans) and certain
management expertise. Citadel had committed to AMR that Citadel would make
available either through Citadel and/or other third parties a $1,500,000
working capital line of credit and assist in obtaining an additional
$2,000,000 in debt financing for expansion. To date, Citadel has loaned AMR
$720,000 under the line of credit and has assisted AMR and/or its successors
in obtaining approximately $1,200,000 in additional capital.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at September 30, 1998 are $ 1,356
compared to $1,548 at December 31, 1997. The decrease in cash and cash
equivalents of $ 192 is principally due to cash used by operating activities
of $179,408, offset by cash provided by financing activities of $179,216.
For the nine months ended September 30, 1998 Citadel incurred an operating loss
of $ 265,162. The cash used by operating activities was $112,970 less, or
$ 179,408 principally due to $ 43,110 of amortization expense related to the
amortization of deferred expense related to the Estate Management Services
consulting agreement described below and an increase in accrued expenses of
$ 54,089, which do not use cash, and a $ 7,862 decrease in accounts payable.
The cash provided by financing activities consists principally of $ 210,216
of proceeds from the sale of common stock, offset by a net decrease in notes
payable of $ 31,000.
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SALE OF AMR SHARES TO ALLIANCE MEDICAL CORPORATION.
In March 1998 Citadel sold its investment in AMR to Alliance Medical Corporation
("Alliance"). Alliance was established for the sole purpose of acquiring
controlling interest of both AMR and a direct competitor, Orris, Inc.
Citadel received approximately 600,000 shares of Alliance common stock in
exchange for its equity interest in AMR. Alliance acquired 100% of the
outstanding stock of AMR and Orris.
Citadel's percentage ownership in Alliance after the completion of the private
placement was approximately 30%. As this business combination involving AMR
was anticipated when Citadel made its initial investment, it was expected
from the onset that Citadel's control position in AMR would only be
temporary. Accordingly, AMR has been reflected on the equity method on the
balance sheet of Citadel.
Due to uncertainty regarding the value of the company's investment in AMR and
its successor Alliance, as well as uncertainty regarding the ability of
Alliance to repay the assumed AMR indebtedness, Citadel has fully reserved
the following assets and allocated no value to the issuance of the 1,633,608
shares of common stock issued to acquire AMR which were trading at
approximately $1.25 per share at the time of the exchange for an implied
valuation of $2,042,010:
Management fees due from AMR $ 60,000
Interest receivable from AMR 97,000
Note receivable - AMR 715,000
AMR investment 2,042,010
---------
Total reserve $ 2,914,010
=========
DEBT CONVERSION
On March 31, 1998, a holder of convertible indebtedness elected pursuant to the
terms of the indebtedness to convert $30,000 in principal and $5,031 in accrued
interest into 64,059 shares of common stock.
On June 16, 1998, a holder of convertible indebtedness elected pursuant to
the terms of the indebtedness to convert $25,000 in principal and $185 in
accrued interest into 34,772 shares of common stock.
On July 16, 1998, a holder of indebtedness elected to utilize the $40,000 in
debt and $25,823 in accrued penalties and interest to exercise a warrant to
acquire 82,500 shares of common stock.
CONSULTING AGREEMENT
On July 1, 1998 entered into a consulting agreement with Estate Management
Services ("EMS") for business development services. The agreement expires
December 31, 2000 and was paid as follows:
Citadel Environmental Group Common Stock 323,328 shares
Alliance Medical Corporation Common Stock 27,250 shares
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Based on a fair market value of $0.80 and $0 for the Citadel and Alliance
shares, respectively, the Company recognized $ 258,662 in compensation
expense as a result of this agreement, $ 215,552 of which has been deferred
as of September 30, 1998 and will be amortized over the remaining period of
the contract.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued FAS
No.131, "Disclosures about Segments of an Enterprise and Related
Information". This Statement establishes standards for reporting information
about a company's operating segments and related disclosures about
its products, services, geographic areas of operations and major customers.
This Statement will be adopted by the Company in 1998 year-end financial
statements and will not impact the Company's results of operations or
financial position.
In March 1998, the American Institute of Certified Public Accountant (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. The Statement outlines
the accounting treatment for certain costs related to the development or
purchase of software to be used internally and requires that costs incurred
during the preliminary project and post-implementation-operations stages be
expensed, and that costs incurred during the application development stage
be capitalized and amortized over the estimated useful life of the software.
Costs incurred prior to the initial application of this Statement cannot
be adjusted to the amounts that would have been capitalized had the Statement
been in effect when those costs were incurred. Adoption of this Statement is
not expected to have a material impact on the Company's results of operations or
financial position.
In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5, which is effective for fiscal year beginning
after December 15, 1998, requires that all costs of start- up activities,
including organization costs, be expensed as incurred. The impact of adoption
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle. Adoption of this Statement is not expected to have a
material impact on the Company's results of operations or financial position.
In June 1998, the FASB issued FAS No.133, "Accounting for Derivative
instruments and Hedging Activities" which requires all derivatives to be
recognized at fair value as either assets or liabilities on the balance
sheet. Any gain or loss resulting from changes in such fair value is
required to be recognized in earnings to the extent the derivatives are not
effective as hedges. This Statement is effective for fiscal years beginning
after June 15, 1999, and is effective for interim periods in the initial year
of adoption. Adoption of this Statement is not expected to have a material
impact on the Company's results of operations or financial position.
Forward-Looking Statements
This management's discussion and analysis of results of operations and
financial condition contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
based on the current plans and expectations of Coachman Incorporated and
involve risks and uncertainties that could cause actual future events and
results of operations to be materially different from those in the forward-
looking statements. Important factors that could cause such
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differences include, among others, greater than expected expenses associated
with the Company's personnel needs or activities, the competitive pricing
environment applicable to the Company's operations, changes in customers'
business environments or changes in government regulations.
YEAR 2000
Like many other companies, the Year 2000 computer issue creates risks for the
Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, the Company's operations could be adversely
impacted as a result of system failures and business process interruption.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - Not Applicable
ITEM 2. Changes in Securities - Not Applicable
ITEM 3. Defaults Upon Senior Securities - Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders - Not Applicable
ITEM 5. Other Information - Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
None
b) Reports on Form 8-K were filed as follows:
Filed September 25, 1998 regarding recission of stock dividend
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citadel Environmental Group, Inc.
(Registrant)
Date: April 13, 1999 By: Louis F. Coppage
----------------
President
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