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 March 31, 1999
[ ] 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)
Denver 84-0907969
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
621 17th Street, Suite 1730
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 June 30, 1999
Common Stock, no par value 7,470,650
Transitional Small Business Disclosure Format: Yes No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(unaudited)
MARCH 31, DEC 31,
1999 1998
Assets
Current Assets:
Cash and cash equivalents $ 9 $ 9
Prepaid expenses 172,442 198,308
Total current assets 172,451 198,317
Due from Affiliate:
Note receivable 720,575 720,575
Accrued interest 175,624 145,627
Management fees 60,000 60,000
956,199 926,202
Less valuation reserve (956,199) (926,202)
Net due from affiliate 0 0
Investments 0 0
$ 172,451 $ 198,317
Liabilities
Current Liabilities:
Accounts payable $ 165,100 $ 151,883
Accrued expenses 274,974 293,204
Notes payable 55,000 74,938
Franchise tax payable 1,600 1,600
Convertible debentures 30,000 180,000
Total current liabilities 526,674 701,625
Stockholders' Deficiency
Preferred stock, Convertible, no par value, 1,280,000
shares authorized, 917,500 and 997,500 issued and
outstanding in 1999 and 1998 873,250 873,250
Common stock, no par value, 25,000,000 shares
authorized, 7,470,650 and 6,434,850 issued and
outstanding in 1999 and 1998 4,009,660 3,994,660
Accumulated deficit (5,237,133) (5,371,218)
Total stockholders' deficiency (354,223) (503,308)
$ 172,451 $ 198,317
See notes to condensed financial statements
1
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1999 1998
Revenues - gain on settlement of debt $ 174,374 $ 0
Selling, general and administrative 40,290 29,187
Net income (loss) $ 134,084 $(29,187)
Net income (loss) per share
$ 0.02 $ (0.00)
Weighted average number of common
shares outstanding 7,190,650 6,357,756
See notes to condensed financial statements
2
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
1999 1998
Cash flows from operating activities:
Current Assets:
Net income (loss) $ 134,084 $ (29,187)
Adjustments to reconcile net income
(loss) to net cash
provided (used) by operating activities:
Gain on settlement of debt (174,374) 0
Amortization of prepaid consulting 25,866 0
Increase in accounts payable 13,217 3,000
Increase (decrease) in accrued expenses (6,148) 14,389
(7,355) (11,798)
Cash flows from investing activities: 0 0
Cash flows from financing activities:
Proceeds from the sale of common stock 0 35,030
Increase (decrease) in notes payable 7,355 (25,000)
7,355 10,030
Net increase (decrease) in cash and
cash equivalents (0) (1,768)
Cash and cash equivalents:
Beginning of period 9 1,548
End of period $ 9 $ (220)
See notes to condensed financial statements
3
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, 1998 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. LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net 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. SETTLEMENT OF NOTES PAYABLE IN DEFAULT
In January 1999 the Company settled a convertible note payable in default.
The note payable and accrued interest of $162,082 as of December 31, 1998
were settled for the issuance of 145,000 shares of Alliance. The Company's
investment in Alliance is fully reserved and accordingly, the shares issued in
this transaction were valued at $0, for total consideration of $0 and a gain on
settlement of debt of $ 162,082. The settlement is contingent upon Alliance
receiving no less than $2,000,000 pursuant to a private placement. In the
event that this private placement does not occur on or before September 1,
1999, the convertible note will be reinstated in the amount of $180,000 and
the convertible note holder will retain the Alliance shares received.
In March 1999 the Company settled a note payable in default. The note
payable and accrued interest of $62,291 as of December 31, 1998 were settled
for a cash payment of $35,000 and the issuance of 300,000 shares of Citadel
and valued at $ 15,000, for total consideration of $ 50,000 and a gain on
settlement of debt of $ 12,291. In conjunction with this settlement, the
President and CEO of Citadel
4
loaned the Company the $35,000 necessary for
the payment of the settlement pursuant to a 10% promissory note with interest
and principal due March 1, 2001. The promissory note is secured by 17,500
shares of Alliance and provides an option to purchase the shares comprising
the collateral at a price of $2.00 per share for a period of up to one year
following the repayment of the note.
5. SUBSEQUENT EVENTS
The Company received $30,010 on April 6, 1999 pursuant to two separate
promissory notes. The notes bear interest at 14% and are payable on demand
commencing May 6, 1999. The notes and accrued interest are convertible
into either shares of Citadel at 50% of the average trading price as of the date
of conversion or shares of Alliance at $2.00 per share, or any combination of
both, at the option of the note holders.
5
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.
In March, 1997, the Company acquired a 64% 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 March 1998 Citadel tendered its
investment in AMR to Alliance Medical Corporation ("Alliance") in exchange
for 621,025 shares, or 32% of Alliance. Alliance was established for the sole
purposes of acquiring controlling interest of both AMR and a direct
competitor, Orris, Inc. Due to subsequent issuance of stock by Alliance,
Citadel's percentage ownership was reduced to 20% as of December 31,
1998.
Due to uncertainty regarding the value of the company's investment in AMR
the Company has allocated no value to the issuance of the 1,633,608 shares
of common stock issued to acquire AMR. As AMR and its successor Alliance
have incurred operating losses subsequent to the acquisition, the investment
is unchanged under the equity method of accounting.
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.
Liquidity and Capital Resources
The Company's cash and cash equivalents at March 31, 1999 are $ 9
compared to $ 9 at December 31, 1998. The decrease in cash and cash
equivalents of $ 0 is principally due to cash used by operating activities of $
(7,355) , offset by cash provided by financing activities of $ 7,355.
For the three months ended March 31, 1999 and 1998 Citadel incurred
operating income (loss) of $134,083 and $ (29,187), respectively. The cash
used by operating activities in 1999 was $ 141,438 greater, or $ (7,355)
principally due to a gain on the settlement of debt of $ 174,373 that did not
generate cash, amortization of prepaid consulting expense of $25,866 and an
increase in accounts payable of $13,217 which did not use cash and a
decrease in accrued expenses of $ 6,148 which did not use cash.
For the three months ended March 31, 1998 Citadel incurred an operating
loss of $29,187. The cash used by operating activities was $17,389 less, or
$11,798 principally due to an increase in accounts payable and accrued
expenses of $3,000 and $14,389, respectively, which do not use cash.
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The cash provided by financing activities in 1999 consists of an increase in
notes payable of 7,355. The cash provided by operations in1998 consists
principally of $35,031 of proceeds from the conversion of indebtedness and
accrued interest to common stock discussed below, offset by a net repayment
of notes payable of $25,000.
Settlement of Notes Payable in Default
In January 1999 the Company settled a convertible note payable in default.
The note payable and accrued interest of $162,082 as of December 31, 1998
were settled for the issuance of 145,000 shares of Alliance. The Company's
investment in Alliance is fully reserved and accordingly, the shares issued in
this transaction were valued at $0, for total consideration of $0 and a gain on
settlement of debt of $ 162,082. The settlement is contingent upon Alliance
receiving no less than $2,000,000 pursuant to a private placement. In the
event that this private placement does not occur on or before September 1,
1999, the convertible note will be reinstated in the amount of $180,000 and
the convertible note holder will retain the Alliance shares received.
In March 1999 the Company settled a note payable in default. The note
payable and accrued interest of $62,291 as of December 31, 1998 were settled
for a cash payment of $35,000 and the issuance of 300,000 shares of Citadel
and valued at $ 15,000, for total consideration of $ 50,000 and a gain on
settlement of debt of $ 12,291. In conjunction with this settlement, the
President and CEO of Citadel loaned the Company the $35,000 necessary for
the payment of the settlement pursuant to a 10% promissory note with interest
and principal due March 1, 2001. The promissory note is secured by 17,500
shares of Alliance and provides an option to purchase the shares comprising
the collateral at a price of $2.00 per share for a period of up to one year
following the repayment of the note.
Subsequent Events
The Company received $30,010 on April 6, 1999 pursuant to two separate
promissory notes. The notes bear interest at 14% and are payable on demand
commencing May 6, 1999. The notes and accrued interest are convertible
into either shares of Citadel at 50% of the average trading price as of the date
of conversion or shares of Alliance at $2.00 per share, or any combination of
both, at the option of the note holders.
7
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:
None
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: July 16, 1999 By: Louis F. Coppage
President