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 September30, 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 September 30, 1999
Common Stock,
no par value 8,119,348
Transitional Small Business Disclosure Format: Yes No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30,DECEMBER 31,
1999 1998
ASSETS
Current Assets:
Cash and cash equivalent $ 22,147 $ 9
Prepaid expenses 154,047 198,308
Total current assets 176,194 198,317
Due from Affiliate:
Note receivable 0 720,575
Accrued interest 0 145,627
Management fees 0 60,000
0 926,202
Less valuation reserve (0) (926,202)
Net due from affiliate 0 0
Investments 0 0
$ 176,194 $ 198,317
LIABILITIES
Current Liabilities:
Accounts payable $ 65,931 $ 151,883
Accrued expenses 0 293,204
Notes payable 90,224 74,938
Franchise tax payable 1,600 1,600
Convertible debentures 0 180,000
Total current liabilities 157,755 701,625
STOCKHOLDERS' EQUITY (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, 8,119,348 and 6,434,850 issued and
outstanding in 1999 and 1998 4,063,886 3,994,660
Accumulated deficit (4,918,697) (5,371,218)
Total stockholders' equity (deficiency) 18,439 (503,308)
$ 176,194 $ 198,317
See notes to condensed financial statements
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
Revenues - gain on settlement of debt $ 331,687 $ 0 $ 506,061 $ 0
Selling, general and administrative 62,012 128,448 30,602 265,162
Net income (loss) $ 393,699 $ (128,448) $ 475,459 $(265,162)
Net income (loss) per share $ 0.05 $ (0.02) $ 0.06 $ (0.04)
Weighted Average Number of
Common Shares Outstanding 7,726,175 7,076,560 7,467,674 6,663,472
See notes to condensed consolidated financial statements
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Current Assets:
Net income (loss) $ 475,459 $ (265,162)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Gain on settlement of debt (506,061) 0
Bad debt recovery 46,077 0
Amortization of prepaid consulting 77,599 0
Other amortization 0 43,110
Increase in current assets (33,337) 0
Increase (decrease) in accounts payable (16,058) (7,862)
Increase (decrease) in accrued expenses (1,827 54,089
Decrease in other liabilities 0 (3,583)
41,852 (179,408)
CASH FLOWS FROM INVESTING ACTIVITIES: 0 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 0 210,216
Increase in short-term debt 15,286 0
Repayment of notes payable (35,000) (31,000)
19,714 179,216
Net increase (decrease) in cash
and cash equivalents 22,138 (192)
CASH AND CASH EQUIVALENTS:
Beginning of year 9 1,548
End of year $ 22,147 $ 1,356
See notes to condensed consolidated financial statements
CITADEL ENVIRONMENTAL GROUP,INC.
NOTES TO CONDENSED FINANCIALSTATEMENTS
(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 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. SETTLEMENT OF INDEBTEDNESS IN DEFAULT
In January 1999 the Company settled a convertible note payable in
default. The note payable and accrued interest of $162,082 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.
In March 1999 the Company settled a note payable in default. The
note payable and accrued interest of $62,291 were settled for a cash
payment of $35,000 and the issuance of 300,000 shares of Citadel
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.
In July 1999 the Company settled a $54,115 balance due to a vendor.
The indebtedness was settled in full in consideration of the issuance of
100,000 shares of Citadel valued at $ 5,000, and 20,000 shares of
Alliance, for total consideration of $ 5,000 and a gain on settlement of
debt of $ 49,115.
In August 1999 the Company settled a $4,513 balance due to a vendor.
The indebtedness was settled in full in consideration of the issuance of
20,000 shares of Citadel valued at $ 1,000 and resulted in a gain on
settlement of debt of $ 3,513.
In August 1999 the Company settled a $ 7,476 balance due to a
vendor. The indebtedness was settled in full in consideration of the
issuance of 10,000 shares of Alliance valued at $ 0 and resulted in a
gain on settlement of debt of $ 7,476.
In September 1999 the Company settled a $183,382 balance due to a
vendor. The indebtedness was settled in full in consideration of the
issuance of 255,760 shares of Citadel valued at $ 12,788 and resulted
in a gain on settlement of debt of $ 170,594.
In September 1999 the Company settled a $ 30,000 balance due under
a convertible debenture and related accrued interest of $5,184. The
indebtedness was settled in full in consideration of the issuance of
50,000 shares of Citadel valued at $ 2,500, and 10,000 shares of
Alliance, for total consideration of $ 2,500 and a gain on settlement of
$ 32,684.
In September 1999 the Company settled a $83,334 balance due to a
previous officer of the Company. The indebtedness was settled in full
in consideration of a cash payment of $36,500 and the issuance of
150,000 shares of Citadel valued at $ 7,500, and 8,000 shares of
Alliance, for total consideration of $ 44,000 and a gain on settlement
of debt of $ 39,333.
5. NOTES PAYABLE
In March 1999, the President and CEO of Citadel loaned the Company
the $35,000 necessary for the payment of a 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. This note, among others, was subsequently
assigned to another party. See Note 7 - 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. The noteholders' elected to convert the notes in August
1999, receiving a total of 50,000 shares of Alliance and 15,000 shares
of Citadel.
The Company received $5,000 on May 14, 1999 pursuant to a
promissory note. The note bears interest at 14% and is payable on
demand commencing June 14, 1999. The note 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 holder.
This note, among others, was subsequently assigned to another party.
See Note 7 - subsequent events.
The Company received $22,000 on May 27, 1999 pursuant to a
promissory note to its President and CEO. The note bear interest at
14% and is payable on demand commencing June 27, 1999. The note
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 holder. This note, among others, was subsequently
assigned to another party. See Note 7 - subsequent events.
6. SETTLEMENT WITH ALLIANCE
In July 1999 the Company settled with Alliance Medical Corporation
regarding balances due Citadel. The settlement provided for the
conversion of Citadel's $720,575 note receivable into 266,880 shares
of Alliance, or $2.70 per share. The settlement also provided for a
$150,000 cash payment for accrued interest on the note and a $14,250
cash payment for consulting services, for a total cash payment of
$164,250. As Citadel had fully reserved all amounts due from Alliance,
the settlement resulted in a gain of $164,250.
7. SUBSEQUENT EVENT
On October 1, 1999 the Company assigned certain notes payable in
default and related accrued interest aggregating $ 90,224 to another
party in exchange for a 14% note due in thirty days. The note provides
for conversion into shares of Alliance at $2.00 per share and/or shares
of Citadel at 50% of the average fair market trading price, and is
secured by 570,656 shares of Alliance. The note was not paid when
due and the note holder elected to convert the note and accrued
interest into 9,108,200 shares of Citadel common stock.
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 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.
In July 1999 the Company settled with Alliance Medical Corporation
regarding balances due Citadel. The settlement provided for the
conversion of Citadel's $720,575 note receivable into 266,880 shares
of Alliance, or $2.70 per share. The settlement also provided for a
$150,000 cash payment for accrued interest on the note and a $14,250
cash payment for consulting services, for a total cash payment of
$164,250. As Citadel had fully reserved all amounts due from Alliance,
the settlement resulted in a gain of $164,250.
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 September 30, 1999 are
$ 22,147 compared to $ 9 at December 31, 1998. The increase in cash
and cash equivalents of $ 22,138 is principally due to cash provided by
operating activities of $ 41,852 offset by cash used by financing
activities of $(19,714).
For the nine months ended September 30, 1999 and 1998 Citadel
incurred operating income (loss) of $475,459 and $(136,714),
respectively. The cash generated by operating activities in 1999 was
$ 433,607 less, or $ 41,852 principally due to a gain on the settlement
of debt of $ 506,061 that did not generate cash, amortization of
prepaid consulting expense of $ 77,599 which did not use cash, and an
increase in prepaid expenses of $ 33,337 and an decrease in accounts
payable and accrued expenses of $(16,058) and $(1,827) which
required cash.
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 in 1999 consists of an
increase in notes payable of $ 15,286, offset be a $ 35,000 repayment
of debt. The cash provided by financing activities in 1998 consists
principally of $ 210,216 of proceeds from the sale of common stock,
offset by a net decrease in notes payable of $ 31,000.
SETTLEMENT OF INDEBTEDNESS IN DEFAULT
In January 1999 the Company settled a convertible note payable in
default. The note payable and accrued interest of $162,082 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.
In March 1999 the Company settled a note payable in default. The
note payable and accrued interest of $62,291 were settled for a cash
payment of $35,000 and the issuance of 300,000 shares of Citadel
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.
In July 1999 the Company settled a $54,115 balance due to a vendor.
The indebtedness was settled in full in consideration of the issuance of
100,000 shares of Citadel valued at $ 5,000, and 20,000 shares of
Alliance, for total consideration of $ 5,000 and a gain on settlement of
debt of $ 49,115.
In August 1999 the Company settled a $4,513 balance due to a vendor.
The indebtedness was settled in full in consideration of the issuance of
20,000 shares of Citadel valued at $ 1,000 and resulted in a gain on
settlement of debt of $ 3,513.
In August 1999 the Company settled a $ 7,476 balance due to a
vendor. The indebtedness was settled in full in consideration of the
issuance of 10,000 shares of Alliance valued at $ 0 and resulted in a
gain on settlement of debt of $ 7,476.
In September 1999 the Company settled a $183,382 balance due to a
vendor. The indebtedness was settled in full in consideration of the
issuance of 255,760 shares of Citadel valued at $ 12,788 and resulted
in a gain on settlement of debt of $ 170,594.
In September 1999 the Company settled a $ 30,000 balance due under
a convertible debenture and related accrued interest of $5,184. The
indebtedness was settled in full in consideration of the issuance of
50,000 shares of Citadel valued at $ 2,500, and 10,000 shares of
Alliance, for total consideration of $ 2,500 and a gain on settlement of
$ 32,684.
In September 1999 the Company settled a $83,334 balance due to a
previous officer of the Company. The indebtedness was settled in full
in consideration of a cash payment of $36,500 and the issuance of
150,000 shares of Citadel valued at $ 7,500, and 8,000 shares of
Alliance, for total consideration of $ 44,000 and a gain on settlement
of debt of $ 39,333.
ADDITIONAL INDEBTEDNESS
In March 1999, the President and CEO of Citadel loaned the Company
the $35,000 necessary for the payment of a 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. This note, among others, was subsequently
assigned to another party. See Note 7 - 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. The noteholders' elected to convert the notes in August
1999, receiving a total of 50,000 shares of Alliance and 15,000 shares
of Citadel.
The Company received $5,000 on May 14, 1999 pursuant to a
promissory note. The note bears interest at 14% and is payable on
demand commencing June 14, 1999. The note 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 holder.
This note, among others, was subsequently assigned to another party.
See Note 7 - subsequent events.
The Company received $22,000 on May 27, 1999 pursuant to a
promissory note to its President and CEO. The note bear interest at
14% and is payable on demand commencing June 27, 1999. The note
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 holder. This note, among others, was subsequently
assigned to another party. See Note 7 - subsequent events.
SUBSEQUENT EVENT
On October 1, 1999 the Company assigned certain notes payable in
default and related accrued interest aggregating $ 90,224 to another
party in exchange for a 14% note due in thirty days. The note provides
for conversion into shares of Alliance at $2.00 per share and/or shares
of Citadel at 50% of the average fair market trading price, and is
secured by 570,656 shares of Alliance. The note was not paid when
due and the note holder elected to convert the note and accrued
interest into 9,108,200 shares of Citadel common stock.
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
On July 15, 1999 the Company accepted the resignation of Georgette Pagano
as corporate secretary. Cory J. Coppage was subsequently appointed corporate
secretary.
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 causedthis report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citadel Environmental Group, Inc.
(Registrant)
Date: November 12, 1999 By: Louis F. Coppage
President