<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-8625
CITADEL HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3885184
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 South Hope Street
Suite 1825 Los Angeles CA 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 239-0540
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No ______
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 6,669,924 shares of
Common Stock, $0.01 par value per share, as of August 12, 1997.
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<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1. Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996................................................ 3
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 1997 and 1996 (Unaudited).................. 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (Unaudited)............................. 5
Notes to Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of the Consolidated
Statements of Operations........................................... 11
PART 2. Other Information
- ------
Item 1. Legal Proceedings.................................................. 15
Item 2. Changes in Securities.............................................. 15
Item 3. Defaults Upon Senior Securities.................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................ 15
Item 5. Other Information.................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................... 15
Signatures.................................................................. 16
</TABLE>
2
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- --------------
(In thousands of dollars)
<S> <C> <C>
ASSETS
- ----------------------------------------------
ASSETS
Cash and cash equivalents $ 6,805 $ 6,356
Properties held for sale -- 1,145
Rental properties, net 13,456 13,288
Investment in shareholder affiliate 7,000 7,000
Capitalized leasing costs 1,480 1,576
Other receivables 30 311
Other assets 362 616
-------- --------
Total assets $ 29,133 $ 30,292
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------
LIABILITIES:
Security deposits payable $ 91 $ 76
Deferred rental revenue 330 164
Accounts payable and accrued liabilities 856 2,025
Mortgage notes payable 9,473 10,303
-------- --------
Total liabilities 10,750 12,568
Commitments and contingencies
STOCKHOLDERS' EQUITY
Serial preferred stock, par value $.01;
5,000,000 shares authorized, 3% Cumulative
Voting Convertible, none outstanding -- --
Serial preferred stock, par value $.01;
5,000,000 shares authorized, Series B
3% Cumulative Voting Convertible,
none outstanding -- --
Common stock, par value $.01, 10,000,000
shares authorized, 6,669,924 shares
issued and outstanding 67 67
Paid-in capital 59,603 59,020
Retained (deficit) (39,289) (39,948)
Note receivable from shareholder upon
common stock issuance (1,998) --
Cost of 666,000 treasury shares -- (1,415)
-------- --------
Total stockholders' equity 18,383 17,724
-------- --------
Total liabilities and stockholders' equity $ 29,133 $ 30,292
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ -----------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,271 $1,353 $2,395 $2,883
Interest income from shareholder 37 -- 37 --
Interest income 79 219 173 429
------ ------ ------ ------
1,387 1,572 2,605 3,312
Real estate operating expenses 493 754 984 1,514
Depreciation and amortization 109 99 198 221
Interest expense 249 396 512 794
General and administrative expenses 222 255 419 472
------ ------ ------ ------
Total expenses 1,073 1,504 2,113 3,001
Gain on sale of rental property -- 1,473 (16) 1,473
Dividends from investment in Reading 114 -- 228 --
Losses of and Write-Down of Investment
in Fidelity Federal Bank -- 4,000 -- 4,000
------ ------ ------ ------
Earnings (loss) before income taxes 428 5,541 704 5,784
Income tax expense (benefit) 15 -- 45 --
------ ------ ------ ------
Net Earnings (loss) $ 413 $5,541 $ 659 $5,784
====== ====== ====== ======
Earnings per common and common
equivalent share $0.06 $0.69 $0.10 $0.72
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------------------
(In thousands of dollars)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 659 $ 5,784
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain from investment in Fidelity -- (4,000)
Loss (gain) on sale of rental property 16 (1,473)
Amortization of deferred loan items 30 99
Depreciation and amortization 198 221
Changes in operating assets and liabilities:
Decrease (increase) in other receivables 281 23
Decrease (increase) in other assets 284 (103)
Increase (decrease) in security deposits 14 (89)
Increase (decrease) in accrued liabilities (986) (191)
------- -------
Net cash provided by (used in) operating activities 496 271
INVESTING ACTIVITIES
Proceeds from sale of rental properties 1,128 8,941
Purchase of and additions to real estate (345) (418)
------- -------
Net cash provided by (used in) investing activities 783 8,523
FINANCING ACTIVITIES
Repayments of long-term mortgage borrowings (830) (5,814)
Dividends paid on Preferred Stock -- (117)
------- -------
Net cash provided by (used in) financing activities (830) (5,931)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 449 2,863
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,356 16,291
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,805 $19,154
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on mortgages and line of credit $ 482 $ 297
Non-cash transactions:
Company common stock issued in exchange
for secured note payable 1,998 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Citadel Holding
Corporation ("Citadel") and its wholly owned subsidiaries (collectively the
"Company"). In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments of a recurring nature
considered necessary for a fair presentation of its financial position as of
June 30, 1997 and December 31, 1996, the results of operations for the three
months and six months ended June 30, 1997 and 1996 and the results of its cash
flows for the six months ended June 30, 1997 and 1996. The results of operations
for the three and six month periods ended June 30, 1997 are not necessarily
indicative of the results of operations to be expected for the entire year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes required to be in conformity with generally
accepted accounting principles. The financial information provided herein,
including the information under the heading, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is written with the
presumption that the users of the interim financial statements have read, or
have access to, the most recent Annual Report on Form 10-K which contains the
latest audited financial statements and notes thereto, together with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1996 and for the year then ended.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Included in cash and cash
equivalents at June 30, 1997 is approximately $5.8 million which is being held
in institutional money market mutual funds.
Earnings Per Share
- ------------------
Earnings per common and common equivalent share is based on 6,596,349 and
8,050,708 shares, the weighted average number of shares of common stock and
common stock equivalents outstanding during the three months ended June 30, 1997
and 1996, and 6,301,774 and 8,050,708 shares during the six months ended June
30, 1997 and 1996, respectively. For the 1996 periods the calculation of the
weighted average number of shares of common stock outstanding included the
effect of shares assumed to be issued on the conversion of the Preferred Stock
as of the beginning of the periods being reported. The number of shares assumed
converted as of the January 1, 1996 amounted to 2,046,784 and was calculated
based on the terms of the Preferred Stock conversion terms prior to their
repurchase in December 1996.
6
<PAGE>
CITADEL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 2 - RENTAL PROPERTIES AND PROPERTIES HELD FOR SALE
- -------------------------------------------------------
The Company's rental properties at June 30, 1997 and December 31, 1996 consist
of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -------------
(In Thousands)
<S> <C> <C>
Land $ 4,438 $ 4,438
Building and improvements 9,734 9,389
--------- ---------
Total $ 14,172 $ 13,827
Less accumulated depreciation (716) (539)
--------- ---------
Rental properties, net $ 13,456 $ 13,288
--------- ---------
</TABLE>
At June 30, 1997 and December 31, 1996, rental properties consisted of two
commercial buildings. In January 1997, the property held for sale at December
31, 1996 was sold resulting in a loss of approximately $16,000. Concurrent with
the sale of such property the outstanding mortgage loan amounting to
approximately $.755 million was paid in full.
NOTE 3 - INVESTMENT IN SHAREHOLDER AFFILIATE
- --------------------------------------------
On October 15, 1996, the Company consummated a transaction contemplated by an
exchange agreement (the "Exchange Agreement") with its shareholder affiliates,
Craig Corporation ("Craig") and Reading Entertainment, Inc. ("REI" and
collectively with its consolidated subsidiaries, "Reading"). Pursuant to the
terms of the Exchange Agreement, the Company contributed cash in the amount of
$7 million to REI in exchange for 70,000 shares of Reading Series A Voting
Cumulative Convertible Preferred Stock ("REI Series A Preferred Stock") and an
option to transfer all or substantially all (subject to certain limitations) of
its assets to REI for REI Common Stock (the "Asset Put Option"). As of June
30, 1997, the Company held approximately 5% of the voting power of REI and Craig
held approximately 78% of the voting power of REI. Effective April 11, 1997,
REI holds approximately 23.4% and Craig holds approximately 10% of then
outstanding common stock of Citadel.
The REI Series A Preferred Stock acquired by the Company has a liquidation
preference of $100 per share or $7 million ("Stated Value"), (ii) bears a
cumulative dividend of 6.5%, payable quarterly, and (iii) is convertible any
time after April 1998 (or earlier upon a change of control of REI) into shares
of REI Common Stock at a conversion price of $11.50 per share. REI, may at its
option, redeem the Series A Preferred Stock at any time after October 15, 2001,
in whole or in part, at a redemption price equal to a percentage of the Stated
Value (initially 108% and decreasing 2% per annum until the percentage equals
100%). The Company has the right for a 90-day period beginning October 15, 2001
7
<PAGE>
(provided the Company has not exercised the Asset Put Option), or in the event
of a change of control of REI to require REI to repurchase the REI Series A
Preferred Stock for their aggregate Stated Value plus accumulated dividends. In
addition, if REI fails to pay dividends for four quarters, the Company has the
option to require REI to repurchase such shares at their aggregate liquidation
value plus accumulated dividends.
The Company accounts for its investment in REI at cost. Included in the
Statements of Operations for the three and six months ended June 30, 1997, is
dividend income of approximately $114,000 and $228,000, respectively, earned
pursuant to the terms of the REI Series A Preferred Stock.
REI is a publically traded company whose shares are listed on the NASDAQ
National Market. Reading is currently involved in conventional multiplex cinema
exhibition in Puerto Rico through its Cine Vista Cinemas chain, in the
exhibition of art and specialty film through its interest in the Angelika Film
Center (a specialty art multiplex cinema and cafe complex located in the Soho
area of New York City), and the development of a new chain of multiplex cinemas
and entertainment centers in Australia. In addition, Reading expects to expand
the Angelika Film Center concept to other U.S. cities and has executed a lease
to develop an 8-plex art cinema and cafe complex in Houston, Texas.
Summarized financial information of REI and subsidiaries as of June 30, 1997
and December 31, 1996 and for the three and six months ended June 30, 1997
follows:
CONDENSED BALANCE SHEETS:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(In Thousands)
<S> <C> <C>
Cash and cash equivalents $ 38,977 $ 48,680
Preferred Stock of Stater 67,978 --
Other current assets 8,731 7,765
-------- --------
Total current assets 115,686 56,445
Equity investment in Citadel 4,740 4,850
Preferred Stock of Stater -- 67,978
Property and equipment, net 22,284 21,130
Intangible assets 25,483 26,229
Other assets 5,264 5,122
-------- --------
Total assets $173,457 $181,754
======== ========
Current liabilities $ 6,795 $ 13,716
Other liabilities 5,083 5,084
Series A Preferred stock
held by Citadel 7,000 7,000
Shareholders' equity 154,579 155,954
-------- --------
Total liabilities and equity $173,457 $181,754
======== ========
</TABLE>
In July 1997, Reading was advised by Stater Bros. Holdings Inc. ("Stater") that
Stater intends to exercise its option to acquire the Stater Preferred Stock
owned by Reading Australia. The exercise price to be paid at the closing is
$69.365 million, plus accumulated dividends which amounted to approximately $3.9
million at June 30, 1997. A book gain of $1.387 million will be recorded by
Reading upon
8
<PAGE>
the redemption in the third quarter. Dividends accumulate at approximately
$20,000 per day (10.5% annually) and will cease accruing upon the redemption of
the Stater Preferred Stock. Included below in Reading Statement of Operations
is dividend income earned on the Stater Preferred Stock of approximately $1.816
million and $3.612 million for the three months and six months ended June 30,
1997, respectively.
CONDENSED STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1977 June 30, 1997
------------------ ----------------
(In Thousands)
<S> <C> <C>
Revenue:
Theater $ 6,572 $12,344
Real estate 63 100
Interest and dividends 2,429 4,864
------- -------
Total revenue 9,064 17,308
Theater costs (5,097) (9,771)
Depreciation and amortization ( 616) (1,233)
General and administrative (2,655) (4,273)
------- -------
Income from operations 696 2,031
Equity in earnings of Citadel 70 136
Other income, net 9 238
------- -------
Earnings before income taxes
and minority interest 775 2,405
Income taxes (162) (321)
Minority interest (58) (104)
------- -------
Net income 555 1,980
Less preferred stock dividends
and amortization of asset put option (1,077) (2,153)
------- -------
Net (loss) income applicable to
common shareholders $ (522) $ (173)
======= =======
</TABLE>
NOTE 4 - GAIN OR LOSS RELATED TO INVESTMENT IN FIDELITY FEDERAL BANK
- --------------------------------------------------------------------
Under a Stockholders' Agreement, Citadel agreed to reimburse its previously
owned subsidiary, Fidelity Federal Bank ("Fidelity"), for certain losses
incurred by Fidelity in either curing breached representations or repurchasing
assets sold under a bulk sales agreement, subject to a $4 million aggregate
limit, in the event Fidelity were to be determined to have breached certain
representations made in connection with certain bulk sales of loans and
properties in 1994. As a significant number of material issues were unresolved
with regards to the Company's ultimate exposure with respect to the indemnity
clause negotiated with Fidelity, the Company included $4 million on its balance
sheet at December 31, 1995 as "Deferred proceeds from bulk sales agreement".
During 1996, Fidelity reached a settlement with the purchaser regarding the bulk
sales claims and released the Company from the indemnity given to Fidelity.
Accordingly, the Statement of Operations for the three and six months ended June
30, 1996 include a non-
9
<PAGE>
recurring gain related to its previous investment in Fidelity, which resulted
from the reversal of the $4 million deferral.
NOTE 5 - TAXES ON INCOME
- ------------------------
The provision for income taxes for the three months and six months ended June
30, 1997 and 1996 amounted to approximately $15,000 and $45,000, respectively,
representing a provision for estimated state taxes. For the three and six
months ended June 30, 1996, no federal provision for income taxes was
required due to the realization for financial statement purposes of deferred tax
assets previously reserved.
NOTE 5 - COMMON STOCK
- ---------------------
On April 11, 1997, Craig exercised its warrant to purchase 666,000 shares of the
Company's common stock at an exercise price of $3.00 per share or $1.998
million. Such exercise was consummated pursuant to delivery by Craig of its
secured promissory note (the "Craig Secured Note") in the amount of $1.998
million, secured by 500,000 shares of REI Common Stock owned by Craig. The
Craig Secured Note, in the amount of $1.998 million, is included in the Balance
Sheet as a contra equity account under the caption "Note receivable from
shareholder" at June 30, 1997. Interest is payable quarterly in arrears at the
prime rate (amounting to 8.5% at June 30, 1997) computed on a 360 day-year.
Principal and accrued but unpaid interest is due upon the earlier of April 11,
2002 or 120 days following the Company's written demand for payment. The Craig
Secured Note may be prepaid, in whole or in part, at any time by Craig without
penalty or premium.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Citadel Holding Corporation, a Delaware corporation ("Citadel" and
collectively with its wholly owned subsidiaries, the "Company") has been engaged
primarily in the ownership and management of commercial and residential property
since August 1994. However in February 1997, the Company sold its last
remaining residential property. Accordingly, its real property holdings
currently consist of two commercial buildings located in Glendale, California
and Phoenix, Arizona.
In October 1996, the Company contributed cash to Reading Entertainment,
Inc. ("REI" and collectively with its consolidated subsidiaries, "Reading") in
the amount of $7 million in exchange for 70,000 shares of REI Series A Voting
Cumulative Convertible Preferred Stock (the "REI Series A Preferred Stock") and
an option which gives the Company the right, through approximately April 1999,
to exchange for shares of REI Common Stock all or substantially all of the
Company's assets. The REI Series A Preferred Stock is convertible at any time
after April 15, 1998 into shares of REI Common Stock at a conversion price of
$11.50 per share. The closing market price of REI Common Stock on August 11,
1997 was $11.375 per share. The REI Preferred Stock represents approximately 5%
of REI's voting securities. REI owns approximately 23.4% of the Company's
outstanding common stock. In addition, Craig Corporation ("Craig"), which owns
approximately 78% of REI's voting securities, owns approximately 10% of the
Company's outstanding Common Stock.
In April 1997, Craig purchased its 10% interest upon its exercise of
outstanding warrants to purchase 666,000 shares of the Company's common stock at
$3.00 per share. The Craig purchase was consummated through the delivery by
Craig of a secured promissory note (the "Craig in the amount of $1.998 million.
Principal and any unpaid interest, which accrues at prime and is payable
quarterly, is due upon the earlier of April 11, 2002 or 120 days following the
Company's written demand for payment. The Craig Secured Note is secured by
500,000 shares of REI Common Stock and may be prepaid, in whole or in part, at
any time by Craig without penalty or premium. Included in the Statement of
Operations for the three and six months ended June 30, 1997 is interest income
earned and paid by Craig, amounting to $38,000 to Citadel pursuant to the terms
of the $1.998 million Secured Promissory Note.
RESULTS OF OPERATIONS
The following is a comparison of the results of operations for the three
months ended June 30, 1997 ("1997 Quarter") with the three months ended June 30,
1996 ("1996 Quarter") and for the six months ended June 30, 1997 (the "1997 Six
Months") with the six months ended June 30, 1996 (the "1996 Six Months"). Due
to the nature of the Company's business activities, revenues and earnings have
varied significantly reflecting the operating results of its managed real estate
and asset sales during those periods. Accordingly, period to period comparisons
of operating results will not necessarily be indicative of future financial
results.
The Company's net earnings for the 1997 Quarter amounted to $413,000 or
$0.06 per common and common equivalent share as compared to the net earnings of
11
<PAGE>
$5,541,000 or $0.69 per common and common equivalent share for the 1996 Quarter.
The net earnings for the 1997 Six Months was $659,000 or $0.10 per common and
common equivalent share as compared to $5,784,000 or $0.72 per common and common
equivalent share for the 1996 Six Months. Earnings per common and common
equivalent share is based upon the weighted average number of common and common
stock equivalents of 6,596,349 and 8,050,708 shares for the 1997 and 1996
Quarters, respectively, and 6,301,774 and 8,050,708 shares for the 1997 and 1996
Six Months, respectively. The calculation of the weighted average of common and
common stock equivalents outstanding for the 1996 Quarter and Six Months
included the effect of 2,046,784 shares assumed to be issued on the conversion
of the then outstanding Citadel Convertible Preferred Stock. The Convertible
Preferred Stock was redeemed in December 1996.
Included in net earnings for the 1996 Quarter and Six Months is (i)
approximately $1,473,000 from the sale of an apartment building and (ii) non-
recurring income amounting to $4 million resulting from the recognition of
previously deferred proceeds from the bulk sale of loans and properties by
Citadel's previously owned subsidiary, Fidelity Federal Bank ("Fidelity").
Included in the net earnings for the 1997 Quarter and 1997 Six Months is
approximately $114,000 and $228,000, respectively, earned with respect to the
Company's October 1996 investment in REI Preferred Stock.
Rental income amounted to $1,271,000 for the 1997 Quarter as compared to
$1,353,000 for the 1996 Quarter and rental income amounted to $2,395,000 for the
1997 Six Months as compared to $2,883,000 for the 1996 Six Months. The decrease
in rental income reflects the reduction of the number of rental properties owned
by the Company during the periods. Rental income for the 1997 Quarter and Six
Months includes revenue from the Company's two commercial rental properties.
Since the 1996 Quarter and 1996 Six Months the Company has sold two apartment
buildings. The decrease in rental income from the sale of these properties
amounting to approximately $327,000 and $797,000 for the 1996 Quarter and 1996
Six Months, respectively, and was partially offset by an increase in rental
income from the two commercial properties of approximately $244,000 and $302,000
for the 1997 Quarter and 1997 Six Months.
Real estate operating expenses decreased approximately $261,000 to $493,000
in the 1997 Quarter as compared to $754,000 in the 1996 Quarter and decreased
approximately $530,000 to $984,000 in the 1997 Six Months as compared to
$1,514,000 in the 1996 Six Months. Real estate operating expenses for the two
commercial properties owned during the 1997 periods are consistent and the
decreases in the 1997 periods is attributable to the sale of the two apartment
properties subsequent to the 1996 periods.
Interest income decreased during the 1997 periods and amounted to $79,000
in the 1997 Quarter as compared to $219,000 in the 1996 Quarter and amounted to
approximately $173,000 for the 1997 Six Months as compared to $429,000 in the
1996 Six Months. Such 1997 decreases reflect the significant decrease in
investable fund balances between the periods. Cash and cash equivalents
amounted to $6.805 million at June 30, 1997 as compared to $19.154 million at
June 30, 1996. In October 1996, the Company made a $7 million investment in REI
and in December 1996 redeemed from REI the Company's previously issued 3%
Cumulative Voting Convertible Preferred Stock at a redemption price amounting to
approximately $6.19 million.
12
<PAGE>
General and administrative expenses in the 1997 Quarter and 1997 Six Months
slightly decreased as compared to the 1996 respective periods and amounted to
$222,000 as compared to $255,000 in the 1996 Quarter and amounted to $419,000 in
the 1997 Six Months as compared to $472,000 in the 1996 Six Months. The 1997
Quarter and Six Months included approximately $78,000 and $120,000,
respectively, in fee income for consulting services provided by employees of the
Company to Reading as compared to approximately $42,000 and $85,000 for the 1996
Quarter and 1996 Six Months, respectively. In addition, general and
administrative expenses for each of the 1997 and 1996 Quarters and Six Months
include administrative and rent expense paid to Craig in the amount of $24,000
and $48,000, respectively.
Interest expense was $249,000 in the 1997 Quarter as compared to $396,000
in the 1996 Quarter and was $512,000 in the 1997 Six Months as compared to
$794,000 in the 1996 Six Months. The decrease in interest expense principally
is due to the payoff of two mortgage loans since the 1996 periods. In May 1996,
the Company repaid a mortgage loan on the sale of a rental property in the
amount of approximately $5.7 million and in January 1997 repaid a mortgage loan
in the amount of approximately $.755 million.
REAL ESTATE INTERESTS
- ---------------------
The table below provides an overview of the properties which constituted
all of the real properties owned by the Company at June 30, 1997.
<TABLE>
<CAPTION>
Units/ % Major Remaining
Address Type Sq. Feet Leased Tenants * Lease Term
- ---------------------- -------- ---------- ------ --------- -----------
<S> <C> <C> <C> <C> <C>
ARBOLEDA Office/ 178,000 99 American
1661 Camelback Rd. Restaurant Express (56%) Feb. 1999
Phoenix, Arizona Others 1-5 Years
BRAND Office 89,000 100 Disney (87%) Feb. 2007
600 N. Brand Fidelity(13%) May 2005
Glendale, CA
</TABLE>
* Percent of rentable space leased.
Arboleda, Phoenix
-----------------
This property was fully leased at June 30, 1997 with American Express
occupying approximately 56% (100,252 sq. feet) of the property.
Brand, Glendale
---------------
This property was acquired by the Company for approximately $7.12 million
in May 1995 and is leased 87% to Disney Enterprises, Inc. ("Disney") and 13% to
Fidelity Federal Bank ("Fidelity"), with Fidelity occupying the ground floor.
The base rental rate for the first five years of the Fidelity lease term is
$26,000 per month (including parking) with annual rental increases at a rate
equal to the lower of the increase in the Consumer Price Index or 3%. The
rental
13
<PAGE>
rate of the Fidelity lease at March 31, 1997 was approximately $26,600 per
month. After the first five years of the lease term, the rental rate will be
adjusted to the higher of (a) $1.50 per square foot increased by the annual
rental rate increase applied during the first five years as described in the
preceding sentence or (b) the then current market rate. Fidelity has an option
to extend its lease for two consecutive five year terms, at a market rental
rate.
The rental rate for the first five years of the Disney lease term beginning
February 1, 1997 is approximately $148,000 per month (excluding parking) and
approximately $164,000 (excluding parking) for the remaining five-year term.
Disney has an option to renew the lease for two consecutive five-year terms. In
addition to approximately $1.2 million of costs incurred by the Company as of
June 30, 1997 for certain building upgrades, lease commissions and legal fees,
the Disney lease provides that the Company will contribute toward tenant
improvements and additional common area upgrades, which the Company estimates
will cost approximately $2.3 million.
BUSINESS PLAN, CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents increased approximately $449,000 from $6.356
million at December 31, 1996 to $6.805 million at June 30, 1997. Net cash
provided by investing activities amounted to $783,000 in the 1997 Six Months and
is comprised of approximately $1,128,000 provided from the sale of a rental
property, offset by $345,000 used to make leasehold improvements to rental
properties. Net cash used in financing activities amounted to $830,000 in the
1997 Six Months and resulted from the repayment of long-term mortgage loans
inclusive of the mortgage on the property sold in January 1997.
The Company expects that its sources of funds in the near term will include
(i) cash on hand and related interest income, (ii) cash flow from the operations
of its rental properties, (iii) consulting fee income from Reading of
approximately $60,000 quarterly and (iv) a preferred stock dividend, payable
quarterly, from REI amounting to approximately $455,000 annually.
In the short term, uses of funds are expected to include (i) funding of the
Glendale Building leasehold and tenant improvements of approximately $2.3
million, (ii) operating expenses, and (iii) debt service pursuant to the
property mortgages; and may include the acquisition of additional real estate
interests.
Management believes that its sources of funds will be sufficient to meet
its cash flow requirements for the foreseeable future. The investment in REI
described above, provides the Company with the opportunity to make an initial
investment in REI, and the ability thereafter, to review the implementation by
REI of its business plan and, if it approves of the progress made by REI, to
make a further investment in REI through the exercise of the option to exchange
all or substantially all of its assets for Reading Common Stock. The Company
has the right to require REI to redeem the REI Preferred Stock after five years
or sooner, if REI fails to pay dividends on such securities for four quarters.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
Various legal actions and claims are pending against the Company. The
Company believes that it has meritorious defenses to these claims, and has not
reserved any amounts with respect thereto. However, the damages claimed by
certain plaintiffs are in an unspecified amount, and accordingly, no assurance
can be given that the ultimate resolution of such pending claims will not have a
material adverse effect on the Company's consolidated financial position or its
results of operations.
Citadel, Hecco Ventures I and James J. Cotter were defendants in a civil
action filed in 1990 by Alfred Roven. In 1995, Citadel, Hecco Ventures I and
James J. Cotter were granted summary judgement on all causes of action asserted
in the 1990 complaint, which Roven appealed. On August 1, 1997 the United
States Court of Appeals for the Ninth District affirmed the United States
District Courts decision of summary judgement in favor of Citadel, Hecco
Ventures I and James J. Cotter.
For a description of legal proceedings, please refer to Item 3 entitled
Legal Proceedings contained in the Company's Form 10-K for the fiscal year ended
December 31, 1996.
ITEM 2 - CHANGES IN SECURITIES
- ------------------------------
On April 11, 1997, the Company issued 666,000 shares of Common Stock to
Craig Corporation upon their exercise of a Warrant to purchase such shares at
$3.00 per share.
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
27. Financial Data Schedule.
B. Reports on Form 8-K
None.
15
<PAGE>
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 HOLDING CORPORATION
---------------------------
By: /s/ Steve Wesson
-------------------------
President and Chief
Executive Officer
August 14, 1997
/s/ S. Craig Tompkins
-------------------------
Principal Accounting Officer
August 14, 1997
16
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,805
<SECURITIES> 0
<RECEIVABLES> 30
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,835
<PP&E> 14,172
<DEPRECIATION> (716)
<TOTAL-ASSETS> 29,133
<CURRENT-LIABILITIES> 1,277
<BONDS> 9,473
0
0
<COMMON> 67
<OTHER-SE> 18,316
<TOTAL-LIABILITY-AND-EQUITY> 29,133
<SALES> 1,271
<TOTAL-REVENUES> 1,387
<CGS> 1,182
<TOTAL-COSTS> 1,694
<OTHER-EXPENSES> (212)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512
<INCOME-PRETAX> 704
<INCOME-TAX> 45
<INCOME-CONTINUING> 659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 659
<EPS-PRIMARY> 0.10
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