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 , 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)
California 84-0907969
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3617 East Thousand Oaks Blvd
Thousand Oaks, CA 91362
(Address of Principal Executive Offices) (Zip Code)
(805) 777-3450
(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 to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes No X
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 April 30, 1998
Common Stock,
no par value 6,411,850
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,
1998 1997
Assets
Current Assets:
[S] [C] [C]
Cash and cash equivalents $ (220) $ 43,256
Accounts receivable 0 0
Notes receivable 0 50,000
Other current assets 0 69
Total current assets (220) 93,325
Property and equipment 0 0
Goodwill 0 0
Other assets 0 0
$ (220) $ 93,325
Liabilities
Current Liabilities:
Accounts payable $ 102,017 $ 75,473
Accrued expenses 211,525 0
Notes payable 273,000 1,225,836
Stock subscriptions 0 280,000
Other liabilities 8,340 50,279
Total current liabilities 624,882 1,631,588
Stockholders' Equity (Deficiency)
Preferred stock, Series A, $0.01
par value, 1,500,000 shares
authorized and issued, no shares
outstanding 0 15,000
Preferred stock, Series B, $0.01
par value, 1,500,000 shares
authorized and issued, no shares
outstanding 0 15,000
Preferred stock, Series C, $0.01
par value, 2,000,000 shares
authorized and issued, no shares
outstanding 0 20,000
Preferred stock, Convertible, no
par value, 1,280,000 shares
authorized, 1,199,000 issued and
outstanding 953,250 0
Common stock, no par value,
25,000,000 shares authorized,
6,279,709 issued and outstanding 3,388,063 2,112,637
Accumulated deficit (4,966,415) (3,700,900)
Total stockholders' equity (deficiency) (625,102) (1,538,263)
$ (220) $ 93,325
See notes to condensed consolidated financial statements
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CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1998 1997
[S] [C] [C]
Revenues $ 0 $ 0
Selling, general and administrative 29,187 200,721
Net income (loss) $ (29,187) $ (200,721)
Net income (loss) per share
$ (0.00) $ (0.11)
Weighted Average Number of Common
Shares Outstanding 6,357,756 1,857,249
See notes to condensed consolidated financial statements
2
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
1998 1997
Cash flows from operating activities:
Current Assets:
[S] [C] [C]
Net income (loss) $ (29,187) $ (200,721)
Adjustments to reconcile net income
(loss) to net cash
provided (used) by operating activities:
Increase/decrease in accounts payable 3,000 (56,699)
Increase in accrued expenses 14,389 173,821
Increase in bank over draft 0 18,843
(11,798) (64,756)
Cash flows from investing activities:
Investment in affiliate 0 (90,000)
0 (90,000)
Cash flows from financing activities:
Proceeds from the sale of preferred stock 0 111,500
Proceeds from the sale of common stock 35,030 0
Repayment of notes payable (25,000) 0
10,030 111,500
Net increase (decrease) in cash and cash
equivalents (1,768) (43,265)
Cash and cash equivalents:
Beginning of period 1,548 43,256
End of period $ (220) $ 0
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, ursuant 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.
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries in which the Company
has a controlling interest. All significant inter-company transactions
and balances have been eliminated.
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 hares 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.
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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 26, 1997, 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 agreed to tender its
investment in AMR and certain other assets 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. In
conjunction with the Alliance acquisition of AMR discussed above,
Citadel has agreed to cancel this indebtedness and certain other
amounts due from AMR in exchange for 1,750,000 shares of
Alliance convertible preferred stock.
Liquidity and Capital Resources
The Company's cash and cash equivalents at March 31, 1998 are $
(220) compared to $1,548 at December 31, 1997. The decrease in
cash and cash equivalents of $1,768 is principally due to cash used
by operating activities of $ 11,798, offset by cash provided by
financing activities of $10,030.
For the three months ended March 31, 1998 the 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.
The cash provided by financing activities 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.
Sale of AMR Shares to Alliance Medical Corporation.
In February 1998 Citadel agreed to sell its investment in AMR and
certain other assets 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.
Concurrent with Citadel, the majority shareholders of Orris agreed
to tender their shares and certain other assets to Alliance. In
conjunction with the acquisition of AMR and Orris, Alliance
commenced an offering of up to 1,000,000 shares of its common
stock at approximately $2.00 per share and a tender offer for the
remaining AMR and Orris shares. Citadel received 545,035 shares
of Alliance common stock in exchange for its equity interest in AMR
and 1,750,000 shares of Alliance convertible preferred stock in
exchange for $720,000 in AMR loans, related accrued interest of
$43,328 and accrued management fees of $45,000. The
shareholders of Orris received 1,000,000 shares of Alliance common
stock and 1,750,000 shares of Alliance convertible preferred stock in
exchange for certain assets.
The terms of Citadel's investment in AMR provided that
shareholders of the previously separate companies comprising AMR
would receive shares in AMR providing that they agree to sell 51%
of the AMR shares received to Citadel in exchange for Citadel
common stock. Certain shareholders of the previously separate
companies comprising AMR have not yet surrendered their shares
for equity in AMR and therefore represent a minority interest in
AMR. If these shareholders elect to exchange their shares for AMR
stock, Citadel would acquire 51% of these shares in exchange for
227,962 shares of Citadel common stock. The tender offer with
Alliance provides that 76,251 shares of Alliance remain in escrow
for Citadel's benefit and represent the number of Alliance shares
issuable for Citadel's interest in the additional shares of AMR.
The Alliance private placement resulted in the issuance of
approximately 3,000,000 common shares and 3,500,000 convertible
preferred shares. Citadel's percentage ownership in Alliance after
the completion of the private placement is 18%, or 35% assuming
conversion of the preferred and no issuance of the shares in escrow.
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 is reflected on the equity method on the March 31, 1998
balance sheet
of Citadel.
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.
Statement of Financial Accounting Standards No. 129
Statement of Financial Accounting Standards No. 129, "Disclosure
of Information about Capital Structure" (SEAS No. 129) issued by
the FASB is effective for financial statements with fiscal years
ending after December 15, 1997. The new standard reinstates
various securities disclosure requirements previously in effect under
Accounting Principles Board Opinion No. 15, which has been
superseded by SEAS No. 128. The Company does not expect the
adoption of SFAS No. 129 to have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 130
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after
December
15, 1997. Earlier application is permitted. SEAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
The
Company has not determined the effect on its financial position or
results of operations from the adoption of this statement.
Statement of Financial Accounting Standards No. 131
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS
No. 131) issued by the FASB is effective for financial statements
beginning
after December 15, 1997. The new standard requires that public
business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise
and in
condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic
areas in which they operate and their major customers. The
Company does not expect adoption of SEAS No. 131 to have a
material effect on its financial position or results of operations.
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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
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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 6, 1998By: Louis F. Coppage
President
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