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 June 30, 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 atJune 30, 1999
Common Stock,
no par value 7,493,588
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,818 $ 9
Prepaid expenses 146,576 198,308
Total current assets 149,394 198,317
Due from Affiliate:
Note receivable 720,575 720,575
Accrued interest 205,954 145,627
Management fees 60,000 60,000
986,529 926,202
Less valuation reserve (986,529) (926,202)
Net due from affiliate 0 0
Investments 0 0
$ 149,394 $ 198,317
LIABILITIES
Current Liabilities:
Accounts payable $ 136,533 $ 151,883
Accrued expenses 275,799 293,204
Notes payable 112,010 74,938
Franchise tax payable 1,600 1,600
Convertible debentures 30,000 180,000
Total current liabilities 555,942 701,625
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, 7,493,588 and 6,434,850
issued and outstanding in 1999 and 1998 4,032,598 3,994,660
Accumulated deficit (5,312,396) (5,371,218)
Total stockholders' deficiency (406,548) (503,308)
$ 149,394 $ 198,317
</TABLE>
See notes to condensed financial statements
<PAGE> 1
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues - gain on settlement of debt $ 0 $ 0 $ 174,374 $ 0
Selling, general and administrative 52,325 107,527 92,615 136,714
Net income (loss) $ (52,325)$ (107,527) $ 81,759 $(136,714)
Net income (loss) per share $(0.01) $(0.02) $ 0.01 $ (0.02)
Weighted Average Number of Common
Shares Outstanding 7,486,197 6,353,192 7,338,423 6,350,492
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>2
CITADEL ENVIRONMENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Current Assets:
<S> <C> <C>
Net income (loss) $ 81,759 $ (136,714)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Gain on settlement of debt (174,373) 0
Amortization of prepaid consulting 51,732 0
Increase in current assets 0 (17,949)
Increase (decrease) in accounts payable (15,350) 19,354
Increase (decrease) in accrued expenses (5,324) 59,695
Decrease in other liabilities 0 (2,226)
(61,555) (77,840)
CASH FLOWS FROM INVESTING ACTIVITIES: 0 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 0 88,216
Increase in short-term debt 64,364 79,983
Repayment of notes payable 0 (65,000)
64,364 103,199
Net increase in cash and cash equivalents 2,809 25,359
CASH AND CASH EQUIVALENTS:
Beginning of year 9 1,548
End of year $ 2,818 $ 26,907
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 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
<PAGE> 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. NOTES PAYABLE
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 Company received $5,000 on May 14, 1999 pursuant to a promissory
note. The note bear 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.
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.
5. SUBSEQUENT EVENTS
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
has fully reserved all amounts due from Alliance, the settlement will result
in a gain of $164,250 in Citadel's third quarter.
In July 1999 the Company settled indebtedness to a third party in the
amount of $54,115. The debt was settled in exchange for 100,000 shares
of Citadel valued at $5,000 and 20,000 shares of Alliance, and will result
in a gain on the settlement of debt of $49,115 in Citadel's third quarter.
<PAGE> 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 June 30, 1999 are $2,818
compared to $ 9 at December 31, 1998. The increase in cash and cash
equivalents of $2,809 is principally due to cash provided by financing
activities of $64,364 offset by cash used by operating activities of
$(61,555).
For the six months ended June 30, 1999 and 1998 Citadel incurred
operating income (loss) of $81,759 and $(136,714), respectively. The
cash used by operating activities in 1999 was $143,314 greater, or
$(61,555) principally due to a gain on the settlement of debt of $ 174,373
that did not generate cash, amortization of prepaid consulting expense of
$51,732 which did not use cash and an decrease in accounts payable and
accrued expenses of $(15,349) and $(5,324) which required cash.
For the six months ended June 30, 1998 Citadel incurred an operating
loss of $136,714. The cash used by operating activities was $58,874 less,
or $77,840 principally due to an increase in accounts payable and accrued
expenses of $19,354 and $59,695, respectively, which do not use cash,
and an increase in current assets of $17,949, which does not provide cash.
<PAGE> 6
The cash provided by financing activities in 1999 consists of an increase
in notes payable of $64,364. The cash provided by operations in1998
consists principally of $88,216 of proceeds from the conversion of
indebtedness and accrued interest to common stock discussed below,
offset by a net repayment of notes payable of $14,983.
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.
ADDITIONAL INDEBTEDNESS
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 Company received $5,000 on May 14, 1999 pursuant to a promissory
note. The note bear 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.
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.
SUBSEQUENT EVENTS
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
<PAGE> 7
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
has fully reserved all amounts due from Alliance, the settlement will result
in a gain of $164,250 in Citadel's third quarter.
In July 1999 the Company settled indebtedness to a third party in the
amount of $54,115. The debt was settled in exchange for 100,000 shares
of Citadel valued at $5,000 and 20,000 shares of Alliance, and will result
in a gain on the settlement of debt of $49,115 in Citadel's third quarter.
<PAGE> 8
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 May 3, 1999 regarding cancellation of 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: July 30, 1999 By: Louis F. Coppage
President
