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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 7, 2000
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Date of Report (date of earliest event reported)
SAN HOLDINGS, INC.
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Exact Name of Registrant as Specified in its Charter
Colorado 0-16423 84-0907969
- --------------------------- --------------- ----------------------
State or Other Jurisdiction Commission File IRS Employer Identifi-
of Incorporation Number cation Number
900 West Castleton Road, Suite 100, Castle Rock, Colorado 80104
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Address of Principal Executive Office, Including Zip Code
(303) 297-9656
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Registrant's Telephone Number, Including Area Code
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for Storage Area Networks for the year ended November 30,
1999, are filed herewith:
INDEX
Page
1) AUDITED FINANCIAL STATEMENTS OF STORAGE AREA NETWORKS
Independent Auditor's Repoprt ................................ 3
Financial Statements:
Balance Sheet................................................ 4
Statement of Income ......................................... 5
Statement of Stockholders' Equity ........................... 6
Statement of Cash Flows ..................................... 7
Notes to Financial Statements ............................... 8
(b) PRO FORMA FINANCIAL INFORMAITON. Unaudited Pro Forma Financial
Statements for SAN Holdings, Inc. and Storage Area Networks as of December 31,
1999, are filed herewith on pages 12-15.
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, hereunto duly authorized.
SAN HOLDINGS, INC.
Dated: April 20, 2000 By:/s/ L. W. Buxton
L. W. Buxton, President
2
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LARRY O'DONNELL, CPA, P.C.
Telephone (303) 745-4545 2280 South Xanadu Way
Suite 370
Aurora, Colorado 80014
Board of Directors
Storage Area Networks
Castle Rock, Colorado
Independent Auditor's Report
I have audited the accompanying balance sheet of Storage Area Networks as of
November 30, 1999 and the related statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Storage Area Networks as of
November 30, 1999, and the results of its operations and its cash flows for
the year then in conformity with generally accepted accounting principles.
Larry O'Donnell, CPA, P.C.
January 26, 2000 (except note 3 which is dated March 24, 2000)
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Storage Area Networks
Balance Sheet
November 30, 1999
Assets
Current assets
Cash $ 243,689
Accounts receivable 1,633,830
Prepaid expenses 38,726
Deferred income taxes 66,000
-----------
Total current assets 1,982,245
-----------
Property and equipment
Less accumulated depreciation of $1,480 22,428
-----------
Other assets
Account receivable, less allowance for doubtful
account of $326,987 1,934,061
Cost of purchased contracts, less accumulated
amortization of $110,000 390,000
Deposits 2,000
-----------
2,326,061
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$ 4,330,734
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 3,200,290
Accrued expenses-related parties 373,522
Accrued expenses 215,416
Note payable - related parties 50,000
Notes payable 275,000
Income taxes payable 85,254
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Total current liabilities 4,199,482
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Deferred income taxes 6,000
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Stockholders' equity
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, none issued and outstanding
Common stock, $.005 par value, 20,000,000 shares
authorized, 2,400,000 shares issued and outstanding 12,000
Additional paid in capital 52,505
Retained earnings 60,747
-----------
125,252
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$ 4,330,734
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See Notes to Financial Statements.
4
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Storage Area Networks
Statement of Income
Year Ended November 30, 1999
Revenues $12,307,743
Cost of revenues 10,828,197
-----------
Gross profit 1,479,546
General & administrative expenses 1,474,909
-----------
Income from operations 4,637
Interest income 127,638
Interest expense (46,274)
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Income before income taxes 86,001
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Income taxes 25,254
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Net income $ 60,747
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See Notes to Financial Statements.
5
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Storage Area Networks
Statement of Stockholders' Equity
Year Ended November 30, 1999
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
--------- ------- ---------- -------- --------
Shares issued for
Innovative Interfaces
Incorporated 480,000 $12,000 $52,505 $ 64,505
Five for one split 1,920,000
Net income for the
year $60,747 60,747
--------- ------- ------- ------- --------
Balance,
November 30, 1999 2,400,000 $12,000 $52,505 $60,747 $125,252
See Notes to Financial Statements
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Storage Area Networks
Statement of Cash Flows
Year Ended November 30, 1999
Cash flows from operating activities:
Net income $ 60,747
Adjustments to reconcile net income to net cash
Provided by operations:
Depreciation and amortization 111,480
Deferred income taxes (60,000)
(Increase) decrease in: (net of acquisition)
Accounts receivable (3,188,215)
Prepaid expenses (38,726)
Deposits (2,000)
Increase (decrease) in: (net of acquisition)
Accounts payable 3,129,954
Accrued expenses 278,184
Income taxes payable 85,254
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Net cash provided by operating activities 376,678
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Cash flows from investing activities:
Cash acquired from Innovative Interfaces Incorporated 115,919
Purchase of property and equipment (23,908)
Purchase of contracts (500,000)
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Net cash used in investing activities (407,989)
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Cash flows from financing activities:
Proceeds of notes payabale 500,000
Payments on notes payable (325,000)
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Net cash flow provided by financing activities 275,000
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Net increase in cash equivalents 243,689
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Cash at end of year $ 243,689
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Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 46,274
Income taxes -
Supplemental disclosure of noncash investing
and financing activities
Common stock issued and note payable for net assets $ 115,505
See Notes to Financial Statements.
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Storage Area Networks
Notes to Financial Statements
1. Organization and Summary of Significant Accounting Policies:
Organization - The company was organized under the laws of the state of
Nevada on November 30, 1998. On that date, the Company acquired all of the
assets, net of liabilities of Innovative Interfaces Incorporated, whose
stockholders were the same as those of the Company. The Company designs and
implements data storage solutions primarily for federal government customers.
The Company operates in the United States.
Property and equipment - Property and equipment consist of furniture and
equipment and are stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method.
Purchased contracts- Purchases contracts are stated at cost, net of
accumulated amortization. Amortization is provided using straight-line method
over fifty months.
Cash equivalents - For the purposes of reporting cash flow, the Company
considers cash and savings deposits to be cash equivalents.
Income taxes - Deferred taxes are recognized for temporary differences between
the basis of assets and liabilities for financial statement and income tax
purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes) and to the accrued
expenses (deductible for financial statement purposes but not for income tax
purposes).
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results differ from those estimates.
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Storage Area Networks
Notes to Financial Statements (continued)
2. Acquisition of Innovative Interfaces Incorporated
On November 30, 1998, the Company acquired all of the assets, net of the
liabilities, of Innovative Interfaces Incorporated whose stockholders were
identical to the Company. Innovative Interfaces Incorporated then
discontinued operations. The assets and liabilities of Innovative Interfaces
Incorporated were recorded at their net book value which was as follows:
Cash $115,918
Accounts receivable 379,676
Liabilities (431,090)
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$ 64,504
========
3. Delinquent account receivable
The Company has a delinquent account receivable of $2,261,048. The Company
has filed suit against the customer to enforce payment. On March 16, 2000 the
Company and the customer agreed on a settlement. The Company will receive a
sufficient number of shares in the customers common stock at approximately
fifty percent of its market value to cover the total of the account. The
shares will be restricted for one year. The customer will have the right to
redeem the shares after it has retired a note payable to a supplier. In the
first six months, the redemption price shall be equal to the amount
established on March 16, 2000. Thereafter, the redemption price shall be the
higher of the prevailing market price or one hundred and fifty percent of the
amount established on March 16, 2000.
4. Purchase of contracts
On March 18th, 1999, the Company purchased certain assets and existing
contracts from a competitor. The purchase price of $500,000 was made by
payment of $110,000 in cash, assumption of fees of $71,625 and assumption of
accounts payable to Innovative Interfaces Incorporated of $318,375. The cost
is being amortized over five years, the expected lives including renewals of
the contracts.
5. Notes payable
The company has notes payable which bear interest at 8% and are unsecured.
The notes include a $50,000 note to a related party. All of the notes except
the one to the related party were retired in December, 1999.
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Storage Area Networks
Notes to Financial Statements (continued)
5. Stockholders' equity
The Company has issued warrants which are redeemable for 600,000 shares of
common stock. The warrants expire on February 15, 2004. The warrants allow
the holder to purchase one share of common stock per warrant. The exercise
price is $.50 per share until 90 days after the date the warrant holders
promissory note has been paid in full. The exercise price for the remainder
of the period is $1.00 per share. In the event the Company has completed an
initial public offering or a reverse acquisition with a public company (see
Note 10), the Company shall have the right to call all or a portion of the
warrants for redemption upon 30 days' written notice at a price of $.01 per
warrant. During the 30 day period immediately following the giving of such
notice, the warrantholder shall have the right to exercise the warrants at a
price of $.75, unless the price currently in effect on the date of the notice
is $.50 in which case the exercise price would be $.50. In December, 1999 and
January, 2000, all of the warrants had been exercised at an exercise price of
$.50 per share.
7. Lease commitment
The Company is obligated under lease agreements for the rental of office
facilities through May, 2004. The leases commence June, 1999; December, 1999;
and May, 2000. Minimum lease payments for the years ending November 30 are as
follows: 2000, $103,000; 2001, $126,000; 2002, $130,000; 2003, $132,000;
2004, $63,000.
Total rent expense for the year ended November 30, 1999 was $10,870.
8. Income taxes
Current $ 85,254
Deferred (60,000)
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$ 25,254
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The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Accrued expenses $ 66,000
Deferred tax liabilities
Depreciation (6,000)
--------
Net deferred tax asset
(liability) $ 60,000
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Storage Area Networks
Notes to Financial Statements (continued)
9. Concentrations
Credit risk - The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers.
Major customers - The Company had two major customers. They accounted for 25%
to 30% of sales.
Suppliers - The Company purchases the majority of its hardware from one
supplier and the majority of its software from another supplier.
Cash balances - The Company maintains its cash balances in one financial
institution located in Sacramento, California. The balances are insured by
the Federal Deposit Insurance Corporation up to $100,000. At November 30,
1999, the Company's uninsured cash balances total approximately $400,000.
10. Subsequent Event - Share Exchange Agreement with Citadel Environmental
Group, Inc.
On January 7, 2000, shareholders of the Company agreed to exchange all of
their shares in the Company for shares of Citadel Environmental Group,
Inc.(Citadel), a public company. As a result of the transaction, the
shareholders of the Company emerged as holders of 59% of Citadel subject to
approval by Citadel stockholders of a reverse stock split. The officers and
directors of the Company have become officers and directors in Citadel.
The transaction will be accounted for as a "reverse acquisition" resulting in
a recapitalization of the Company.
11. Subsequent Event - Acquisition of CoComp, Inc.
On January 21, 2000, Citadel Environmental Group, Inc. acquired all of the
outstanding stock of CoComp, Inc. for $1,079,000 in cash, $951,000 in
promissory notes, and common stock worth $1,000,000. The transaction will be
accounted for as a purchase with the accounts of CoComp, Inc. being
consolidated with Citadel from the date of acquisition.
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(b) Proforma Financial Information
The following unaudited proforma combined financial statements are
derived from the historical financial statements of SAN Holdings, Inc.
(formerly Citadel Environmental Group, Inc.), Storage Area Networks and
CoComp, Inc., and give effect to the acquisition of Storage Area Networks by
the Registrant on January 7, 2000, and the acquisition of CoComp, Inc. on
January 21, 2000. The unaudited proforma combined balance sheet as of
December 31, 1999, and the unaudited proforma combined statements of
operations for the year ended December 31, 1999, reflect the two acquisitions
as if they had occurred on December 31, 1999, for the unaudited proforma
consolidated balance sheet and at January 1, 1999, for the unaudited proforma
combined statements of operations. Storage Area Networks' year-end was
November 30, 1999, and the financial information of Storage Area Networks
reflects amounts at November 30, 1999, and for the year then ended.
The proformas also reflect the issuance by the Registrant of a total of
3,182,659 shares of Series AA and Series AAA Convertible Preferred Stock for a
total of approximately $5,035,000. These sales were made during January and
February 2000.
The unaudited proforma combined financial statements do not purport to be
indicative of the results that would actually have been obtained if the
combinations had been in effect on the dates indicated, or that may be
obtained in the future. The unaudited proforma combined financial statements
should be read in conjunction with the historical consolidated financial
statements of SAN Holdings, Inc., Storage Area Networks, and CoComp, Inc.,
together with the related notes thereto.
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SAN Holdings, Inc.
Unaudited Proforma Combined Balance Sheet
December 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
Storage
Area SAN Elimina- Consoli-
Networks CoComp Holdings Other tions dated
-------- ------ -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Current Assets $1,982 $2,027 $ 3 $ 5,035 (2) $ 0 $ 7,968
Current Assets (1,079) (4)
Property and Equip.,
Net 22 105 27 154
Goodwill, Net 1,079 (4) (983) (6) 2,047
Goodwill, Net 951 (3)
Goodwill, Net 1,000 (1)
Other Assets 2,326 2,326
------ ------ ------- ------- -------- --------
Total Assets $4,330 $2,132 $ 30 $ 6,986 $ (983) $ 12,495
====== ====== ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $4,199 $1,131 $ 34 $ 0 $ 0 $ 5,364
Long Term Liabilities 6 14 951 (3) 971
------ ------ ------- ------- -------- --------
4,205 1,131 48 951 0 6,335
Common Stock 12 525 5,801 873 (5) (7,199) (6) 6,047
Common Stock 5,035 (7)
Common Stock 1,000 (7)
Paid in Capital 53 53
Preferred Stock 873 5,035 (2) 0
Preferred Stock (5,035) (7)
Preferred Stock (873) (5)
Retained Earnings
(Accum. Deficit) 60 476 (6,692) 6,216 (6) 60
------ ------ ------- ------- -------- --------
125 1,001 (18) 6,035 (983) 6,160
------ ------ ------- ------- -------- --------
Total Liabilities
and Shareholders'
Equity $4,330 $2,132 $ 30 $ 6,986 $ (983) $ 12,495
====== ====== ======= ======= ======== ========
</FN>
</TABLE>
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SAN Holdings, Inc.
Unaudited Proforma Combined Income Statement
For the Year Ended December 31, 1999
In Thousands
<TABLE>
<CAPTION>
Storage
Area SAN Elimina- Consoli-
Networks CoComp Holdings Other tions dated
-------- ------ -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,308 $9,259 $ 60 $ 0 $ 0 $ 21,627
Operating Expenses 12,303 8,861 391 21,555
------- ------ ------- ------- -------- --------
Income (Loss) from
Operations 5 398 (331) 72
Other Income (Expense) 81 6 (1) (136) (9) (16)
Other Income (Expense) 148 (10)
Other Income (Expense) (114) (11)
------- ------ ------- ------- -------- --------
Income/(Loss) Before Tax 86 404 (332) (102) (9) 56
(10)(11)
Provision for Tax 25 (12) (12) 13
------- ------ ------- ------- -------- --------
Income Before Extra-
ordinary Item 61 404 (332) (90) 43
Extraordinary
Item, Net of Tax 544 544
------- ------ ------- ------- -------- --------
Net Income $ 61 $ 404 $ 212 $ (90) $ 0 $ 587
------- ------ ------- ------- -------- --------
Earnings Per Share:(13)
Income/(Loss) From
Operations Before
Extraordinary Item $ 0.06
Extraordinary Item 0.68
--------
Net Income $ 0.74
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</TABLE>
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SAN Holdings, Inc.
Notes to the Unaudited Proforma Combined Financial Statements
Notes to Unaudited Proforma Combined Balance Sheet for the Year Ended December
31, 1999
NOTE 1 - Issuance of 89,000 shares of stock for purchase of CoComp,
valued at $1,000,000.
NOTE 2 - Issuance of 3,182,659 shares of Series AA and Series AAA
preferred stock for cash.
NOTE 3 - Assumption of $951,000 in acquisition debt of CoComp.
NOTE 4 - Payment of $1,079,000 in cash for CoComp.
NOTE 5 - Conversion of SAN Holdings preferred stock to pre-acquisition
common stock.
NOTE 6 - To eliminate SAN Holdings preferred and CoComp acquisition
equity.
NOTE 7 - To record conversion of Series AA and AAA preferred stock to
common.
NOTE 8 - Other assets comprised of:
Accounts Receivable, Long-Term, Net $1,934,000
Cost of Purchased Contracts, Net 390,000
Deposits 2,000
----------
Total $2,326,000
==========
Notes to Unaudited Proforma Combined Income Statement for the Year Dnded
December 31, 1999
NOTE 9 - Amortization of goodwill due to acquisition, amortized over
15 years.
NOTE 10 - Earnings of 5% on net funds received from preferred private
placement.
NOTE 11 - Interest expense on acquisition debt of CoComp at 12% per
annum.
NOTE 12 - Provision for taxes based on CoComp conversion from
S-corporation status to C-Corporation due to acquisition,
the effect of items (1) and (2) above, and based on
consolidated earnings.
NOTE 13 - Earnings per Share is calculated based on conversions of
preferred stock, series BB, AA, and AAA and taking into
consideration the reverse stock split. Weighted average
number of common shares used in EPS calculation totaled
7,959,000.
15
