NOTES TO FINANCIAL STATEMENTS
[UNAUDITED]
Note 1: Basis of Presentation
Citadel prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Companys opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended December 31, 2013 are not necessarily indicative of the results for the full years. While management of the Company believes that the disclosures presented herein and adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the periods ended September 30, 2013 filed in its annual report on Form 10-K/A.
Reclassifications
Certain amounts in the financial statements of prior years have been reclassified to conform to the current years presentation for comparative purposes.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not effective accounting standards, if adopted, will have a material effect on the Companys financial statements.
Potential Derivative Instruments
We periodically assess our financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt, equity, and common stock equivalents in excess of available authorized common shares.
We have determined that the conversion feature of our equity instruments are not derivative instruments because the strike price of common stock at the date of the grant is equal to the conversion price.
We have determined that common stock equivalents in excess of authorized common shares are not derivative instruments due to the fact that an increase in authorized shares is within our control because our Chief Executive Officer, Gary DeRoos, and his spouse control over 50% of our voting power. Mr. DeRoos has the power to elect directors of his choosing, including, if he so chose, to elect himself sole director through his greater than 50% ownership of the outstanding common shares. Article 2, Item 12 of the Companys bylaws states that: Directors may be removed from office with or without cause by a vote of shareholders holding a majority of the shares entitled to vote at an election of Directors. Therefore, Mr. DeRoos has the authority and ability, as controlling shareholder, to take action to remove the board, and either replace them with board members who would act or install himself as the sole board member and act unilaterally.
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Note 2: Other Assets
In November 2012, Citadel purchased various sports memorabilia from Art to Go, Inc., a New York corporation for 4,000,000 shares of Series C preferred stock valued at $2,972,000.
Note 3: Stockholders Equity
Preferred Stock
On December 2, 2013, a holder of Preferred Series D Shares converted 1 share of Preferred Series D to 100,000 shares of common stock.
On December 31, 2013 the Company issued 4 shares of Preferred Series B stock, which have no conversion rights but have super voting rights equal to two (2) times the aggregate voting rights of each class of voting stock, as follows:
Gary DeRoos 2 shares;
Maria DeRoos 1 share; and
Jose Leano 1 share.
Common Stock
During the three months ended December 31, 2013, Citadel issued 6,927,500 restricted shares of its common stock, as follows:
(i) 925,000 restricted common shares were issued for services, of which 675,000 shares were for legal services and 250,000 restricted shares were for consulting services. The Company determined the Fair Market Value based on the closing price on the date of issue, which was $10.50 throughout the period covered by this report. The Company recorded an expense of $9,712,500 for these services;
(ii) it issued 1,500,000 restricted common shares for consulting services associated with the pending acquisition of a Standby Letter of Credit. The Company determined the Fair Market Value based upon the agreement with the various participants that set the value of the services at $2.50, per share, the bid price on the date of execution of the consulting agreements. The Company recorded and expense of $3,750,000 for these services;
(iii) 4,000,000 restricted common shares were issued to Spartacus Partners Corporation to secure an acquisition of a Standby letter of Credit setting the shares were valued at $2.50, per share, the bid price on the date of execution of the agreement. The Company recorded an expense of $10,000,000 for this acquisition;
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(iv) Citadel issued 77,500 restricted shares to three (3) customers of the Company as a loyalty reward. The Company valued as of the closing price on the date of issue: $10.50. It recorded an expense of $813,750;
(v) 300,000 restricted common shares were issued to CAZ Capital Partners, LLC relating to the nullified U.S. Gold Certificates purchase, which were valued at the closing price on the date of issue: $10.50. The Company recorded an expense of $3,150,000; and
(vi) 25,000 restricted common shares were issued to the Whitestone Group of Fort Worth Texas, for consulting service. The Company valued the shares at the closing price on the date of issue: $10.50. The Company reported an expense of $262,500.
Dividends
During the three month period ending December 31, 2013, the Company declared cash dividends totaling $58,400 in respect to the Preferred Series A shares. The CEO, Mr. Gary DeRoos, is the owner of all the outstanding Series A
Preferred shares of the company.
Note 4: Fair Value
Accounting Standard Codification (ASC) 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets; or
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
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The Company purchased a collection of art work and memorabilia from Art To Go, Inc. in October 2012, the collection was originally valued by Sports and Entertainment Marketing Group using level 1 quoted prices. The value of the asset they assigned was $10,389,068. The Company noted that some of the value was not based upon any active market for identical assets, and had a second independent appraisal completed using level 2 guidelines. The valuation was completed by Doty Scott Enterprises, Inc. For purposes of this report, including any opinions required by the Company, we utilized fair value defined by the International Financial Reporting Standards (IFRS) and Statements of Financial Accounting Standards (SFAS) guidelines (International Valuation Standards Council (IVSC) 2012 Exposure Draft on Fair Value Measurement and Financial Accounting Standards Board (FASB) in FASB ASC 820 Fair Value Measurements and Disclosures.
This organization impaired the value of the collection to $2,972,000, based upon observable inputs of retail price to wholesale price and in consideration that the purchase price was satisfied by the issue of preferred equities.
Note 5: Subsequent Events
On January 10, 2014, the Company issued 500,000 restricted shares to Dr. Terence Stronger for services rendered, and to be rendered, in connection with the pending acquisition of a Standby Letter of Credit pursuant to an agreement dated December 2, 2013. The shares issued were the final installment of the 1,500,000 common restricted shares required by the Agreement.
On January 10, 2014, the Company issued 100,000 restricted common shares to Dustin Secor, upon the conversion of 1 Preferred Series D Share.
On January 17, 2014, the Company issued 100,000 restricted common shares to Michael Scalora, upon the conversion of 1 Preferred Series D Share.
On January 17, 2014, the Company issued 50,000 restricted common shares to Kevin Grogan, for consulting services. The shares were valued at the closing price of the stock on the date of issue. The recorded expense is $525,000.
On February 3, 2014, the Company moved its jurisdiction from Nevada to Wyoming on the unanimous written consent of the Board of Directors and the written consent of the majority shareholders of all classes of voting stock. As part of the re-domestication, Citadel amended its Articles of Incorporation to include the following items:
-Common shares authorized were changed from 1,100,000,000 to 5,000,000,000
-Authorized shares of Preferred Series A Stock was changed from 100,000,000 to 11,000,000 shares;
-Authorized shares of Preferred Series B Stock remain 10 shares;
-Authorized shares of Preferred Series C Stock was changed from 70,000,000 to 30,000,000 shares;
-Authorized shares of Preferred Series D Stock remain 18,000,000;
-Authorized shares of Preferred Series E Stock remain 2,000,000;
-Authorized shares of Preferred Series F Stock remains as 2,000,000 shares; and
-Authorized shares of Preferred Series G Stock remains as 2,000,000 shares.
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There has been no change to the par value: $0.00001.
The capitalization of the corporation has been changed in accordance with the above as follows:
-5,000,000,000 shares par value $0.00001
-65,000,010 shares par value $0.00001, which may be designated in multiple series.
Total capitalization: $56,650.
The Board took this action to take advantage of Wyomings more favorable franchise tax law. While Nevada imposes a franchise tax based on the number of shares authorized, Wyoming basis its business license tax on the assets of the entity situate in Wyoming. Since Citadel has no assets situate in Wyoming it is subject to the minimum $50 business license tax as compared to a business tax fee of $650 in Nevada.
On or about February 1, 2014, the Company received notice from its former securities counsel, Sayid and Associates, LLP, threatening a law suit, demanding payment of $162,216 in outstanding legal fees for two (2) months of representation. The Company has disputed the charges and pursuant to New York statute has determined to arbitrate under the provisions of the Fee Dispute Resolution provisions of the New York Bar Association.