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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

FORM 10-Q


[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File No. 333-164882

 

CITADEL EFT, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

  

80-0473573

(State or other jurisdiction of incorporation)

  

(I.R.S. Employer Identification No.)

  

  

  

1100 Irvine Blvd.

Tustin, California

  

92780

(Address of Principal Executive Office)

  

(Zip Code)

 

Registrant’s telephone number, including area code: (714) 730-8143

 

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 12 months, and (2) has been subject to such filing requirements for the past 90 days.  [X]   Yes  [  ]   No  


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   [  ] Yes   [X]  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  [  ] Accelerated filer  [  ]  

Non-accelerated filer  [  ]  (Do not check if a smaller reporting company)

Smaller reporting company  [X]

 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  [  ] No  [X]

 

At August 3, 2012 there were 195,824,960 shares of common stock outstanding.

 

i

 

  


IMPORTANT INFORMATION REGARDING THIS FORM 10-Q


Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer collectively to Citadel EFT, Inc., a Nevada corporation.

 

Readers should consider the following information as they review this Quarterly Report on Form 10-Q:


Forward-Looking Statements


The statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the “Exchange Act”).  All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.  Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements.  The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,” “will,” “should,” “intend,” “plan,” “could,” “estimate” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.


Given the risks and uncertainties relating to forward-looking statements, investors should not place undue reliance on such statements.  Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Report and are not guarantees of future performance.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to have been incorrect.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.


Subsequent Events


All statements contained in this Quarterly Report on Form 10-Q, including the forward-looking statements discussed above, are made as of August 3, 2012, unless those statements are expressly made as of another date.  We disclaim any responsibility for the accuracy of any information contained in this Quarterly Report on Form 10-Q to the extent such information is affected or impacted by events, circumstances or developments occurring after August 3, 2012 or by the passage of time after such date.  Except to the extent required by applicable securities laws, we expressly disclaim any obligation or undertakings to release publicly any updates or revisions to any statement or information contained in this Quarterly Report on Form 10-Q, including the forward-looking statements discussed above, to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement or information is based.




TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

 

 

  

  

Page No.

  

  

  

Item 1.

Financial Statements

  

  

Unaudited Balance Sheets at June 30, 2012 and September 30, 2011

1

  

Unaudited Statements of Operations for the Three and Nine Months Ended June 30, 2012 and 2011

2

  

Unaudited Statements of Cash Flows for the Nine Months Ended June 30, 2012 and 2011

3

  

Notes to Unaudited Financial Statements

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5

Item 4.

Controls and Procedures

8

  

  

PART II OTHER INFORMATION

  

  

Item 1.

Leg Legal Proceedings

9

Item 2.

Reg Unregistered Sales of Equity Securities and Use of Proceeds

9

Item 5.

Oth Other Information

9

Item 6.

Exh Exhibits

9

  

  

  

Signatures

  

10


ii


PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


CITADEL EFT, INC.

BALANCE SHEETS

 (Unaudited)

 

 

 

June 30, 2012

 

 

September 30, 2011

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,891

 

 

$

54,332

 

    Accounts receivable

 

 

38,854

 

 

 

38,449

 

    Prepaid tax receivable

  

14,015

   

7,713

 

Total assets

 

$

148,760

 

 

$

100,494

 

  

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

1,500

 

 

$

17,500

 

Total current liabilities

 

 

1,500

 

 

 

17,500

 

  

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

   Preferred Stock, $0.00001 par value, 100,000,000 shares authorized, 51,000,000 and outstanding

 

 

510 

 

 

 

510 

 

Common stock, $0.00001 par value, 1,000,000,000 shares authorized, 195,824,960 and 184,324,960 shares issued and outstanding, respectively

 

 

1,960

 

 

 

1,844

 

Additional paid-in capital

 

 

25,827,798

 

 

 

24,519,064

 

Accumulated deficit

 

 

(25,683,008)

 

 

 

(24,438,424)

 

Total stockholders' equity

 

 

147,260

 

 

 

82,994

 

Total liabilities and stockholders' equity

 

$

148,760

 

 

$

100,494

 

 

The accompanying notes are an integral part of the unaudited financial statements.

 

  

1



CITADEL EFT, INC.

STATEMENTS OF OPERATIONS

 (Unaudited)


 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2012

 

 

2011

 

 

2012

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net

 

$

118,954

 

 

$

127,648

 

 

$

392,401

 

 

$

349,428

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

42,731

 

 

 

3,663,656

 

 

 

1,636,985

 

 

 

3,852,474

 

Income (loss) before income taxes

 

 

76,223

  

 

(3,536,008)

 

 

 

(1,244,584)

 

 

 

(3,503,046)

 

Income tax (expense) benefit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,528)

 

Net (loss) income

 

$

76,223

 

 

$

(3,536,008)

 

 

$

(1,244,584)

 

 

$

(3,513,574)

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per share, basic and diluted

 

$

0.00

 

 

$

(0.07

)

 

$

(0.01)

 

 

$

(0.13)

 

Weighted-average common shares outstanding, basic and diluted

 

 

195,562,875

 

 

 

52,811,762

 

 

 

191,908,537

 

 

 

26,413,227

 

 


 



The accompanying notes are an integral part of the unaudited financial statements.

  

2


  

 




CITADEL EFT, INC.

STATEMENTS OF CASH FLOWS

 (Unaudited)

 


  

 

For the Nine Months Ended

 

  

 

June 30,

 

 

 

2012

 

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(1,244,584)

 

 

$

(3,513,574)

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

  

1,408,850

   

3,550,000

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(405)

 

 

 

(6,902)

 

Prepaid tax receivable

  

(6,302)

   

-

 

Accounts payable and accrued liabilities

 

 

(16,000)

 

 

 

(3,200)

 

Income taxes payable

 

 

-

 

 

 

(56,002)

 

Net cash (used in) provided by operating activities

 

 

141,559

 

 

 

(29,678)

 

  

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Dividends paid

  

(100,000)

   

-

 

Net cash used in by financing activities

 

 

(100,000)

 

 

 

-

 

Change in cash and equivalents

 

 

41,559

 

 

 

(29,678)

 

Cash and cash equivalents, beginning of period

 

 

54,332

 

 

 

112,608

 

Cash and cash equivalents, end of period

 

$

95,891

 

 

$

82,930

 


 

The accompanying notes are an integral part of the unaudited financial statements.

  

3




CITADEL EFT, INC.


NOTES TO UNAUDITED FINANCIAL STATEMENTS


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 Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended June 30, 2012 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, 2011 filed in its annual report on Form 10-K.


Note 2:  Stockholders’ Equity


During the nine months ended June 30, 2012, Citadel issued 11,500,000 common shares to various consultants for services.  Citadel recorded compensation expense of $1,408,850 based on the closing prices ranging from $0.03 to $0.16 per share on the issuance dates.  


During the nine months ended June 30, 2012, Citadel declared and paid a dividend totaling $100,000 on the shares of Series A Preferred Stock.  The CEO, Mr. Gary DeRoos is the owner of all the outstanding preferred shares of the company.  


Note 3: Related Party

 

The President has received $125,699 in compensation for the nine month period ended June 30, 2012.



4



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis provides information that management believes is relevant for an assessment and understanding of our results of operations and financial condition. This information should be read in conjunction with our audited historical financial statements which are included in our Form 10-K for the fiscal year ended September 30, 2011 and our unaudited financial statements and notes thereto included with this Quarterly Report on Form 10-Q in Part I. Item 1.


General


We have about 1,700 merchant-clients that use our terminals to process their credit card transaction which has allowed us to be profitable, even in our infancy. A further drop in U.S. economic activity beyond the severe slowdown since 2008 will undoubtedly have an effect on our revenues, as we make our money principally on “residuals”. Residuals are based off a pre-negotiated and contracted percentage rate for each transaction that our merchant-client incurs by its customers. Although we have a standard contract, the rates at which we have negotiated with each of our merchant-clients may vary slightly.


The main challenges we face are continued competition from new entrants into the industry, and limiting our exposure to any erosion of our client base as a result of any possible further deterioration of the economy.


Our other chief concern is competition. Our industry has relatively low barriers to entry. We believe this may lead, in the near-term, to a further splintering of this market industry, but in the mid- to long-term will lead to a consolidation through mergers and acquisitions within this industry. We believe that by streamlining our operations into one public vehicle, we will be in a better position to maximize our value during this foreseen splintering, and then consolidating phases.


Industry and Executive Outlook


Our specific goal is to continue the expansion of our business by Growing our customer base.  Internet advertising has been the greatest marketing and sales-generating vehicle.  We plan to continue to spend more advertising dollars on Internet advertising.


We will also use marketing experts to generate new clients for Citadel.  This includes but is not limited to using blogs, chat rooms, internet promotion companies, search engine placement, opt-in email promotion, self-producing web sites, and referrals.


BeneficialOwnership


The following table sets forth certain information, as of  August 3, 2012, concerning the beneficial ownership of shares of Common Stock of Citadel EFT, Inc. by (i) each person known by us to beneficially own more than 5 percent of the  outstanding shares of our common stock; (ii) each Director; (iii) our “Named Executive Officers” (as determined under Item 402(m) of Regulation S-K); and (iv) all directors and executive officers of Citadel as a group. To our knowledge, all persons listed in the table have sole voting and investment power with respect to their shares, except to the extent that authority is shared with their respective spouse under applicable law.




      

 

Name of Beneficial Owner (1)

Shares of

Common

Stock

Beneficially

Owned

  

Percent of

Common Stock

Outstanding

 

 

Gary DeRoos (2)

168,557,751

  

86 %

 

 

Maria Teresa DeRoos (2)

-

  

- %

 

 

All directors and officers as a group (2 persons)

         

168,557,751

 

86 %

 

 


Results of Operations


Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011


Revenues


  

 

Three Months Ended June 30, 2012

 

 

Three Months Ended June30, 2011

 

 

Change

 

 

%

 

Revenues

 

$

118,954

  

$

127,648

  

$

(8,694)

 

 

 

7

 

 

Revenues decreased by $8,694, or 7 percent to $118,954 for the three months ended June 30, 2012 from $127,648 for the three months ended June 30, 2011.  The revenue rate decreased due to smaller transactions across the relative same number of merchants. Revenues are reported net of amounts paid to sponsor banks, as well as interchange and assessments paid to credit card associations (MasterCard and Visa) under revenue sharing agreements pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants.   


Operating Expenses. 


  

 

Three Months Ended June 30, 2012

 

 

Three Months Ended June 30, 2011

 

 

Change

 

 

%

 

Operating expenses

 

$

42,731

  

$

3,663,656

  

$

(3,620,925)

 

 

 

98.83

 

 

Our operating expenses decreased from $3,663,656 for the three months ended June 30, 2011 to $42,731 for the three months ended June 30, 2012.  The primary reason for the decrease was related to the recording of compensation expense in the amount of $3,550,000 for 71,000,000 shares of common stock issued to various consultants and the CEO valued at $0.05 per share in 2011.  There were no such issuances in the same period ended June 30, 2012.


 

5


Nine Months Ended June 30, 2012 Compared to Nine Months Ended June 30, 2011

 

Revenues


  

 

Nine Months Ended June 30, 2012

 

 

Nine Months Ended June 30, 2011

 

 

Change

 

 

%

 

Revenues

 

$

392,401

  

$

349,428

  

$

42,973

 

 

 

12

 

 

Revenues increased by $42,973, or 12 percent to $392,401 for the nine months ended June 30, 2012 from $349,428 for the nine months ended June 30, 2011.  The revenue rate increased due to larger number of merchants and transactions. Revenues are reported net of amounts paid to sponsor banks, as well as interchange and assessments paid to credit card associations (MasterCard and Visa) under revenue sharing agreements pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants.   


Operating Expenses. 



  

 

Nine Months Ended June 30, 2012

 

 

Nine Months Ended June 30, 2011

 

 

Change

 

 

%

 

Operating expenses

 

$

1,636,985

 

 

$

3,852,474

 

 

$

(2,215,489)

 

 

 

57.51

 

 

Our operating expenses decreased from $3,852,474 for the nine months ended June 30, 2011 to $1,636,985 for the nine months ended June 30, 2012.  The primary reason for the decrease was $3,550,000 in compensation expense recorded for the fair market value of 71,000,000 shares of common stock issued to the CEO and various consultants for services performed during 2011 as compared to $1,408,000 of stock based compensation recorded during the nine months ended June 30, 2012.    


Capital Resources and Liquidity


Overview


Over the course of the past three years of operations, including the operations of our predecessor company, we have not seen large, sudden shifts in revenues, although because our business model is reliant on the size of consumer transactions, we have seen, over the past three years, a slight, general increase in revenues likely owing to gradual inflation. We have made no attempt to quantify the amount of increase in our revenue that is due to inflation, although we suspect that it tracks the U.S. Bureau of Labor Statistics Consumer Price Index of approximately 5% over the past three years, owing to the breadth of goods and services in which credit cards are used.


Our primary source of liquidity is cash from operations. Were our residuals from credit card processing transactions to drop steeply, we would not be able to quickly or automatically make up the liquidity through other sources. However, through the economic downtrend, our cash flow has remained steady and has had a slight uptrend.

 

While one of the strong current trends in the consumer credit markets is for the paying down of personal debt and the increase of personal savings among consumers, our management believes, based only upon our own activity and revenue data which it has observed, that this trend is most likely occurring in the form of paying off a larger portion of each respective consumers' monthly credit card bills, and not through a reduced use of the card itself. Our management's belief is that consumers still use their credit cards for purchases in a slow economic climate; even increasing the amount they spend on a credit card, as a way to manage their own contracted or uncertain cash flows.


Cash Flow from Operating Activities


During the nine months ended June 30, 2012, cash provided from operating activities was $141,559 as compared to cash flows used in operating activities during the same prior year period of $29,678.  We can attribute the primary reason for the increase in cash flow to the profitability during 2012 thus a decrease in net loss.


  Cash Flow from Financing Activities


During the first nine months of 2012 cash used in financing activities was $100,000 as compared to cash used in financing activity of $0 for the nine months ended June 30, 2011.  Dividends of $100,000 were paid to our CEO and sole preferred shareholder.

 

 

6

Critical Accounting Policy Updates


The discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements in accordance with US GAAP requires us to make estimates and judgments that may affect assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and related allowances and income taxes including the valuation allowance for deferred tax assets.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.


Revenue Recognition  


We derive revenues primarily from the electronic processing of credit, charge and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services based on a percentage of the dollar amount of each transaction and in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee per transaction and may also be charged miscellaneous fees, including fees for handling charge backs, monthly minimums, equipment rentals, sales or leasing and other miscellaneous services.


Revenues are reported net of amounts paid to sponsor banks, as well as interchange and assessments paid to credit card associations (MasterCard and Visa) under revenue sharing agreements pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants.


We follow the requirements of ASC 605-45, “Revenue Recognition, Principal Agent Considerations,” in determining our revenue reporting. Generally, we report revenues at the time of sale on a net basis where we are not the primary obligor in the arrangement, have minimal latitude in establishing the price of the services, do not change the product and perform part of the service, do not have discretion in supplier selection, do not have latitude in determining the product and service specifications to meet our client’s needs and do not assume credit risk. This amount includes interchange paid to card issuing banks and assessments paid to credit card associations pursuant to which such parties receive payments based primarily on processing volume for particular groups of merchants


RSee Note 1, “Recent Accounting Pronouncements,” in the notes to unaudited financial statements for information regarding recently issued accounting standards.


Refer to Part II. Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended September 30, 2010 for a discussion of our Critical Accounting Policies.


Inflation and Seasonality


We do not believe that our operations are significantly impacted by inflation.  Our business is not significantly seasonal in nature.


Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

 

7

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.   We carried out an evaluation, under the supervision and with the participation of our management, including our sole Executive officer serving in both the Chief Executive Officer and Chief Financial Officer capacities, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective due to the material weakness described below to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting.    There have been no changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended June 30, 2012 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Management’s Report on Internal Control over Financial Reporting.   Management is responsible for the fair presentation of the financial statements of Citadel EFT, Inc. Management is also responsible for establishing and maintaining a system of internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:


(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;


(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and


(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

 

During the Annual 10-K review process for the year ended September 30, 2011, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of September 30, 2010 and the deficiencies reported continue to be deficiencies as of June 30, 2012. 


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  We have identified the following material weakness.


As of June 30, 2012, we did not maintain effective controls over the control environment.  The Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert.  We did not maintain the following controls: sufficient policies and procedures over the administration of our accounting and fraud risk policies, and a sufficient segregation of duties to decrease the risk of inappropriate accounting since there is only 1 employee. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. Additionally,


this control deficiency could result in another material weakness that could result in a material misstatement of the financial statements that would not be prevented or detected.


  

8

 PART II – OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

Periodically, we are involved in legal proceedings arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, we are currently not involved in any pending, material legal proceedings.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In October, 2011, Citadel issued 1,000,000 shares of common stock to a consultant for services rendered.  Citadel recorded stock based compensation of $50,000 related to the closing price on the date of issuance of $0.05.


In November, 2011, Citadel issued 2,050,000 shares of common stock to two consultants for services rendered.  Citadel recorded stock based compensation of $84,000 based on the respective closing prices on the dates of issuance of $0.04 and $0.08.


In December, 2011, Citadel issued an additional 2,000,000 shares a consultant that was issued shares in October for services rendered.  Citadel recorded stock based compensation of $300,000 based on the respective closing price on the date of issuance of $0.15.


In February, 2012, Citadel issued 6,000,000 shares to a consultant for services rendered.  Citadel recorded the stock based compensation of $960,000 based on the respective closing price on the date of issuance of $0.16.


In May 2012, Citadel issued 450,000 shares to a consultant for services rendered.  Citadel recorded the stock based compensation of $14,850 based on the respective closing price on the date of issuance of $0.03.  


ITEM 5.  OTHER INFORMATION

 

None


ITEM 6. EXHIBITS


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 EFT, INC.

(Registrant)

 

  

Signature

  

Title

  

Date






  

  

  

  

  

/s/ GARY DEROOS

  

President, CEO and Director

  

August 3,2012

Gary DeRoos

  

(Principal Executive Officer)

 

  

  

  

  

  

  

  

/s/ GARY DEROOS

  

Chief Financial Officer

  

August 3,2012

Gary DeRoos

  

(Principal Financial Officer)

  

  

 


 

  

10