Citadel EFT, Inc.

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 Company’s 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.

The Company provides “Merchant Services”, which refers to the service that enables a business to accept a transaction payment through some secure (encrypted) channel by use of the customer's credit or debit card. The Company’s revenues are derived from pre-negotiated contracted transaction fees for processing credit and debit cards, which is referred to as “residual income”.  Although the Company uses a standard contract with each of its customers, the transaction fees may vary slightly from customer to customer.

Operating expenses dramatically increased from $400,657 for the three month period ended December 31, 2012 to $11,462,342 for the same period ended December 31, 2013. These increases were primarily due to increases in legal and consulting services. Legal fees for the current period, including the fair market value of restricted stock issued for such services, were $7,269,916 as compared to $0.00 for the period ending December 31, 2012. Consulting fees for the current period, including the fair market value of restricted stock issued for such services, were $ 4,392,928 The fair market value for the issued restricted common shares for these services was determined using the closing price of the shares on the date they were issued as quoted on the OTCQB exchange.

In addition to its operating expense, the Company had net other income of $24,264 which was offset by an additional $17,713,750 in non-operating expenses. These expenses were recorded primarily based upon the fair market value of restricted common shares, and include $3,150,000 for services rendered by consultants related to the nullified purchase of certain 1934 U.S. Gold Certificates, $813,750 as part of a loyal customer retention policy, and $10,000,000 paid to Spartacus Partners Corporation and $3,750,000 to other consultants to secure a Standby Letter of Credit.

Over the history of the Company, revenues have remained relatively stable because our business model is reliant on the size of consumer transactions.  Therefore, we have not seen significant sudden shifts in our revenues. Revenue growth is driven by the number of consumers patronizing our customer base. It is difficult to ascertain the specific reasons for any growth or detraction of our revenues; however, over the past several years the U.S. Bureau of Labor Statistics Consumer Price Index has reported a small percentage of growth in the retail sales and services sectors of the economy in which consumers are most likely to use credit services.