UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
Commission file number 33-37809-NY
CASTLE HOLDING CORP.
.
(Exact name of small business issuer as specified in this charter)
NEVADA 77-0121957
(State of incorporation) (IRS Employer Identification Number)
45 CHURCH STREET, SUITE 25, FREEPORT, NEW YORK 11520
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (516)868-2000
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,640,500 SHARES ($.0025 PAR VALUE) AT SEPTEMBER 30, 1999
CASTLE HOLDING CORP.
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 11
SIGNATURES 12
EXHIBIT 27 13
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
SEPTEMBER 30, MARCH 31,
1998 1999
<S>
ASSETS <C> <C>
(UNAUDITED)
Cash and cash equivalents $253,243 $536,407
Securities owned, at market value 26,121 21,078
Equipment, less accumulated depreciation
of $143,838 and $161,443, respectively 56,014 41,634
Equipment under capital leases, less
accumulated depreciation of $65,241
and $74,007, respectively 30,468 43,740
Leasehold improvements, less
accumulated amortization of
$50,668 and $62,327, respectively 85,017 93,975
Other assets 33,077 32,858
Total assets $483,940 $769,692
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $127,500 $337,500
Accounts payable and accrued expenses 152,911 197,236
Commissions payable 14,368 43,905
Income taxes payable 2,661 1,089
Securities sold, not yet purchased,
at market 2,983 523
Obligations under capital leases 33,376 47,519
Loan subordinated to claims of
general creditors 50,000 50,000
Total liabilities 383,799 677,772
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0025 par value;
authorized 10,000,000 shares,
issued and outstanding 5,034,400 and
5,782,400 shares, respectively 12,586 14,456
Additional paid - in capital 398,334 587,464
Accumulated deficit (285,779) (325,000)
Total 125,141 276,920
Less stock subscriptions receivable (25,000) (185,000)
Total stockholders' equity 100,141 91,920
Total liabilities and
stockholders' equity $483,940 $769,692
See accompanying notes to consolidated financial statements.
</TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE> THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Commissions $791,492 $375,296 $1,377,130 $798,375
Principal transactions 62,687 93,518 99,552 140,989
Interest and dividends 919 839 1,655 2,390
Total revenues 855,098 469,653 1,478,337 941,754
Expenses:
Commissions 103,713 61,853 174,257 118,111
Clearing and execution costs 226,882 106,779 394,054 10,591
Communications 48,862 68,504 117,200 128,870
Administrative compensation
and employee benefits 156,011 170,117 274,312 318,983
Professional and consulting fees 102,679 39,936 189,564 104,613
Registration and regulatory fees 10,791 6,934 24,364 26,225
Occupancy 16,620 11,850 30,980 21,700
Interest 9,230 4,650 17,236 9,300
Other 148,126 76,092 294,883 264,916
Total expenses 822,914 546,715 1,516,850 1,003,309
Income (loss) before provision for
income taxes 32,184 (77,062) (38,513) (61,555)
Provision for (benefit from)
income taxes 368 285 708 1,045
Net income (loss) $31,816 $(77,347) $(39,221) $(62,600)
Net income (loss) per share:
Basic and diluted $.01 $(.02) $(.01) $(.01)
Weighted average number of common
shares outstanding 5,235,700 4,978,400 5,184,400 4,951,700
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
1999 1998
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(39,221) $(62,600)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation 38,030 59,091
Issuance of common stock for services and rent 23,500 10,000
Changes in assets and liabilities:
Securities owned 5,043 29,571
Other assets 219 15,908
Accounts payable and accrued expenses 44,325 (91,196)
Commissions payable 29,537 3,130
Income taxes payable (1,572) (950)
Securities sold, not yet purchased (2,460) (11,523)
Net cash provided by (used for) operating activities 97,401 (48,569)
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (23,842) (38,414)
Net cash used for investing activities (23,842) (38,414)
Cash flows from financing activities:
Proceeds from issuance of notes payable 260,000 -
Net proceeds from sales of common stock 7,500 -
Repayment of note payable (50,000) (100,204)
Repayment of obligations under capital leases (7,895) (4,813)
Net cash provided by (used for) financing
activities 209,605 (105,017)
Net increase (decrease) in cash 283,164 (192,000)
Cash and cash equivalents, beginning of period 253,243 475,314
Cash and cash equivalents, end of period $536,407 $283,314
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 27,886 $ 16,950
Income taxes paid $ 2,280 $ 1,995
Schedule of non-cash operating activities:
Issuance of common stock for services and rent $ 23,500 $ 10,000
Schedule of non-cash investing activities:
Acquisition of equipment in connection
with capital lease obligations $ 22,038 $ -
Schedule of non-cash financing activities:
Receipt of stock subscriptions receivable in
connection with sale of common stock $160,000 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1999 and for the
three and six months then ended were prepared by the Registrant without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). 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. In the opinion of management, all necessary adjustments to
the financial statements have been made to present fairly the financial
position, results of operations, and cash flows. The results of operations
for the respective periods presented are not necessarily indicative of the
results for the respective complete years. The Registrant has previously
filed with the SEC a Form 10-KSB, which included audited financial statements
for the year ended September 30, 1998. The financial statements contained
in this filing should be read in conjunction with the statements and notes
thereto.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Registrant
Castle Holding Corp. ("CHC") and its subsidiaries. The principal subsidiaries of
CHC are Castle Securities Corp. ("CSC-1") and Citadel Securities Corp.
("CSC-2"), both securities broker-dealers. All significant intercompany
balances and transactions have been eliminated in consolidation.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
Total stockholders' equity decreased $8,221 from $100,141 at September 30,1998
to $91,920 at March 31, 1999. This decrease was due to the net loss of
$39,221 for the six months ended March 31, 1999, offset by sales of common
shares with net proceeds totaling $7,500 and issuances of common shares to
vendors for services totaling $23,500 during the six months ended March 31,1999.
Cash and cash equivalents increased $283,164 from $253,243 at September
30,1998 to $536,407 at March 31, 1999. This increase was due primarily to
issuances of notes payable to two investors totaling $260,000
(in April 1999, $250,000 of these notes payable were converted to
800,000 shares of CHC common stock).
Results of Operations
General - Substantial positive and negative fluctuations can occur in the
Registrant's business due to a variety of factors, including variations in
the market value of securities, the volatility and liquidity of
trading markets, and the level of market activity. As a result, net income
and revenues in any particular period may not be representative of full-year
results and may varysignificantly from year to year and from
quarter to quarter. In addition, results of operations have been in the past
and may in the future continue to be materially affected by many factors of a
national and international nature, including economic and market conditions,
currency values, inflation, the availability of capital,
the level and volatility of interest rates, the valuation of securities
positions and investments, and legislative and regulatory developments,
as well as the size, number and timing of transactions. The Registrant's
results of operations also may be materially affected by competitive factors
and its ability to attract and retain highly skilled individuals.
Castle Online - A substantial portion of the Registrant's revenues are
presently being derived from the Castle Online division of CSC-1. This
division offers customers the ability to place securities orders
electronically over the internet. Many of its customers trade actively and
engage in day trading . The SEC and NASD has proposed a variety of rules
regarding day trading which, if implemented, may adversely affect the
Registrant.
Revenues by source - For the three months and six months ended March 31, 1999
and 1998, revenues were derived as follows:
<TABLE>
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Commissions:
Castle Online $668,756 $202,548 $1,150,090 $402,054
Active Account Program 82,840 142,902 172,172 334,861
Other 39,896 29,846 54,868 61,460
Total commissions 791,492 375,296 1,377,130 798,375
Principal transactions:
Trading accounts 62,077 97,548 99,312 162,435
Investment accounts 610 (4,030) 240 (21,446)
Total principal transactions 62,687 93,518 99,552 140,989
Interest and dividends 919 839 1,655 2,390
Total revenues $855,098 $469,653 $1,478,337 $941,754
</TABLE>
Six Months ended March 31, 1999 compared to six months ended March 31, 1998 -
Net loss for the six months ended March 31, 1999 was $39,221, or $(.01) per
share, compared to a net loss of $62,600, or $(.01) per share, for the six
months ended March 31,1998. Total revenues increased $536,583 (57%) and
total expenses increased $513,541 (51%) in 1999 compared to 1998.
Revenues less commissions and clearing and execution costs were $910,026 in
1999 compared to $813,052 in 1998. In 1998, clearing and execution costs
were reduced by $266,162 received from CSC-1's clearing agent in settlement
of prior fee disputes.
The increase in total revenues was due to $748,036 higher commissions derived
from Castle Online. Castle Online customer transactions increased from 23,025
in the six months ended March 31,1998 to 65,989 in the six months ended
March 31,1999. Castle Online funded customers increased from 120 at
March 31, 1998 to 306 at March 31, 1999.
The source of the increase in total expenses was largely commissions
($56,146), clearing and execution costs ($383,463) and professional and
consulting fees ($84,951). Commissions expense increased as a result of
higher revenues; commissions expense as a percentage of total revenues was
12% and 13% in 1999 and 1998, respectively. Clearing and execution costs
increased as a result of increased Castle Online transactions in 1999 and the
$266,162 settlement in 1998 (which reduced 1998 clearing and execution
costs); excluding the settlement, clearing and execution costs as a
percentage of total revenues was 27% and 29% in 1999 and 1998, respectively.
Three months ended March 31, 1999 compared to three months ended March 31,1998
- - Net income for the three months ended March 31, 1999 was $31,816, or $.01
per share, compared to a net loss of $39,221, or $(.01) per share, for the
three months ended March 31, 1998. Total revenues increased $385,445 (82%)
and total expenses increased $276,199 (51%). Revenues less commissions
and clearing and execution costs were $524,503 in 1999 compared to $301,021 in
1998. In 1998, clearing and execution costs were reduced by $32,254
received from CSC-1's clearing agent in settlement of prior fee disputes.
The increase in total revenues was due to $466,208 higher commissions derived
from Castle Online. Castle Online customer transactions increased from 11,116
in the three months ended March 31, 1998 to 38,919 in the three months ended
March 31, 1999.
The source of the increase in total expenses was primarily commissions
($41,860), clearing and execution costs ($120,103), and professional and
consulting fees ($62,743). Commissions expense increased as a result of
higher revenues; commissions expense as a percentage of total revenues was
12% and 13% in 1999 and 1998, respectively. Clearing and execution costs
increased as a result of increased Castle Online transactions in 1999;
excluding the $32,254 settlement proceeds noted above, clearing and
execution costs as a percentage of total revenues was 27% and 30% in 1999
and 1998, respectively.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
No additional reportable legal proceedings were initiated since September 30,
1999, the filing date of Form 10-KSB for the fiscal year ended September 30,
1998. Reference should be made to the Registrant's Form 10-KSB for the
fiscal year ended September 30, 1998 for the status of legal proceedings
previously initiated.
Item 2. CHANGES IN SECURITIES
(c) Equity securities of the Registrant sold by the Registrant during the
quarterly period ended March 31, 1999 that were not registered under
the Securities Act were:
<TABLE>
<C> <C> <C> <C> <C>
Title of Number
Date of Sale Security Shares (1) Purchaser(s) Consideration
February 10, 1999 Common 40,000 Jack Wagenti $10,000 promisory
Stock note
March 12, 1999 Common 40,000 Salvatore and $12,500 cash
Stock Katherine Messina
March 24, 1999 Common 8,000 Daniel J.Priscu(2) $2,500 promissory
Stock note
March 24, 1999 Common 98,000 George R.Hebert(2)$30,625 promissory
Stock note
March 24, 1999 Common 196,000 Michael T.Studer(2)$61,250 promissory
Stock note
March 24, 1999 Common 40,000 Tony S. Kafeiti(3) $12,500 promissory
Stock note
March 24, 1999 Common 40,000 Charles S.Kafeiti(3)$12,500 promissory
Stock note
March 24, 1999 Common 98,000 Teresa M. Hebert(3)$30,625 promissory
Stock note
</TABLE>
LEGEND
(1) As adjusted for the 300% stock dividend paid June 25, 1999.
(2) Director of Registrant
(3) Castle key employee
No underwriting discounts or commissions were paid in connection with any of
the above sales. For
all of the above sales, the registrant claimed exemption from registration
under section 4(2) of the
Securities Act of 1933.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Financial Data Schedule included as Exhibit 27.
(b) No reports on Form 8-K were filed by the Registrant during the quarter
ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CASTLE HOLDING CORP.
October 4, 1999 /s/ George R. Hebert
GEORGE R. HEBERT
PRESIDENT
October 4, 1999 /s/ Michael T. Studer
MICHAEL T. STUDER
SECRETARY - TREASURER,
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
EXHIBIT 27
FINANCIAL DATA SCHEDULE FOR THE SECOND QUARTER ENDED MARCH 31, 1999 REQUIRED
PURSUANT TO
ITEM 601(C) OF REGULATION S-B
[NAME] CASTLE HOLDING CORP.
[MULTIPLIER] 1
[CURRENCY] 1
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END]SEP-30-1999
[PERIOD-START]JAN-01-1999
[PERIOD-END]MAR-31-1999
[EXCHANGE-RATE] 1
[CASH] 536,407
[RECEIVABLES] 0
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 21,078
[PP&E] 179,349
[TOTAL-ASSETS] 769,692
[SHORT-TERM] 337,500
[PAYABLES] 242,230
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 523
<LONG TERM> 87,519
[COMMON] 14,456
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 77,464
[TOTAL-LIABILITY-AND-EQUITY] 769,692
[TRADING-REVENUE] 62,687
[INTEREST-DIVIDENDS] 99
[COMMISSIONS] 791,492
[INVESTMENT-BANKING-REVENUES] 0
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 9,230
[COMPENSATION] 259,724
[INCOME-PRETAX] 32,184
[INCOME-PRE-EXTRAORDINARY] 32,184
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 31,816
[EPS-BASIC] .01
[EPS-DILUTED] .01
