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 DECEMBER 31, 1998
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 DECEMBER 31, 1998
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, DECEMBER 31,
1998 1998
<S>
ASSETS <C> <C>
(UNAUDITED)
Cash and cash equivalents $253,243 $268,249
Securities owned, at market value 26,121 20,551
Equipment, less accumulated depreciation of
$143,838 and $152,776 respectively 56,014 47,076
Equipment under capital leases, less
accumulated depreciation of $65,241
and $69,082, respectively 30,468 29,936
Leasehold improvements, less
accumulated amortization of
$50,668 and $56,165, respectively 85,017 88,045
Other assets 33,077 40,530
Total assets $483,940 $494,387
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $127,500 $177,500
Accounts payable and accrued expenses 152,911 155,915
Commissions payable 14,368 24,377
Income taxes payable 2,661 721
Securities sold, not yet purchased,
at market 2,983 -
Obligations under capital leases 33,376 33,270
Loan subordinated to claims of general
creditors 50,000 50,000
Total liabilities 383,799 441,783
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0025 par value;
authorized 10,000,000 shares,
issued and outstanding 5,034,400 and
5,222,400 shares, respectively 12,586 13,056
Additional paid - in capital 398,334 421,364
Accumulated deficit (285,779) (356,816)
Total 125,141 77,604
Less stock subscriptions receivable (25,000) (25,000)
Total stockholders' equity 100,141 52,604
Total liabilities and stockholders' equity $483,940 $494,387
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS
ENDED DECEMBER 31,
1998 1997
<S> <C> <C>
Revenues:
Commissions $585,638 $423,079
Principal transactions 36,865 47,471
Interest and dividends 736 1,551
Total revenues 623,239 472,101
Expenses:
Commissions 70,544 56,258
Clearing and execution costs 167,172 (96,188)
Communications 68,338 60,366
Administrative compensation
and employee benefits 118,301 148,866
Professional and consulting fees 86,885 64,677
Registration and regulatory fees 13,573 19,291
Occupancy 14,360 9,850
Interest 8,006 4,650
Other 146,757 188,824
Total expenses 693,936 456,594
Income (loss) before provision for
income taxes (70,697) 15,507
Provision for (benefit from) income taxes 340 760
Net income (loss) $(71,037) $14,747
Net income (loss) per share:
Basic and diluted $(.01) $.00
Weighted average number of common
shares outstanding 5,133,100 4,925,100
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE> THREE MONTHS ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (71,037) $ 14,747
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation 18,276 40,445
Issuance of common stock for services
and rent 23,500 10,000
Changes in assets and liabilities:
Securities owned 5,570 2,537
Other assets (7,453) 6,345
Accounts payable and accrued expenses 3,004 (61,581)
Commissions payable 10,009 5,276
Income taxes payable (1,940) (1,425)
Securities sold, not yet purchased (2,983) 1,395
Net cash provided by (used for) operating
activities (23,054) 17,739
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements (8,525) (31,860)
Net cash used for investing activities (8,525) (31,860)
Cash flows from financing activities:
Proceeds from issuance of notes payable 50,000 -
Repayment of note payable - (100,204)
Repayment of obligations under capital leases (3,415) (4,813)
Net cash provided by (used for) financing
activities 46,585 (105,017)
Net increase (decrease) in cash 15,006 (119,138)
Cash and cash equivalents, beginning of period 253,243 475,314
Cash and cash equivalents, end of period $268,249 $356,176
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $18,481 $16,125
Income taxes paid $ 2,280 $ 2,699
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 $ 3,309 $ -
Schedule of non-cash financing activities:
Receipt of stock subscriptions receivable in
connection with sale of common stock $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
CASTLE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of December 31, 1998 and for the
three 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 $47,537 from $100,141 at September
30,1998 to $52,604 at December 31, 1998. This decrease was due to the net
loss of $71,037 for the three months ended December 31, 1998, offset by
issuances of common shares to vendors for services totaling $23,500 during
the three months ended December 31, 1998.
Cash and cash equivalents increased $15,006 from $253,243 at September 30,1998
to $268,249 at December 31, 1998. This increase was due to a $50,000 bank
loan received in December 1998, offset by $23,054 cash used for operating
activities, $8,525 used for investing activities, and $3,415 used for other
financing activities.
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 vary significantly 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, numberand 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 ended December 31, 1998 and 1997,
revenues were derived as follows:
<TABLE>
THREE MONTHS
ENDED DECEMBER 31,
1998 1997
<S> <C> <C>
Commissions:
Castle Online $481,334 $199,506
Active Account Program 89,332 191,959
Other 14,972 31,614
Total commissions 585,638 423,079
Principal transactions:
Trading accounts 37,235 64,887
Investment accounts (370) (17,416)
Total principal transactions 36,865 47,471
Interest and dividends 736 1,551
Total revenues $623,239 $472,101
</TABLE>
Three Months ended December 31, 1998 compared to three months ended December
31, 1997 -
Net loss for the three months ended December 31, 1998 was $71,037, or $(.01)
per share, compared to net income of $14,747, or $.00 per share, for the
three months ended December 31,1997. Total revenues increased $151,138 (32%)
and total expenses increased $237,342 (52%) in 1998 compared to 1997.
Revenues less commissions and clearing and execution costs were $385,523 in
1998 compared to $512,031 in 1997. In 1997, clearing and execution costs were
reduced by $233,908 received from CSC-1's clearing agent in settlement of
prior fee disputes.
The increase in total revenues was due to $281,828 higher commissions derived
from Castle Online, offset by $102,627 lower commissions derived from the
Active Account Program ("AAP"). Castle Online customer transactions increased
from 11,909 in the three months ended December 31, 1997 to 27,070 in the three
months ended December 31, 1998. Castle Online funded customers increased from
105 at December 31, 1997 to 214 at December 31, 1998.
The source of the increase in total expenses was largely commissions ($14,286)
and clearing and execution costs ($263,360). Commissions expense increased
as a result of higher revenues; commissions expense as a percentage of
total revenues was 11% and 12% in 1998 and 1997, respectively. Clearing and
execution costs increased as a result of increased Castle Online transactions
in 1998 and the $233,908 settlement in 1997 (which reduced 1997 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.
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 December 31, 1998 that were not registered under
the Securities Act were:
(1) October 5, 1998 - 108,000 shares of Common Stock, $.0025 par value
were issued to Ratan and Michele Halder in exchange for certain lease
concessions (valued at $13,500) to be provided the Company. No
underwriting discounts or commissions were paid in connection with
this issuance. The Registrant claimed exemption from registration
under Section 4 (2) of the Securities Act of 1933.
(2) November 18, 1998 - 80,000 shares of Common Stock, $.0025 par value
(valued at $10,000) were issued to Francis D. Pope, Sr. and Francis
D. Pope, Jr. in settlement of an arbitration proceeding brought by
these two CSC-1 customers. No underwriting discounts or commission
were paid in connection with this issuance. 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 December 31, 1998.
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 FIRST QUARTER ENDED DECEMBER 31, 1998 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]OCT-01-1998
[PERIOD-END]DEC-31-1998
[EXCHANGE-RATE] 1
[CASH] 268,249
[RECEIVABLES] 0
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 20,551
[PP&E] 165,057
[TOTAL-ASSETS] 494,387
[SHORT-TERM] 177,500
[PAYABLES] 181,013
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 0
<LONG TERM> 83,270
[COMMON] 13,056
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 39,548
[TOTAL-LIABILITY-AND-EQUITY] 494,387
[TRADING-REVENUE] 36,865
[INTEREST-DIVIDENDS] 736
[COMMISSIONS] 585,638
[INVESTMENT-BANKING-REVENUES] 0
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 8,006
[COMPENSATION] 188,845
[INCOME-PRETAX] (70,697)
[INCOME-PRE-EXTRAORDINARY] (70,697)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (71,037)
[EPS-BASIC] (.01)
[EPS-DILUTED] .00
