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, 2000
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.
6,910,900 shares ($.0025 par value) at April 30, 2000
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CASTLE HOLDING CORP.
Form 10-QSB for the quarterly period ended March 31, 2000
INDEX
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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 12
SIGNATURES 13
EXHIBIT 27 14
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CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
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March 31, September 30,
2000 1999
(Unaudited)
Assets
Cash and cash equivalents $ 684,609 $ 383,133
Due from brokers 359,616 137,455
Securities owned, at market value 54,263 35,620
Equipment, less accumulated depreciation of $50,085
and $164,151, respectively 55,336 31,667
Equipment under capital leases, less accumulated
depreciation of $55,834 and $89,090, respectively 125,366 66,482
Leasehold improvements, less accumulated
amortization of $97,735 and $77,296, respectively 124,974 105,086
Other assets 51,676 55,996
Total assets $1,455,840 $ 815,439
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 77,500 $ 87,500
Accounts payable and accrued expenses 391,363 245,256
Commissions payable 128,060 17,175
Income taxes payable 1,319 1,998
Securities sold, not yet purchased, at market 2 806
Obligations under capital leases 130,215 71,428
Loan subordinated to claims of general creditors 50,000 50,000
Total liabilities 778,459 474,163
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0025 par value; authorized
10,000,000 shares, issued and outstanding
6,910,900 and 6,640,500 shares, respectively 17,277 16,601
Additional paid - in capital 992,068 862,444
Accumulated deficit (45,089) (349,644)
Total 964,256 529,401
Less stock subscriptions receivable (286,875) (188,125)
Total stockholders' equity 677,381 341,276
Total liabilities and stockholders' equity $1,455,840 $ 815,439
See accompanying notes to consolidated financial statements.
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CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Six Months Three Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
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Revenues:
Commissions $2,711,179 $1,377,130 $ 1,511,898 $ 791,492
Principal transactions 216,544 99,552 144,106 62,687
Interest and dividends 9,091 1,655 5,556 919
Total revenues 2,936,814 1,478,337 1,661,560 855,098
Expenses:
Commissions 414,321 174,257 247,922 103,713
Clearing and execution costs 626,479 394,054 370,963 226,882
Communications 283,082 117,200 143,226 48,862
Advertising 45,988 13,353 20,943 9,873
Administrative compensation
and employee benefits 545,586 274,312 302,237 156,011
Professional and
consulting fees 249,201 189,564 142,519 102,679
Registration and
regulatory fees 21,377 24,364 3,916 10,791
Occupancy 35,125 30,980 17,751 16,620
Interest 13,856 17,236 7,088 9,230
Other 395,917 281,530 193,783 138,253
Total expenses 2,630,932 1,516,850 1,450,348 822,914
Income (loss) before
provision for income taxes 305,882 (38,513) 211,212 32,184
Provision for (benefit from)
income taxes 1,327 708 400 368
Net income (loss) $ 304,555 (39,221) 210,812 $ 31,816
Net income (loss) per share:
Basic and diluted $ .05 $ (.01) $ .04 $ .01
Weighted average number of
common shares outstanding:
Basic 6,720,495 5,184,400 6,793,833 5,235,700
Diluted 6,750,495 5,184,400 6,833,833 5,235,700
See accompanying notes to consolidated financial statements.
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CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31,
2000 1999
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Cash flows from operating activities:
Net income (loss) $ 304,555 $ (39,221)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation 45,848 38,030
Issuance of common stock for services and rent 10,300 23,500
Changes in assets and liabilities:
Due from brokers (222,161) (110,561)
Securities owned ( 18,643) 5,043
Other assets 4,320 219
Accounts payable and accrued expenses 146,107 44,325
Commissions payable 110,885 29,537
Income taxes payable (679) (1,572)
Securities sold, not yet purchased (804) (2,460)
Net cash provided by (used for) operating activities 379,728 (13,160)
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (70,825) (23,842)
Net cash used for investing activities (70,825) (23,842)
Cash flows from financing activities:
Proceeds from issuance of notes payable - 260,000
Net proceeds from sales of common stock - 7,500
Collection of stock subscriptions receivable 11,250 -
Repayment of notes payable - (50,000)
Repayment of obligations under capital leases (18,677) (7,895)
Net cash provided by (used for) financing activities (7,427) 209,605
Net increase (decrease) in cash 301,476 172,603
Cash and cash equivalents, beginning of period 383,133 187,266
Cash and cash equivalents, end of period $ 684,609 $ 359,869
See accompanying notes to consolidated financial statements.
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CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended March 31,
2000 1999
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Supplemental disclosures of cash flow information:
Interest paid $ 21,506 $ 27,886
Income taxes paid $ 1,319 $ 2,280
Schedule of non-cash operating activities:
Issuance of common stock for services and rent $ 10,300 $ 23,500
Schedule of non-cash investing activities:
Acquisition of equipment in connection
with capital lease obligations $ 77,464 $ 22,038
Retirement of fully depreciated equipment $ 172,731 $ -
Schedule of non-cash financing activities:
Conversion of note payable to common stock $ 10,000 $ -
Receipt of stock subscriptions receivable in
connection with sale of common stock $ 110,000 $ 160,000
See accompanying notes to consolidated financial statements.
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CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Six Months Ended March 31, 2000
(Unaudited)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 2000 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 statememts 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 an annual report on Form 10-KSB, which included audited
financial statements for the year ended September 30, 1999. 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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total stockholders' equity increased $336,105 from $341,276 at September 30,
1999 to $677,381 at March 31, 2000. This increase was due primarily to the
$304,555 net income earned in the six months ended March 31, 2000.
Cash and cash equivalents increased $301,476 from $383,133 at September 30,
1999 to $684,609 at March 31, 2000. This increase was due to $379,728 provided
by operating activities, offset by $70,825 used for investing activities and
$7,427 used for financing activities.
At March 31, 2000, CSC-1 had net capital of $346,243, which was $320,368 in
excess of its required net capital of $25,875. At March 31, 2000, CSC-2 had
net capital of $248,670, which was $148,670 in excess of its required net
capital of 100,000.
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, an 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 (website address: www.castleonline.com). Many of its customers trade
actively and engage in day trading. The SEC and NASD have proposed a variety
of rules regarding day trading that, if implemented, may adversely affect the
Registrant.
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Revenues by source - For the three months and six months ended March 31, 2000
and 1999, revenues were derived as follows:
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Six Months Three Months
Ended March 3 Ended March 31,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
Commissions:
Castle Online $2,343,426 $1,150,090 $1,295,818 $ 668,756
Other 367,753 227,040 216,080 122,736
Total commissions 2,711,179 1,377,130 1,511,898 791,492
Principal transactions:
Trading accounts 213,105 99,312 142,246 62,077
Investment accounts 3,439 240 1,860 610
Total principal transactions 216,544 99,552 144,106 62,687
Interest and dividends 9,091 1,655 5,556 919
Total revenues $2,936,814 $1,478,337 $1,661,560 $ 855,098
Six Months ended March 31, 2000 compared to six months ended March 31, 1999 -
Net income for the six months ended March 31, 2000 was $304,555, or $.05 per
share, compared to a net loss of $(39,221), or $(.01) per share, for the six
months ended March 31,1999. Total revenues increased $1,458,477 (99%) and total
expenses increased $1,114,082 (73%) in 2000 compared to 1999. Revenues less
commissions and clearing and execution costs were $1,896,014 in 2000 compared to
$910,026 in 1999.
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The increase in total revenues was due primarily to $1,193,336 higher
commissions derived from the Castle Online division of CSC-1. Castle Online
customer transactions increased from 65,989 in the six months ended March 31,
1999 to 144,663 in the six months ended March 31, 2000. Castle Online funded
customers increased from 306 at March 31, 1999 to 331 at March 31, 2000.
Castle Online average revenue per transaction was $16.20 and $17.43 in 2000 and
1999, respectively.
Commissions revenue from other sources increased $140,713 (62%) in 2000 compared
to 1999. Customer transactions totaled 12,035 and 12,409 in 2000 and 1999,
respectively. Average revenue per transaction was $30.56 and $18.30 in 2000
and 1999, respectively.
Revenue from principal transactions increased $113,793 (115%) in 2000 compared
to 1999. Principal transactions totaled 2,066 and 947 in 2000 and 1999,
respectively. Average revenue per transaction was $104.81 and $105.12 in 2000
and 1999, respectively.
Commissions expense increased $240,064 (138%) in 2000 compared to 1999 as a
result of higher revenues. Commissions expense as a percentage of total
revenues was 14% and 12% in 2000 and 1999, respectively.
Clearing and execution costs increased $232,425 (59%) in 2000 compared to 1999
as a result of increased Castle Online transactions, offset partially by $70,976
in order flow credits received from Knight Securities ("NITE") in 2000 (which
reduced 2000 clearing and execution costs). Excluding the NITE order flow
credits, clearing and execution costs as a percentage of total revenues was 24%
and 27% in 2000 and 1999, respectively.
Communications expense increased $165,882 (142%) in 2000 compared to 1999. The
increase was due largely to new UUNET Internet service starting in May 1999,
additional MCI quote line service starting in September 1999, digital telephone
lines installed in February 2000, increased telephone usage, and increased
purchases of computer and server parts and accessories.
Administrative compensation and employee benefits increased $271,274 (99%) in
2000 compared to 1999. The increase was due to hiring of additional
administrative personnel and higher salary levels.
Other expenses increased $114,387 (41%) in 2000 compared to 1999. The increase
was due to a $135,000 provision recorded in 2000 to increase the balance of
CSC-1's allowance for legal proceedings from $50,000 to $185,000. The $185,000
balance is included in accounts payable and accrued expenses on the consolidated
statement of financial condition at March 31, 2000.
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Three Months ended March 31, 2000 compared to three months ended March 31, 1999-
Net income for the three months ended March 31, 2000 was $210,812, or $.04 per
share, compared to net income of $31,816, or $.01 per share, for the three
months ended March 31,1999. Total revenues increased $806,462 (94%) and total
expenses increased $627,434 (76%) in 2000 compared to 1999. Revenues less
commissions and clearing and execution costs were $1,042,675 in 2000 compared
to $524,503 in 1999.
The increase in total revenues was due primarily to $627,062 higher commissions
derived from the Castle Online division of CSC-1. Castle Online customer
transactions increased from 38,919 in the three months ended March 31, 1999 to
79,825 in the three months ended March 31, 2000. Castle Online average revenue
per transaction was $16.23 and $17.18 in 2000 and 1999, respectively.
Commissions revenue from other sources increased $93,344 (76%) in 2000 compared
to 1999. Customer transactions totaled 5,293 and 6,230 in 2000 and 1999,
respectively. Average revenue per transaction was $40.82 and $19.70 in 2000
and 1999, respectively.
Revenue from principal transactions increased $81,419 (130%) in 2000 compared to
1999. Principal transactions totaled 948 and 511 in 2000 and 1999,
respectively. Average revenue per transaction was $152.01 and $122.68 in 2000
and 1999, respectively.
Commissions expense increased $144,209 (139%) in 2000 compared to 1999 as a
result of higher revenues. Commissions expense as a percentage of total
revenues was 15% and 12% in 2000 and 1999, respectively.
Clearing and execution costs increased $144,081 (64%) in 2000 compared to 1999
as a result of increased Castle Online transactions, offset partially by $28,060
in order flow credits received from NITE in 2000 (which reduced 2000 clearing
and execution costs). Excluding the NITE order flow credits, clearing and
execution costs as a percentage of total revenues was 24% and 27% in 2000 and
1999, respectively.
Communications expense increased $94,364 (193%) in 2000 compared to 1999. The
increase was due largely to new UUNET Internet service starting in May 1999,
additional MCI quote line service starting in September 1999, digital telephone
lines installed in February 2000, increased telephone usage, and increased
purchases of computer and server parts and accessories.
Other expenses increased $55,530 (40%) in 2000 compared to 1999. The increase
was due to a $75,000 provision recorded in 2000 to increase the balance of
CSC-1's allowance for legal proceedings from $110,000 to $185,000.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
No additional reportable legal proceedings were initiated since December 29,
1999, the filing date of Form 10-KSB for the fiscal year ended September 30,
1999. Reference should be made to the Registrant's Form 10-KSB for the fiscal
year ended September 30, 1999 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, 2000 that were not registered under the
Securities Act were:
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Title of
Date of Sale Security Shares Purchaser(s) Consideration
January 7, 2000 Common 100,000 George R. Hebert (1) $55,000 stock
Stock subscription
promissory note
January 7, 2000 Common 100,000 Michael T. Studer (1) $55,000 stock
Stock subscription
promissory note
March 15, 2000 Common 7,400 74 employees of Services valued at
Stock clearing agent $3,700
(100 shares each)
March 30, 2000 Common 3,000 Sandor Marketing Services valued at
Stock Group, Inc. $3,000
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Legend:
(1) Officer and director of Registrant
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, 2000.
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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.
May 12, 2000 /s/ George R. Hebert
George R. Hebert
President
May 12, 2000 /s/ Michael T. Studer
Michael T. Studer
Secretary - Treasurer,
Principal Financial and
Accounting Officer
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EXHIBIT 27
Financial Data Schedule for the second quarter ended March 31, 2000 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-30-2000
[PERIOD-START]JAN-01-2000
[PERIOD-END]MAR-31-2000
[EXCHANGE-RATE] 1
[CASH] 684,609
[RECEIVABLES] 359,616
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 54,263
[PP&E] 305,676
[TOTAL-ASSETS] 1,455,840
[SHORT-TERM] 77,500
[PAYABLES] 520,742
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 2
<LONG TERM> 180,215
[COMMON] 17,277
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 660,104
[TOTAL-LIABILITY-AND-EQUITY] 1,455,840
[TRADING-REVENUE] 144,106
[INTEREST-DIVIDENDS] 5,556
[COMMISSIONS] 1,511,898
[INVESTMENT-BANKING-REVENUES] 0
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 7,088
[COMPENSATION] 550,159
[INCOME-PRETAX] 211,212
[INCOME-PRE-EXTRAORDINARY] 211,212
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 210,812
[EPS-BASIC] .04
[EPS-DILUTED] .04
