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, 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.
6,660,500 SHARES ($.0025 PAR VALUE) AT JANUARY 31, 2000
<PAGE>
CASTLE HOLDING CORP.
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 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
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1999 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 383,133 $ 449,968
Due from brokers 137,455 261,317
Securities owned, at market value 35,620 57,371
Equipment, less accumulated depreciation of
$164,151 and $46,024, respectively 31,667 42,906
Equipment under capital leases, less
accumulated depreciation of $89,090
and $45,899, respectively 66,482 57,837
Leasehold improvements, less
accumulated amortization of
$77,296 and $86,621, respectively 105,086 114,117
Other assets 55,996 44,452
Total assets $ 815,439 $1,027,968
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 87,500 $ 87,500
Accounts payable and accrued expenses 245,256 305,764
Commissions payable 17,175 81,682
Income taxes payable 1,998 842
Securities sold, not yet purchased, at market 806 540
Obligations under capital leases 71,428 63,021
Loan subordinated to claims of general creditors 50,000 50,000
Total liabilities 474,163 589,349
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.0025 par value; authorized
10,000,000 shares, issued and outstanding
6,640,500 and 6,660,500 shares, respectively 16,601 16,651
Additional paid - in capital 862,444 865,994
Accumulated deficit (349,644) (255,901)
Total 529,401 626,744
Less stock subscriptions receivable (188,125) (188,125)
Total stockholders' equity 341,276 438,619
Total liabilities and stockholders' equity $ 815,439 $1,027,968
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS
ENDED DECEMBER 31,
1999 1998
<S>
Revenues: <C> <C>
Commissions $ 1,199,281 $ 585,638
Principal transactions 72,438 36,865
Interest and dividends 3,535 736
Total revenues 1,275,254 623,239
Expenses:
Commissions 166,399 70,544
Clearing and execution costs 255,516 167,172
Communications 161,861 68,338
Advertising 25,045 3,480
Administrative compensation
and employee benefits 243,349 118,301
Professional and consulting fees 84,677 86,885
Registration and regulatory fees 17,461 13,573
Occupancy 17,374 14,360
Interest 6,768 8,006
Other 202,134 143,277
Total expenses 1,180,584 693,936
Income (loss) before provision for
income taxes 94,670 (70,697)
Provision for (benefit from) income taxes 927 340
Net income (loss) $ 93,743 $ (71,037)
Net income (loss) per share:
Basic and diluted $ .01 $ (.01)
Weighted average number of common
shares outstanding:
Basic 6,647,167 5,133,100
Diluted 6,667,167 5,133,100
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED DECEMBER 31,
1999 1998
<S>
Cash flows from operating activities: <C> <C>
Net income (loss) $ 93,743 $ (71,037)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 20,738 18,276
Issuance of common stock for services and rent 3,600 23,500
Changes in assets and liabilities:
Due from brokers (123,862) (89,174)
Securities owned ( 21,751) 5,570
Other assets 11,544 (7,453)
Accounts payable and accrued expenses 60,508 3,004
Commissions payable 64,507 10,009
Income taxes payable (1,156) (1,940)
Securities sold, not yet purchased (266) (2,983)
Net cash provided by (used for) operating activities 107,605 (112,228)
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (32,363) (8,525)
Net cash used for investing activities (32,363) (8,525)
Cash flows from financing activities:
Proceeds from issuance of notes payable - 50,000
Repayment of obligations under capital leases (8,407) (3,415)
Net cash provided by (used for) financing activities (8,407) 46,585
Net increase (decrease) in cash 66,835 74,168)
Cash and cash equivalents, beginning of period 383,133 187,266
Cash and cash equivalents, end of period $ 449,968 $113,098
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
<S>
Supplemental disclosures of cash flow information: <C> <C>
Interest paid $ 13,743 $ 18,481
Income taxes paid $ 2,083 $ 2,280
Schedule of non-cash operating activities:
Issuance of common stock for services and rent $ 3,600 $ 23,500
Schedule of non-cash investing activities:
Acquisition of equipment in connection
with capital lease obligations $ - $ 3,309
Retirement of fully depreciated equipment $ 172,731 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of December 31, 1999 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
disclosure 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 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.
3. SUBSEQUENT EVENTS
On January 7, 2000, CHC granted stock options (for a total of 400,000
shares of its common stock) to 53 employees of the Company. The
options provide the respective employees the right to purchase CHC
common stock at a price of $.50 per share and are exercisable and vest
at a rate of 20% for each year commencing January 7, 2001.
On January 7, 2000, CHC sold its president and treasurer a total of
200,000 shares of CHC common stock at a price of $.55 per share in
exchange for two $55,000 promissory notes due January 7, 2002.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total stockholders' equity increased $97,343 from $341,276 at September 30,
1999 to $438,619 at December 31, 1999. This increase was due primarily to
the $93,743 net income earned in the three months ended December 31, 1999.
Cash and cash equivalents increased $66,835 from $383,133 at September 30,
1999 to $449,968 at December 31, 1999. This increase was due to $107,605
provided by operating activities, offset by $32,363 used for investing
activities and $8,407 used for 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 oftrading 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, 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.
<PAGE>
Revenues by source - For the three months ended December 31, 1999 and 1998,
revenues were derived as follows:
<TABLE>
THREE MONTHS
ENDED DECEMBER 31,
1999 1998
<S> <C> <C>
Commissions:
Castle Online $ 1,047,608 $ 481,334
Other 151,673 104,304
Total commissions 1,199,281 585,638
Principal transactions:
Trading accounts 70,859 37,235
Investment accounts 1,579 (370)
Total principal transactions 72,438 36,865
Interest and dividends 3,535 736
Total revenues $ 1,275,254 $ 623,239
</TABLE>
Three Months ended December 31, 1999 compared to three months ended
December 31, 1998 -
Net income for the three months ended December 31, 1999 was $93,743, or $.01
per share, compared to a net loss of $71,037, or $(.01) per share, for the
three months ended December 31,1998. Total revenues increased $652,015
(105%) and total expenses increased $486,648 (70%) in 1999 compared to 1998.
Revenues less commissions and clearing and execution costs were $853,339 in
1999 compared to $385,523 in 1998.
<PAGE>
The increase in total revenues was due primarily to $566,274 higher
commissions derived from the Castle Online division of CSC-1. Castle Online
customer transactions increased from 27,070 in the three months ended
December 31, 1998 to 64,838 in the three months ended December 31, 1999.
Castle Online funded customers increased from 214 at December 31, 1998 to 327
at December 31, 1999.
Commissions expense increased $95,855 (136%) in 1999 compared to 1998 as a
result of higher revenues. Commissions expense as a percentage of total
revenues was 13% and 11% in 1999 and 1998, respectively.
Clearing and execution costs increased $88,344 (52%) in 1999 compared to 1998
as a result of increased Castle Online transactions, offset partially by
$42,916 in order flow credits received from Knight Securities ("NITE") in
1999 (which reduced 1999 clearing and execution costs). Excluding
the NITE order flow credits, clearing and execution costs as a percentage of
total revenues was 23% and 27% in 1999 and 1998, respectively.
Communications expense increased $93,523 (137%) in 1999 compared to 1998. The
increase was due largely to additional MCI quote line service starting in
September 1999 and new UUNET internet service starting in May 1999.
Administrative compensation and employee benefits increased $125,048 (106%) in
1999 compared to 1998. The increase was due to hiring of additional
administrative personnel and higher salary levels.
Other expenses increased $58,857 (41%) in 1999 compared to 1998. The increase
was due to a $60,000 provision recorded in 1999 to increase the balance of
CSC-1's allowance for legal proceedings from $50,000 to $110,000. The
$110,000 balance is included in accounts payable and accrued expenses on the
consolidated statement of financial condition at December 31, 1999.
<PAGE>
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 December 31, 1999 that were not registered under
the Securities Act were:
(1) November 4, 1999 - 20,000 shares of Common Stock, $.0025 par
value were issued to Equities Magazine LLC in exchange for certain
specified advertising (valued at $3,600) 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.
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, 1999.
<PAGE>
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.
February 4, 2000 /s/ George R. Hebert
GEORGE R. HEBERT
PRESIDENT
February 4, 2000 /s/ Michael T. Studer
MICHAEL T. STUDER
SECRETARY - TREASURER,
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE FOR THE FIRST QUARTER ENDED DECEMBER 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]DEC-31-1999
[PERIOD-START]OCT-01-1999
[PERIOD-END]DEC-31-1999
[EXCHANGE-RATE] 1
[CASH] 449,968
[RECEIVABLES] 261,317
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 57,371
[PP&E] 214,860
[TOTAL-ASSETS] 1,027,968
[SHORT-TERM] 87,500
[PAYABLES] 388,288
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 540
<LONG TERM> 113,021
[COMMON] 16,651
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 421,968
[TOTAL-LIABILITY-AND-EQUITY] 1,027,968
[TRADING-REVENUE] 72,438
[INTEREST-DIVIDENDS] 3,535
[COMMISSIONS] 1,199,281
[INVESTMENT-BANKING-REVENUES] 0
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 6,768
[COMPENSATION] 409,748
[INCOME-PRETAX] 94,670
[INCOME-PRE-EXTRAORDINARY] 94,670
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 93,743
[EPS-BASIC] .01
[EPS-DILUTED] .01
