UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
1934
For the fiscal year ended September 30, 2000
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934 for the transition period from ______________ to ________________
Commission File Number 33-37809-NY
CASTLE HOLDING CORP.
(Name of Small Business Issuer in its Charter)
Nevada
(State of Other Jurisdiction of Incorporation)
77-0121957
(I.R.S. Employer Identification No.)
45 Church Street, Suite 25, Freeport , New York 11520
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (516) 868-2000
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.0025 per share.
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports(s), and (2) has
been subject to such filing requirements for the past 90 days. ____Yes X No
Check if there is no disclosure of delinquent filers in response to item 405
of Regulations S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part iii of this form 10-KSB or any
amendment to this form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year was $4,406,495.
As of November 30, 2000 the aggregate market value of the registrant's common
stock (based on its $ .125 reported last bid price on the OTC Bulletin Board)
held by non-affiliates of the registrant was $346,875.
As of November 30, 2000, there were 6,914,100 common shares outstanding.
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
Castle Holding Corp. (the "Company" or the "Registrant") is a holding company
incorporated in Nevada on June 13, 1986. The Company conducts substantially
all of its business through two subsidiaries, Castle Securities Corp.
("Castle" or "CSC-1") and Citadel Securities Corp. ("Citadel" or "CSC-2").
Castle was incorporated in New York on December 7, 1984 and operates as a
broker-dealer in securities. Its businesses activities include the
underwriting and brokerage of fixed income and equity securities. Citadel
was incorporated in New York on April 11, 1991 and also operates as a
broker-dealer in securities. Citadel makes markets in Nasdaq, OTC Bulletin
Board and "Pink Sheets" securities, has no retail customers, and conducts
business exclusively with other broker-dealers.
Castle and Citadel are broker-dealers registered with the Securities and
Exchange Commission ("SEC") and members of the National Association of
Securities Dealers ("NASD"), the Municipal Securities Rule Making Board
("MSRB"), and the Securities Investor Protection Corporation ("SIPC").
Castle is currently licensed to conduct its broker-dealer business in 36
states and the District of Columbia. Citadel is currently licensed to
conduct its broker-dealer business only in New York.
On December 28, 1998, the Company paid a 100% stock dividend and on June 25,
1999, the Company paid a 300% stock dividend. All references to shares and
per share amounts herein have been restated to retroactively reflect these
stock dividends.
<TABLE>
Revenues by Source
For the years ended September 30, 2000 and 1999, revenues were derived as follows:
Years Ended September 30,
<S>
<C> <C>
Commissions: 2000 1999
Castle Online $ 3,554,846 $ 2,484,152
Other stocks and bonds 491,314 442,634
Mutual funds 68,894 16,566
Total commissions 4,115,054 2,943,352
Principal transactions:
Trading accounts 268,570 358,933
Investment accounts 1,043 280
Total principal transactions 269,613 359,213
Interest and dividends 21,828 7,098
Total revenues $ 4,406,495 $ 3,309,663
</TABLE>
<PAGE>
Castle Online
Castle Online ("Online") is a division of Castle which, started in July 1996
to allow customers to engage in securities transactions directly over the
Internet. In April 1997, Online installed a T-1 fiber optics data feed
expandable into a T-3 data feed. To date, only securities listed on the New
York Stock Exchange, the American Stock Exchange and the Nasdaq Stock
Market have been available to Online customers.
Castle maintains a web site (www.castleonline.com) where parties interested
in online trading can both learn about the various features of this service
and can register for trading. This system offers customers the ability to
execute day trades (the practice of buying and selling securities, usually
exiting the position in the same day) using Online Java Trader order entry
software.
With respect to the Nasdaq Stock Market (over 95% of Online transactions
involve securities listed there), the system offers five routing selections
for customers to transact their buying and selling. The first is SOES, an
automated execution method that allows an investor to buy at the offer and
sell at the bid. The second is SelectNet, whereby an investor can submit
an order within the spread for only market makers to view and possibly
execute. We also offer three Electronic Communications Networks ("ECNs")
to choose from: Island ("ISLD"), Archipelago ("ARCA"), and Nextrade
("NTRD"). By submitting an order on an ECN, an investor "posts" the order
to buy or sell a security on the Nasdaq Level 2 screen, so that the entire
market can see it and execute on it. The ISLD, ARCA, or NTRD symbol, which
displays the customer order like a market maker, will move to the price
designated by an investor's order.
Online's software offers customers the ability to place unsolicited market
and limit orders and view executions without the necessity of telephone
calls to Castle registered representatives. For $75 per month ($0 if
customer monthly transactions exceed 100), customers are provided real
time Nasdaq level II quotes, other quotes, news, and charts.
Commissions start at $19.95 per trade.
For the years ended September 30, 1998, 1999, and 2000, Online customer
transactions totaled 57,610, 149,107, and
209,679, respectively.
Registrant expects Online to become its primary source of future growth,
revenues and profitability.
Principal Transactions
In April 1994, Castle resumed market-making activities in over-the-counter
equity securities (Castle had ceased such activities on August 24, 1992).
In April 1996, such activities were transferred to Citadel. At September
30, 2000, Citadel employs one trader making markets in a total of 46
securities, 1 quoted on the Nasdaq Stock Market, 33 quoted
on the OTC Bulletin Board, and 12 quoted on the "Pink Sheets".
Trading profits or losses are dependent upon the skill of the firm's
employees in market making activities, the capital allocated to the firm's
positions in various securities and the general trend of prices and level
of activity in the securities markets. Trading as principal requires the
commitment of capital and creates an opportunity for profits and losses due
to market fluctuations. Citadel takes both long and short positions in
those securities in which it makes a market.
Under its present restriction agreement with the NASD, Citadel is limited
to making markets in 100 securities.
<PAGE>
Investment Banking
Since inception, Castle has been the managing underwriter of completed "best
efforts" public offerings of equity securities for 23 issuers (the last one
was completed in 1991). Additionally, Castle has participated in other equities
and municipal bond offerings as a selected dealer or selling group member.
In May 1999, Castle executed a letter of intent to act as managing underwriter
of a "best efforts" public offering of equity securities of Exhaust Technologies,
Inc. The related registration statement was declared effective by the SEC
on December 7, 2000.
Castle maintains a website (www.castleIPO.com) to display prospectuses and
offer new issues over the Internet. As an underwriter, Castle is subject to
liability under the Securities Act of 1933, as amended, and state and other laws
in the event, among other matters, that the registration statement or prospectus
contains a material misstatement or
omission. Castle's potential liability as an underwriter is not generally
covered by insurance.
Investment Management
On December 23, 1993, Castle Advisers Inc. ("CAI") was formed to operate as a
general partner for limited
partnerships in the business of securities investment. On March 29, 1994, CAI
executed a limited partnership agreement with Castle Advisors Limited
Partnership 94-1 ("CALP") to operate as their general partner. Under the
agreement, CAI receives a performance incentive allocation equal to 1% of the
profits (which exceed cumulative losses previously allocated to limited
partners).
At September 30, 2000, CALP had net assets of approximately $132,496, including
its $120,000 investment in the Company. From inception to September 30, 2000,
CAI has earned $525 in performance incentive fees.
Other Internet Operations
On March 13, 2000, Cyber Holdings Corp.com ("CHC-2") (57% owned by the Company)
was formed to acquire Cyberville City Inc. ("CCI") and Long Island Web TV.com
Corp. ("LITV"). CCI and LITV, which employ one full time employee and are both
in the developmental stage, operate websites and offer advertising and
production packages to business customers. From March 13, 2000 to September
30, 2000, CHC-2 and subsidiaries only had intercompany revenues.
Clearing Broker
In executing customers' orders to buy or sell listed securities and other
securities in which it does not make a market, Castle generally acts as an
agent and charges a commission.
Castle and Citadel have clearing agreements with JB Oxford & Company. The
clearing broker clears transactions on a fully disclosed basis for Citadel and
for Castle's account and the accounts of its customers. The services provided
by the clearing broker include billing and receipt, and custody and delivery of
securities, for which Castle and Citadel
pays the clearing broker certain transaction fees and miscellaneous charges.
Competition
The Company, through Castle and Citadel, both registered broker/dealers and
members of the NASD, is engaged in a highly competitive business. Its
principal competition includes, with respect to one or more aspects of its
business, all of the member organizations of the New York Stock Exchange
("NYSE") and other registered securities exchanges, all members of the
NASD, and commercial banks and thrift institutions. Many of these
organizations are national firms and have substantially greater financial
and human resources than Castle or Citadel.
Discount brokerage firms seeking to expand their share of the retail
market, including firms affiliated with commercial banks and thrift
institutions, are devoting substantial funds to advertising and direct
solicitation of customers. In many instances, Castle and Citadel are
competing directly with such organizations. In addition, there is
competition for investment funds from the real estate, insurance, banking
and savings and loan industries. The Company believes that
the principal factors affecting competition for the securities industry
are the quality and ability of professional personnel and relative prices
of services and products offered.
<PAGE>
Regulation
The securities industry in the United States is subject to extensive
regulation under federal and state laws. The SEC is the federal agency
charged with administration of the federal securities laws. Much of
the regulation of broker-dealers, however, has been delegated to
self-regulatory organizations, principally the NASD and the national
securities exchanges, although the SEC maintains jurisdiction and is
not necessarily bound by the actions or recommendations of the NASD.
These self-regulatory organizations adopt rules (which are subject to
approval by the SEC) that govern the industry and conduct periodic
examinations of member broker-dealers. Securities firms are also
subject to regulation by state securities commissions in the states
in which they are registered.
The regulations to which broker-dealers are subject cover all aspects
of the securities business, including sales methods, trade practices
among broker-dealers, capital structure of securities firms, record-
keeping and conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the SEC and self-
regulatory organizations, or changes in the interpretation or
enforcement of existing laws and rules often directly affect the
method of operation and profitability of broker-dealers. The SEC,
self-regulatory organizations and state securities regulators may
conduct administrative proceedings, which can result in censure,
fine, suspension or expulsion of a broker-dealer, its officers or
employees. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities
markets rather than protection of creditors and stockholders of
broker-dealers.
Net Capital Requirements
As broker-dealers, Castle and Citadel are subject to the SEC's Net
Capital Rule (the "Rule") which is designed to measure the general
financial integrity and liquidity of a broker-dealer. The Rule
requires the maintenance of minimum net capital (at September 30,
2000, $17,110 for Castle and $100,000 for Citadel) and requires that
the ratio of aggregate indebtedness, as defined, to net capital, as
defined, not exceed 15 to 1. In computing net capital, various
adjustments to net worth are made with a view to excluding assets
that are not readily convertible into cash and
making a conservative statement of other assets, such as a firm's
position in securities. Compliance with the Rule limits those
operations of securities firms that require the intensive use of
their capital, such as underwriting
commitments and principal trading activities, and limits the ability
of securities firms to pay dividends.
Both Castle and Citadel are required to file "Focus" reports with the
NASD. The purpose of these reports is to provide the NASD with a
current financial status for each Company and to evidence compliance
with the net capital requirements.
In addition to the above requirements, funds invested as equity
capital may not be withdrawn, nor may any unsecured advances or
loans be made to any stockholder of a registered broker-dealer,
if, after giving effect to such withdrawal, advance or loan and
to any other such withdrawal, advance or loan as well as to any
scheduled payments of
subordinated debt which are scheduled to occur within six months,
the net capital of the broker-dealer would fail to equal 120% of
the minimum dollar amount of net capital required or the ratio of
aggregate indebtedness to net capital would exceed 10 to 1. Finally,
any funds invested in the form of subordinated debt generally must
be invested for a
minimum term of one year and repayment of such debt may be suspended
if the broker-dealer fails to maintain certain minimum net capital
levels. For example, scheduled payments of subordinated debt are
suspended in the event that the
ratio of aggregate indebtedness to net capital of the broker-dealer
would exceed 12 to 1 or if its net capital would be
less than 120% of the minimum dollar amount of net capital required.
At September 30, 2000, Castle had net capital of $242,267, which was
$225,157 in excess of its required net capital,
and its ratio of aggregate indebtedness to net capital was 1.06 to 1.
Citadel had net capital of $219,661, which was $119,661 in excess of
its required net capital, and its ratio of aggregate indebtedness to
net capital was .12 to 1.
<PAGE>
Employees
At September 30, 2000, the Company employed a total of 50 persons,
including 2 executive personnel, 36 other registered representatives
(21 part-time), and 12 other full-time administrative persons.
Registered representatives are required to take examinations given
by the NASD and approved by the NYSE and all principal exchanges
as well as state securities authorities in order to be registered.
There is intense competition among securities firms for registered
representatives with proven sales production records.
The Company considers its employee relations to be good and believes
that its compensation and employee benefits are competitive with
those offered by other securities firms. None of the Company's
employees are covered by a
collective bargaining agreement.
Item 2. DESCRIPTION OF PROPERTY
The Company, Castle, and Citadel maintain their business headquarters
at 45 Church Street, Freeport, New York 11520, where they occupy
approximately 16,000 square feet of office space. The facilities
are occupied under six lease agreements that provide for total monthly
rentals of $6,549 and expire October 2002. At the option of a wholly
owned subsidiary of the Company, the leases are renewable for periods
extending the terms to October 2007. The facilities provide the
Company with sufficient space in which to conduct its present
activities and store required business records pursuant to rules and
regulations of the SEC and the NASD.
Item 3. LEGAL PROCEEDINGS
Since inception, Castle and certain of its principals have been the
targets of various legal and administrative proceedings brought by
the SEC, the NASD or other state securities commissions.
Additionally, in the normal course of its business, Castle, from
time to time, is involved in claims, lawsuits and arbitrations
brought by its customers.
Material legal proceedings outstanding at September 30, 2000 follows:
(1) SEC v. U.S. Environmental, Inc., Castle, Michael T. Studer et al
On September 13, 1994, the SEC filed a civil action against Castle,
its president, a former registered representative, and eight other
defendants. The action alleges violations of Section 5(a) and (c),
and 17(a) of the Securities Act of 1933, Section 10(b) and 15c of
the Exchange Act of 1934 and Rules lOb-3, lOb-5, lOb-6, and
15cl-2 thereunder. The complaint seeks injunctive relief and
disgorgement of profits in the approximate amount of $175,000.
An answer and amended answer has been filed on behalf of Castle
and its president and discovery has commenced but no trial date
has yet been set.
(2) National Association of Securities Dealers, Inc. Market
Surveillance Committee v. Castle, Michael T. Studer et al
On October 6, 1994, the National Association of Securities Dealers,
Inc. Market Surveillance Committee (the "MSC") commenced a
disciplinary proceeding against Castle, its president, and two
former registered representatives. The Complaint alleges violations
of Article III, Sections 1, 4, 18, and 27 of the Association's
Rules of Fair Practice and Section 10(b) of the Securities Exchange
Act of 1934 and Rule lOb-5 thereunder. After a hearing on June 20,
1995, in MSC's Decision dated February 7, 1996, Castle and its
president were fined, jointly and severally, $25,000 and were
ordered to make restitution to specified customers totaling
approximately $10,000. Castle and its president appealed the
decision to the National Business Conduct Committee (the "NBCC") of
the NASD and a hearing of the appeal was held on June 7, 1996. In
its Amended Decision dated October 21, 1996, the NBCC affirmed the
fines and restitution order. On November 15, 1996, Castle and its
president appealed the NBCC Amended Decision to the SEC. On January
7, 1998, the SEC affirmed the NBCC Amended Decision. On May 18,
1998, the SEC denied Castle's Motion for Reconsideration filed
January 21, 1998. On February 5, 1998 and June 15, 1998, Castle
and its president filed petitions for review of the NASD and
SEC actions to the Second Circuit of the United States Court of
Appeals, which matters are still pending.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during the two fiscal
years ended September 30, 2000.
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, $.0025 par value, is traded in the
over-the-counter market under the OTC Bulletin Board symbol "CHOD".
However, there is no established trading market as actual
transactions are infrequent. The following table sets forth the
range of high and low closing bid quotations by calendar quarters
as reported by the National Quotation Bureau from October 1, 1998
through September 30, 2000, as adjusted for the 100% stock dividend
paid December 28, 1998 and the 300% stock dividend paid June 25,
1999. Bid quotations represent prices between dealers, do not
include retail mark-ups, mark-downs or other fees or commissions,
and do not necessarily represent actual transactions.
<TABLE>
<S> <C> <C>
Ouarter Ended High Bid Low Bid
December 31, 1998 $ 0.594 $ 0.063
March 31, 1999 1.000 0.281
June 30, 1999 1.750 0.422
September 30, 1999 0.938 0.156
December 31, 1999 0.550 0.156
March 31, 2000 1.438 0.406
June 30, 2000 1.063 0.438
September 30, 2000 0.469 0.281
</TABLE>
As of September 30, 2000, the number of holders of record of the
Company's common stock was 155. There were 14 market makers for
the Company's common stock, 6,914,100 shares outstanding, and the
closing bid price was $0.28125.
Registrant has paid no cash dividends and has no present plan to
pay cash dividends, intending instead to reinvest its earnings,
if any. However, payment of future cash dividends will be determined
from time to time by its Board of Directors, based upon its future
earnings, financial condition, capital requirements and other factors.
Recent Sales of Unregistered Securities
No equity securities of the Registrant were sold by the Registrant
during the quarterly period ended September 30, 2000.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 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.
<PAGE>
Year ended September 30, 2000 compared to year ended September 30, 1999
Net income for the year ended September 30, 2000 was $112,620, or $.02
per share, compared to a net loss of $(63,865), or $(.01) per share, for
the year ended September 30, 1999. Total revenues increased $1,096,832
(33%) to $4,406,495 from $3,309,663 and total expenses increased
$919,052 (27%) to $4,290,162 from $3,371,110. Revenues less commissions
and clearing and execution costs were $3,026,824 in 2000, compared to
$2,044,817 in 1999.
Commissions' revenue from the Castle Online division of CSC-1 increased
$1,070,694 (43%) from $2,484,152 in 1999 to $3,554,846 in 2000. Castle
Online customer transactions increased from 149,107 in 1999 to 209,679
in 2000. Castle Online funded customers decreased from 360 at
September 30, 1999 to 308 at September 30, 2000. Castle Online
average revenue per transaction was $16.66 and $16.95 in 1999 and 2000,
respectively.
Commissions' revenue from other sources increased $101,008 (22%) from
$459,200 in 1999 to $560,208 in 2000. Customer transactions totaled
24,644 and 21,685 in 1999 and 2000, respectively. Average revenue
per transaction was $18.63 and $25.83 in 1999 and 2000, respectively.
Revenue from principal transactions decreased $89,600 (25%) from
$359,213 in 1999 to $269,613 in 2000. Principal transactions totaled
2,289 and 2,533 in 1999 and 2000, respectively. Average revenue per
transaction was $156.93 and $106.44 in 1999 and 2000, respectively.
Commissions expense increased $61,578 (13%) from $461,035 in 1999 to
$522,613 in 2000 as a result of higher revenues. Commissions expense
as a percentage of total revenues was 14% and 12% in 1999 and 2000,
respectively.
Clearing and execution costs increased $53,247 (7%) from $803,811 in
1999 to $857,058 in 2000 as a result of increased Castle Online
transactions, offset partially by $77,038 in order flow credits
received in 2000 (which reduced year 2000 clearing and execution
costs). Excluding the order flow credits, clearing and execution
costs as a percentage of total revenues was 24% and 21% in 1999 and
2000, respectively.
Communications expense increased $245,845 (81%) from $303,693 in
1999 to $549,538 in 2000. 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 $250,505
(33%) from $752,542 in 1999 to $1,003,047 in 2000. The increase
was due to hiring of additional administrative personnel and higher
salary levels.
Other expenses increased $225,556 (39%) from $571,667 in 1999 to
$797,223 in 2000. The increase was due to a $60,000 provision
recorded in 2000 to increase the balance of CSC-1's allowance for
legal proceedings from $50,000 to $110,000, a $32,669 increase in
depreciation expense and increased office and maintenance expenses
resulting from expansion of office space.
<PAGE>
Liquidity and Capital Resources
The majority of the Registrant's assets are highly liquid and
short-term in nature. Cash and cash equivalents, due from
brokers, and securities owned at September 30, 2000 totaled
$816,560, 68% of the Registrant's assets.
Cash and cash equivalents increased $105,313 from $383,133 at
September 30, 1999 to $488,446 at September 30, 2000. This
increase was due primarily to the $112,620 net income earned
in the year ended September 30, 2000.
Castle and Citadel, the Registrant's broker-dealer subsidiaries,
are subject to "net capital" requirements of the SEC. Among
other things, these requirements limit the number of markets,
which they may make, and the value of securities
inventories which they may carry. Presently, a broker or dealer
engaged in activities as a market maker must maintain net
capital in an amount not less than $2,500 for each security in
which it makes a market (unless a security in which it makes a
market has a market value of $5.00 or less in which event the
amount of net capital shall be not less than $1,000 for each
such security).
At September 30, 2000, Castle had net capital of $242,267, which
was $225,157 in excess of its required net capital of $17,110,
and Citadel had net capital of $219,661, which was $119,661 in
excess of its required net capital of $100,000.
<PAGE>
<TABLE>
<S>
Item 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Description Page No.
<C>
Independent Auditors' Report 11
Consolidated Statements of Financial Condition,
September 30, 2000 and 1999 12
Consolidated Statements of Operations,
Years ended September 30, 2000 and 1999 13
Consolidated Statements of Changes in Stockholders' Equity,
Years ended September 30, 2000 and 1999 14-15
Consolidated Statements of Cash Flows,
Years ended September 30, 2000 and 1999 16-17
Notes to Consolidated Financial Statements,
Years Ended September 30, 2000 and 1999 18-26
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Castle Holding Corp.
We have audited the accompanying consolidated statements of
financial condition of Castle Holding Corp. and Subsidiaries
(the "Company") as of September 30, 2000 and 1999 and the
related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company
as of September 30, 2000 and 1999 and the results of its
consolidated operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
Massella, Tomaro & Co., LLP
Jericho, New York
December 15, 2000
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30,
<S> 2000 1999
Assets <C> <C>
Cash and cash equivalents $ 488,446 $ 383,133
Due from brokers 282,920 137,455
Securities owned, at market value 45,194 35,620
Equipment, less accumulated depreciation of
$64,214 and $164,151, respectively 77,281 31,667
Equipment under capital leases, less accumulated
depreciation of $80,870 and $89,090, respectively 100,330 66,482
Leasehold improvements, less accumulated
amortization of $126,552 and $77,296, respectively 138,640 105,086
Other assets 75,688 55,996
Total assets $1,208,499 $ 815,439
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 77,500 $ 87,500
Accounts payable and accrued expenses 443,884 240,269
Commissions payable 27,309 17,175
Income taxes payable 3,561 1,998
Securities sold, not yet purchased, at market 303 806
Obligations under capital leases 105,779 71,428
Loan subordinated to claims of general creditors 50,000 50,000
Total liabilities 708,336 469,176
Commitments and contingencies (Note 11) - -
Minority Interest 1,867 4,987
Stockholders' equity:
Common stock, $.0025 par value; authorized
10,000,000 shares, issued and outstanding
6,914,100 and 6,640,500 shares, respectively 17,285 16,601
Additional paid - capital 994,910 862,444
Accumulated deficit (237,024) (349,644)
Total 775,171 529,401
Less: stock subscriptions receivable (276,875) (188,125)
Total stockholders' equity 498,296 341,276
Total liabilities and stockholders' equity $1,208,499 $ 815,439
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended September 30,
<S> 2000 1999
Revenues: <C> <C>
Commissions $ 4,115,054 $ 2,943,352
Principal transactions 269,613 359,213
Interest and dividends 21,828 7,098
Total revenues 4,406,495 3,309,663
Expenses:
Commissions 522,613 461,035
Clearing and execution costs 857,058 803,811
Communications 549,538 303,693
Advertising 72,712 44,724
Administrative compensations and employee
benefits 1,003,047 752,542
Professional and consulting fees 363,170 308,397
Registration and regulatory fees 25,133 29,192
Occupancy 70,627 64,220
Interest 29,041 31,829
Other 797,223 571,667
Total expenses 4,290,162 3,371,110
Income (loss) before provision for income taxes116,333 (61,447)
Provision for income taxes 3,713 2,418
Net income (loss) $ 112,620 $ (63,865)
Net income (loss) per share:
Basic and diluted $ 0.02 $ (0.01)
Weighted average number of common
shares outstanding:
Basic 6,816,558 5,828,017
Diluted 6,836,558 5,828,017
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 2000 and 1999
(Page 1 of 2)
Tota
Common Stock, Additional (Accum- Stock Sub- Stock-
$.0025 Par Value Paid-in ulated scriptions holders'
Shares Amount Capital Deficit) Receivable Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1998 $5,034,400 $12,586 $398,334 $(285,779) $(25,000) $ 100,141
Issuance of common shares to
lessorin October 1998 and
charged to operations 108,000 270 13,230 - - 13,500
Issuance of common shares to
two customers in November
1998 in legal settlement
and charged to operations 80,000 200 9,800 - - 10,000
Sale of common shares to
investor in February 1999
at $.25 per share 40,000 100 9,900 - (10,000) -
Sale of common shares to
investor in March 1999
at $.3125 per share 40,000 100 12,400 - - 12,500
Sale of common shares to
three CHC directors
(302,000 shares) and three
key employees (178,000 shares)
in March 1999 at $.3125
per share 480,000 1,200 148,800 - (150,000) -
Sale of common shares to
investor in April 1999
at $.3125 per share pursuant
to Rule 504 offering, less
$35,000 offering costs 800,000 2,000 213,000 - - 215,000
Issuance of common shares
to advertiser in May 1999
for prepaid advertising 24,000 60 35,940 - - 36,000
Issuance of common shares to
vendor in July 1999 and
charged to operations 1,500 4 746 - - 750
Issuance of common shares to
two employees in July 1999
for prepaid services 800 2 498 - - 500
Issuance of common shares to
consultant in July 1999
for prepaid services 6,000 15 3,735 - - 3,750
Issuance of common shares to
employee in August 1999 for
prepaid services 12,000 30 7,470 - - 7,500
Issuance of common shares to
eight employees in August 1999
and charged to operations 800 2 498 - - 500
Sale of common shares to three
key employees in August 1999 at
$.625 per share 10,000 25 6,225 - (6,250) -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 2000 and 1999
(Page 2 of 2)
Tota
Common Stock, Additional (Accum- Stock Sub- Stock-
$.0025 Par Value Paid-in ulated scriptions holders'
Shares Amount Capital Deficit) Receivable Equity
<S> <C> <C> <C> <C> <C> <C>
Sale of common shares to three
key employees in September
1999 at $.625 per share 3,000 7 1,868 - (1,875) -
Collection of stock
subscriptions receivable
in July 1999 - - - - 5,000 5,000
Net loss - - - (63,865) - (63,865)
Balances, September 30,
1999 6,640,500 16,601 862,444 (349,644) (188,125) 341,276
Issuance of common shares
io advertiser in
November 1999 and charged
to operations 20,000 50 3,550 - - 3,600
Sale of common shares to
two CHC directors in
January 2000 at $.55
per share 200,000 500 109,500 - (110,000) -
Collection of stock
subscriptions receivable
in February 2000 - - - - 11,250 11,250
Conversion of $10,000
note payable into
common shares in
March 2000 40,000 100 9,900 - - 10,000
Issuance of common
shares to employees
of CSC-1 clearing agent
in March 2000 and
charged to operations 7,400 19 3,681 - - 3,700
Issuance of common
shares to consultant in
March 2000 and charged
to operations 3,000 7 2,993 - - 3,000
Issuance of common
shares to employees
of consultant in May
2000 and charged to
operations 700 2 348 - - 350
Collection of stock
subscriptions receivable
in May 2000 - - - - 10,000 10,000
Issuance of common shares
to consultant in June
2000 and charged to
operations 2,500 6 2,494 - - 2,500
Net income - - - 112,620 - 112,620
Balances, September
30, 2000 6,914,100 $17,285 $994,910 $(237,024) $(276,875) $498,296
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Page 1 of 2)
Year Ended September 30,
<S> <C> <C>
2000 1999
Cash flows from operating activities:
Net income (loss) $ 112,620 $ (63,865)
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation 113,581 80,912
Issuance of common stock for services and rent 13,150 72,500
Changes in assets and liabilities:
Due from brokers (145,465) (71,478)
Securities owned (9,574) (9,499)
Other assets (19,692) (22,919)
Accounts payable and accrued expenses 203,615 87,358
Commissions payable 10,134 2,807
Income taxes payable 1,563 (663)
Securities sold, not yet purchased (503) (2,177)
Net cash provided by operating activities 279,429 72,976
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (149,133) (52,785)
Net cash used for investing activities (149,133) (52,785)
Cash flows from financing activities:
Proceeds from issuance of notes payable - 60,000
Net proceeds from sales of common stock - 227,500
Collection of stock subscriptions receivable 21,250 5,000
Repayment of notes payable - (100,000)
Repayment of obligations under capital leases (43,113) (21,811)
(Contribution to) Distributions from minority interest (3,120) 4,987
Net cash (used for) provided by financing activities (24,983) 175,676
Net increase in cash and cash equivalents 105,313 195,867
Cash and cash equivalents, beginning of year 383,133 187,266
Cash and cash equivalents, end of year $ 488,446 $ 383,133
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Page 2 of 2)
Year Ended September 30,
2000 1999
<S>
Supplemental disclosures of cash flow information: <C> <C>
Interest paid $ 29,041 $ 34,579
Income taxes paid $ 2,150 $ 3,081
Schedule of non-cash operating activities:
Issuance of common stock for services and rent $ 13,150 $ 72,500
Schedule of non-cash investing activities:
Acquisition of equipment in connection with capital
lease obligations $ 77,464 $ 59,863
Retirement of fully depreciated equipment $ 172,482 $ 10,122
Schedule of non-cash financing activities:
Conversion of note payable to common stock $ 10,000 $ -
Issuance of stock subscriptions receivable in
connection with sale of common stock $ 110,000 $ 168,125
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
1. GENERAL
Castle Holding Corp. ("CHC") is a holding company, which was incorporated in
Nevada on June 13, 1986. CHC conducts substantially all of its business
through its subsidiaries.
On December 28, 1998, CHC paid a 100% stock dividend to holders of record at
the close of business on December 22, 1998, thereby increasing the number of
issued and outstanding common shares from 652,800 to 1,305,600. On June 25,
1999, CHC paid a 300% stock dividend to holders of record at the close of
business on June 18, 1999, thereby increasing the number of issued and
outstanding common shares from 1,651,600 to 6,606,400. All references to
shares and per share amounts in the accompanying consolidated financial
statements have been restated to retroactively reflect these stock dividends.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The consolidated financial statements include the
accounts of CHC and its eighteen majority owned subsidiaries (collectively,
the "Company"). CHC's principal operating subsidiaries are Castle
Securities Corp. ("CSC-1"), incorporated in the state of New York on December
7, 1984 and a securities broker-dealer headquartered in Freeport, New York and
Citadel Securities Corp. ("CSC-2 "), incorporated in the state of New York on
April 11, 1991 and also a securities broker-dealer, since April 1996, market
makers in NASDAQ, OTC Bulletin Board, and "Pink Sheets" securities from its
office in Freeport, New York.
The remaining sixteen (16) subsidiaries of CHC are as follows:
1. Citadel Capital Corp. (95.0 % owned) (incorporated in Delaware March 29,
1988) - inactive at September 30, 2000.
2. Beverage King, Ltd. (100 % owned) (incorporated in Delaware January 2,
1990) - subleases automobiles and equipment to other CHC subsidiaries.
3. Meroke Capital Corp. (100 % owned) (incorporated in New York October 7,
1992) - inactive at September 30, 2000.
4. Castle Trucking Corp. (100 % owned) (incorporated in New York May 4, 1993)
- subleases office space to other CHC subsidiaries and others.
5. Castle Advisors Inc. (100 % owned) (incorporated in New York December 23,
1993) - acts as general partner (with a 1% ownership) in a limited partnership
in the business of securities investment.
6. Sparta Holding Corp. (100 % owned) (incorporated in Nevada December 23,
1993) - inactive at September 30, 2000.
7. Wall Street Indians, Ltd. (100 % owned) (incorporated in New York May 27,
1994) - subleases office space and provides communications and office services
and supplies to CHC's subsidiaries and others.
8. Chinamer International Corp. (100 % owned) (incorporated in Nevada October
18, 1994) - inactive at September 30, 2000.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
9. Galaxynet Inc. (87.7 % indirectly owned) (incorporated in New York December
15, 1995) - provides marketing, programming, and communications services to
other CHC subsidiaries.
10. Rocketnet Inc. (87.7 % owned) (incorporated in Nevada December 20, 1995)
- owns 100% of Galaxynet Inc. and provides software, marketing, and
communications services to other CHC subsidiaries.
11. U Trade Inc. (100 % owned) (incorporated in New York November 17, 1997)
- inactive at September 30, 2000.
12. Java Trader Inc. (100% owned) (incorporated in Nevada March 10, 1999)
- inactive at September 30, 2000.
13. Long Island Web TV.com Corp. (57.7% indirectly owned) (incorporated in New
York September 22, 1999) - operates a website targeted to Long Island, New York
viewers and offers advertising and production packages to business customers.
For the year ended September 30, 2000, Long Island Web Tv.com Corp. had no
revenues.
14. The Unlisted Stock Market Corporation (100% owned) (incorporated in New
York December 9, 1999) - plans to offer access to a website containing quotes
and other information relating to over the counter securities.
15. Cyber Holdings Corp.com (57.7% owned) (incorporated in New York March 13,
2000) - owns 100% of Cyberville City Inc. and Long Island Web TV.com Corp.
16. Cyberville City Inc. (57.7% indirectly owned) (incorporated in New York
December 9, 1998) - operates www.kidscarnival.com and other websites (non
revenue producing at September 30, 2000), and provides web-hosting services to
other CHC subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue recognition - Securities transactions (related revenue and expenses,
including commissions and principal transactions revenue and commissions
expense) are recorded on a settlement date basis, which is generally three
business days after trade date. Revenues and expenses on a trade date basis
are not materially different from revenues and expenses on a settlement date
basis.
Use of estimates - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fair value disclosures - The carrying value of cash and cash equivalents,
due from brokers, securities owned, accounts payable and accrued expenses,
commissions payable, income taxes payable, and securities sold, not yet
purchased are a reasonable estimate of their fair value. The carrying
value of the Company's notes payable, obligations under capital leases
and, loan subordinated to claims of general creditors, at September
30, 2000 are a reasonable estimate of their fair value based upon
currently available interest rates of similar instruments available with
similar maturities.
Cash and cash equivalents - At September 30, 2000, cash and cash
equivalents included $131,042 in money market funds and $102,347 in cash
not covered by FDIC insurance. The Company considers such risk to be
minimal based on the reputation of such financial institution.
Securities owned and securities sold, not yet purchased - Marketable
securities are valued at market and unrealized gains and losses are
reflected in income. Securities for which no ready market exists are
valued at estimated fair value as determined by the Board of Directors.
<PAGE>
Equipment, equipment under capital leases, and leasehold improvements
- Equipment, equipment under capital leases, and leasehold improvements
are stated at cost. Equipment, and equipment under capital leases are
depreciated using the straight-line method over the estimated useful
lives of the respective assets, generally three to seven years.
Leasehold improvements are amortized over the respective remaining
lease terms on a straight-line basis.
Income taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting For Income Taxes". Deferred tax assets and liabilities
are determined based on the difference between the financial statement
and tax bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Current income taxes are based on the year's income taxable for Federal
and State income tax reporting purposes. Deferred income taxes, if
any, reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Earnings per share - During 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced
the previously required reporting of primary and fully diluted
earnings per share with basic and diluted earnings per share,
respectively. Unlike the previously reported primary earnings per
share, basic earnings per share exclude the dilutive effects of stock
options. Diluted earnings per share is similar to he previously reported
fully diluted earnings per share. Earnings per share amounts for all
periods presented have been calculated in accordance with the requirements
of SFAS No. 128.
Stock Based Compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Under APB No. 25, unearned compensation is
based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price. The Company accounts
for stock-based compensation issued to non-employees in accordance with the
provisions of SFAS No. 123.
Impact of recently issued accounting standards - The Company does not believe
that any recently issued accounting standards, not yet adopted by the Company,
will have a material impact on its consolidated financial position and results
of operations when adopted.
Reclassifications - Certain prior year balances have been reclassified to
conform to current year presentation.
<PAGE>
3. SECURITIES OWNED, AT MARKET VALUE AND SECURITIES SOLD, NOT YET PURCHASED,
AT MARKET
<TABLE>
<S> September 30,
<C> <C>
2000 1999
Securities owned, at market value consist of:
Trading accounts:
Corporate equities - listed on exchange or
Nasdaq Stock Market $ - $ -
Corporate equities - listed on OTC Bulletin
Board or "Pink Sheets" 37,944 34,972
Total trading accounts 37,944 34,972
Investment accounts:
600 shares, The Nasdaq Stock Market, Inc. 6,600 -
Other corporate equities - listed on
OTC Bulletin Board or "Pink Sheets" 650 648
Total investment accounts 7,250 648
Totals $ 45,194 $ 35,620
Securities sold, not yet purchased, at market consist of:
Trading accounts:
Corporate equities - listed on exchange or
Nasdaq Stock Market $ - $ -
Corporate equities - listed on OTC Bulletin Board
or "Pink Sheets" 303 806
Totals $ 303 $ 806
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
4. NOTES PAYABLE
<TABLE> September 30,
<S> <C> <C>
Notes payable consist of: 2000 1999
Note payable to officer, interest at 12% paid
annually, due on demand $ 22,500 $ 22,500
Note payable to The OTC Equity
Fund, Inc. ("OEF"), interest at 12% paid
annually, due on demand 55,000 55,000
Note payable to investor, interest at 6%, convertible
into 40,000 shares of CHC common stock, due
March 31, 2000 - 10,000
Totals $ 77,500 $ 87,500
On December 21, 1998, CHC obtained a $100,000 business revolving credit line
from a financial institution. Such line of credit is personally guaranteed
by CHC's president and treasurer and is available through December 14, 2001.
Borrowings thereunder bear interest at prime rate plus .5% and amortize over
36 equal monthly installments. In December 1998, CHC borrowed $50,000 under
the line, which was subsequently repaid.
5. OBLIGATIONS UNDER CAPITAL LEASES
The Company, through its subsidiaries, has acquired office machinery and
equipment pursuant to various noncancellable capital lease agreements.
All of the lease agreements are secured by the related equipment.
At September 30, 2000, the aggregate future minimum remaining lease payments
under noncancellable capital lease agreements were as follows:
</TABLE>
<TABLE>
Year Ended
September 30, Amount
<S> <C>
2001 $ 47,356
2002 33,034
2003 19,893
2004 19,893
2005 6,631
Total 126,807
Less amount representing interest (21,028)
Net present value of capital lease
obligations $ 105,779
At September 30, 2000, office machinery and equipment under capital leases
are carried at a book value of $100,330.
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
6. LOAN FROM RELATED PARTY SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
On September 6, 1995, CSC-2 executed a loan agreement with OEF, a corporation
whose secretary is also the president of CHC, whereby OEF advanced $50,000 to
CSC-2. The $50,000 subordinated loan payable bears interest at 12% per
annum payable annually each September 30 and is due on September 30, 2002.
The loan is pursuant to an agreement filed with the NASD and is permitted in
computing net capital under the Securities and Exchange Commission's Uniform
Net Capital Rule (see note 9). To the extent that such borrowing is used by
CSC-2 for continued compliance with minimum net capital rules, said loan will
not be repaid.
7. 1998 INCENTIVE STOCK OPTION PLAN
In December 1998, as amended in January 2000, the Company established the 1998
Incentive Stock Option Plan (The "Plan") to compensate and attract certain key
employees. The aggregate number of shares of common stock of the Company that
may be issued under the plan is 1,000,000 shares. The exercise price of any
incentive stock option granted under the plan shall not be less than the fair
market value of the stock on the date of grant, as determined in good faith by
the Board of Directors.
On December 31, 1998, CHC granted stock options (for a total of 394,000 shares
of its common stock) to 40 employees of the Company. The options provide the
respective employees the right to purchase CHC common stock at a price of
$.75 per share and are exercisable and vest at a rate of 20% for each year
commencing December 31, 1999.
On January 7, 2000, CHC granted stock options (for a total of 400,000 shares of
its common stock) to 52 employees of the Company. On August 7, 2000, CHC
granted stock options (for a total of 50,000 shares of its common stock) to 2
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 in January
2001.
Activity relating to the Company's stock options follows:
<TABLE>
Number of Shares
$.75 options $.50 options Totals
<S> <C> <C> <C>
Balance at September 30, 1998 - - -
Granted during the year 394,000 - 394,000
Forfeited during the year (34,000) - (34,000)
Balance at September 30, 1999 360,000 - 360,000
Granted during the year - 450,000 450,000
Fortified during the year (3,200) (7,000) (10,200)
Balance at September 30, 2000 356,800 443,000 799,800
</TABLE>
As of September 30, 2000 the number of options which may be granted under
the plan amounted to 200,200.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock- Based Compensation". Accordingly, no compensation
costs have been recognized for the options granted. Had compensation
cost been determined based on the fair value at the date of grant
consistent with the provision of SFAS No. 123, the Company's net income
(loss) and net loss per share would have been as follows:
<TABLE>
Year Ended September 30,
2000 1999
<S> <C> <C>
Net income (loss) - as reported $ 112,620 $ (63,865)
Net income (loss) - pro forma $ 108,220 $ (67,465)
Basic net income (loss) per share - as reported $ .02 $ (.01)
Basic net income (loss) per share - pro forma $ .02 $ (.01)
Diluted net income (loss) per share - as reported $ .02 $ (.01)
Diluted net income (loss per share - pro forma $ .02 $ (.01)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model utilizing a high stock
price volatility percentage, expected dividend yield of 0.0%, risk
free interest rate of 6%, and an expected five year life.
8. INCOME TAXES
CHC files a consolidated income tax return with its subsidiaries for
federal reporting purposes. CHC and its subsidiaries file separate
income tax returns for state reporting purposes.
<TABLE>
The provisions for income taxes consist of: Year Ended September 30,
<S> 2000 1999
Current: <C> <C>
Federal $ - $ -
State 3,713 2,418
Total 3,713 2,418
Deferred:
Federal 35,854 (18,938)
State 10,889 (5,751)
Valuation allowance (46,743) 24,689
Total - -
Total provision for income taxes $ 3,713 $ 2,418
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
A reconciliation of the computed expected income tax expense to the
provision for income taxes follows:
<TABLE>
2000 1999
<S> <C> <C>
Computed Federal income tax at 34% $ 39,553 $(20,892)
State income taxes (benefit) less Federal
income tax benefit 7,190 (3,797)
Change in valuation allowance (46,743) 24,689
Minimum state income tax 3,713 2,418
Total provision for income taxes $ 3,713 $ 2,418
</TABLE>
Based on management's present assessment, the Company has not yet determined
it to be more likely than not that a deferred tax asset of $111,171
attributable to the future utilization of $276,702 of net operating loss
carryforwards as of September 30, 2000 will be realized. Accordingly, the
Company has provided a 100 % allowance against the deferred tax asset in the
financial statements at September 30, 2000. The Company will continue to
review this valuation allowance and make adjustments as appropriate. The net
operating loss carryforwards expire as follows; $31,860 in year 2012, $183,395
in year 2013, and $61,447 in year 2014.
9. NET CAPITAL REQUIREMENTS
As broker-dealers, CSC-1 and CSC-2 are subject to the Securities and Exchange
Commission Uniform Net Capital Rule (the "Rule"). The Rule requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness, as defined, to net capital, as defined, not exceed 15 to 1. At
September 30, 2000, CSC-1 had net capital of $242,267, which was $225,157 in
excess of its required net capital of 17,110 and its ratio of aggregate
indebtedness to net capital was 1.06 to 1. At September 30, 2000, CSC-2
had net capital of $219,661, which was $119,661 in excess of its required net
capital of $100,000 and its ratio of aggregate indebtedness to net capital
was .12 to 1.
Pursuant to a restrictive agreement dated October 26, 1995 with the NASD, CSC-2
agreed to maintain minimum net capital of at least $120,000. Accordingly, at
September 30, 2000, CSC-2 had $99,661 net capital in excess of the NASD
minimum required amount.
10. RELATED PARTY TRANSACTIONS
Expense allowance - For the years ended September 30, 2000 and 1999, the Company
paid a total of $57,000 and $64,000, respectively, to its president and treasurer
for accountable expenses pursuant to an agreement with the Company.
Sea Friends Incorporated - For the years ended September 30, 2000 and 1999, the
Company received $12,000 and $13,000, respectively, from Sea Friends
Incorporated, a not-for profit corporation, for usage of the Company's
facilities. The Company's president and secretary /treasurer are also
directors of Sea Friends Incorporated.
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
11. COMMITMENTS AND CONTINGENCIES
Operating leases - The Company leases its headquarters office space
(approximately 16,000 square feet) under six noncancellable operating
lease agreements which expire between October 2000 and October 2002,
with renewal options available to October 2007. The lease which expired
during October 2000, was renewed for an additional year. Such lease
agreements require minimum monthly rental payments of $ 6,549. The
Company leases its autos and equipment under noncancellable operating
lease agreements which expire between October 2000 and May 2005 and
require minimum monthly rental payments of approximately $7,775.
Rent expense under all operating leases consisted of:
<TABLE>
Year Ended September 30,
2000 1999
<S> <C> <C>
Headquarters office space $ 70,627 $ 64,220
Autos and equipment 95,257 68,692
Totals $ 165,884 $ 132,912
</TABLE>
At September 30, 2000, the aggregate future minimum lease payments under
noncancellable operating lease agreements are as follows:
<TABLE>
Headquarters
Year Ended Office Autos and
September 30, Space Equipment Totals
<S> <C> <C> <C>
2001 $ 78,156 $ 84,023 $ 162,179
2002 48,324 68,933 117,257
2003 3,800 26,834 30,634
2004 - 8,722 8,722
2005 - 3,828 3,828
Thereafter - - -
Totals $ 130,280 $ 192,340 $ 322,620
</TABLE>
<PAGE>
CASTLE HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended September 30, 2000 and 1999
Litigation - On September 13, 1994, the Securities and Exchange Commission
(the "SEC") filed a civil action against CSC-1, its president, a former
registered representative, and eight other defendants. The action alleges
violations of Sections 5(a) and (c), and 17(a) of the Securities Act of 1933,
Sections 10 (b) and 15c of the Securities Exchange Act of 1934 and Rules
l0b3, l0b-5, l0b-6, and 15cl-2 thereunder. The complaint seeks injunctive
relief and disgorgement of profits approximating $175,000. CSC-1 answered
the complaint and is vigorously defending the action.
On October 6, 1994, the NASD Market Surveillance Committee (the "MSC")
commenced a disciplinary Proceeding against CSC-1, its president, and two
former registered representatives. The Complaint alleges violations of Article
III, Sections 1, 4, 18, and 27 of the Association's Rules of Fair Practice and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
After a hearing on June 20, 1995, the MSC, in its Decision dated February 7,
1996, fined CSC-1 and its president jointly and severally $25,000 and ordered
them to make restitution to specified customers totaling approximately $10,000.
CSC-1 and its president appealed the Decision to the National Business Conduct
Committee (the "NBCC") of the NASD and a hearing of the appeal was held on June
7, 1996. In its Amended Decision dated October 21, 1996, the NBCC affirmed the
fines and restitution order. On November 15, 1996, CSC-1 and its president
appealed the NBCC Amended Decision to the SEC. On January 7, 1998, the SEC
affirmed the NBCC Amended Decision. On May 18, 1998, the SEC denied CSC-1's
Motion for Reconsideration filed January 21, 1998. On February 5, 1998 and
June 15, 1998, CSC-1 and its president filed petitions for review of the SEC
actions to the Second Circuit of the United States Court of Appeals, which
matters are pending. Other CHC subsidiaries have also been named as defendants
in civil cases arising in the ordinary course of business. The Company
believes that it has meritorious defenses to these actions and intends to
vigorously contest them.
Management believes, based upon discussions with counsel, that the outcome of
the litigation described above will not have a material effect on the Company's
consolidated financial position. The materiality of legal matters on the
Company's future operating results depends on the level of future results of
operations as well as the timing and ultimate outcome of such legal matters.
As of September 30, 2000, the Company has accrued $110,000 ($60,000 during the
year ended September 30, 2000; $50,000 in prior years) in connection with the
above litigations. Such amount is included in accounts payable and accrued
expenses.
12. CREDIT RISK AND BUSINESS CONCENTRATION
Credit Risk - In the normal course of business, CSC-1 executes as agent
transactions on behalf of customers and CSC-2 executes principal transactions
with other broker-dealers. If the agency or principal transactions do not
settle because of failure to perform by either the customer or the
counterparty, CSC-1 or CSC-2 may be obligated to discharge the obligation of
the nonperforming party and, as a result, may incur a loss if the market value
of the securities are different from the contract amount of the transactions.
CSC-l's clearing agent seeks to control the risks associated with CSC-l's
customer activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. CSC-l's clearing
agent monitors required margin levels daily, and pursuant to such guidelines,
requires the customers to deposit additional collateral, or to reduce positions,
when necessary.
Business concentration - For the year ended September 30, 2000, approximately
81% of the Company's revenues were derived from unsolicited customer
transactions ordered online over the Internet.
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS
(a) The directors of the Registrant are:
<TABLE>
Director:
Name Age Other offices held Since
<S> <C> <C> <C>
Daniel J. Priscu 78 Chairman 1987
George R. Hebert 56 President 1987
Michael T. Studer 50 Secretary, Treasurer 1987
</TABLE>
Each director will hold office until the next annual meeting of shareholders
(expected to be held in March 2000) and until their successors have been
elected and qualified.
The executive officers of the Registrant are:
<TABLE>
Officer:
Name Age Other offices held Since
<S> <C> <C> <C>
Daniel J. Priscu 78 Chairman 1987
George R. Hebert 56 President 1987
Michael T. Studer 50 Secretary, Treasurer 1987
</TABLE>
Officers of the Registrant are elected by the Board of Directors at the annual
meetings of the Registrant's shareholders, and hold office until their death,
or until they shall resign or have been removed from office.
The business experience during the last five years for each director and
executive officer of the Registrant follows:
Daniel J. Priscu has been Chairman and a director of the Registrant since
September 1987. Mr. Priscu received a B.A. degree from De Pauw University in
1947.
George R. Hebert has been President and a director of the Registrant since
September 1987. He also has been a registered representative and economist
with CSC-1 since September 1987 and with CSC-2 since October 1995. Mr. Hebert
received a B.S. degree from Stevens Academy, Pennsylvania Military College
(now Widener University) in 1967.
Michael T. Studer has been Secretary, Treasurer, and a director of the
Registrant since September 1987. He also has been President of Michael T.
Studer, CPA, P.C., a public accounting firm, since July 1987, President
of CSC-1 since its inception in December 1984, and President of CSC-2
since October 1995. Mr. Studer received a B.S.B.A degree from Babson College
in 1971.
(b) Another significant employee of the Registrant is Thomas Shaughnessy,
age 46. Mr. Shaughnessy has been general securities principal and chief
compliance officer of CSC-1 since July 1993, general securities principal
and chief compliance officer of CSC-2 since October 1995, and was Assistant
to the President of CSC-1 from December 1992 to June 1993. Since May 1972,
he has served in the United States Marine Corps. on both a full-time and
part-time basis. Mr. Shaughnessy received a B.S.B.A. degree from State
University of New York at Brockport in 1978 and a M.B.A. degree from National
University in 1988.
(c) There is no family relationship between any director, executive officer
or significant employee of the Registrant.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company
during the years ended September 30, 1998, 1999, and 2000 to each executive
officer and director of the Company:
<TABLE>
<C> <C> <C>
<S> Annual All Other
Name and Principal Position Year Salary Compensation
George R. Hebert, President 2000 $44,200 $36,000 (1)
1999 44,200 32,000 (1)
1998 44,200 21,000 (1)
Michael T. Studer, Secretary, 2000 44,200 21,000 (1)
Treasurer 1999 44,200 32,000 (1)
1998 44,200 21,000 (1)
Daniel J. Priscu, Chairman of 2000 - 300 (2)
The Board 1999 - 600 (2)
1998 - 400 (2)
</TABLE>
(1) Represents an allowance for accountable expenses.
(2) Represents director's fees.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, at September 30, 2000, the stock ownership
of each person known by the Company to be the beneficial owner of five
percent or more of the Company's common stock, all executive officers and
directors individually, and all executive officers and directors of the
Company as a group:
<TABLE>
<S> <C> <C>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner (1) of Class
Daniel J. Priscu 49,600 0.7%
4555 Blackstone Drive
Indianapolis, Indiana 46237
George R. Hebert 2,061,300 (2) 29.8%
183 Gordon Place
Freeport, NY 11520
Michael T. Studer 2,028,200 (3) 29.3%
410 McDermott Road
Rockville Centre, NY 11570
All executive officers and 4,139,100 59.9%
directors as a group (3 persons)
</TABLE>
<PAGE>
(1) Unless otherwise indicated below, the Company has been advised
that each person named above is the record owner of and exercises the
sole voting and investment power over the shares shown opposite his name.
(2) Includes 170,000 shares held in trust for the benefit of Mr.
Hebert's daughter, 102,800 shares owned by Mr. Hebert's wife, 4,000 shares
owned by The OTC Equity Fund Inc., which organization Mr. Hebert is
secretary, and 50% of 37,000 shares owned by Sea Friends Incorporated, of
which organization Mr. Hebert is president and a director, all of which Mr.
Hebert disclaims beneficial ownership of. Includes 50% of 640,000 shares
owned by CALP (CHC Deferred Compensation Plan for benefit of George R.
Hebert owns a 50% limited partnership interest therein), which Mr. Hebert
doesn't exercise sole voting and investment power over.
(3) Includes 528,000 shares held in trust for Mr. Studer's children and
50% of 37,000 shares owned by Sea Friends Incorporated, of which organization
Mr. Studer is treasurer and a director, which Mr. Studer disclaims beneficial
ownership of. Includes 50% of 640,000 shares owned by CALP (CHC Deferred
Compensation Plan for benefit of Michael T. Studer owns a 50% limited
partnership interest therein) which Mr. Studer does not exercise sole voting
and investment power over.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of September 30, 2000, the Registrant had notes payable to The OTC Equity
Fund, Inc., a corporation whose secretary is also president of the Registrant,
and Michael T. Studer, secretary and treasurer of the Registrant, in amounts of
$55,000 and $22,500, respectively. Such notes bear interest at the rate of 12%
per annum and are due on demand.
As of September 30, 2000, Citadel had a loan payable subordinated to claims of
general creditors to The OTC Equity Fund, Inc. in the amount of $50,000. The
loan bears interest at the rate of 12% per annum and is due September 30, 2002.
In April 1998, the Registrant borrowed $50,000 from the wife of the president of
the Registrant. The note, which was repaid in April 1999, beared interest at
the rate of 12% per annum and was due on demand.
In March 1999, the Registrant sold 8000 common shares to Daniel J. Priscu
(chairman of the Registrant), 98,000 common shares to George R. Hebert (president
of the Registrant), 196,000 common shares to Michael T. Studer (secretary and
treasurer of the Registrant) and 98,000 common shares to Teresa M. Hebert
(wife of the president of the Registrant), at a price of $.3125 per share, in
exchange for promissory notes in the amounts of $2,500, $30,625, $61,250, and
$30,625, respectively.
In January 2000, the Registrant sold 100,000 common shares to George R. Hebert
(president of the Registrant) and 100,000 common shares to Michael T. Studer
(secretary and treasurer of the Registrant) at a price of $.55 per share in
exchange for promissory notes in the amounts of $55,000 each.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By /s/ George R. Hebert
George R. Hebert, President
Dated December 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Daniel J. Priscu Chairman of the Board of December 29, 2000
Daniel J. Priscu Directors, Director
/s/ George R. Hebert President, Director December 29, 2000
George R. Hebert
/s/ Michael T. Studer Secretary, Treasurer, December 29, 2000
Michael T. Studer Principal Financial and
Accounting Officer,
Director
</TABLE>
<PAGE>
EXHIBIT INDEX
3.1* Articles of Incorporation (Form S-18 Registration
No. 33-8395-LA, effective November 14, 1986)
3.2* Amendments to Articles of Incorporation (Form S-18 Registration
No. 33-37809-NY, effective February 11, 1991)
3.3* By-laws (Form S-18 Registration No. 33-8395-LA, effective November 14,
1986)
4.4* Specimen Stock Certificate (Form S-18 Registration No. 33-37809-NY,
effective February 11, 1991)
22 Subsidiaries of the Registrant (filed herewith)
27 Financial Data Schedule (Filed herewith)
99.1* Complaint for Injunctive and Other Relief (dated September 13, 1994)
- Securities and Exchange Commission, Plaintiff (Form 8-K dated
September 13, 1994)
* Previously filed
<PAGE>
Exhibit No. 22 - Subsidiaries of the Registrant
Castle Holding Corp.
Form 10-KSB for the fiscal year ended September 30, 2000
1. Castle Securities Corp. (New York)
2. Citadel Capital Corp. (Delaware)
3. Beverage King, Ltd. (Delaware)
4. Citadel Securities Corp.(New York)
5. Meroke Capital Corp. (New York)
6. Castle Trucking Corp. (New York)
7. Castle Advisors Inc. (New York)
8. Sparta Holding Corp. (Nevada)
9. Wall Street Indians, Ltd (New York)
10. Chinamer International Corp. (Nevada)
11. Galaxynet Inc. (New York)
12. Rocketnet Inc. (Nevada)
13. U Trade Inc. (New York)
14. Java Trader Inc. (Nevada)
15. Long Island Web TV.com Corp. (New York)
16. The Unlisted Stock Market Corporation (New York)
17. Cyber Holdings Corp.com (New York)
18. Cyberville City Inc. (New York)
<PAGE>
EXHIBIT 27
Financial Data Schedule for the year ended September 30, 2000 required
pursuant to Item 601(c) of Regulation S-B
[NAME] CASTLE HOLDING CORP.
[MULTIPLIER] 1
[CURRENCY] 1
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END]SEP-30-2000
[PERIOD-START]OCT-01-1999
[PERIOD-END]SEP-30-2000
[EXCHANGE-RATE] 1
[CASH] 488,446
[RECEIVABLES] 282,920
[SECURITIES-RESALE] 0
[SECURITIES-BORROWED] 0
[INSTRUMENTS-OWNED] 45,194
[PP&E] 316,251
[TOTAL-ASSETS] 1,208,499
[SHORT-TERM] 77,500
[PAYABLES] 476,621
[REPOS-SOLD] 0
[SECURITIES-LOANED] 0
[INSTRUMENTS-SOLD] 303
<LONG TERM> 155,779
[COMMON] 17,285
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 481,011
[TOTAL-LIABILITY-AND-EQUITY] 1,208,499
[TRADING-REVENUE] 269,613
[INTEREST-DIVIDENDS] 21,828
[COMMISSIONS] 4,115,054
[INVESTMENT-BANKING-REVENUES] 0
[FEE-REVENUE] 0
[INTEREST-EXPENSE] 29,041
[COMPENSATION] 1,525,660
[INCOME-PRETAX] 116,333
[INCOME-PRE-EXTRAORDINARY] 116,333
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 112,620
[EPS-BASIC] .02
[EPS-DILUTED] .02
<PAGE>
