<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-23338
THE CASTLE GROUP, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 99-037845
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
745 Fort Street, Tenth Floor
Honolulu, Hawaii 96813
Issuer's telephone number: (808) 524-0900
Check whether the issuer (1) has 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), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [ x ] No [ ]
Number of shares outstanding of each of the Registrant's classes of
stock, as of March 15, 2000:
Common stock, $.02 par value - 5,407,031
Transitional Small Business Disclosure Format (check one):
Yes [ x ] No [ ]
Page 1 of 33 sequentially numbered pages
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THE CASTLE GROUP, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of January 31, 2000
and 1999 (unaudited) 3
Consolidated Statements of Operations for the three and six
months ended January 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended January 31, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 33
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE CASTLE GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets - January 31, 2000 and 1999 (Unaudited)
ASSETS January 2000 January 1999
Current Assets
Cash $ 150,757 $ 153,505
Accounts receivable, net 1,051,963 1,100,952
Prepaid expenses 444,910 144,342
Restricted cash 19,941 19,941
Notes receivable, current 110,300 579,406
Due from related parties 428,316 1,090,269
-------------------------
Total Current Assets 2,206,187 3,088,415
Furniture fixtures & equipment, net 67,334 59,681
Other Assets:
Due from related parties, non-current 691,659 56,943
Notes receivable, non-current 35,900 0
Deposits 180,779 1,750
-------------------------
Total Other Assets 908,338 58,693
-------------------------
TOTAL ASSETS $ 3,181,859 $ 3,206,789
=========================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 1,685,306 $ 1,203,172
Vacation payable 90,306 101,257
Wages payable 99,647 88,198
Taxes payable 25,469 32,565
Due to related parties, current 162,300 501,636
Notes payable, current 273,300 750,000
Deferred income 90,833 26,667
Other accrued liabilities 554,844 327,094
-------------------------
Total Current Liabilities 2,982,005 3,030,589
Notes payable, non-current 319,892 0
Deferred income 56,129 144,363
-------------------------
Total Liabilities 3,358,026 3,174,952
Stockholders' Equity (Deficiency)
Common stock, $.02 par value, 20,000,000
shares authorized, 5,407,031 and 5,311,130
Issued & outstanding, respectively 108,141 106,223
Common stock held by lessor ( 111,641) 0
Preferred stock, $100 par value 50,000 shares
authorized, 8,550 shares issued and
outstanding at 1/31/2000 855,000 0
Capital in excess of par value 2,668,956 2,539,175
Accumulated Deficit (3,696,623) (2,613,561)
--------------------------
Total Stockholders' Equity ( 176,167) 31,837
Total Liabilities and --------------------------
Stockholders' Equity (Deficiency) $ 3,181,859 $ 3,206,789
==========================
The accompanying notes are an integral part of the consolidated financial
statements.
3
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THE CASTLE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
for the three and six months ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jan 2000 Jan 1999 Jan 2000 Jan 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Management fees $ 577,526 $ 823,314 $ 1,417,204 $ 1,733,495
Hotel Operating Revenues 133,613 0 136,284 0
Other Income 103,427 215,935 239,785 426,350
------------ ------------ ------------ ------------
Total Revenues 814,566 1,039,249 1,793,273 2,159,845
------------ ------------ ------------ ------------
Expenses
Payroll and benefits 479,634 563,704 978,619 1,089,098
Hotel Operating Expenses 304,851 0 473,237 0
Professional fees 37,794 40,086 64,747 75,470
Reservation services 226,585 228,721 457,262 486,090
Depreciation & Amortization 6,076 6,250 12,150 14,986
Rent 88,227 95,999 175,544 196,589
Travel and entertainment 10,767 27,431 44,457 73,726
Office expense 5,734 17,375 20,290 31,233
Utilities 12,854 13,103 22,671 25,307
Taxes, other than income 27,795 44,123 66,911 89,256
Advertising and marketing 54,914 38,578 89,530 72,137
Outside sales offices 41,294 51,686 82,415 87,044
Insurance 26,388 18,018 53,810 35,409
Other 16,191 14,564 20,796 26,342
------------ ------------ ------------ ------------
Total Expenses 1,339,104 1,159,638 2,562,439 2,302,687
------------ ------------ ------------ ------------
Loss from operations ( 524,538) ( 120,389) ( 769,166) ( 142,842)
Other Expenses
Interest Expense 19,222 31,626 34,061 64,785
------------ ------------ ------------ ------------
Net Loss $( 543,760) $( 152,015) $( 803,227) $ ( 207,627)
============ ============ ============ ============
Per Share Data
Basic Earnings
Net Loss $( .10) $( .03) $( .15) $( .04)
============ ============ ============ ============
Diluted Earnings
Net Loss $( .10) $( .03) $( .15) $( .04)
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
4
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THE CASTLE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended January 31, 2000 and 1999
(Unaudited)
Six Months Ended
01/31/2000 01/31/1999
-------------------------
Cash flows from operating activities
Net loss $( 803,227) $( 207,627)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities-
Depreciation and amortization 12,150 14,986
Changes in assets and liabilities-
Decrease (increase) in accounts receivable 233,485 ( 87,534)
Increase in due from related parties 0 ( 245,471)
Increase in prepaid expenses ( 280,243) ( 122,268)
Increase (Decrease) in deferred charges ( 14,414) 91,030
Increase in accounts payable 769,214 313,765
Increase (Decrease) in taxes payable ( 160) 6,206
Increase in other accrued liabilities 133,422 49,304
Net cash provided by (used in) -------------------------
operating activities 50,227 ( 187,609)
Cash flows from investing activities
Purchase of property & equipment ( 33,008) ( 10,945)
Dividends paid ( 16,715) 0
Receipt of deposits 2,502 23,897
Investment in HBII timeshare 0 1,963
Net cash provided by (used in) -------------------------
investing activities ( 47,221) 14,915
Cash flows from financing activities
Proceeds from notes payable 100,000 0
Collection of note receivable 0 0
Repayment to related parties ( 45,689) ( 25,364)
-------------------------
Net cash provided by financing activities 54,311 80,230
-------------------------
Net increase (decrease) in cash 57,317 ( 92,464)
Cash at beginning of period 93,440 245,969
-------------------------
Cash at end of period $ 150,757 $ 153,505
=========================
Supplemental disclosure of
cash flow information
Cash paid during the year for interest $ 34,061 $ 64,785
=========================
5
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
The accompanying consolidated financial statements of The Castle Group,
Inc., its wholly owned subsidiaries, Castle Resorts & Hotels, Inc., and
KRI, Inc., and KRI, Inc.'s wholly-owned subsidiary, HPR Advertising, Inc.
for the three and six months ended January 31, 2000 have been prepared in
accordance with generally accepted accounting principles. Our
independent public accountants have not audited these consolidated
financial statements, but they include all adjustments (consisting of
only normal recurring adjustments) that are, in management's opinion,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for such periods. The consolidated financial
statements of The Castle Group, Inc. and Subsidiary (the "Company") does
not include all disclosures associated with annual financial statements
and accordingly, should be read in conjunction with the annual
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended July 31, 1999,
as filed with the Securities and Exchange Commission. A copy of this
report is available from the Company upon request. The results of
operations for the six months ended January 31, 2000 are not necessarily
indicative of the operating results for the remainder of the year.
MANAGEMENT ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires the recognition of all derivative
instruments as either assets or liabilities in the statement of financial
position and measurement of those derivative instruments at fair value.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of
FASB Statement No. 133." The original effective date for SFAS No. 133
was for all fiscal years beginning after June 15, 1999. As a result of
SFAS No. 137, the effective date for SFAS No. 133 is for all fiscal
quarters of all fiscal years beginning after June 15, 2000. As the
Company does not invest in derivative instruments or participate in
hedging activities, the adoption of this standard is not expected to have
an effect on the Company's consolidated financial statements.
6
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
CASH AND CASH EQUIVALENTS-
The Company considers all highly liquid investments with an original
maturity date of three months or less when purchased to be cash
equivalents.
INCOME RECOGNITION-
The Company recognizes income from the management of resort properties
according to terms of its various management contracts.
DEFERRED INCOME-
During the year ended July 31, 1998, the Company received a signing bonus
of $80,000 as a result of a contract entered into with a vendor to
provide services over a three-year period. Income is recognized on the
straight-line method over the term of the contract.
During the quarter ended October 31, 1998, the Company received a tenant
improvement allowance of $56,785 as a result of a contract entered into
with its landlord over a 69-month period. The allowance is recognized on
a straight-line method over the term of the contract.
PER SHARE DATA-
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share as of January 31, 2000 and 1999,
respectively.
Income Shares Per Share
(Numerator) (Denominator) Amount
THREE MONTHS ENDED 1/31/00:
Basic:
Net Loss $( 543,760) 5,407,031 $( .10)
Effect of dilutive securities-
Stock subscriptions,
options and warrants -- -- --
Diluted
Net loss and assumed conversions $( 543,760) 5,407,031 $( .10)
SIX MONTHS ENDED 1/31/00:
Basic:
Net Loss $( 803,227) 5,407,031 $( .15)
Effect of dilutive securities-
Stock subscriptions,
options and warrants -- -- --
Diluted
Net loss and assumed conversions $( 803,227) 5,407,031 $( .15)
7
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
Income Shares Per Share
(Numerator) (Denominator) Amount
THREE MONTHS ENDED 01/31/99:
Basic:
Net Loss $( 152,015) 5,311,130 $( .03)
Effect of dilutive securities-
Stock subscriptions,
options and warrants -- -- --
Diluted
Net loss and assumed conversions $( 152,015) 5,311,130 $( .03)
SIX MONTHS ENDED 1/31/99:
Basic:
Net Loss $( 207,627) 5,311,130 $( .04)
Effect of dilutive securities-
Stock subscriptions,
options and warrants -- -- --
Diluted
Net loss and assumed conversions $( 207,627) 5,311,130 $( .04)
Note that the warrants and options outstanding for the three and six
months period ended January 31, 2000 and 1999 were not considered common
stock equivalents since they were anti-dilutive.
FURNITURE FIXTURES AND EQUIPMENT-
Furniture, fixtures and equipment are recorded at cost. When assets are
retired, sold or otherwise disposed of, the cost and the related accumulated
depreciation of the asset is removed from the accounts, and any resulting
gain or loss is reflected in income for the period.
The cost of maintenance and repairs are charged against income as
incurred. Renewals and betterments are capitalized and depreciated over
their estimated useful lives.
At January 31, 2000 and 1999, property and equipment consisted of the
following:
01/31/00 01/31/99
Office Furniture and Equipment $ 253,967 $ 220,958
Less Accumulated Depreciation ( 186,633) ( 161,277)
------------- -------------
$ 67,334 $ 59,681
============= =============
Depreciation of Office Furniture and Equipment is computed using the
declining balance and straight-line methods over the estimated useful
life of the assets ranging from five to seven years.
8
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
RELATED PARTY TRANSACTIONS-
Hanalei Bay International Investors-
The Company had a hotel management agreement with Hanalei Bay
International Investors ("HBII") to manage the Hanalei Bay Resort
("HBR"). The managing general partner of HBII is also the Chairman and
Chief Executive Officer of the Company. Under the agreement, the Company
was to receive management and incentive fees based on a percentage of
gross total revenues and net income respectively. The Company also
received reservation fees based on a percentage of gross room revenues
and a marketing fee based on a percentage of gross revenue. In March of
1999, HBII sold the HBR and the Company retained a sales, marketing and
reservations agreement with the new owners of the HBR. Upon the closing of
the sale, the Company was paid in full for various notes payable due from HBII
but the sale proceeds were not sufficient to allow the Company to collect on
$1,119,975 of other receivables. Under the sale agreement, HBII will
participate in the net cashflows generated by the new owners timeshare sales
program that will allow the Company to collect its receivable balances from
HBII in the future.
Reservation Services-
Reservation services are provided by Hawaii Reservation Center
Corporation, wholly owned by a former director who has a 2% interest in
the Company. Reservation services expense for the quarters ended January
31, 2000 and 1999 was $226,585 and $228,721 respectively. The Company
had a payable balance to Hawaii Reservation Center Corporation of
$176,570 and $248,000 as of January 31, 2000 and 1999, respectively.
In March of 2000, the Company entered into an agreement to purchase 100%
of the outstanding common stock of Hawaii Reservations Center Corporation,
with the closing of the sale to take place within sixty days and contingent
upon certain obligations to be performed by the Company. As of March 16,
2000, the Company had not yet satisfied all of the obligations necessary
to consummate the purchase of the common stock of Hawaii Reservations Center
Corporation. The terms of the agreement call for a cash payment in addition to
the issuance of Preferred Stock of the Company.
9
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
Due to Related Parties-
The Company had the following related party loan balances as of 01/31/00
and 01/31/99:
01/31/00 01/31/99
---------------------
6% loans from stockholders, due August 1, 1998 $ 143,600 $ 166,400
10% loans from director, due March 31, 1999 0 175,000
10% loans from Officer, due August 15, 2000 54,092 160,236
---------------------
$ 197,692 $ 501,636
Less Current Portion 162,300 501,636
---------------------
Non-current Portion $ 35,392 $ 0
=====================
LEASE COMMITMENTS-
The Company has leases for office space, vehicles and equipment expiring
at various dates through 2004. The office leases are renewable for an
additional five years.
In March 1999, the Company signed an agreement to lease and manage a
newly constructed hotel in Guam through December 2004. The Company began
leasing and managing this resort property in October 1999.
At January 31, 2000, the future minimum rental commitments under these
leases were as follows:
Schedule of minimum lease payments:
2000 $ 1,408,000
2001 2,655,000
2002 2,799,000
2003 2,894,000
2004 2,909,000
Thereafter 1,139,000
-------------
Total $ 13,804,000
=============
10
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
MANAGEMENT CONTRACTS-
The Company manages several hotels and resorts under agreements expiring
at various dates through December 2004. Several of these management
agreements contain automatic extensions for periods of 1 to 10 years.
Management fees received are based on the revenues and net available
cashflows of the hotels' operations as defined in the respective
management agreements.
In addition, the Company has sales, marketing and reservations agreements
with other hotels and resorts expiring at various dates through December
2000. The Company is in the final negotiating stages for the extension
some of these agreements. Several of these agreements contain automatic
extensions for periods of one month to three years. Management fees are based
on revenues, net available cashflows or commissions as defined in the
respective agreements.
LEASE OF PROPERTY IN COOK ISLANDS-
In January 1999, the Company signed an agreement as co-lessee for certain
real property located in the Cook Islands, upon which is situated an
uncompleted hotel development that is approximately 85% completed. Under
terms of the agreement with the government of Cook Islands, the lessees
collectively are to complete construction of the hotel and open
substantially all of the rooms of the hotel for business not later than
June 30, 2000. If substantially all of the rooms of the hotel are not
opened for business by June 30, 2000, the lessor of the property is
entitled to compensation in an amount to be determined by arbitration.
Funding for the completion of the hotel development was to be provided by
the Company's co-lessee. However, as of January 31, 2000, the Company's
co-lessee has been unable to fund the completion of the hotel project.
The Company is currently in the process of securing an extension of the
requirement to open the hotel and is also in the process of securing a
replacement for the co-lessee.
RESTRICTED CASH-
Restricted cash consists of cash held in client trust accounts and cash
pledged as collateral for an equipment lease.
11
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
NOTES RECEIVABLE-
The Company had notes receivable balances as of January 31, 2000 and
1999 as follows:
Jan 2000 Jan 1999
Notes receivable from third party in
monthly installments of $10,000 including
interest at 10% per annum. Real estate is
pledged as collateral $ 146,200 $ 144,406
Notes receivable from related parties 0 435,000
-------------------------
146,200 579,406
Less current portion 110,300 579,406
-------------------------
Non-current portion $ 35,900 $ 0
=========================
COMMON STOCK WARRANTS-
In June 1998, the Company issued warrants to acquire up to 187,500 shares
of common stock for $2.00 per share, exercisable through June 2003 in
exchange for certain loans made to the Company. No warrants were
exercised as of January 31, 2000. The Warrants issued includes warrants
to acquire up to 87,500 shares of common stock exercisable by a director
of the Company.
In May 1994, the Company issued warrants to acquire up to 25,000 shares
of common stock for $1.25 per share, exercisable through May 1999 in
exchange for consulting services rendered. During 1999, these common
stock warrants were exercised on a net basis, resulting in the issuance
of 12,244 shares of the Company's common stock.
COMMON STOCK OPTIONS-
In May 1997, the Company, as part of a renegotiation of its reservation
services agreement, granted an option to purchase 50,000 shares of the
Company's common stock at a price of $2.00 per share to Hawaii Reservations
Center Corp., which is wholly owned by a former director of the
Company. The option may be exercised between May 1997 and 2002 and had
not been exercised as of January 31, 2000.
12
<PAGE>
THE CASTLE GROUP, INC.
Notes to Consolidated Financial Statement (unaudited)
PREFERRED STOCK-
In March and April of 1999, the Company issued 8,550 shares of $100 par
value redeemable preferred stock to certain individuals and one director.
Dividends are cumulative from the date of original issue and are payable
semi-annually, beginning July 15, 1999 at a rate of $7.50 per annum per
share. The preferred stock memorandum provided that upon certain tender
offers to acquire substantially all of the Company's common stock, the
holders of the redeemable preferred stock may require the shares be
redeemed at a redemption price of $100 per share plus accrued and unpaid
dividends. In December 1999, the Company, with the consent of the
preferred stockholders, amended the preferred stock memorandum to
eliminate the ability of the holders to redeem the shares. These shares
are also nonvoting and are convertible to the Company's common stock at
$3 per share. As of January 15, 2001, the preferred stock is redeemable
at the option of the Company at a redemption price of $100 per share plus
accrued and unpaid dividends.
In February and March of 2000, the Company issued an additional 2,000
shares of preferred stock which resulted in the proceeds of $200,000.
RESTRICTED COMMON STOCK-
In July 1999, the Company issued 22,500 shares of restricted common stock
as compensation to an employee. The Company recorded payroll and
benefits expense of approximately $40,781 based on the fair market value
of the Company's common stock on the date of issuance ($1.8125 per share at
July 30, 1999). The holder of these shares is prohibited from selling these
shares in normal public trading.
COMMON STOCK HELD BY LESSOR-
In July 1999, the Company issued 61,157 shares of restricted common stock
to the lessor of a hotel as part of a security deposit. The lessor is
prohibited from selling these shares in public trading and will return
the shares to the Company at the termination of the lease agreement in
the year 2004. The Company recorded the common stock held by the lessor
as a contra equity item in the Consolidated Balance Sheet.
LITIGATION-
There are various claims and lawsuits pending against the Company
involving complaints that are normal and reasonably foreseeable in light
of the nature of the Company s business. In the opinion of management,
the resolution of these claims will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity. There were no new lawsuits filed against the Company during
the quarter ended January 31, 2000.
13
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
NOTES PAYABLE-
At January 31, 2000 and 1999, notes payable consisted of the following:
01/31/00 01/31/99
----------------------
$300,000 line of credit from a bank with drawings
due February 18, 1999, with interest (10.5% at
January 31, 1999) at 2.0% above the bank's base
rate. The Company's accounts receivable were
pledged as collateral and the Chief Executive
Officer and several of the Company's Directors
are guarantors. $ 0 $ 300,000
$250,000 line of credit from a bank with drawings
due on April 1, 1999, with interest at 10.5% per
annum. The Company's furniture and equipment were
pledged as collateral and the Company's Chief
Executive Officer is a guarantor. 0 250,000
Notes payable to various individuals with
interest accruing at 10% per annum. Principal
and any unpaid interest due on March 31, 1999.
In connection with the notes, certain common
stock warrants were issued. 0 200,000
Term loan payable to a bank at an interest rate
of 9.25% with monthly payments of $8,352. The
balance of the loan and unpaid interest is due on
May 25, 2004. The Company's furniture, fixtures
and equipment are pledged as collateral and the
Chief Executive Officer is a guarantor. 357,800 0
Original $250,000 line of credit from a bank was
amended and reduced to $200,000 on May 25, 1999.
Drawings are due on June 30, 2000, with interest
(9.75% at January 31, 2000) at 1.75% above the
bank's base rate. The Company's accounts
receivable, furniture, fixtures and equipment
are pledged as collateral and the Company's
Chief Executive Officer is a guarantor. 200,000 0
----------------------
557,800 750,000
Less current portion 273,300 750,000
----------------------
Notes Payable, current $ 284,500 $ 0
======================
14
<PAGE>
THE CASTLE GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement (unaudited)
INCOME TAXES-
Significant components of the Company's deferred tax assets and
liabilities at January 31, 2000 and 1999 are:
01/31/00 01/31/99
---------------------------
Deferred tax assets-
Vacation Pay $ 8,000 $ 7,000
Noncompetition agreement 197,000 219,000
Deferred Income 21,000 32,000
Net Operating Loss Carryforward 920,000 834,000
---------------------------
Deferred tax asset 1,146,000 1,092,000
Deferred tax liability-
Property and equipment ( 5,000) ( 8,000)
---------------------------
Net Deferred Tax Asset 1,141,000 1,084,000
Valuation Allowance (1,141,000) (1,084,000)
---------------------------
$ -- $ --
===========================
The Company has a net operating loss carryforward for income tax purposes
of $2,299,057 at July 31, 1999 that expires at various dates through
fiscal year 2019.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS - "RISK FACTORS"
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements that are
subject to a number of risks and uncertainties. These risks and
uncertainties could cause actual results to differ materially from the
results anticipated in such forward-looking statements.
GENERAL-
The Company is a Utah corporation which earns its revenues primarily by
providing management, reservations, and sales and marketing services to
hotels and resorts. The Company currently operates within the State of
Hawaii, the Commonwealth of Saipan, the Territory of Guam and on the
island of Chuuk under the trade names "Hawaiian Pacific Resorts," and Castle
Resorts and Hotels."
The Company's revenues are derived from management fees, sales and
marketing fees, reservation fees, accounting fees, commissions, incentive
fees and other fees from the properties it represents pursuant to the
terms and conditions of its management contracts. For the fiscal year
ending July 31, 2000, in addition to the fees described, the Company also
earns revenues from transient and other hotel related income from its
leased hotel. Except for the leased hotel, the revenues of the
properties managed by the Company are not recorded as revenues of the
Company.
The Company's operating expenses are comprised of labor, reservation
services fees and other costs associated with operating as a management
company. In addition to the expenses described, the Company also records
the expenses associated with operating a leased hotel. Except for the
leased hotel, the expenses of the properties managed by the Company are
not recorded as expenses of the Company.
As of January 31, 2000, the Company had 28 contracts covering 3,000
rooms, with 2,669 rooms located within the State of Hawaii and the
balance of the rooms situated throughout the Pacific Basin. Under the
contracts, the Company is typically responsible for the supervision and
day-to-day operations of the property in exchange for a base management
fee based on gross revenues. In some cases, the Company also
participates in the profits of the properties it manages by earning an
incentive fee based on the net operating profits of the managed property.
Sales and marketing and reservation fees earned from the properties are
based on the gross revenues of the property. The Company is also
reimbursed for direct advertising and marketing expenditures it makes on
behalf of the property, all in accordance with the terms and conditions
of the respective management contracts. The Company also earns
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commissions and other fees from the properties managed by providing
centralized purchasing services to the hotel owners. Under these
arrangements, the net savings to the property owner from centralized
purchasing are shared between the Company in the form of commissions and
to the property owner in the form of cost savings.
Hotel operating revenues consist of revenues from a property located in
Guam that the Company leases. Under this arrangement, the Company records
as its own revenues the entire property revenues including hotel
transient rental income as well as the total expenses incurred to operate
the property. The property partially opened for business on October 22,
1999, with 37 available rooms. The remaining 170 rooms are in the
process of completion and shall be turned over to the Company for hotel
operations as they are completed. On February 29, 2000, substantially
all of the rooms were completed and were made available for hotel
rentals.
In January of 1999, the Company signed on as a co-lessee on a lease
agreement for real property located in the Cook Islands. The lease is
for land upon which is situated an uncompleted luxury resort which is
approximately 85% completed. The lease is for 60 years and calls for
monthly rentals of 1% of room revenues produced by the property. The
Company's co-lessee is responsible for the reconstruction of the
property. The Company has no obligation to infuse funds into the costs
of reconstruction or any of the operating costs of the property following
its opening which was scheduled for the first quarter of calendar 2000.
The Company was to have been awarded the management contract of the
property and was to also have been involved with the construction
management of the property.
As of January 31, 2000, it is uncertain as to whether the co-lessee of
the property has the financial resources to fund the reconstruction of
the property. The reconstruction of the property is a condition of the
lease agreement and the Company is in the process of securing a
replacement for the co-lessee. If the Company and/or its co-lessee
cannot obtain an extension of time to complete the project under the
terms of the lease agreement and if the current co-lessee cannot complete
the project or a suitable replacement co-lessee cannot be found, the
lease agreement may be cancelled by the lessor.
With virtually all of the key personnel and corporate infrastructure in
place, the focus for the Company shall be to continue its success in
increasing revenues through the expansion of its client base; and to
accomplish this at a minimal incremental cost. Although no assurances
can be given, based on the success experienced to date, management
believes that it will be able to further add to its portfolio of
management contracts. Management also believes, although no assurances
can be given, that the Company will be able to handle a much larger
customer base without expending significant amounts of additional
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resources due to the solid foundation and management team which the
Company currently has.
The Company is presently in the negotiating stages with various other
properties located throughout the State of Hawaii and in other Pacific
Rim regions.
The Company has also entered into an agreement to purchase all of the
stock of Hawaii Reservations Center Corp. The purchase is contingent
upon certain obligations being fulfilled by the Company prior to April
30, 2000. The purchase of the stock shall be financed through a
combination of the issuance of the Company's preferred stock, conventional
or private financing. Management has entered in to the purchase contract
based on projections and although no assurances may be given, management is
confident that the purchase of the reservations center would greatly
reduce the operating expenses of the Company. In addition to reducing the
operating expenses, management will endeavor to customize and standardize
the reservations function to more effectively service the needs of the
properties represented by the Company. Management plans to have the
reservations center allow for real-time online bookings through the
internet.
Management is currently in the process of updating its website on the
internet and following the consummation of the purchase of the
reservations center, the Company plans to update its website to allow
users to book reservations by directly accessing the reservations
database. It is management's belief that direct bookings over the
internet shall increase substantially in the future and the planned
website of the Company shall allow users a simple and easy means
of booking reservations. The redesigned website shall have added
features to promote specials, distressed inventory sales, virtual
property tours and itinerary planning. Management may also integrate its
website with other travel related businesses such as airlines,
attractions and tours in order to provide a one-stop website for clients
to book all of their travel related reservations.
In March of 2000, the Company entered into a marketing agreement with
Japan Airlines ("JAL") to promote certain properties represented by the
Company. JAL is Japan's largest airline carrier, providing over 60% of
the total lift capacity from Japan to Hawaii with 12 daily flights. The
Company is the first regional hotel affiliate of JAL, as all of their
previous affilations have been with worldwide brands such as Hilton,
Hyatt etc. The Company will participate in: 1) JAL's mileage bank
program, providing exposure to 6.6 million frequent flyers; 2) JAL's
World Hotel Program, which links 15,000 reservations terminals and 7,000
Japan travel agencies in 32 JAL branches and over 35 JAL over-seas
offices; and 3) JAL discount program which offers discounts of retail
rates to the 6.6 million frequent flyers. Although no assurances may be
given, management believes that the affiliation with JAL shall result in
large increases in hotel reservations for the selected properties.
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RESULTS OF OPERATIONS-
FOR THE QUARTERS ENDED JANUARY 31, 2000 AND 1999
SALES
For the quarters ended January 31, 2000 and 1999, the Company had total
revenues of $814,566 and $1,039,249, respectively, a decrease of $224,683
or 22%. The decrease in revenues for the quarter ended January 31, 2000
as opposed to the prior year is attributed to the loss of two management
contracts and the renegotiation of two other management contracts. In
addition, the Company experienced a shortfall of reservations due to the
Y2K phenomena, as travelers refrained from travel during the change in
the millennium.
COSTS AND EXPENSES
Operating expenses for the quarters ended January, 2000 and 1999 were
$1,339,104 and $1,159,638, respectively, an increase of $179,466 or 15%.
The increase in operating expenses is attributed to the operating and
pre-opening costs in the amount of $304,851 associated with the Company's
leased hotely in Guam. The property contains 207 rooms, of which 37 were
opened on October 22, 1999. The Company incurred expenses associated with
hiring and training employees, sales & marketing, administrative payroll
and other pre-opening expenses. Such costs were expensed as incurred.
Management related operating expenses for the quarters ended January,
2000 and 1999 were $1,034,253 and $1,159,638, respectively, a decrease of
$123,385 or 11%. The decrease in operating expenses is attributed to a
restructuring of the operating personnel and other operating expenses.
Payroll and benefits decreased by $84,070, or 15% as a result of the
Company reducing its staffing in accordance with the restructuring of
operating personnel.
Rent expense decreased by $7,772, or 8% for the quarter ended January
2000 as compared to the prior year due to the Company renegotiating its
office lease in September 1998. The renegotiation resulted in a decrease
in the base monthly rental paid by the Company to its landlord.
Travel and entertainment decreased by $16,664, or 61% for the quarter
ended January 2000 as compared to the prior year due to the absence of
travel related expenses associated with the Company's underwriting of its
stock during the fiscal year ended July 31, 1999. During the quarter
ended January 31, 1999, the Company also expended funds for travel to
various areas in the Pacific Basin in order to investigate expansion
plans into that region.
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Taxes for the quarter ended January 31, 2000 decreased by $16,328 or 37% when
compared to the prior year due to the decrease in revenues. State of
Hawaii sales taxes are assessed against gross income and due to the
decrease in revenues, the amount of taxes declined.
Advertising and marketing expenses increased by $16,336 or 42% for the
quarter ended January 31, 2000 when compared to the prior year due to an
expansion in the number of trade shows scheduled by the Company. The
increase in the trade show schedule is a result of the Company expanding
its presence in the Pacific Rim area which necessitates the Company
attending conferences and trade shows that showcase areas other than the
State of Hawaii.
Outside sales offices decreased by $10,392 or 20% as compared to the
quarter ended January 31, 1999 as a result of the Company restructuring
it's satellite sales offices located on the mainland U.S. during the
quarter.
Insurance expense increased by $8,370 or 46% for the quarter ended
January 31, 2000 as compared to the prior year due to the Company adding
coverage for its foreign operations in Guam, Chuuk and Saipan.
Additionally, the Company experienced an increase in premiums for its
directors & officers' coverage.
Interest expense decreased by $12,404, or 65% for the quarter ended
January 31, 2000 as compared to the prior year due to decreased borrowing
by the Company to fund its operating and expansion costs. In addition,
certain notes payable to various individuals and directors of
approximately $500,000 were retired with the proceeds received from HBII
upon the sale of the Hanalei Bay Resort in March of 1999.
NET INCOME
The Company reported net losses of $543,760 and $152,015 for the quarters
ended January 31, 2000 and 1999, respectively, an increase of $391,745.
As discussed previously, the decrease in profitability is primarily
attributed to the loss of two managed properties and the renegotiation of
two other contracts, the shortage of reservations associated with Y2K and
pre-opening expenses of the Company's leased property located in Guam of
$304,851 against revenues of $133,613, representing $171,238 of the net
loss for the quarter.
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LIQUIDITY AND CAPITAL RESOURCES-
As of January 31, 2000, total current assets were $2,206,187 and
consisted primarily of $1,051,963 in accounts receivable and $428,316 in
due from related parties. Total current liabilities were $2,982,005
leaving a net working capital deficit of $775,818. The Company's primary
sources of working capital are cash flows from borrowings and the proceeds
from the issuance of the Company's preferred stock.
Net cash provided by operations was $50,227 for the six months ended
January 31, 2000 as compared to net cash used in operations of $187,609 for
the prior year. Net cash used in investing activities was $47,221 as
compared to net cash provided by investing activities of $14,915 for the
six months ended January 31, 2000 and 1999, respectively. Net cash
provided by financing activities was $57,317 for the six months ended
January 31, 2000 as compared to $80,230 for the prior year.
In March and April of 1999, the Company was successful in raising
additional equity through the issuance of its Preferred Stock. The
Preferred Stock has a $100 par value and each share is convertible into
33.33 shares of the Company's Common Stock at a price of $3.00 per share.
Dividends are payable semi-annually, commencing July 15, 1999 at the rate
of $7.50 per annum per share. As of January 31, 2000, the Company issued
8,550 shares of the Preferred Stock and received net proceeds totaling
$820,188. In December of 1999, the Company, with the consent of the
preferred stockholders, amended the preferred stock memorandum to
eliminate the ability of the holders to redeem the shares. On January
15, 2001, the preferred stock is redeemable at the option of the Company
at a redemption price of $100 per share plus accrued and unpaid
dividends. The Company raised an additional $200,000 through the
issuance of preferred stock as of March 16, 2000.
The Company had unrestricted cash of $150,757 and $153,505 at January 31,
2000 and 1999, respectively.
The Company has a $200,000 line of credit that is guaranteed by the
Chairman and Chief Executive Officer of the Company. At January 31, 2000,
the Company had fully drawn against the line of credit.
In May of 1999, the Company obtained a term loan for $400,000 from a
local bank. The term loan is personally guaranteed by the Chairman and
Chief Executive Officer of the Company. The term loan is due and payable
in May of 2004 and calls for a monthly payment of $8,352.
The Company had a net working capital deficit of $775,818 and net working
capital of $57,826 as of January 31, 2000 and 1999, respectively.
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As of January 31, 2000 net working capital included due to related
parties in the amount of $162,300. Also included in net working capital
is $90,833 in deferred income related to a signing bonus paid to the
Company by one of its vendors in July 1998, free office rent and a
tenant improvement allowance which was received from the landlord of the
Company's corporate offices. The deferred income is being amortized over
the lives of the agreements.
The Company has, in the past, met its financial obligations through its
line of credit, the issuance of notes to the former stockholders of KRI,
Inc., a private placement of stock in 1997 and the issuance of preferred
stock in 1999 and 2000.
In November of 1998, Hanalei Bay International Investors ("HBII") entered
into an agreement for the sale of its interest in the Hanalei Bay Resort.
The sale was initially scheduled to close in December of 1998 and after
various delays, the sale closed in March 1999. Upon the sale, the
Company received payment of its note receivable in the amount of $435,000
and subsequently used part of the proceeds to retire notes payable of
$200,000 and amounts due to related parties of $264,998. At January 31,
2000, the Company had a receivable balance of $1,063,853 related to fees,
interest and reimbursements. The sale proceeds received by the owners of
HBII were not sufficient to satisfy all of the claims of its creditors
upon the closing of the sale. The Company did not collect its receivable
from the initial sale proceeds. Under the terms and conditions of the
HBII Sale Agreement, HBII shall be entitled to a percentage of the future
cashflows received upon the sale of timeshare intervals that the new
owner of the Hanalei Bay Resort shall receive. The Company shall receive
payments to be applied to the receivable balance from the future
cashflows received by HBII from the new owners of the Hanalei Bay Resort.
Although no assurance can be given, management is confident that the
future cashflows received by HBII will allow the full repayment to the
Company for all amounts due from HBII.
The Company is also continuing in its effort of raising additional equity
through the private placement of its Preferred Stock. As of January 31,
2000, the Company was successful in acquiring $855,000 in equity through
the private placements. In February and March of 2000, the company was
successful in acquiring an additional $200,000. Although no assurances
can be given, management is confident that it shall be successful in
raising additional capital to fund its operations on an as needed basis
through the private placement of the Preferred Stock.
The Company is also in the final negotiating stages for numerous
properties located in the Pacific Basin. Although no assurances may be
given, management is confident that these properties will enter into
management contracts with the Company, and that the Company will increase
its profitability and liquidity as a result of the increased management
fee income.
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In April of 1999, the Company refinanced two loans with an officer. One
loan was in the principal amount of $16,800 due in August 1998 with
interest of $3,696 and the other loan was in the principle amount of
$47,001 due in March, 1999. The two loans were combined into one note in
the principal amount of $67,497, with interest at 10%. The note calls
for monthly payments of $2,000 per month and is due upon the occurrence
of certain events or August 15, 2000, whichever is earlier.
Although no assurances can be given, management believes that the
combination of the increase in the Company's hotel and resort portfolio,
the private placement of equity, net cashflow generated from operations
and the future availability of credit facilities will be sufficient to
fund the operations of the Company in the future.
The Company has considered expansion into the Pacific Rim through the
acquisition of management companies located in these areas and has made
inquiries to several acquisition prospects.
PLAN OF OPERATION
The Company is one of the leading regional hotel and resort management
companies in the State of Hawaii. At January 31, 2000, the Company had 28
management or sales, reservations and marketing contracts covering 3,000
rooms.
The properties represented by the Company appeal to a wide variety of the
public market as the Company manages a wide spectrum of property types
from the luxury condominium resorts with room rates of $1,000 to the
small budget inns with room rates of $40. The Company believes that the
availability of differing product lines appeals to all levels of business
or leisure traveler.
The Company has experienced significant growth since it began operations
in November of 1993. From inception to January 31, 2000, the number of
contracts has more than doubled, from 13 to 28 and the number of rooms
managed also increased from 1,684 to 3,000.
In January of 1999, the Company signed and was approved as a co-lessee by
the government of the Cook Islands. The property is currently not in
operation, having been abandoned by its previous developer after
completing approximately 85% of the project. Based upon estimates
received by construction experts in the area, the property is valued in
excess of $25,000,000.
As of January 31, 2000, it is uncertain as to whether the co-lessee of
the Company has the financial resources to fund the reconstruction of the
property. The reconstruction of the property is a condition of the lease
agreement and the Company is in the process of securing a replacement for
the co-lessee. If the current co-lessee cannot complete the project or
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if a suitable replacement co-lessee cannot be found, the lease agreement
may be cancelled by the lessor. Management is currently negotiating with
the property owner for an extension of the time required to open the
hotel. Although no assurance can be given, management believes that it
will be successful in negotiating an extension, securing a replacement
co-lessee and that it will also sign a contract for the management of the
property once construction is completed. Based on preliminary
projections, management believes, although no assurances can be given,
that the property shall be profitable and the management fees earned by
the Company will be substantial.
In April of 1999, the Company acquired the lease for a new property
located in Guam. The property is currently in the final phases of
construction and opened partially for business in October of 1999. As of
the quarter ended January 31, 2000, the Company has expended substantial
amounts of funds in sales & marketing and other pre-opening expenses.
The property opened for business on October 22, 1999 with 37 rooms
available for transient rentals while the remaining 170 rooms were in
various stages of completion. The revenues for the quarter ended January
31, 2000 were insignificant compared to the funds expended for the pre-
opening of the project, due to the fact that not all of the rooms were
available and that there was visible construction going on at the
property, prohibiting the Company from accepting reservations for
Japanese business. Pre-opening expenses of $304,851 were incurred during
the months of November 1999 to January 2000 and have been expensed in the
Consolidated Statement of Operations. As of February 29, 2000, the rooms
of the property have been substantially completed. Based on preliminary
projections, although no assurances can be given, management believes
that the property shall be profitable and that the fees earned by the
Company on this property will be substantial.
Although no assurances can be given, the Company plans to expand its
portfolio of management contracts both within the State of Hawaii and
outside of Hawaii in areas such as the Federated States of Micronesia,
Guam and other Pacific Rim countries. In addition to Hawaii, management
believes that there are many opportunities to expand its client base in
the emerging markets of the Pacific Basin. In addition to signing on
independent hotels and resorts, the Company may achieve its growth
through joint venture investments and leases and/or acquisitions of
management contracts and/or companies.
With the increase in management contracts, the number of hotel and resort
employees that the Company will supervise may increase significantly.
The Company is presently negotiating for both small budget hotels and
large luxury condominium resorts and therefore, it is impossible at this
time to predict the number of additional employees that it will supervise
or that it will be required to hire for the hotels and resorts during the
next fiscal year. At January 31, 2000, the Company employed
approximately 600 employees and managed an additional 300 on behalf of
the property owners.
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On July 31, 1995, the Company invested $100,000 into a reorganization
plan instituted by HBII. Under terms of the HBII reorganization plan,
the eighty-seven units owned by HBII will be sold under a timeshare plan
and investors in the timeshare plan may receive up to four times their
investment over the life of the timeshare plan. As of January 31, 2000,
the Company has received a total of $175,516 from this investment. Of
the funds received, $43,879 represents a return of the initial investment
and $131,637 represents a gain to the Company. Although no assurance
can be given, management is confident that it will be able to collect the
remaining principal balance of this investment through the timeshare
proceeds received by HBII (See "Related Parties").
YEAR 2000
The "Year 2000" issue is the result of computer programs using two
digits, rather than four, to define the applicable year. The failure of
such programs to recognize the year 2000 as such could result in systems
failures and miscalculations. The Company and the third parties with whom
it does business rely on numerous computer programs in their daily
operations.
To the best of its knowledge, the Company believes that neither it nor
any of its customers or key suppliers experienced any adverse impact due
to Year 2000 problems.
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters voted on by the Security Holders of the Company
during the quarter ended January 31, 2000.
Item 5. OTHER INFORMATION
There is no other information being reported for the current quarter.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were not reports on Form 8-K filed during the quarter ended January
31, 2000.
(a) Exhibits
The exhibits designated by an asterisk are incorporated herein by
reference. The exhibits with page references are filed herewith.
Sequential
Exhibit Page
Number Description Number
1.1 Form of Placement Agency Agreement incorporated by
reference to Exhibit 1.1 to the Company's
Registration Statement on Form SB2/A-1 filed on
March 10, 1998. *
2.1 Restated Articles of Incorporation, incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB. *
2.2 Bylaws, as amended effective February 1, 1995,
incorporated by reference to Exhibit 2.2 to the
Company's Quarterly Report on Form 10-QSB for the
quarter ending 04/30/96. *
6.1 Agreement and Plan of Reorganization dated as of
November 8, 1993, by and among The Castle Group,
Inc., Bernard Wall Trust, LCC, Ltd., John
Tedcastle, Hideo Nomura, and Castle Group, Limited,
With exhibits, incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form
10-SB. *
6.2 Stock Purchase Agreement dated as of November 10,
1993, by and among The Castle Group, Inc., Keawe
Resorts, Inc., Maui Beach Hotel, Inc., M.K. & Sons,
Inc., TN Group, Inc., Michael S. Nitta, Saburo &
Mitsue Maruyama, Shigeru Shinno, James Kurita, and
KRI, Inc., with exhibits, incorporated by reference
to Exhibit 10.2 to the Company's Registration
Statement on Form 10-SB. *
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6.3 Kelvin Bloom Employment Agreement dated December
2, 1993 between the Company and Kelvin Bloom,
incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form 10-SB. *
6.4 Kimo M. Keawe Employment Agreement dated July 30,
1994, effective as of November 10, 1993 between Kimo
M. Keawe and the Company, incorporated by reference
to Exhibit 6.4 to the Company's Annual Report on
Form 10-KSB for the year ended July 31, 1994. *
6.5 Michael S. Nitta Employment Agreement dated June 23,
1994, effective as of November 10, 1993 between
Michael S. Nitta and the Company, incorporated by
reference to Exhibit 6.5 to the Company's Annual
Report on Form 10-KSB for the year ended July 31,
1994. *
6.6 Shari Chang Employment Agreement dated July 15,
1994, effective as of July 16, 1994 between Shari
Chang and the Company, incorporated by reference to
Exhibit 6.6 to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1994. *
6.7 Sublease Agreement dated September 16, 1993 between
Rush Moore Craven Sutton Morry & Beh and The Castle
Group, Ltd. for the Company's principle executive
offices, incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on form 10-SB. *
6.8 Lease Agreement dated April 1, 1988, between Hirano
Enterprises, Cen Pac Properties, Inc., and KRI, Inc.,
dba Hawaiian Pacific Resorts, as renewed by agreement
dated May 3, 1993, incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement
on Form 10-SB. *
6.9 Reservations Services Agreement dated August 1, 1994
between the Company and Hawaii Reservations Center
Corp., incorporated by reference to Exhibit 6.9 to
the Company's quarterly report on Form 10-QSB for
the quarter ended October 31, 1994. *
6.10 Stock Acquisition Agreement between the Company and
Shari W. Chang dated September 10, 1995, incorporated
by reference to Exhibit 6.10 to the Company's Annual
Report on Form 10-KSB for the year ended July 31,
1995. *
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6.11 Revolving Line of Credit Loan Agreement dated October
21, 1994 between the Company, and Castle Resorts &
Hotels, Inc., KRI, Inc., Hawaii National Bank, Rick
Wall, John Tedcastle, Hideo Nomura and Kimo Keawe,
incorporated by reference to Exhibit 6.11 to the
Company's Annual Report on Form 10-KSB for the year
ended July 31, 1995. *
6.12 Letter dated October 17, 1995 from Kimo M. Keawe to
KRI, Inc. Stockholders, together with Promissory Notes
dated July 31, 1995 payable to Maui Beach Hotel, Inc.
for $12,000, James Kurita for $6,000, Saburo or Mitsue
Maruyama for $3,600, TN Group Hawaii, Inc. for $6,000,
M.K. & Sons, Inc. for $12,000, Shigeru Shinno for
$6,000, Michael S. Nitta for $16,800, and Keawe
Resorts, Inc. for $122,000, incorporated by reference
to Exhibit 6.12 to the Company's Annual Report on
Form 10-KSB for the year ended July 31, 1995. *
6.13 Second Amendment to Letter of Agreement Dated
December 2, 1993 between Kelvin Bloom and The Castle
Group, Inc. incorporated by reference to Exhibit 6.13
to the Company's Annual Report on Form 10-KSB for the
year ended July 31, 1995. *
6.14 Extension of Revolving Line of Credit Agreement dated
December 18, 1995 between The Castle Group, Inc., KRI,
Inc., Castle Resorts & Hotels, Inc., and Hawaii
National Bank incorporated by reference to Exhibit
to the Company's Annual Report on Form 10-KSB for the
year ended July 31, 1996. *
6.15 Extension of Revolving Line of Credit Agreement
dated January 18, 1996 between The Castle Group, Inc.,
KRI, Inc., Castle Resorts & Hotels, Inc., and Hawaii
National Bank incorporated by reference to Exhibit
6.15 to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1996. *
6.16 Extension of Revolving Line of Credit Agreement dated
June 5, 1996 between The Castle Group, Inc., KRI,
Inc., Castle Resorts & Hotels, Inc., and Hawaii
National Bank incorporated by reference to Exhibit
to the Company's Annual Report on Form 10-KSB for the
year ended July 31, 1996. *
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6.17 Extension of Revolving Line of Credit Agreement
dated December 11, 1996 between The Castle Group,
Inc., KRI, Inc., Castle Resorts & Hotels, Inc., and
Hawaii National Bank incorporated by reference to
Exhibit 6.17 to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1997. *
6.18 Extension of Revolving Line of Credit Agreement
dated March 5, 1997 between The Castle Group, Inc.,
KRI, Inc., Castle Resorts & Hotels, Inc., and Hawaii
National Bank incorporated by reference to Exhibit
to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1997. *
6.19 Extension of Revolving Line of Credit Agreement
dated June 30, 1997 between The Castle Group, Inc.,
KRI, Inc., Castle Resorts & Hotels, Inc., and Hawaii
National Bank incorporated by reference to Exhibit
to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1997. *
6.20 Stock Option Agreement dated May 21, 1997 between
Hawaii Reservations Center Corp. and The Castle Group,
Inc. incorporated by reference to Exhibit 6.20 to the
Company's Annual Report on Form 10-KSB for the year
ended July 31, 1997. *
6.21 Steve Townsend Employment Agreement dated May 31,
1997, effective as of July 28, 1997 between Steve
Townsend and the Company incorporated by reference to
Exhibit 6.21 to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1997. *
6.22 Consulting Agreement between Kimo M. Keawe, Keawe
Resorts, Inc. and the Company dated April 16, 1997
incorporated by reference to Exhibit 6.22 to the
Company's Annual Report on Form 10-KSB for the
year ended July 31, 1997. *
6.23 Amendment to Consulting Agreement between Kimo M.
Keawe, Keawe Resorts, Inc. and The Castle Group,
Inc. dated April 16, 1997 incorporated by reference
to Exhibit 6.23 to the Company's Annual Report on
Form 10-KSB for the year ended July 31, 1997. *
6.24 Letter dated July 31, 1997 from Kelvin Bloom
forfeiting his stock option and all amendments
incorporated by reference to Exhibit 6.24 to the
Company's Annual Report on Form 10-KSB for the year
ended July 31, 1997. *
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6.25 Amendment to Promissory Notes from the Company to
Saburo or Mitsue Maruyama for $3,600; Michael S.
Nitta for $16,800; Keawe Resorts, Inc. for $122,000;
M.K. & Sons, Inc. for $12,000; Shigeru Shinno for
$6,000; and T.N. Group Hawaii, Inc. for $6,000
incorporated by reference to Exhibit 6.25 to the
Company's Annual Report on Form 10-KSB for the year
ended July 31, 1997. *
6.26 Commercial Promissory Note between the Company and
City Bank dated November 14, 1997 incorporated by
reference to Exhibit 6.26 to the Company's quarterly
report on Form 10-QSB for the quarter ended January
31, 1998. *
6.27 Promissory note for $50,000 dated January 15, 1998
between the Company and Michael S. Nitta incorporated
by reference to Exhibit 6.26 to the Company's
quarterly report on Form 10-QSB for the quarter ended
January 31, 1998. *
6.28 Promissory note for $60,000 dated January 29, 1998
between the Company and Kelvin M. Bloom incorporated
by reference to Exhibit 6.26 to the Company's
quarterly report on Form 10-QSB for the quarter
ended January 31, 1998. *
6.29 Letter from Hawaii National Bank extending the due
date on the $300,000 revolving line of credit to July
15, 1998, incorporated by reference to Exhibit 6.29
to the Company's quarterly report on Form 10-QSB for
the quarter ended April 30, 1998. *
6.30 Amendment of promissory note dated January 29, 1998
between the Company and Kelvin M. Bloom extending the
due date on the note to July 15, 1998, incorporated
by reference to Exhibit 6.38 to the Company's
quarterly report on form 10-QSB for the quarter
ended April 30, 1998. *
6.31 Amendment of promissory note dated January 15, 1998
between the Company and Michael S. Nitta extending the
due date on the note to July 15, 1998, incorporated by
reference to Exhibit 6.31 to the Company's quarterly
report on form 10-QSB for the quarter ended April 30,
1998. *
6.32 Letter from City Bank extending the due date on the
$250,000 line of credit to 08/19/98, incorporated by
reference to Exhibit 6.32 to the Company's form 10Q-SB
for the quarter ended April 30, 1998. *
30
<PAGE>
6.33 Amendment of Lease between The Castle Group, Inc. and
Hirano Enterprises effective 4/1/98, incorporated by
reference to Exhibit 6.33 to the Company's form 10Q-SB
for the quarter ended April 30, 1998. *
6.34 Consulting agreement dated July 22, 1998 and effective
as of June 1, 1998 between the Company and Kimo M.
Keawe. Incorporated by reference to exhibit 6.34 to
the Company's form 10K-SB for the year ended July 31,
1998. *
6.35 Form of promissory notes dated June 30, 1998 between
the Company and Judvhir Parmar for $175,000, K. Roger
Moses for $50,000, Gary J. Stevens, Susanne L.
Blankley for $50,000, and Thomas S. Blankley for
$50,000. Incorporated by reference to exhibit 6.35 to
the Company's form 10K-SB for the year ended July 31,
1998. *
6.36 Form of Common Stock Purchase Warrants dated 6/30/98
between the Company and Judvhir Parmar for 87,500
shares, K. Roger Moses for 25,000 shares, Gary J.
Stevens for 25,000 shares, Susanne L. Blankley for
25,000 shares, and Thomas S. Blankley for 25,000
shares. Incorporated by reference to exhibit 6.36 to
the Company's form 10K-SB for the year ended 7/31/98. *
6.37 Promissory note dated August 13, 1998 in favor of
the Company from Fortress LLC for $250,000.
Incorporated by reference to exhibit 6.37 to the
Company's form 10K-SB for the year ended 7/31/98. *
6.38 Promissory note in favor of the Company from
Hanalei Bay International Investors for $435,000
dated July 31, 1998. Incorporated by reference to
exhibit 6.38 to the Company's form 10K-SB for the
year ended July 31, 1998. *
6.39 Promissory note dated July 15, 1998 between the
Company and Kelvin M. Bloom for $118,800
incorporated by reference to exhibit 6.39 to the
Company's form 10K-SB for the year ended 7/31/98. *
6.40 Promissory note dated 7/15/98 between the Company
and Michael S. Nitta for $48,800. Incorporated
by reference to exhibit 6.40 to the Company's form
10K-SB for the year ended July 31, 1998. *
31
<PAGE>
6.41 Letter of extension from Hawaii National Bank
extending the due date on the $300,000 line of
credit to December 20, 1998. Incorporated by
reference to exhibit 6.41 to the Company's form
10K-SB for the year ended July 31, 1998. *
6.42 Letter of extension from City Bank extending the
due date on the $250,000 line of credit to December
31, 1998. Incorporated by reference to exhibit 6.42
to the Company's form 10K-SB for the year ended
July 31, 1998. *
6.43 Private Offering Memorandum for the issuance of the
Company's Series "A" Preferred Stock. Incorporated
by reference to exhibit 6.33 to the Company's form
10Q-SB for the quarter ended April 30, 1999. *
6.44 Amendment To Private Offering Memorandum for the
issuance of the Company's Series "A" Preferred Stock
incorporated by reference to exhibit 6.44 to the
Company's form 10Q-SB for the quarter ended October
31, 1999. *
DESCRIPTION OF EXHIBITS
See item 1 above.
32
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
THE CASTLE GROUP, INC.
(Registrant)
March 16, 2000 /s/ Rick Wall
---------------------------
Chairman of the Board and
Chief Executive Officer
March 16, 2000 /s/ Michael S. Nitta
--------------------------
Chief Financial Officer
33
<PAGE>
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