Notes to Consolidated Financial Statements
Three and Nine Months Ended June 30, 2014 and 2013 and Period October 1, 2005 (Inception of Development Stage) to June 30, 2014
(Unaudited and Unreviewed)
1. ORGANIZATION
Castle Holding Corp. (“CHC”) is a holding company which was incorporated in Nevada on June 13, 1986. The subsidiaries of CHC are as follows:
1.
|
Beverage King, Ltd. (incorporated in Delaware January 2, 1990) – leased automobiles for Company employees; no operations since October 31, 2005.
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2.
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Church Street Securities Corp. (incorporated in New York April 11, 1991) – operated a securities broker-dealer from October 26, 1995 to January 6, 2005; decided to cease operations on January 6, 2005.
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3.
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Castle Advisors, Inc. (incorporated in New York December 23, 1993) – acts as a financial consultant; no revenues in years ended September 30, 2013 and 2012.
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4.
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Wall Street Indians, Ltd. (incorporated in New York May 27, 1994) – provided office services and supplies to the Company to October 31, 2005; no operations since October 31, 2005.
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5.
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The Unlisted Stock Market Corporation (incorporated in New York December 9, 1999) – no operations from inception.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim financial statements – The accompanying unaudited interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual audited financial statements. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments considered necessary for a fair presentation.
The results of operations for the three and nine months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending September 30, 2014. The accompanying unaudited interim financial statements should be read in conjunction with the Company’s financial statements and notes related thereto for the years ended September 30, 2013 and 2012 included in our Form 10-K filed with the SEC.
Principles of consolidation – The consolidated financial statements include the accounts of CHC and its subsidiaries (collectively, the “Company”). Castle Securities Corp., a former subsidiary that operated a securities broker-dealer from November 1, 1985 to October 31, 2003, dissolved in September 2009. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation – The accompanying consolidated financial statements are presented in accordance with the guidance provided by Accounting Standards Codification ("ASC") topic no. 915, "Development Stage Entities". We have used fiscal year ended September 30, 2006 as the inception of our development stage. Since cessation of the operations of Church Street SecuritiesCorp. in January 2005, the Company has had no business operations or operating revenues.
CASTLE HOLDING CORP. AND SUBSIDIARIES
(A Development Stage Entity)
Notes to Consolidated Financial Statements
Three and Nine Months Ended June 30, 2014 and 2013 and Period October 1, 2005 (Inception of Development Stage) to June 30, 2014
(Unaudited and Unreviewed)
Use of estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.
Cash and cash equivalents ‑ The Company considers highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Marketable securities and restricted cash and securities ‑ Marketable securities and restricted cash and securities consist primarily of trading securities valued at market. All fair value measurements are based on Level 1 inputs (i.e., closing trading prices of respective marketable securities). Unrealized gains and losses are reflected in income ($(49,050) and $(56,299) for thenine months ended June 30, 2014 and 2013, respectively).
Income taxes – Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Net income (loss) per common share – Basic net income (loss) per common share is calculated based upon the weighted average number of common shares outstanding. Diluted net income (loss) per common share is calculated based upon the weighted average number of common shares outstanding and dilutive convertible preferred shares outstanding.
3. RESTRICTED CASH AND SECURITIES, AT MARKET VALUE
At June 30, 2014 and September 30, 2013, restricted cash and securities consist of:
|
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June 30,
2014
|
|
|
September 30,
2013
|
|
|
|
|
|
|
|
|
Uninvested cash
|
|
$
|
297
|
|
|
$
|
23,398
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
576,500 and 551,000 shares, respectively, Castle Holding Corp.
|
|
|
|
|
|
|
|
|
(CHOD) (reflected as treasury stock in the consolidated balance sheet)
|
|
|
95,123
|
|
|
|
275,500
|
|
0 and 60,000 shares, respectively, Liberty Pete Corp. (LBPE)
|
|
|
-
|
|
|
|
420
|
|
28,000 and 24,000 shares, respectively, Medallion FinancialGroup (TAXI)
|
|
|
348,880
|
|
|
|
357,120
|
|
|
|
|
|
|
|
|
|
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Subtotal
|
|
|
444,300
|
|
|
|
656,438
|
|
|
|
|
|
|
|
|
|
|
Less Castle Holding Corp. (CHOD) shares treated as treasury stock
|
|
|
(95,123
|
)
|
|
|
(275,500
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
349,177
|
|
|
$
|
380,938
|
|
CASTLE HOLDING CORP. AND SUBSIDIARIES
(A Development Stage Entity)
Notes to Consolidated Financial Statements
Three and Nine Months Ended June 30, 2014 and 2013 and Period October 1, 2005 (Inception of Development Stage) to June 30, 2014
(Unaudited and Unreviewed)
Except for 385,000 shares Castle Holding Corp. held in safekeeping at June 30, 2014, the restricted cash and securities are held at accounts with TD Ameritrade Inc. (the “First FBO Account”) and E Trade Securities LLC (the “Second FBO Account”). The First FBO Account was established in 2001 to secure payment of the investment in the Class A Convertible Preferred Shares in the event of liquidation of CHC (see Note 5).
In 2001, as a provision of the private offering (see Note 5), CHOD purchased a total of $380,000 face value of United States Treasury Strips (the “Strips”) maturing August 15, 2011 for a total of approximately $233,000. On August 15, 2011, the Strips matured and the First FBO Account was credited $380,000. Since August 15, 2011, the FBO Accountshave acquired and sold a variety of marketable equity securities.
On November 14, 2013, TD Ameritrade notified us to transfer the First FBO Account to another brokerage firm and restricted us to liquidating transactions only. On February 19, 2014, we opened an account at E Trade Securities and, except for 181,500 shares of Castle Holding Corp. common stock still held at TD Ameritrade, all assets held at TD Ameritrade were transferred to E Trade Securities.
Had CHC required conversion of the 699,250 shares of the Class A Convertible Preferred Shares into 699,250 shares of CHOD Common Stock and paid the Class A Convertible Preferred stockholders $0.50 per Preferred Share (or $349,625 total) at June 30, 2014 (see Note 5), the remaining restricted cash and securities available to CHC atJune 30, 2014 would have been $0.
4. OTHER ASSETS
Other assets consist of:
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|
June 30,
2014
|
|
|
September 30,
2013
|
|
9% equity ownership of Castle Trucking Corp.
|
|
$
|
1
|
|
|
$
|
1
|
|
9% equity ownership of U Trade Inc.
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
2
|
|
5. STOCKHOLDERS’ EQUITY
Class A Convertible Preferred Stock
From March 2001 to September 2001, CHC sold 706,750 shares of Class A Convertible Preferred Stock for gross proceeds of $706,750.
Each share of Class A Convertible Preferred Stock is convertible at any time into one share of the Company’s Common Stock at the election of the Class A Convertible Preferred Stockholder. At any time, CHC may require conversion of the Class A Convertible Preferred Shares provided that CHC Common Stock closes at a price of $1.50 per share or higher for more than 20 consecutive business days. At any time after one year from the issue date of the Class A Convertible Preferred Shares, CHC may require conversion of the Class A Convertible Preferred Shares provided that CHC pay the Class A Convertible Preferred Stockholder $0.50 per Class A Convertible Preferred Share.
CASTLE HOLDING CORP. AND SUBSIDIARIES
(A Development Stage Entity)
Notes to Consolidated Financial Statements
Three and Nine Months Ended June 30, 2014 and 2013 and Period October 1, 2005 (Inception of Development Stage) to June 30, 2014
(Unaudited and Unreviewed)
The Class A Convertible Preferred Shares are non-voting and will have a first priority, up to $1.00 per Class A Convertible Preferred Share, in the event of liquidation of CHC.
As a provision of the private offering, CHC used 33% of the gross proceeds of the offering to purchase $380,000 face value of U.S. Treasury Strips (the “Strips”) maturing August 15, 2011 (see Note 3).
The proceeds from the Strips are available to holders of the Class A Convertible Preferred Shares and are in addition to the other assets of CHC. The Strips, and upon maturity, subsequent investments purchased from such proceeds, are to be held by CHC to secure payment of the investment in the Class A Convertible Preferred Shares in the event of liquidation of CHC. The protection afforded by the Strips are to terminate upon the conversion of the Class A Convertible Preferred Shares and the Strips, or their proceeds, are to thereafter be available to CHC.
In the years ended September 30, 2006 and 2007, CHC repurchased a total of 5,000 shares of Class A Convertible Preferred Stock. In the year ended September 30, 2009, CHC repurchased 2,500 shares of Class A Convertible Preferred Stock. Accordingly, the proportionate share (approximately 1.06%) of the FBO Accounts (or approximately $3,701 market value at June 30, 2014) may be available to CHC.
Common Stock
In October 2005, CHC sold 200,000 shares of common stock to a CHC affiliate for $2,000 ($0.01 per share).
In January 2007, CHC sold 50,000 shares of common stock to a former employee for $550 ($0.011 per share).
6. 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.
The provisions for (benefit from) income taxes consisted of:
|
|
Nine Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
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Total
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(9,241
|
)
|
|
|
(28,271
|
)
|
State
|
|
|
(1,890
|
)
|
|
|
(5,781
|
)
|
Change in valuation allowance
|
|
|
11,131
|
|
|
|
34,052
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
CASTLE HOLDING CORP. AND SUBSIDIARIES
(A Development Stage Entity)
Notes to Consolidated Financial Statements
Three and Nine Months Ended June 30, 2014 and 2013 and Period October 1, 2005 (Inception of Development Stage) to June 30, 2014
(Unaudited and Unreviewed)
The Company’s effective tax rate differed from the United States Federal income tax rate for the following reasons:
|
|
Nine Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Computed Federal income tax at 34%
|
|
$
|
(9,884
|
)
|
|
$
|
(30,237
|
)
|
Computed state income tax, net of Federal tax effect
|
|
|
(1,247
|
)
|
|
|
(3,815
|
)
|
Change in valuation allowance
|
|
|
11,131
|
|
|
|
34,052
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
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 $416,696 as of June 30, 2014 attributable to the future utilization of $1,176,277 of prior year net operating loss carryforwards and $49,299 of capital loss carryforwards will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at June 30, 2014. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwardsexpire as follows: $22,164 in year 2019, $185,653 in year 2021, $694,345 in year 2022, $135,943 in year 2023, $66,021 in year 2024, $39,208 in year 2025 and $32,943 in year 2034. The capital loss carryforward of $49,299 expires in year 2018.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
7. COMMITMENTS AND CONTINGENCIES
Since December 2005, the Company has been using space provided by a public accounting firm owned by the Company’s treasurer at no cost to the Company.