UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURUTIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2017

 

Commission file number 33-37809-NY

 

CASTLE HOLDING CORP.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		77-0121957
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

 

111 West Sunrise Highway, Second Floor East

Freeport, NY 11520

(516)-378-1000

(Address of Principal Executive Offices, Zip Code & Telephone Number)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to section 15(d) of the Act:

Common Stock, $0.0025 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The aggregate market value of the then 9,648,340 shares of common stock held by non-affiliates of the Registrant (based on the $0.05 last reported price on the OTC Markets) on March 31, 2017 was $482,417.

 

As of October 20, 2017, the registrant had 47,003,510 shares of common stock issued and 46,414,710 shares of common stock outstanding, as well as 522,250 Class A Convertible preferred shares issued and outstanding and 100,000 Class B preferred shares issued and outstanding.

 

EXPLANATORY NOTE

 

Castle Holding Corp. (“CHOD”) previously voluntarily filed quarterly and annual reports up to and including the quarterly period ended June 30, 2002.

 

Commencing with the Form 10-K for the annual period ended September 30, 2013, CHOD has resumed voluntary filings of quarterly and annual reports.

 

2

 

Castle Holding Corp.

 

TABLE OF CONTENTS

Fiscal Year Ended September 30, 2017

 

			Page No.
Part I
Item 1.	Business			4
Item 1A.	Risk Factors			4
Item 2.	Properties			4
Item 3.	Legal Proceedings			4
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			5
Item 6.	Selected Financial Data			6
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations			6
Item 8.	Financial Statements			8
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			18
Item 9A.	Controls and Procedures			18
Item 9B.	Other Information			18
Part III
Item 10.	Directors, Executive Officers and Corporate Governance			19
Item 11.	Executive Compensation			20
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			20
Item 13.	Certain Relationships and Related Transactions, and Director Independence			21
Item 14.	Principal Accounting Fees and Services			21
Part IV
Item 15.	Exhibits			22
Signatures				23

 

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PART I

 

ITEM 1. BUSINESS

 

GENERAL INFORMATION

 

Castle Holding Corp. (“CHOD”) is a holding company which was incorporated in Nevada on June 13, 1986. On September 30, 1987, CHOD acquired Castle Securities Corp., a New York corporation which operated as a securities broker dealer from November 1, 1985 to October 31, 2003. On April 11, 1991, CHOD formed Church Street Securities Corp., a New York corporation which operated as a securities broker dealer from October 26, 1995 to January 6, 2005. From January 2005 to June 2015, CHOD and its subsidiaries had minimal business operations and operating revenues. Commencing July 2015, CHOD’s subsidiary SAS Health and Beauty Corp. (“SAS”) has engaged in the production and sales of a skin care product called SAS Flower of Youth Facial Lift Spray. In November 2016, SAS also started marketing two vitamin supplement products called “JDI MultiVitamin/MultiMineral with NeuStem” and “NeuStem”.

 

On November 20, 2014, pursuant to a Stock Purchase Agreement involving a change in control of CHOD, CHOD was assigned a License Agreement between Cappello’s Inc. (“Cappello’s”) and Emergent Health Corporation (“EMGE”) dated August 26, 2014. On April 28, 2016, as a result of EMGE’s failure to pay CHOD royalties due under the License Agreement, the License Agreement was terminated and rights to the Licensed Products reverted to CHOD.

 

Through its subsidiary SAS, the Company is considering the manufacturing and marketing of the Licensed Products. The products relate to a line of stem cell nutrition and anti-aging ones which are patented and were well accepted by those familiar with these latest sectors in nutritional supplementation.

 

ITEM 1A. RISK FACTORS

 

Not Applicable.

 

ITEM 2. PROPERTIES

 

We do not currently own any property. The Company’s offices are located at 111 West Sunrise Highway, Freeport, NY 11520 and 10120 Valley Forge Circle, King of Prussia, Pennsylvania, 19406. The Freeport office space is provided by Michael T. Studer CPA P.C., a public accounting firm owned by Michael T. Studer, our former Treasurer and director, at no cost to the Company. The King of Prussia office space is being provided by EMGE at no cost to the Company; management of the Company is currently working with EMGE to revive its business model and become viable.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not currently involved in any legal proceedings nor do we have any knowledge of any threatened litigation.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

·         Market Information.

 

The Company’s Common Stock, $.0025 par value, is traded in the over-the-counter market under the symbol “CHOD”. Our common stock is quoted on the OTC Pink marketplace operated by OTC Markets Group. The following table sets forth the range of high and low trading prices for Common Stock as reported on the OTC Pink marketplace for each quarter during the last two fiscal years.

 

Fiscal Year ended September 30, 2017		High				Low
Quarter ended December 31, 2016		$	0.375			$	0.045
Quarter ended March 31, 2017		$	0.05			$	0.05
Quarter ended June 30, 2017		$	0.07			$	0.05
Quarter ended September 30, 2017		$	0.06			$	0.022
Fiscal Year ended September 30, 2016		High				Low
Quarter ended December 31, 2015		$	0.18			$	0.07
Quarter ended March 31, 2016		$	0.13			$	0.06
Quarter ended June 30, 2016		$	0.11			$	0.08
Quarter ended September 30, 2016		$	0.18			$	0.045

 

The Company’s Class A Convertible Preferred Stock and Class B Preferred Stock are not publicly traded or quoted.

 

·         Holders of Common Stock and Preferred Stock.

 

As of October 20, 2017, the number of holders of record of the Company’s common stock was approximately 250. The number of holders of record of the Company’s Class A Convertible Preferred Stock was approximately 90. The number of holders of record of the Company Class B Preferred Stock was 1.

 

·         Dividends.

 

The Company 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.

 

·         Securities Authorized for Issuance under Equity Compensation Plans

 

None.

 

·         Recent Sales of Unregistered Securities

 

None for the quarterly period ended September 30, 2017.

 

·         Issuer Purchases of Equity Securities

 

None for the quarterly period ended September 30, 2017.

 

We presently have no publicly announced repurchase plan or program to purchase our Common Stock or Series A Convertible Preferred Stock.

 

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ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

Castle Holding Corp. (“CHOD”) is a holding company which was incorporated in Nevada on June 13, 1986. On September 30, 1987, CHOD acquired Castle Securities Corp., a New York corporation which operated as a securities broker dealer from November 1, 1985 to October 31, 2003. On April 11, 1991, CHOD formed Church Street Securities Corp., a New York corporation which operated as a securities broker dealer from October 26, 1995 to January 6, 2005. From January 2005 to June 2015, CHOD and its subsidiaries have had minimal business operations and operating revenues. Commencing July 2015, CHOD’s subsidiary SAS Health and Beauty Corp. (“SAS”) has engaged in the production and sales of a skin care product called SAS Flower of Youth Facial Lift Spray. In November 2016, SAS also started marketing two vitamin supplement products called “JDI MultiVitamin/MultiMineral with NeuStem” and “NeuStem”.

 

On November 20, 2014, pursuant to a Stock Purchase Agreement involving a change in control of CHOD, CHOD was assigned a License Agreement between Cappello’s Inc. (“Cappello’s”) and Emergent Health Corporation (“EMGE”) dated August 26, 2014. On April 28, 2016, as a result of EMGE’s failure to pay CHOD royalties due under the License Agreement, the License Agreement was terminated and rights to the Licensed Products reverted to CHOD.

 

Through its subsidiary SAS, the Company is considering the manufacturing and marketing of the Licensed Products. The products relate to a line of stem cell nutrition and anti-aging ones which are patented and were well accepted by those familiar with these latest sectors in nutritional supplementation.

 

Results of Operations – Year ended September 30, 2017 compared to Year ended September 30, 2016.

 

Sales increased $61,329 from $8,385 in 2016 to $69,714 in 2017. The increase in sales was due to the introduction of our new vitamin supplement products in November 2016.

 

Cost of sales increased $9,785 from $1,246 in 2016 to $11,031 in 2017.

 

Gross profit increased $51,544 from $7,139 in 2016 to $58,683 in 2017 due to increased sales as a result of the introduction of the new products discussed above. The gross profit percentage of sales in 2016 and 2017 was approximately 85% and 84%, respectively.

 

Total operating expenses decreased $6,276 from $57,762 in 2016 to $51,486 in 2017. The decrease was primarily due to lower consulting and investor relation fees incurred in 2017 compared to 2016, offset by higher selling expenses in 2017 compared to 2016.

 

Other expense – net decreased $121,831 from $227,928 in 2016 to $106,097 in 2017. The decrease was due primarily to the $112,780 decrease in net loss on marketable securities and the $60,000 decrease in impairment expense of our investment in Emergent Health Corporation common stock, offset partially by the $30,000 impairment expense of the license agreement with Emergent Health Corporation in 2017 and the $21,750 decrease in interest and dividends revenues from $23,351 in 2016 to $1,601 in 2017.

 

Net loss decreased $179,651 from $278,551 in 2016 to $98,900 in 2017. The decrease was due to the $51,544 increase in gross profit, the $6,276 decrease in operating expenses and the $121,831 decrease in other expense-net.

 

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Liquidity and Capital Resources

 

At September 30, 2017, the Company had cash and cash equivalents of $120,640, total assets of $160,264, total liabilities of $22,369, and total stockholders’ equity of $137,895.

 

Cash and cash equivalents increased $78,997 from $41,643 at September 30, 2016 to $120,640 at September 30, 2017. The $78,997 increase was due primarily to the $135,262 decrease in marketable securities, offset partially by the $19,751 decrease in margin liability to broker and the $28,900 adjusted net loss ($98,900 net loss adjusted for non-cash impairment expenses of $70,000).

 

The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.

 

We currently have no commitments with any person for any capital expenditures.

 

We have no off-balance sheet arrangements.

 

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ITEM 8. FINANCIAL STATEMENTS

 

CASTLE HOLDING CORP. AND SUBSIDIARIES

Consolidated Statements of Financial Condition 

(Unaudited) 

 

		September 30, 2017				September 30, 2016
Assets
Cash and cash equivalents		$	120,640			$	41,643
Marketable securities, at market value			5,100				219,920
Inventory			9,027				3.109
Investment in Emergent Health Corporation common stock			20,000				160,000
License agreement with Emergent Health Corporation			-				30,000
Other assets			5,497				2
Total assets		$	160,264			$	275,412
Liabilities and Stockholders' Equity
Liabilities:
Margin liability to broker		$	-			$	19,751
Accounts payable and accrued expenses			4,288				785
Loans payable to affiliates			18,081				18,081
Total liabilities			22,369				38,617
Stockholders' equity:
Preferred stock, $.01 par value; authorized 8,900,000 and 8,900,000 shares, respectively; none issued and outstanding			-				-
Class A Convertible Preferred stock, $.01 par value; authorized 1,000,000 shares, issued and outstanding 522,250 and 522,250 shares, respectively;			5,223				5,223
Class B Preferred stock, $.01 par value; authorized 100,000 shares, issued and outstanding 100,000 and 100,000 shares, respectively			1,000				1,000
Common stock, $.0025 par value; authorized 200,000,000 shares, issued 47,003,510 and 47,003,510 shares, respectively (net of 261,000 shares "stopped" and requested to be cancelled)			117,509				117,509
Treasury common stock - 588,800 and 588,800 shares, respectively - at cost			(32,620	)			(32,620	)
Additional paid-in capital			1,883,177				1,883,177
Accumulated deficit			(1,836,394	)			(1,737,494	)
Total stockholders' equity			137,895				236,795
Total liabilities and stockholders' equity		$	160,264			$	275,412

See notes to consolidated financial statements.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)   

 

		Year Ended September 30,
		2017				2016
Sales		$	69,714			$	8,385
Cost of sales			11,031				1,246
Gross profit			58,683				7,139
Selling expenses			31,130				4,065
General and administrative expenses			20,356				53,697
Total operating expenses			51,486				57,762
Income (loss) from operations			7,197				(50,623	)
Other income (expense):
Interest and dividends revenues			1,601				23,351
Royalties revenues			1,500				572
Net gain (loss) on marketable securities			(38,673	)			(151,453	)
Impairment of investment in Emergent Health Corporation common stock			(40,000	)			(100,000	)
Impairment of license agreement with Emergent Health Corporation			(30,000	)			-
Interest expense			(525	)			(398	)
Total other income (expense) - net			(106,097	)			(227,928	)
Income (loss) before income taxes			(98,900	)			(278,551	)
Provision for income taxes			-				-
Net income (loss)		$	(98,900	)		$	(278,551	)
Net income (loss) per common share:
Basic		$	(0.00	)		$	(0.01	)
Diluted		$	(0.00	)		$	(0.01	)
Weighted average number of common shares outstanding:
Basic			46,414,710				45,550,049
Diluted			46,936,960				46,072,299

See notes to consolidated financial statements.         

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended September 30, 2016 and 2017

(Unaudited)

		Class A Convertible Preferred Stock, $.01 Par Value								Class B Preferred Stock, $.01 Par Value								Common Stock, $.0025 Par Value								Treasury Common Stock, $.0025 Par Value								Additional Paid-in				Accumulated				Total Stock- holders’
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balances, September 30, 2015			522,250			$	5,223				100,000			$	1,000				44,983,510			$	112,459				(588,800	)		$	(32,620	)		$	1,833,527			$	(1,458,943	)		$	460,646
Issuance of common shares on April 1, 2016 for 1,500,000 free trading shares of Gold Mining USA Inc. (“GMUI”) common stock			-				-				-				-				2,000,000				5,000				-				-				47,500				-				52,500
Issuance of common shares on May 5, 2016 for legal services rendered			-				-				-				-				20,000				50				-				-				2,500				-				2,200
Net loss			-				-				-				-				-				-				-				-				-				(278,551	)			(278,551	)
Balances, September 30, 2016			522,250				5,223				100,000				1,000				47,003,510				117,509				(588,800	)			(32,620	)			1,883,177				(1,737,494	)			236,795
Net loss			-				-				-				-				-				-				-				-				-				(98,900	)			(98,900	)
Balances, September 30, 2017			522,250			$	5,223				100,000			$	1,000				47,003,510			$	117,509				(588,800	)		$	(32,620	)		$	1,883,177			$	(1,836,394	)		$	137,895

 

See notes to consolidated financial statements.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited) 

 

		Year Ended September 30,
		2017				2016
Cash flows from operating activities:
Net income (loss)		$	(98,900	)		$	(278,551	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Issuance of common stock for legal services			-				2,200
Impairment of investment in Emergent Health Corporation common stock			40,000				100,000
Impairment of license agreement with Emergent Health Corporation			30,000				-
Changes in operating assets and liabilities:
Marketable securities			135,262				132,058
Inventory			(5,622	)			(296	)
Other assets			(5,495	)			950
Margin liability to broker			(19,751	)			19,751
Accounts payable and accrued expenses			3,503				(438	)
Net cash provided by (used in) operating activities			78,997				(24,326	)
Cash flows from investing activities			-				-
Cash flows from financing activities			-				-
Net increase (decrease) in cash and cash equivalents			78,997				(24,326	)
Cash and cash equivalents, beginning of period			41,643				65,969
Cash and cash equivalents, end of period		$	120,640			$	41,643
Supplemental disclosures of cash flow information:
Interest paid		$	525			$	398
Income taxes paid		$	-			$	-
Non-cash investing and financing activities:
Issuance of 2,000,000 shares of CHOD common stock in exchange for 1,500,000 free trading shares of Gold Mining USA Inc., (“GMUI”) common stock		$	-			$	52,500

See notes to consolidated financial statements.

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

1. ORGANIZATION

 

Castle Holding Corp. (“CHOD”) is a holding company which was incorporated in Nevada on June 13, 1986. The subsidiaries of CHOD are as follows:

 

	1.	Castle Royalties Corp. (incorporated in New York April 11, 1991) – name changed from Church Street Securities Corp. on March 16, 2015; assignee of License Agreement with Emergent Health Corporation effective March 16, 2015 (see Note 6).
	2.	SAS Health and Beauty Corp. (incorporated in New York May 27, 1994) – name changed from Wall Street Indians, Ltd. on March 31, 2015; manufactures and markets a skin care product (commencing July 2015) and vitamin supplements (commencing November 2016).
	3.	The Unlisted Stock Market Corporation (incorporated in New York December 9, 1999) – no operations from inception.
	4.	Shark Venture Capital Inc. (incorporated in Nevada December 22, 2014) – plans to engage in venture capital activities.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of consolidation – The consolidated financial statements include the accounts of CHOD and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

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 ‑ Marketable securities consist 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 ($312,329 and ($149,598) for the years ended September 30, 2017 and 2016, respectively).

 

Inventory – Inventory is stated at the lower of cost (first–in, first–out method) or market (net realizable value). At September 30, 2017 and 2016, substantially all inventory are finished goods available for sale.

 

Revenue recognition – Revenues are recognized upon delivery of the products, at which time title passes to the customer, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

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.

 

Recent accounting pronouncements – Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.

 

3. MARKETABLE SECURITIES, AT MARKET VALUE

 

At September 30, 2017 and September 30, 2016, marketable securities consist of:

 

		September 30, 2017				September 30, 2016
0 and 32,000 shares, respectively,  Medallion Financial Group (MFIN)		$	-			$	135,040
1,000,000 and 1,400,000 shares, respectively, Gold Mining USA Inc. (GMUI)			5,000				5,222
Various			100				100
Total		$	5,100			$	140,362

 

4. INVESTMENT IN EMERGENT HEALTH CORPORATION COMMON STOCK

 

On November 20, 2014, pursuant to a Stock Purchase Agreement involving a change in control of CHOD, CHOD acquired 2,000,000 restricted shares of Emergent Health Corporation (“EMGE”) common stock in exchange for the issuance of 2,000,000 restricted shares of CHOD common stock. The EMGE investment was initially valued at an estimated fair value of $250,000. The closing trading price of EMGE free trading common stock at November 20, 2014 was $0.49 per share.

 

At September 30, 2015, the Company recognized an impairment loss on the investment in EMGE common stock of $90,000 and reduced the carrying value from $250,000 to $160,000. At December 31, 2015, the Company recognized an additional impairment loss on the investment in EMGE common stock of $40,000 and reduced the carrying value from $160,000 to $120,000. At March 31, 2016, the Company recognized an additional impairment loss on the investment in EMGE common stock of $40,000 and reduced the carrying value from $120,000 to $80,000. At September 30, 2016, the Company recognized an additional impairment loss on the investment in EMGE common stock of $20,000 and reduced the carrying value from $80,000 to $60,000. At March 31, 2017, the Company recognized an additional impairment loss on the investment in EMGE common stock of $20,000 and reduced the carrying value from $60,000 to $40,000. At September 30, 2017, the Company recognized an additional impairment loss on the investment in EMGE common stock of $20,000 and reduced the carrying value from $40,000 to $20,000. The closing trading price of EMGE free trading common stock at September 30, 2016 and September 30, 2017 was $0.0326 per share and $0.0156 per share, respectively.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

5. LICENSE AGREEMENT WITH EMERGENT HEALTH CORPORATION

 

On November 20, 2014, pursuant to the Stock Purchase Agreement involving a change in control of CHOD, CHOD was assigned effective January 1, 2015 the License Agreement between Cappello’s, Inc, (Licensor) and EMGE (Licensee) dated August 26, 2014 (the “EMGE License Agreement”) in exchange for the issuance of 2,000,000 restricted shares of CHOD common stock. The EMGE License Agreement was valued at its estimated fair value of $30,000 based upon 2014 royalties.

 

The EMGE License Agreement provided for Licensee’s payment of quarterly royalty payments to Licensor equal to 5% of the first $1,000,000 of annual net sales of the Licensed Products, 4% of the next $1,000,000 of annual net sales, 3% of the next $1,000,000 of annual net sales, 2% of the next $2,000,000 of annual net sales, and 1% of all additional annual net sales. The term of the EMGE License Agreement was to expire upon the expiration of the last to expire of the Patent Rights. In the event the Base Sales of any one or more of the Licensed Products did not increase by 15% per year over each prior calendar year (“Underperforming Licensed Products”) and the Licensee did not pay royalties based on 15% annual increases in Base Sales for the Underperforming Licensed Product(s), Licensor could terminate the license for such Underperforming Licensed Product(s) or convert the license from an exclusive license to a non-exclusive license for such Underperforming Licensed Product(s). During the term, Licensor was to keep Licensee informed of the progress of the Patent Rights in the U.S. Patent Office and was to direct and control all aspects of the prosecution and maintenance of the Patent Rights using patent counsel of its choice; Licensee was to pay all reasonable costs and fees attributable to the Patent Rights including patent maintenance fees, government fees and attorney fees.

 

Based on the calendar year 2015 sales of the licensed products reported to CHOD by EMGE, the Company was entitled to royalties of $18,528. However, the Company collected royalties of only $572 from EMGE in 2015. Due to the uncertainty of future collections from EMGE, the Company has not recognized the remaining $17,956 royalties due at December 31, 2015.

 

EMGE did not report sales of the Licensed Products to CHOD in the first quarter 2016 and did not remit any royalties to CHOD. On April 28, 2016, CHOD notified EMGE that the EMGE License Agreement was terminated.

 

In November 2016, the Company collected $1,500 of current royalties from EMGE. At September 30, 2017, the Company recognized an impairment loss on the license agreement with Emergent Health Corporation of $30,000 and reduced the carrying value from $30,000 to $0.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

6. LOANS PAYABLE TO AFFILIATES

 

Loans payable to affiliates consist of:

 

		September 30, 2017				September 30, 2016
SAS Health and Beauty Corp. Promissory Note due John V. Cappello, chief executive officer of the Company, non-interest bearing, due December 1, 2016		$	15,000			$	15,000
Loans payable to entities affiliated with president and former treasurer of the Company, non-interest bearing, due on demand			3,081				3,081
Total		$	18,081			$	18,081

 

7. STOCKHOLDERS’ EQUITY

 

Class A Convertible Preferred Stock

 

From March 2001 to September 2001, CHOD sold a total of 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, CHOD may require conversion of the Class A Convertible Preferred Shares provided that CHOD 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, CHOD may require conversion of the Class A Convertible Preferred Shares provided that CHOD pay the Class A Convertible Preferred Stockholder $0.50 per Class A Convertible Preferred Share.

 

The Class A Convertible Preferred Shares are non-voting and have a first priority, up to $1.00 per Class A Convertible Preferred Share, in the event of liquidation of CHOD.

 

Class B Preferred Stock

 

Effective June 1, 2015, CHOD issued 100,000 shares of Class B Preferred Stock (valued at $10,000) to John V. Cappello, chief executive officer of the Company, in connection with a $15,000 loan made to SAS Health and Beauty Corp., subsidiary of CHOD (see Note 6). Each share of Class B Preferred Stock is entitled to 100 votes per share but has no conversion, liquidation, or dividend rights.

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

Common Stock

 

Effective April 1, 2016, CHOD issued a total of 2,000,000 restricted shares of CHOD common stock to a corporate investor in exchange for 1,500,000 free trading shares of Gold Mining USA Inc. (“GMUI”) common stock. The transaction was valued at $0.035 per GMUI share or $52,500 total.

 

On May 5, 2016, CHOD issued 20,000 restricted shares of CHOD common stock to an attorney for legal services. The transaction was valued at $0.11 per CHOD share or $2,200 total.

 

8. INCOME TAXES

 

CHOD files a consolidated income tax return with its subsidiaries for federal reporting purposes. CHOD and its subsidiaries file separate income tax returns for state reporting purposes.

 

The provisions for (benefit from) income taxes consisted of:

 

		Year Ended September 30,
		2017				2016
Current:
Federal		$	-			$	-
State			-				-
Total			-				-
Deferred:
Federal			(9,187	)			(56,761	)
State			(1,879	)			(11,606	)
Change in valuation allowance			11,066				68,367
Total			-				-
Provision for income taxes		$	-			$	-

 

The Company’s effective tax rate differed from the United States Federal income tax rate for the following reasons:

 

		Year Ended September 30,
		2017				2016
Computed Federal income tax at 34%		$	(33,626	)		$	(94,707	)
Computed state income tax, net of Federal tax effect			(4,243	)			(11,950	)
Non-deductible impairment of investment in Emergent Health Corporation common stock			15,316				38,290
Non-deductible impairment of license agreement with Emergent Health Corporation			11,487				-
Change in valuation allowance			11,066				68,367
Provision for income taxes		$	-			$	-

 

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CASTLE HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended September 30, 2017 and 2016

(Unaudited)

 

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 up to $521,903 attributable to the future utilization of $1,132,978 of prior year net operating loss carryforwards and $402,032 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 September 30, 2017. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards expire as follows: $170,363 in year 2021, $694,345 in year 2022, $135,943 in year 2023, $66,021 in year 2024, $39,208 in year 2025, and $27,098 in year 2036. The capital loss carryforward of $402,032 expires $49,175 in year 2018, $1,855 in year 2021, and $351,002 in year 2022.

 

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.

 

9. COMMITMENTS AND CONTINGENCIES

 

Since December 2005, the Company has been using space in Freeport New York provided by a public accounting firm owned by the Company’s former treasurer at no cost to the Company.

 

From September 2015 to August 2016, the Company also occupied office space in King of Prussia, Pennsylvania under a lease at a rent of $950 per month. Since September 2016, the Company has been using other space in King of Prussia, Pennsylvania provided by EMGE at no cost to the Company. Management of the Company is currently working with EMGE to revive its business model and become viable.

 

The Company is presently seeking to acquire EnerKon Solar International Inc. in a change of control transaction. Closing of this transaction is conditional upon, among other things, FINRA approval of a name change.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

For the years ended September 30, 2017 and 2016, Castle Holding Corp. has had no principal accountant. Accordingly, there has been no disagreements with accountants on accounting and financial disclosure.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms relating to our company, particularly during the period when this report was being prepared.

 

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.

 

Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.

 

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

Under the supervision and with the participation of our principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of

September 30, 2017, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under this framework, management concluded that our internal control over financial reporting was effective as of the evaluation date.

 

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter for our fiscal year ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

(a)    The directors of Castle Holding Corp. are:

 

Director Name:		Age		Other offices held		Since
John V. Cappello		76		Chief Executive Officer and Chief Financial Officer		2014
George R. Hebert		73		President		1987

 

Each director will hold office until the next annual meeting of shareholders and until their successors have been elected and qualified.

 

(b)   The executive officers of Castle Holding Corp. are:

 

Officer Name:		Age		Offices held		Since
John V. Cappello		76		Chief Executive Officer and Chief Financial Officer		2014
George R. Hebert		73		President		1987

 

Officers 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.

 

(e) The business experience during the last five years for each director and executive officer of Castle Holding Corp. follows:

 

John V. Cappello has been Chief Executive Officer and a director of Castle Holding Corp. since November 2014 and Chief Financial Officer since June 17, 2017. He also has been Chief Executive Officer of Cappello’s Inc., a private research and development company, since 2005. From April 2007 to August 2014, he was the Chief Executive Officer of Emergent Health Corporation, a publicly traded company engaged in the distribution of patented and patent pending consumer products.

 

George R. Hebert has been President and a director of Castle Holding Corp. since September 1987. Mr. Hebert received a B.S. degree from Stevens Academy, Pennsylvania Military College (now Widener University) in 1967.

 

Castle Holding Corp. has not adopted a Code of Ethics.

 

Castle Holding Corp. has no audit committee or any other committee of the Board of Directors.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

For the years ended September 30, 2017 and 2016, no cash or stock-based compensation has been paid to or accrued for any director or executive officer.

 

At September 30, 2017, there are no outstanding equity awards for any director or executive officer.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

We have 200,000,000 shares of authorized Common Stock, of which 47,003,510 shares are currently issued and 46,414,710 shares are currently outstanding. We also have 10,000,000 authorized shares of Preferred Stock, of which 522,250 Class A Convertible Preferred shares and 100,000 Class B Preferred shares are currently issued and outstanding.

 

The following table sets forth certain information as of October 20, 2017 with respect to the beneficial ownership of our outstanding Common Stock by (i) any holder of more than five (5%) percent thereof; (ii) each of our officers and directors and (iii) directors and officers of the Company as a group.

 

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership (1)				Approximate Percent of Class
John V. Cappello (Chief Executive Officer and Director)(2)			23,000,000			49.6		% (5)
10102 Valley Forge Circle
King of Prussia, PA 19406
George R. Hebert (President and Director)			1,093,670				2.4	%
183 Gordon Place
Freeport, NY 11520
Castle Holding Corp. Deferred Compensation			4,867,100				10.5	%
Plan FBO George R. Hebert (3)
111 West Sunrise Highway
Freeport, NY 11520
Thomas Prendercast c/o Castle Holding Corp.			4,000,000				8.6	%
10102 Valley Forge Circle
King of Prussia, PA 19406
All Executive Officers and Directors as a Group (2 persons) (4)			28,960,770				62.4	%

____________

(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 7,000,000 shares owned by Cappello’s Inc., a corporation controlled by John V. Cappello.

 

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(3)   Includes 50% of 1,640,000 shares owned by Castle Advisors Limited Partnership 94-1 (“CALP”). Castle Holding Corp. Deferred Compensation Plan FBO George R. Hebert and Castle Holding Corp. Deferred Compensation Plan FBO Michael T. Studer each own a 50% limited partnership interest in CALP. Neither Mr. Hebert nor Mr. Studer (secretary, treasurer, and director of the Company to July 17, 2017) exercises sole voting and investment power over the 1,640,000 shares owned by CALP.

 

(4)   Includes 4,867,100 shares relating to Castle Holding Corp. Deferred Compensation Plan FBO George R. Hebert.

 

(5)   Excludes 100,000 shares of Class B Preferred Stock owned by John V. Cappello. Each share of Class B Preferred Stock is entitled to 100 votes per share. Thus, Mr. Cappello has total voting power of 33,000,000 votes, or 58.5% of the total 56,414,710 votes eligible to vote at October 28, 2016.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

On November 20, 2014, pursuant to a Stock Purchase Agreement involving a change in control of Castle Holding Corp. (“CHOD”), CHOD issued a total of 7,000,000 restricted shares of CHOD common stock (valued at a total of $325,000) to Cappello’s Inc. (“Cappello’s”) in exchange for (1) Cappello’s assignment of a License Agreement between Cappello’s and Emergent Health Corporation (“EMGE”) dated August 26, 2014 to CHOD effective January 1, 2015 (2,000,000 shares valued at $30,000), (2) 2,000,000 restricted shares of EMGE common stock (2,000,000 shares valued at $250,000), and (3) $45,000 cash (3,000,000 shares valued at $45,000). Cappello’s is controlled by the chief executive officer of CHOD.

 

Effective June 1, 2015, CHOD issued 100,000 shares of Class B Preferred Stock (valued at $10,000) to John V. Cappello, Chief Executive Officer of the Company, in connection with a $15,000 loan made to SAS Health and Beauty Corp., subsidiary of CHOD. Each share of Class B Preferred Stock is entitled to 100 votes per share but has no conversion, liquidation, or dividend rights.

 

On July 17, 2017, Michael T. Studer resigned as chief financial officer and director of the Company.

 

We do not consider any of our directors as being independent under Item 407(a) of Regulation S-K.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

For the years ended September 30, 2017 and 2016, Castle Holding Corp. has had no principal accountant.

 

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PART IV

 

ITEM 15. EXHIBITS

 

The following exhibits are including with this filing:

 

3.1*	Articles of Incorporation (Form S-18 Registration No. 33-8395-LA, effective November 14, 1986)
3.2*	Amendment to Articles of Incorporation (Form S-18 Registration No. 33-37809-NY, effective February 11, 1991)
3.2*	Amendment to Articles of Incorporation filed August 15, 2001 (September 30, 2001 Form 10-K filed January 15, 2002)
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)
10.1*	Stock Purchase Agreement dated November 20, 2014 (Form 8-K filed November 26, 2014)
31.1	Sarbanes-Oxley Section 302 certification by John V. Cappello
31.2	Sarbanes-Oxley Section 302 certification by Michael T. Studer
32.1	Sarbanes-Oxley Section 906 certification by John V. Cappello
32.2	Sarbanes-Oxley Section 906 certification by Michael T. Studer
99.1*	Complaint for Injunctive and Other Relief (dated September 14, 1994) – Securities and Exchange Commission, Plaintiff (Form 8-K dated September 13, 1994)
99.3*	Distribution Agreement dated October 29, 2014 (Form 8-K filed October 30, 2014)

_____________

*	Previously filed and incorporated by reference.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13(a) 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.
Date: October 25, 2017	By:	/s/ John V. Cappello
		John V. Cappello
		Chief Executive Officer and Chief Financial Officer

 

 

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