Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 14, 2017 | |
Document and Entity Information: | ||
Entity Registrant Name | CASTLE GROUP INC | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Entity Central Index Key | 918,543 | |
Current Fiscal Year End Date | --12-31 | |
Entity Common Stock, Shares Outstanding | 10,056,392 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | cagu |
THE CASTLE GROUP, INC. CONDENSE
THE CASTLE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Current Assets | ||
Cash | $ 2,761,209 | $ 2,775,956 |
Accounts receivable, net of allowance for bad debts | 2,147,782 | 2,405,473 |
Note receivable, current portion | 15,000 | 15,000 |
Prepaid and other current assets | 517,976 | 347,049 |
Total Current Assets | 5,441,967 | 5,543,478 |
Non-Current Assets | ||
Property and equipment, net | 6,159,175 | 6,100,677 |
Construction in progress | 232,519 | 0 |
Deposits and other assets | 115,633 | 127,484 |
Note receivable | 171,036 | 173,878 |
Investment in limited liability company | 635,281 | 616,717 |
Deferred tax asset, net | 391,979 | 536,371 |
Goodwill | 54,726 | 54,726 |
TOTAL ASSETS | 13,202,316 | 13,153,331 |
Current Liabilities | ||
Accounts payable | 2,600,033 | 3,101,074 |
Deposits payable | 1,601,539 | 882,641 |
Current portion of long term debt | 393,387 | 378,694 |
Current portion of long term debt to related parties | 9,837 | 37,919 |
Accrued salaries and wages | 1,659,928 | 1,716,485 |
Accrued taxes | 19,429 | 29,387 |
Total Current Liabilities | 6,284,153 | 6,146,200 |
Non-Current Liabilities | ||
Long term debt, net of current portion | 4,619,207 | 4,847,168 |
Total Non-Current Liabilities | 4,619,207 | 4,847,168 |
Total Liabilities | 10,903,360 | 10,993,368 |
Stockholders' Equity | ||
Preferred stock, $100 par value, 50,000 shares authorized, 11,050 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 1,105,000 | 1,105,000 |
Common stock, $.02 par value, 20,000,000 shares authorized, 10,056,392 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 201,129 | 201,129 |
Additional paid in capital | 5,462,208 | 5,322,708 |
Accumulated deficit | (4,510,432) | (4,515,200) |
Accumulated other comprehensive income | 41,051 | 46,326 |
Total Stockholders' Equity | 2,298,956 | 2,159,963 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 13,202,316 | $ 13,153,331 |
THE CASTLE GROUP INC. BALANCE S
THE CASTLE GROUP INC. BALANCE SHEET (PARENTHETICAL) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
Statement of Financial Position | ||
Preferred stock authorized | 50,000 | 50,000 |
Preferred stock par value | $ 100 | $ 100 |
Preferred stock issued | 11,050 | 11,050 |
Preferred stock outstanding | 11,050 | 11,050 |
Common stock authorized | 20,000,000 | 20,000,000 |
Common stock par value | $ 0.02 | $ 0.02 |
Common stock issued | 10,056,392 | 10,056,392 |
Common stock outstanding | 10,056,392 | 10,056,392 |
THE CASTLE GROUP, INC. CONDENS4
THE CASTLE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Revenues | ||||
Managed property revenue | $ 6,375,261 | $ 6,999,456 | $ 19,382,245 | $ 19,374,330 |
Other revenue | 8,007 | 700 | 13,007 | 2,400 |
Total Revenues | 6,383,268 | 7,000,156 | 19,395,252 | 19,376,730 |
Operating Expenses | ||||
Managed property expense | 5,203,092 | 5,666,052 | 15,715,529 | 15,878,899 |
Administrative and general | 1,026,186 | 920,404 | 3,123,007 | 2,656,164 |
Depreciation | 106,113 | 69,457 | 218,963 | 191,027 |
Total Operating Expense | 6,335,391 | 6,655,913 | 19,057,499 | 18,726,090 |
Operating Income | 47,877 | 344,243 | 337,753 | 650,640 |
Income from equity method investment | 13,000 | 14,000 | 35,714 | 42,000 |
Interest expense | (69,121) | (78,859) | (208,241) | (238,250) |
Income (loss) before taxes | (8,244) | 279,384 | 165,226 | 454,390 |
Income tax expense | (31,681) | (112,274) | (160,458) | (190,020) |
Net Income (Loss) | (39,925) | 167,110 | 4,768 | 264,370 |
Change in unpaid cumulative dividends on convertible preferred stock | (20,720) | (20,720) | (62,156) | (62,156) |
Net Income (Loss) applicable to Common Stockholders | $ (60,645) | $ 146,390 | $ (57,388) | $ 202,214 |
Earnings per common share Basic | $ (0.01) | $ 0.02 | $ (0.01) | $ 0.02 |
Earnings per common share Diluted | $ (0.01) | $ 0.02 | $ (0.01) | $ 0.02 |
Weighted average common shares outstanding Basic | 10,056,392 | 10,056,392 | 10,056,392 | 10,056,392 |
Weighted average common shares outstanding Diluted | 10,056,392 | 10,056,392 | 10,056,392 | 10,056,392 |
Net Income (Loss) | $ (39,925) | $ 167,110 | $ 4,768 | $ 264,370 |
Other Comprehensive Income (Loss) | ||||
Foreign currency translation adjustment | (9,565) | (1,362) | (5,275) | (1,790) |
Total Comprehensive Income (Loss) | $ (49,490) | $ 165,748 | $ (507) | $ 262,580 |
THE CASTLE GROUP, INC. CONDENS5
THE CASTLE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Cash Flows from Operating Activities | ||
Net Income (Loss) | $ 4,768 | $ 264,370 |
Depreciation | 218,963 | 191,027 |
Recovery of bad debt | (109,312) | (334,731) |
Non cash interest expense | 139,500 | 150,030 |
Income from equity method investment | (35,714) | (42,000) |
Distribution from equity method investment | 17,150 | 15,400 |
Deferred taxes | 160,458 | 178,378 |
(Increase) decrease in Accounts receivable | 258,346 | (388,749) |
(Increase) decrease in Other current assets | (165,926) | (228,191) |
(Increase) decrease in Notes receivable | 112,154 | 338,273 |
Increase (decrease) in Deposits and other assets | 20,982 | 15,189 |
Increase (decrease) in Accounts payable | (666,083) | (349,307) |
Increase (decrease) in Deposits payable | 716,000 | 94,101 |
Net Cash Provided by (Used in) Operating Activities | 671,286 | (96,210) |
Cash Flows from Investing Activities | ||
Construction in progress-Podium | (231,484) | 0 |
Purchase of property and equipment | (58,542) | (67,518) |
Net Cash Used in Investing Activities | (290,026) | (67,518) |
Cash Flows from Financing Activities | ||
Proceeds from notes | 0 | 40,178 |
Payments on long term debt to related parties | (28,082) | (25,420) |
Payments on long term debt | (403,900) | (601,290) |
Net Cash Used in Financing Activities | (431,982) | (586,532) |
Effect of foreign currency exchange rate on changes in cash | 35,975 | 43,453 |
Net Change in Cash | (14,747) | (706,807) |
Beginning Balance | 2,775,956 | 2,370,557 |
Ending Balance | 2,761,209 | 1,663,750 |
Supplementary Information | ||
Cash Paid for Interest | 68,741 | 88,220 |
Cash Paid for Income Taxes | $ 0 | $ 11,642 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Summary of Significant Accounting Policies | Note 1 Summary of Significant Accounting Policies Organization The Castle Group, Inc. was incorporated under the laws of the State of Utah on August 21, 1981. The Castle Group, Inc. operates in the hotel and resort management industry in the State of Hawaii, New Zealand, and the Commonwealth of Saipan under the trade name Castle Resorts and Hotels. The accounting and reporting policies of The Castle Group, Inc. conform with accounting principles generally accepted in the United States of America (GAAP) and to practices accepted within the hotel and resort management industry. Principles of Consolidation The consolidated financial statements include the accounts of The Castle Group, Inc. and its wholly-owned subsidiaries: Hawaii Reservations Center Corp., HPR Advertising, Inc., Castle Resorts & Hotels, Inc., Castle Resorts & Hotels Thailand Ltd., NZ Castle Resorts and Hotels Limited (a New Zealand Corporation), NZ Castle Resorts and Hotels wholly-owned subsidiary, Mocles Holdings Limited (a New Zealand Corporation), Castle Resorts & Hotels NZ Ltd., Castle Group LLC (Guam), Castle Resorts & Hotels Guam Inc. and KRI Inc. dba Hawaiian Pacific Resorts (Interactive). Collectively, all of the companies above are referred to as the Company throughout these consolidated financial statements and accompanying notes. All significant inter-company transactions have been eliminated in the consolidated financial statements. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation. The results of operations for the three and nine month periods ended September 30, 2017, are not necessarily indicative of the results for a full-year period as the tourism industry that the Company relies on is highly seasonal. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Castles most recent Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 7, 2017. The Companys significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016. Revenue Recognition In accordance with ASC 605: Revenue Recognition Specifically, the Company recognizes revenue from the management of resort properties according to terms of its various management contracts, which fall under two basic types of agreements, a Gross Contract and a Net Contract. Under a Gross Contract the Company records revenue which is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. The Company pays a portion of the gross rental proceeds to the owner of the rental unit and only records as revenue the difference between the gross rental proceeds and the amount paid to the owner of the rental unit. Under the Gross Contract, the Company is responsible for all of the operating expenses for the hotel or condominium unit and the Company records the expenses of operating the rental program at the property covered by the agreement. These expenses include housekeeping, food and beverage, maintenance, front desk, sales and marketing, advertising and all other operating costs at the property covered by the agreement. Under a Net Contract, the Company receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. Under the Net Contract, the owner of the hotel or condominium unit is responsible for all of the operating expenses of the rental program covering the owners unit and the Company also typically receives an incentive management fee, which is based on the net operating profit of the covered property. Additionally, the Company employs on-site personnel to provide services such as housekeeping, maintenance and administration to property owners under the Companys management agreements and for such services the Company recognizes revenue in an amount equal to the employee related payroll, payroll taxes and employee benefits incurred. Under both types of agreements, revenues are recognized after services have been rendered. A liability is recognized for any deposits received for which services have not yet been rendered for properties managed under a Gross Contract. Under a Net Contract, the Company does not record the operating expenses of the property covered by the agreement, other than the employee related costs mentioned in the previous paragraph. The difference between the Gross and Net Contracts is that under a Gross Contract, all expenses, and therefore the ownership of any profits or the covering of any operating loss, belong to and is the responsibility of the Company; under a Net Contract, all expenses, and therefore the ownership or any profits or the covering of any operating loss belong to and is the responsibility of the owner of the property. Reclassifications The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of 2016 results, the company combined previously reported Revenue attributed from properties and Management and service revenue into a new revenue line Managed property revenue to better reflect the revenues that the Company receives from its properties under management, and to also match those revenues with the direct costs associated with Managed property revenue. For the presentation of 2016 results, the Company combined previously reported Attributed property expenses and Payroll and office expenses into a new expense line Managed property expense to better reflect the direct operating costs associated with the Managed property revenue. Management feels that combining the two costs into one expense line item better reflects the direct operating costs associated with the Managed property revenue. For presentation of 2016 results, the Company increased Administrative and general expenses for the three and nine months ended September 30, 2016 by $871,838 and $2,500,159, respectively, and correspondingly reduced Managed property expense to reclassify the payroll and other operating costs of our centralized corporate offices as these costs are more of an overhead nature than a variable cost associated with fluctuations in Managed property revenue. For presentation of 2016 results, the Company reduced Administrative and general expenses for the three and nine months ended September 30, 2016 by $107,042 and $334,731, respectively, and correspondingly increased Managed property expenses to reclassify the recovery of amounts previously written off as bad debts. For presentation of the 2016 Statement of Cash Flows, the Company increased the Notes receivable collection by $334,731 and added a line, Recovery of bad debt, to show an offsetting decrease in Cash flows from operating activities to account for the reversal of $334,731 previously written off and the subsequent collection of the same amount. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Proceeds from notes receivable to Cash Flows from Operating Activities from the Cash Flows from Financing Activities. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Distribution from equity method investment from Cash Flows from Investing Activities to Cash Flows from Operating Activities. Note 2 New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Companys financial statements upon adoption. In May 2014, the FASB issued ASU 2014 09, Revenue from Contracts with Customers (Topic 606) (ASU 2014 09). The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (i) remove inconsistencies and weaknesses in revenue requirements; (ii) provide a more robust framework for addressing revenue issues; (iii) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (iv) provide more useful information to users of financial statements through improved disclosure requirements; and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB amended the FASB Accounting Standards Codification (Codification) and created a new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance in ASU 2014 09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the Codification. Additionally, ASU 2014 09 supersedes some cost guidance included in Subtopic 605 35, Revenue RecognitionConstruction Type and Production Type Contracts. The ASU is effective for fiscal years beginning after December 15, 2017 (and interim periods within that period). In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASUs clarifying items within Topic 606, as follows: In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers by one year the effective date of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The amendments in ASU 2016-08 serve to clarify the implementation guidance on principal vs. agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The purpose of ASU 2016-10 is to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas). In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, noncash consideration and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain aspects of the Boards new revenue standard, ASU 2014-09. This ASU addresses thirteen specific issues pertaining to Topic 606, Revenue from Contracts with Customers. We are currently in the process of completing our evaluation of ASU 2014-09, including identifying the potential differences in the timing and/or method of revenue recognition for our contracts and, ultimately, the expected impact on our business processes, systems and controls. As part of this evaluation, we are reviewing customer contracts and applying the new standard to each contact type identified thats associated to our material revenue streams and will compare the results to our current accounting practices. We currently expect that the timing and amount of recognition of incentive fee revenue from some of our contracts will be impacted by adopting the new standard. Our current recognition of revenue is that the incentive fees are recorded when earned, however, some contracts are goal based (no incentive fees are earned until a target operating profit is returned to the property owner), resulting in the incentive fees historically being recorded in the last half of the year. The Company is exploring the timing of when these incentive fees will be recorded during the year under the new standard. We continue to evaluate any other potential effects of adopting this standard. Consequently, given the complexities of this new standard, we are unable to determine, at this time, whether adoption of this standard will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures. We will adopt this standard, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on January 1, 2018. A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our qualitative evaluation is complete and we commence quantifying the expected impacts. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has $713,521 of operating lease obligations as of September 30, 2017 and upon adoption of this standard it will record a ROU asset and lease liability for present value of these leases which will have a material impact on the balance sheet. However, the statement of comprehensive income recognition of lease expenses is not expected to change from the current methodology. In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. results of operations. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The objective of this update is to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods and is to be applied utilizing a retrospective approach. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the reporting units carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019. Upon adoption, the Company will follow the guidance in this standard for the goodwill impairment testing. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Income Taxes | Note 3 Income Taxes Income tax expense reflects the expense or benefit only on the Companys domestic taxable income. Income tax expense and benefit from the Companys foreign operations are not recognized as they have been fully reserved. |
Long Term Debt
Long Term Debt | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Long Term Debt | Note 4 Long Term Debt The Company has a note dated December 31, 2004, payable in New Zealand dollars, with an original face value of NZ $8.6 million and secured by real estate in New Zealand and a general security agreement over the assets of the Companys New Zealand subsidiary, with the Company as guarantor. The holder of the note owns 0.7% of the issued and outstanding common stock of the Company. The note calls for payments of NZ $20,000 (US $14,382 at September 30, 2017) per month. The maturity date is March 31, 2019 with an extension to March 31, 2024 available if the Company is not in default. The agreement does not provide for interest to be paid on this note payable so the Company has imputed interest of $46,500 and $50,010 for the quarters ended September 30, 2017 and 2016, respectively, and $139,500 and $150,030 for the nine months ended September 30, 2017 and 2016. The balance of this note was NZ $4,762,344 (US $$3,424,601) and NZ$ 5,098,463 (US $3,531,705) as of September 30, 2017 and December 31, 2016, respectively. The Company has a note payable dated December 31, 2004, payable to a New Zealand bank, Westpac, for a loan in favor of Mocles at the banks prime rate plus 2%. The note calls for monthly interest payments and payments against principal of NZ $20,000 (US $14,382). The maturity date is March 31, 2019 with an extension to March 31, 2024 available if the Company is not in default. The balance of this note was NZ $2,005,000 (US $1,441,796) and NZ $2,185,000 (US $1,513,550) as of September 30, 2017 and December 31, 2016, respectively. In June 2015, the Company received a term loan of $200,000 from a local bank which was used to fund upgrades to the property management and central reservation systems. These outflows will be recouped by the Company through reimbursements from managed properties. The loan is for a fixed interest rate of 5.875% with monthly payments of $3,855 and matures in June 2020. The balance of this loan was $117,140 and $145,892 as of September 30, 2017 and December 31, 2016, respectively. In March 2016, the Company received a loan of $40,178 to finance the purchase of carts for one of its managed properties. The loan is secured by the equipment purchased. The loan is for a fixed interest rate of 4.43% with monthly payments of $749 and matures in March 2021. The outstanding balance of this loan was $29,057 and $37,919 as of September 30, 2017 and December 31, 2016, respectively. |
Equity-based Compensation
Equity-based Compensation | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Equity-based Compensation | Note 5 Equity-Based Compensation None issued for the nine months ended September 30, 2017 and 2016. |
Basic and Diluted Earnings Per
Basic and Diluted Earnings Per Share | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Basic and Diluted Earnings Per Share | Note 6 Basic and Dilutive Earnings Per Share As the preferred shares and the warrants are considered to be anti-dilutive, the Company employed the two-class method and basic and diluted earnings per share were the same. Basic earnings per share of common stock were computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share were computed using the treasury stock method for vested warrants and the two-class method for redeemable preferred stock. The calculation of diluted earnings per share for 2017 and 2016 excludes 368,333 shares which would be issued upon conversion of the outstanding $100 par value redeemable preferred stock of the Company as they are considered to be anti-dilutive. The warrants for 600,000 shares outstanding at September 30, 2017 and December 31, 2016 are not included as they are considered to be anti-dilutive since the exercise price exceeded the average market price of the stock during the respective periods. Nine Months ended September 30, 2017 Nine Months ended September 30, 2016 Income Shares Per Share Income Shares Per Share Numerator Denominator Amount Numerator Denominator Amount Basic EPS Income Available to Common Stockholders $ (57,388) 10,056,392 $ (.01) $ 202,214 10,056,392 $ 0.02 Effect of Dilutive Securities 0 0 Diluted EPS Income Available to Common Stockholders plus Assumed Conversions $ (57,388) 10,056,392 $ (.01) $ 202,214 10,056,392 $ 0.02 |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Commitments and Contingencies | Note 7 Commitments and Contingencies The Company owns the Podium unit in New Zealand, and there was a claim made against the contractor by the Body Corporate (that represents all the unit owners, similar to an association of apartment owners in the United States) for defective work on the outer waterproofing skin of the building. A settlement was reached and the amounts recovered from the contractor were not sufficient to cure the waterproofing defect. As a result the Body Corporate imposed a special assessment on all the owners of units in the building. The Company has paid NZ $323,347 (US $232,519) as of September 30, 2017, the last of the payments being billed by the Body Corporate in July 2017. At a meeting of the Body Corporate held in November of 2017, the Body Corporate determined that the amounts collected were not sufficient to remedy the defect and as a result, the Body Corporate imposed an additional special assessment in the amount of NZ $1,041,113 (US$748,664), payable in 20 monthly installments of NZ $52,056 (US $37,433), representing the Companys share of the total special assessment. The project is scheduled to commence in the first quarter of 2018. Payment of this special assessment will begin November 2017. These payments will be capitalized by the Company since the repairs are expected to improve and extend the life of the property. A claim has been filed by the Body Corporate against the law firm previously representing the Body Corporate to recover funds previously expended by the Company and other owners in the building and the amounts assessed against the Companys Podium unit may or may not be recovered. There could also be additional remedial work required once construction starts, which could increase the amount assessed against the Companys Podium unit. |
Related Party Transactions Disc
Related Party Transactions Disclosure | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Related Party Transactions Disclosure | Note 8 Related Party Transactions The Company has a receivable of $489,377 and $598,689 from Hanalei Bay International Investors (HBII) as of September 30, 2017 and December 31, 2016. The receivable has been fully allowed for. The Chairman and CEO of the Company is the sole shareholder of HBII Management, Inc., the managing General Partner of HBII. During the quarters ended September 30, 2017 and 2016, the Company collected $37,184 and $107,042, respectively, of the note. For the nine months ended September 30, 2017 and 2016, the Company collected $109,312 and $334,731 of the note, respectively. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2017 | |
Notes | |
Subsequent Events | Note 9 Subsequent Events At a meeting of the board of directors held on July 14, 2017, the board approved in form new employment agreements for Rick Wall, Chairman and Chief Executive Officer, and Alan Mattson, Director and Chief Operating Officer. The contracts have been finalized to take effect November 1, 2017, and include increases in pay rates, the issuance of stock warrants, and deferred compensation, as disclosed in the Companys Form 8k filed on November 13, 2017. Mr. Walls contract will be for a period of ten years and the contract for Mr. Mattson will be for a period of five years. At a meeting of the Body Corporate (in which the Company owns the Podium unit) held in November of 2017, the Body Corporate determined that the amounts collected were not sufficient to remedy the defect (see Note 7 above). |
Summary of Significant Accoun14
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Policies | |
Organization | Organization The Castle Group, Inc. was incorporated under the laws of the State of Utah on August 21, 1981. The Castle Group, Inc. operates in the hotel and resort management industry in the State of Hawaii, New Zealand, and the Commonwealth of Saipan under the trade name Castle Resorts and Hotels. The accounting and reporting policies of The Castle Group, Inc. conform with accounting principles generally accepted in the United States of America (GAAP) and to practices accepted within the hotel and resort management industry. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of The Castle Group, Inc. and its wholly-owned subsidiaries: Hawaii Reservations Center Corp., HPR Advertising, Inc., Castle Resorts & Hotels, Inc., Castle Resorts & Hotels Thailand Ltd., NZ Castle Resorts and Hotels Limited (a New Zealand Corporation), NZ Castle Resorts and Hotels wholly-owned subsidiary, Mocles Holdings Limited (a New Zealand Corporation), Castle Resorts & Hotels NZ Ltd., Castle Group LLC (Guam), Castle Resorts & Hotels Guam Inc. and KRI Inc. dba Hawaiian Pacific Resorts (Interactive). Collectively, all of the companies above are referred to as the Company throughout these consolidated financial statements and accompanying notes. All significant inter-company transactions have been eliminated in the consolidated financial statements. |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation. The results of operations for the three and nine month periods ended September 30, 2017, are not necessarily indicative of the results for a full-year period as the tourism industry that the Company relies on is highly seasonal. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Castles most recent Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on April 7, 2017. The Companys significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016. |
Revenue Recognition | Revenue Recognition In accordance with ASC 605: Revenue Recognition Specifically, the Company recognizes revenue from the management of resort properties according to terms of its various management contracts, which fall under two basic types of agreements, a Gross Contract and a Net Contract. Under a Gross Contract the Company records revenue which is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. The Company pays a portion of the gross rental proceeds to the owner of the rental unit and only records as revenue the difference between the gross rental proceeds and the amount paid to the owner of the rental unit. Under the Gross Contract, the Company is responsible for all of the operating expenses for the hotel or condominium unit and the Company records the expenses of operating the rental program at the property covered by the agreement. These expenses include housekeeping, food and beverage, maintenance, front desk, sales and marketing, advertising and all other operating costs at the property covered by the agreement. Under a Net Contract, the Company receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units. Under the Net Contract, the owner of the hotel or condominium unit is responsible for all of the operating expenses of the rental program covering the owners unit and the Company also typically receives an incentive management fee, which is based on the net operating profit of the covered property. Additionally, the Company employs on-site personnel to provide services such as housekeeping, maintenance and administration to property owners under the Companys management agreements and for such services the Company recognizes revenue in an amount equal to the employee related payroll, payroll taxes and employee benefits incurred. Under both types of agreements, revenues are recognized after services have been rendered. A liability is recognized for any deposits received for which services have not yet been rendered for properties managed under a Gross Contract. Under a Net Contract, the Company does not record the operating expenses of the property covered by the agreement, other than the employee related costs mentioned in the previous paragraph. The difference between the Gross and Net Contracts is that under a Gross Contract, all expenses, and therefore the ownership of any profits or the covering of any operating loss, belong to and is the responsibility of the Company; under a Net Contract, all expenses, and therefore the ownership or any profits or the covering of any operating loss belong to and is the responsibility of the owner of the property. |
Reclassification | Reclassifications The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of 2016 results, the company combined previously reported Revenue attributed from properties and Management and service revenue into a new revenue line Managed property revenue to better reflect the revenues that the Company receives from its properties under management, and to also match those revenues with the direct costs associated with Managed property revenue. For the presentation of 2016 results, the Company combined previously reported Attributed property expenses and Payroll and office expenses into a new expense line Managed property expense to better reflect the direct operating costs associated with the Managed property revenue. Management feels that combining the two costs into one expense line item better reflects the direct operating costs associated with the Managed property revenue. For presentation of 2016 results, the Company increased Administrative and general expenses for the three and nine months ended September 30, 2016 by $871,838 and $2,500,159, respectively, and correspondingly reduced Managed property expense to reclassify the payroll and other operating costs of our centralized corporate offices as these costs are more of an overhead nature than a variable cost associated with fluctuations in Managed property revenue. For presentation of 2016 results, the Company reduced Administrative and general expenses for the three and nine months ended September 30, 2016 by $107,042 and $334,731, respectively, and correspondingly increased Managed property expenses to reclassify the recovery of amounts previously written off as bad debts. For presentation of the 2016 Statement of Cash Flows, the Company increased the Notes receivable collection by $334,731 and added a line, Recovery of bad debt, to show an offsetting decrease in Cash flows from operating activities to account for the reversal of $334,731 previously written off and the subsequent collection of the same amount. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Proceeds from notes receivable to Cash Flows from Operating Activities from the Cash Flows from Financing Activities. For presentation of the 2016 Statement of Cash Flows, the Company reclassified the Distribution from equity method investment from Cash Flows from Investing Activities to Cash Flows from Operating Activities. |
New Accounting Pronouncements | Note 2 New Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Companys financial statements upon adoption. In May 2014, the FASB issued ASU 2014 09, Revenue from Contracts with Customers (Topic 606) (ASU 2014 09). The FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (i) remove inconsistencies and weaknesses in revenue requirements; (ii) provide a more robust framework for addressing revenue issues; (iii) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (iv) provide more useful information to users of financial statements through improved disclosure requirements; and (v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB amended the FASB Accounting Standards Codification (Codification) and created a new Topic 606, Revenue from Contracts with Customers. The core principle of the guidance in ASU 2014 09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry specific guidance throughout the Industry Topics of the Codification. Additionally, ASU 2014 09 supersedes some cost guidance included in Subtopic 605 35, Revenue RecognitionConstruction Type and Production Type Contracts. The ASU is effective for fiscal years beginning after December 15, 2017 (and interim periods within that period). In periods subsequent to the initial issuance of this ASU, the FASB has issued additional ASUs clarifying items within Topic 606, as follows: In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers by one year the effective date of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (ASU 2016-08). The amendments in ASU 2016-08 serve to clarify the implementation guidance on principal vs. agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The purpose of ASU 2016-10 is to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance (while retaining the related principles for those areas). In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12). The purpose of ASU 2016-12 is to address certain issues identified to improve Topic 606 by enhancing guidance on assessing collectability, presentation of sales taxes and other similar taxes collected from customers, noncash consideration and completed contracts and contract modifications at transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain aspects of the Boards new revenue standard, ASU 2014-09. This ASU addresses thirteen specific issues pertaining to Topic 606, Revenue from Contracts with Customers. We are currently in the process of completing our evaluation of ASU 2014-09, including identifying the potential differences in the timing and/or method of revenue recognition for our contracts and, ultimately, the expected impact on our business processes, systems and controls. As part of this evaluation, we are reviewing customer contracts and applying the new standard to each contact type identified thats associated to our material revenue streams and will compare the results to our current accounting practices. We currently expect that the timing and amount of recognition of incentive fee revenue from some of our contracts will be impacted by adopting the new standard. Our current recognition of revenue is that the incentive fees are recorded when earned, however, some contracts are goal based (no incentive fees are earned until a target operating profit is returned to the property owner), resulting in the incentive fees historically being recorded in the last half of the year. The Company is exploring the timing of when these incentive fees will be recorded during the year under the new standard. We continue to evaluate any other potential effects of adopting this standard. Consequently, given the complexities of this new standard, we are unable to determine, at this time, whether adoption of this standard will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures. We will adopt this standard, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on January 1, 2018. A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made once our qualitative evaluation is complete and we commence quantifying the expected impacts. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has $713,521 of operating lease obligations as of September 30, 2017 and upon adoption of this standard it will record a ROU asset and lease liability for present value of these leases which will have a material impact on the balance sheet. However, the statement of comprehensive income recognition of lease expenses is not expected to change from the current methodology. In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. results of operations. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The objective of this update is to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods and is to be applied utilizing a retrospective approach. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test, which required a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which the reporting units carrying value exceeds its fair value, limited to the carrying value of the goodwill. ASU 2017-04 is effective for financial statements issued for fiscal years, and interim periods beginning after December 15, 2019. Upon adoption, the Company will follow the guidance in this standard for the goodwill impairment testing. |
Basic and Diluted Earnings Pe15
Basic and Diluted Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Tables/Schedules | |
Reconciliation of Numerator and Denominator of The Basic and Diluted Earnings Per Share Computations: | Nine Months ended September 30, 2017 Nine Months ended September 30, 2016 Income Shares Per Share Income Shares Per Share Numerator Denominator Amount Numerator Denominator Amount Basic EPS Income Available to Common Stockholders $ (57,388) 10,056,392 $ (.01) $ 202,214 10,056,392 $ 0.02 Effect of Dilutive Securities 0 0 Diluted EPS Income Available to Common Stockholders plus Assumed Conversions $ (57,388) 10,056,392 $ (.01) $ 202,214 10,056,392 $ 0.02 |
Summary of Significant Accoun16
Summary of Significant Accounting Policies (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Details | |||||
Increase (Decrease) in Accrued Salaries | $ 871,838 | $ 2,500,159 | |||
Recovery of bad debt | $ 107,042 | $ 37,184 | $ 107,042 | $ 109,312 | $ 334,731 |
Operating Leases, Future Minimum Payments Due | $ 713,521 | $ 713,521 |
Long Term Debt (Details)
Long Term Debt (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Mar. 31, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Jun. 30, 2015 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Details | |||||||
HBII Note Monthly Payment | $ 14,382 | $ 14,382 | |||||
Non cash interest expense | 46,500 | $ 50,010 | 139,500 | $ 150,030 | |||
HBII Note Balance | 3,424,601 | 3,424,601 | $ 3,531,705 | ||||
New Zealand Bank Monthly Payment | 14,382 | 14,382 | |||||
Term Loan With New Zealand Bank | $ 1,441,796 | 1,441,796 | 1,513,550 | ||||
Proceeds from notes | $ 40,178 | $ 200,000 | $ 0 | $ 40,178 | |||
Accounts Payable, Interest-bearing, Interest Rate | 5.88% | 5.88% | |||||
Loan Payable Monthly Payment | $ 3,855 | ||||||
Balance Due On Term Loan | $ 117,140 | $ 117,140 | 145,892 | ||||
April Loan 2016 Interest Rate | 4.43% | 4.43% | |||||
March Loan 2016 Payable Monthly Payment | $ 749 | ||||||
March 2016 Loan Balance | $ 29,057 | $ 37,919 |
Basic and Diluted Earnings Pe18
Basic and Diluted Earnings Per Share (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Details | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 368,333 | |||
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number | 600,000 | 600,000 | ||
Net Income (Loss) applicable to Common Stockholders | $ (60,645) | $ 146,390 | $ (57,388) | $ 202,214 |
Weighted average common shares outstanding Basic | 10,056,392 | 10,056,392 | 10,056,392 | 10,056,392 |
Income (Loss) from Continuing Operations, Per Basic Share | $ (0.01) | $ 0.02 | ||
Net Income (Loss) Available to Common Stockholders, Diluted | $ (57,388) | $ 202,214 | ||
Weighted average common shares outstanding Diluted | 10,056,392 | 10,056,392 | 10,056,392 | 10,056,392 |
Income (Loss) from Continuing Operations, Per Diluted Share | $ (0.01) | $ 0.02 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) | Nov. 30, 2017 | Sep. 30, 2017 | Jul. 31, 2017 | Dec. 31, 2016 |
Details | ||||
Construction in progress | $ 232,519 | $ 0 | ||
New Zealand Podium Special Assessment | $ 748,664 | |||
New Zealand Podium Payments | $ 37,433 |
Related Party Transactions Di20
Related Party Transactions Disclosure (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Details | ||||||
Accounts Receivable From Hanalei-Bay International Investors | $ 489,377 | $ 489,377 | $ 598,689 | |||
Recovery of bad debt | $ 107,042 | $ 37,184 | $ 107,042 | $ 109,312 | $ 334,731 |