Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 14, 2018 | |
Document and Entity Information: | ||
Entity Registrant Name | CASTLE GROUP INC | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
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 | 2,018 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | cagu |
THE CASTLE GROUP, INC. CONDENSE
THE CASTLE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets | ||
Cash | $ 4,261,030 | $ 4,324,791 |
Accounts receivable, net of allowance for bad debts | 2,416,445 | 2,469,922 |
Note receivable, current portion | 15,000 | 15,000 |
Prepaid and other current assets | 288,195 | 372,755 |
Total Current Assets | 6,980,670 | 7,182,468 |
Non-Current Assets | ||
Property and equipment, net | 6,072,341 | 6,030,724 |
Construction in progress | 957,908 | 940,430 |
Deposits and other assets | 105,597 | 121,193 |
Note receivable | 169,746 | 169,900 |
Investment in limited liability company | 851,938 | 644,431 |
Deferred tax asset, net | 291,468 | 413,902 |
Goodwill | 54,726 | 54,726 |
TOTAL ASSETS | 15,484,394 | 15,557,774 |
Current Liabilities | ||
Accounts payable | 3,356,993 | 3,101,772 |
Deposits payable | 2,156,125 | 2,780,982 |
Current portion of long term debt | 347,232 | 340,896 |
Accrued salaries and wages | 1,815,600 | 1,780,506 |
Accrued taxes | 34,528 | 54,644 |
Other current liabilities | 439,005 | 430,995 |
Total Current Liabilities | 8,149,483 | 8,489,795 |
Non-Current Liabilities | ||
Long term debt, net of current portion | 4,402,425 | 4,361,906 |
Other long term liabilities | 157,902 | 224,698 |
Total Non-Current Liabilities | 4,560,327 | 4,586,604 |
Total Liabilities | 12,709,810 | 13,076,399 |
Stockholders' Equity | ||
Preferred stock, $100 par value, 50,000 shares authorized, 11,050 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 1,105,000 | 1,105,000 |
Common stock, $.02 par value, 20,000,000 shares authorized, 10,056,392 shares issued and outstanding at March 31, 2018 and December 31, 2017 | 201,129 | 201,129 |
Additional paid in capital | 5,599,508 | 5,556,008 |
Accumulated deficit | (4,157,889) | (4,409,227) |
Accumulated other comprehensive income | 26,836 | 28,465 |
Total Stockholders' Equity | 2,774,584 | 2,481,375 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 15,484,394 | $ 15,557,774 |
THE CASTLE GROUP INC. BALANCE S
THE CASTLE GROUP INC. BALANCE SHEET (PARENTHETICAL) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
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 | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Revenues | ||
Managed property revenue | $ 6,704,186 | $ 6,160,332 |
Food and Beverage Revenue | 392,105 | 420,883 |
Other revenue | 400 | 300 |
Total Revenues | 7,096,691 | 6,581,515 |
Operating Expenses | ||
Managed property expense | 4,902,550 | 4,766,663 |
Food and beverage | 380,935 | 384,946 |
Administrative and general | 1,314,669 | 1,174,937 |
Depreciation | 64,732 | 57,992 |
Total Operating Expense | 6,662,886 | 6,384,538 |
Operating Income | 433,805 | 196,977 |
Income from equity method investment | 13,632 | 13,000 |
Interest expense | (61,783) | (69,774) |
Income before taxes | 385,654 | 140,203 |
Income tax expense | (134,316) | (98,110) |
Net Income | 251,338 | 42,093 |
Change in unpaid cumulative dividends on convertible preferred stock | (20,719) | (20,719) |
Net Income applicable to Common Stockholders | $ 230,619 | $ 21,374 |
Earnings per common share Basic | $ 0.02 | $ 0 |
Earnings per common share Diluted | $ 0.02 | $ 0 |
Weighted average common shares Outstanding Basic | 10,056,392 | 10,056,392 |
Weighted average common shares Outstanding Diluted | 10,056,392 | 10,056,392 |
Net Income | $ 251,338 | $ 42,093 |
Other Comprehensive Loss | ||
Foreign currency translation adjustment | (1,629) | (7,308) |
Total Comprehensive Income | $ 249,709 | $ 34,785 |
THE CASTLE GROUP, INC. CONDENS5
THE CASTLE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Cash Flows from Operating Activities | ||
Net Income | $ 251,338 | $ 42,093 |
Depreciation | 64,732 | 57,992 |
Recovery of bad debt | 0 | (36,947) |
Deferred compensation | 27,435 | 0 |
Non cash interest expense | 43,500 | 46,500 |
Income from equity method investment | (13,632) | (13,000) |
Distribution from equity method investment | 6,125 | 0 |
Deferred taxes | 134,316 | 98,110 |
(Increase) decrease in Accounts receivable | 53,158 | (450,952) |
(Increase) decrease in Other current assets | 82,311 | 55,831 |
(Increase) decrease in Notes receivable | 154 | 37,545 |
Increase (decrease) in Deposits and other assets | 5,314 | 5,200 |
Increase (decrease) in Accounts payable and accrued expenses | 242,237 | 6,913 |
Increase (decrease) in Deposits payable | (626,084) | 279,778 |
Net Cash Provided by Operating Activities | 270,904 | 129,063 |
Cash Flows from Investing Activities | ||
Construction in progress | (98,671) | (96,866) |
Investment in equity method investment | (200,000) | 0 |
Purchase of property and equipment | (1,546) | (22,502) |
Net Cash Used in Investing Activities | (300,217) | (119,368) |
Cash Flows from Financing Activities | ||
Payments on notes to related parties | 0 | (9,128) |
Payments on notes | (40,732) | (132,861) |
Net Cash Used in Financing Activities | (40,732) | (141,989) |
Effect of foreign currency exchange rate on changes in cash | 6,284 | 19,577 |
Net Change in Cash | (63,761) | (112,717) |
Beginning Balance | 4,324,791 | 2,775,956 |
Ending Balance | 4,261,030 | 2,663,239 |
Supplementary Information | ||
Cash Paid for Interest | 18,283 | 23,274 |
Cash Paid for Income Taxes | $ 0 | $ 0 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2018 | |
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 month periods ended March 31, 2018 and 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, 2017, filed with the SEC on April 2, 2018. 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, 2017. Revenue Recognition On January 1, 2018, the Company adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09").The adoption of Topic 606 had no impact on the Companys consolidated financial statements. Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle. Refer to new accounting pronouncements for additional information. 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 on a daily basis based on a percentage of the gross rental fee earned from the rental of hotel or condominium units. 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 as managed properly expense on the Companys consolidated statements of comprehensive income. 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. Management services comprise various activities that are considered an integrated service and a single performance obligation in the context of the contract. Under a Net Contract, the Company receives a management fee that is based on a percentage of the gross rental proceeds earned 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. The incentive management fee, except for the one contract mentioned in Note 2 below, is based on a percentage net operating profit as defined in each contract, and is recorded as net operating profits are earned on a daily basis at our properties. For the contract mentioned in Note 2 below, our incentive management fee is contingent on the hotel achieving certain annual profitability targets. We will recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable. 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. Management services comprise various activities that are considered an integrated service and a single performance obligation in the context of the contract. The Company records revenues on its net contracts on a daily basis which includes a percentage of revenues earned from guests staying at the respective property and the daily amount of payroll and related payroll costs that are incurred at the property. The Company does not record the operating expenses of the property covered by the agreement, other than the employee related costs. Under both types of agreements, a liability is recognized for any deposits received for which services have not yet been rendered. 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. The Company also recognizes revenue from the operation of restaurants and bars at its New Zealand property. Revenue as presented in our consolidated statements of comprehensive income, represents food and beverage product sold. Revenue from restaurant sales is recognized when food and beverage products are sold on a daily basis. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Disaggregated Revenues The following tables present our revenues disaggregated by the nature of the product or services provided by the Company and by geographic region: Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 Gross contract revenue $4,193,349 $3,848,103 Net contract revenue 2,510,837 2,312,229 Food and beverage revenue 392,105 420,883 Other revenue 400 300 Total Revenue $7,096,691 $6,581,515 The Company records revenue from the USA domestic operations and also New Zealand operations. Revenues from these two geographic regions were: Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 United States $6,220,942 $5,625,760 New Zealand 875,749 955,755 Total Revenue $7,096,691 $6,581,515 Deferred Compensation The company has accounted for deferred compensation by recording an expense associated with the present value of the deferred stock compensation over the requisite vesting period. The total present value of the deferred compensation using a discount rate of 5.75% is amortized from the date of issuance to the retirement of the liability. A long term liability has been recorded to accumulate the deferred compensation that will be paid in future years. In November 2017, the Company, as part of an amendment to the employment contracts with its Chief Executive Officer and Chief Operating Officer, granted a total of 1,750,000 fully vested warrants. The contracts also called for deferred compensation of $1,000,000 payable to the Chief Executive Officer in ten annual installments of $100,000 beginning November 1, 2027, and $500,000 payable to the Chief Operating Officer in ten annual installments of $50,000 beginning November 1, 2017. The deferred compensation was valued using a sinking fund approach and the Company expensed $27,435 for the three months ended March 31, 2018 and the deferred compensation was $36,635 and $9,200 as of March 31, 2018 and December 31, 2017, respectively. Reclassifications The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of the three months ended March 31, 2017, the Company reclassified $420,883 from Managed property revenue to Food and beverage revenue and also reclassified $384,946 from Managed property expense to Food and beverage expense. 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. Our qualitative evaluation of ASU 2014-09 included 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 have reviewed our customer contracts and applied the five-step model of the new standard to each contact type identified thats associated to our material revenue streams and have compared the results to our current accounting practices. Areas of impact will include the timing of revenue recognition during the calendar year of certain incentive fees which we receive from one of our managed properties. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. The timing of our revenue recognition for this contract will have no effect on our annual financial statements, however it may impact our quarterly interim financial statement as we will accelerate the recognition of our incentive fee on a pro-rated basis over the fiscal year if it is determined that this incentive fee shall be earned during the fiscal year. For the first quarter ended March 31, 2018 and 2017, we did not recognize any incentive fees from this contract as it was not certain or likely that the recording of any revenue from this contract would not be subject to reversal in the future. Under the terms of this management agreement, we earn incentive management fees based on a percentage of hotel profitability. The incentive fee is contingent on the hotel achieving certain annual profitability targets. We recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable. Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. Payments received in advance of performance under the contract are classified as contract liabilities and recognized as revenue as we perform under the contract. At March 31, 2018 and December 31, 2017, we recorded $2,156,125 and $2,780,982 of payments received in advance of performance in the form or advance deposits received from guests of the properties we manage under a Gross contract. The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606. 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 $816,088 of operating lease obligations as of March 31, 2018 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), Classification of Certain Cash Receipts and Cash Payments . 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 | 3 Months Ended |
Mar. 31, 2018 | |
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. The effective income tax rates for the three months ended March 31, 2018 and 2017 were 27.4% and 48.3%, respectively. Our effective tax rate decreased for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, primarily due to the Tax Cuts and Jobs Act ("Tax Act") enacted on December 22, 2017, which reduced the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Our accounting for the Tax Act is incomplete because we are continuing to review information to more precisely determine the amount of foreign earnings and profits subject to U.S. tax at December 31, 2017 as well as the amount of non-U.S. income taxes paid on such earnings. Additionally, we are continuing to evaluate the impact of the Tax Act on our ability to utilize foreign tax credits in the future. As a result, we have not made any measurement period adjustments during the three months ended March 31, 2018 to our provisional estimates recognized at December 31, 2017 related to our net deferred tax revaluation, deemed repatriation tax, or valuation allowance on certain foreign tax credits. We expect to complete our accounting during the second quarter of 2018. |
Long Term Debt
Long Term Debt | 3 Months Ended |
Mar. 31, 2018 | |
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. Beginning January 1, 2018, the note holder agreed to a moratorium on the monthly payments of NZ$20,000 per month. The maturity date was March 31, 2019 with an extension to March 31, 2024 available if the Company is not in default. As the Company is not in default of the note, the note has been extended to March 31, 2024. The agreement does not provide for interest to be paid on this note payable so the Company has imputed interest of $43,500 and $46,500 for the quarters ended March 31, 2018 and 2017, respectively. The balance of this note was NZ $4,664,452 (US $3,374,264) and NZ$4,676,800 (US $3,321,463) as of March 31, 2018 and December 31, 2017, 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 $1,905,000 (US $1,378,077) and NZ $1,945,000 (US $1,381,339) as of March 31, 2018 and December 31, 2017, respectively. |
Equity-based Compensation
Equity-based Compensation | 3 Months Ended |
Mar. 31, 2018 | |
Notes | |
Equity-based Compensation | Note 5 Equity-Based Compensation None issued for the three months ended March 31, 2018 and 2017. |
Basic and Diluted Earnings Per
Basic and Diluted Earnings Per Share | 3 Months Ended |
Mar. 31, 2018 | |
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 2018 and 2017 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 2,350,000 shares outstanding at March 31, 2018 and December 31, 2017 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. Three Months ended March 31, 2018 Three Months ended March 31, 2017 Income Shares Per Share Income Shares Per Share Numerator Denominator Amount Numerator Denominator Amount Basic EPS Income Available to Common Stockholders $ 230,619 10,056,392 $ .02 $ 21,374 10,056,392 $ 0.00 Effect of Dilutive Securities 0 0 Diluted EPS Income Available to Common Stockholders plus Assumed Conversions $ 230,619 10,056,392 $ .02 $ 21,374 10,056,392 $ 0.00 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2018 | |
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 $233,909) which the Company paid as of 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$753,141), payable in 20 monthly installments of NZ $52,056 (US $37,657), representing the Companys share of the total special assessment. The project is scheduled to commence in the second quarter of 2018. Payment of this special assessment began November 2017. At March 31, 2018, the Company has paid NZ $549,677 (US $397,636) of the total assessment. The special assessment of US$957,908 is recorded as Construction in progress, while the unpaid amounts of the special assessment is recorded as Other current liabilities of US$439,005 and Other long term liabilities of US$121,267. 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 | 3 Months Ended |
Mar. 31, 2018 | |
Notes | |
Related Party Transactions Disclosure | Note 8 Related Party Transactions The Company has a receivable of $490,459 from Hanalei Bay International Investors (HBII) as of March 31, 2018 and December 31, 2017, respectively. 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. For the three months ended March 31, 2018 and 2017, the Company collected $0 and $36,947 of the note, respectively. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2018 | |
Notes | |
Subsequent Events | Note 9 Subsequent Events On May 2, 2018, Mr. Rick Wall, Chairman, Chief Executive Officer and Chief Financial Officer of the Company passed away. Until such time as the board of directors appoints a replacement for Mr. Wall, his duties as Chairman and Chief Executive Officer will be assumed by Mr. Alan Mattson, current director and Chief Operating Officer, and Mr. Walls duties as Chief Financial Officer will be assumed by Mr. Michael Nitta, current chief financial officer of the Companys main operating entity, Castle Resorts & Hotels, Inc. |
Summary of Significant Accoun14
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
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 month periods ended March 31, 2018 and 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, 2017, filed with the SEC on April 2, 2018. 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, 2017. |
Revenue Recognition | Revenue Recognition On January 1, 2018, the Company adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09").The adoption of Topic 606 had no impact on the Companys consolidated financial statements. Recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle. Refer to new accounting pronouncements for additional information. 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 on a daily basis based on a percentage of the gross rental fee earned from the rental of hotel or condominium units. 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 as managed properly expense on the Companys consolidated statements of comprehensive income. 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. Management services comprise various activities that are considered an integrated service and a single performance obligation in the context of the contract. Under a Net Contract, the Company receives a management fee that is based on a percentage of the gross rental proceeds earned 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. The incentive management fee, except for the one contract mentioned in Note 2 below, is based on a percentage net operating profit as defined in each contract, and is recorded as net operating profits are earned on a daily basis at our properties. For the contract mentioned in Note 2 below, our incentive management fee is contingent on the hotel achieving certain annual profitability targets. We will recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable. 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. Management services comprise various activities that are considered an integrated service and a single performance obligation in the context of the contract. The Company records revenues on its net contracts on a daily basis which includes a percentage of revenues earned from guests staying at the respective property and the daily amount of payroll and related payroll costs that are incurred at the property. The Company does not record the operating expenses of the property covered by the agreement, other than the employee related costs. Under both types of agreements, a liability is recognized for any deposits received for which services have not yet been rendered. 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. The Company also recognizes revenue from the operation of restaurants and bars at its New Zealand property. Revenue as presented in our consolidated statements of comprehensive income, represents food and beverage product sold. Revenue from restaurant sales is recognized when food and beverage products are sold on a daily basis. Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Disaggregated Revenues The following tables present our revenues disaggregated by the nature of the product or services provided by the Company and by geographic region: Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 Gross contract revenue $4,193,349 $3,848,103 Net contract revenue 2,510,837 2,312,229 Food and beverage revenue 392,105 420,883 Other revenue 400 300 Total Revenue $7,096,691 $6,581,515 The Company records revenue from the USA domestic operations and also New Zealand operations. Revenues from these two geographic regions were: Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 United States $6,220,942 $5,625,760 New Zealand 875,749 955,755 Total Revenue $7,096,691 $6,581,515 |
Deferred Compensation | Deferred Compensation The company has accounted for deferred compensation by recording an expense associated with the present value of the deferred stock compensation over the requisite vesting period. The total present value of the deferred compensation using a discount rate of 5.75% is amortized from the date of issuance to the retirement of the liability. A long term liability has been recorded to accumulate the deferred compensation that will be paid in future years. In November 2017, the Company, as part of an amendment to the employment contracts with its Chief Executive Officer and Chief Operating Officer, granted a total of 1,750,000 fully vested warrants. The contracts also called for deferred compensation of $1,000,000 payable to the Chief Executive Officer in ten annual installments of $100,000 beginning November 1, 2027, and $500,000 payable to the Chief Operating Officer in ten annual installments of $50,000 beginning November 1, 2017. The deferred compensation was valued using a sinking fund approach and the Company expensed $27,435 for the three months ended March 31, 2018 and the deferred compensation was $36,635 and $9,200 as of March 31, 2018 and December 31, 2017, respectively. |
Reclassification | Reclassifications The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of the three months ended March 31, 2017, the Company reclassified $420,883 from Managed property revenue to Food and beverage revenue and also reclassified $384,946 from Managed property expense to Food and beverage expense. |
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. Our qualitative evaluation of ASU 2014-09 included 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 have reviewed our customer contracts and applied the five-step model of the new standard to each contact type identified thats associated to our material revenue streams and have compared the results to our current accounting practices. Areas of impact will include the timing of revenue recognition during the calendar year of certain incentive fees which we receive from one of our managed properties. If our right to consideration is conditional on future performance under the contract, the balance is classified as a contract asset. The timing of our revenue recognition for this contract will have no effect on our annual financial statements, however it may impact our quarterly interim financial statement as we will accelerate the recognition of our incentive fee on a pro-rated basis over the fiscal year if it is determined that this incentive fee shall be earned during the fiscal year. For the first quarter ended March 31, 2018 and 2017, we did not recognize any incentive fees from this contract as it was not certain or likely that the recording of any revenue from this contract would not be subject to reversal in the future. Under the terms of this management agreement, we earn incentive management fees based on a percentage of hotel profitability. The incentive fee is contingent on the hotel achieving certain annual profitability targets. We recognize an incentive fee receivable each month to the extent it is probable that we will not reverse a significant portion of the fees in a subsequent period. However, due to the profitability hurdles in the contract, incentive fees are considered contract assets until the risk related to the achievement of the profitability metric no longer exists. Once the annual profitability hurdle has been met, the incentive fee receivable balance will be reflected within accounts receivable. Our payments from customers are based on the billing terms established in our contracts. Customer billings are classified as accounts receivable when our right to consideration is unconditional. Payments received in advance of performance under the contract are classified as contract liabilities and recognized as revenue as we perform under the contract. At March 31, 2018 and December 31, 2017, we recorded $2,156,125 and $2,780,982 of payments received in advance of performance in the form or advance deposits received from guests of the properties we manage under a Gross contract. The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606. 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 $816,088 of operating lease obligations as of March 31, 2018 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), Classification of Certain Cash Receipts and Cash Payments . 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. |
Summary of Significant Accoun15
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Tables/Schedules | |
Schedule of Segment Reporting Information, by Segment | Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 Gross contract revenue $4,193,349 $3,848,103 Net contract revenue 2,510,837 2,312,229 Food and beverage revenue 392,105 420,883 Other revenue 400 300 Total Revenue $7,096,691 $6,581,515 |
Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area | Three Months Ending March 31, 2018 Three Months Ending March 31, 2017 United States $6,220,942 $5,625,760 New Zealand 875,749 955,755 Total Revenue $7,096,691 $6,581,515 |
Basic and Diluted Earnings Pe16
Basic and Diluted Earnings Per Share (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Tables/Schedules | |
Reconciliation of Numerator and Denominator of The Basic and Diluted Earnings Per Share Computations: | Three Months ended March 31, 2018 Three Months ended March 31, 2017 Income Shares Per Share Income Shares Per Share Numerator Denominator Amount Numerator Denominator Amount Basic EPS Income Available to Common Stockholders $ 230,619 10,056,392 $ .02 $ 21,374 10,056,392 $ 0.00 Effect of Dilutive Securities 0 0 Diluted EPS Income Available to Common Stockholders plus Assumed Conversions $ 230,619 10,056,392 $ .02 $ 21,374 10,056,392 $ 0.00 |
Summary of Significant Accoun17
Summary of Significant Accounting Policies (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Details | |||
Sales Revenue, Services, Other | $ 4,193,349 | $ 3,848,103 | |
Revenue, Net | 2,510,837 | 2,312,229 | |
Food and Beverage Revenue | 392,105 | 420,883 | |
Other revenue | 400 | 300 | |
Total Revenues | 7,096,691 | 6,581,515 | |
United States Revenue | 6,220,942 | 5,625,760 | |
New Zealand Revenue | $ 875,749 | 955,755 | |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted | 1,750,000 | ||
CEO deferred compensation | $ 1,000,000 | ||
CEO deferred compensation installments | 100,000 | ||
COO deferred compensation | 500,000 | ||
COO deferred compensation installments | 50,000 | ||
Deferred compensation | 27,435 | 0 | |
Deferred Compensation Liability, Current | 36,635 | $ 9,200 | |
Food and beverage | 380,935 | $ 384,946 | |
Deposits payable | 2,156,125 | $ 2,780,982 | |
Capital Lease Obligations | $ 816,088 |
Long Term Debt (Details)
Long Term Debt (Details) - USD ($) | 3 Months Ended | |||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | Sep. 30, 2017 | |
Details | ||||
Non cash interest expense | $ 43,500 | $ 46,500 | ||
HBII Note Balance | 3,374,264 | $ 3,321,463 | ||
New Zealand Bank Monthly Payment | $ 14,382 | |||
Term Loan With New Zealand Bank | $ 1,378,077 | $ 1,381,339 |
Basic and Diluted Earnings Pe19
Basic and Diluted Earnings Per Share (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | |
Details | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 368,333 | ||
Preferred stock par value | $ 100 | $ 100 | |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number | 2,350,000 | ||
Net Income applicable to Common Stockholders | $ 230,619 | $ 21,374 | |
Weighted average common shares Outstanding Basic | 10,056,392 | 10,056,392 | |
Income (Loss) from Continuing Operations, Per Basic Share | $ 0.02 | $ 0 | |
Net Income (Loss) Available to Common Stockholders, Diluted | $ 230,619 | $ 21,374 | |
Weighted average common shares Outstanding Diluted | 10,056,392 | 10,056,392 | |
Income (Loss) from Continuing Operations, Per Diluted Share | $ 0.02 | $ 0 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) | 3 Months Ended | ||||
Mar. 31, 2018 | Dec. 31, 2017 | Nov. 30, 2017 | Jul. 31, 2017 | Jul. 01, 2017 | |
Details | |||||
Construction in progress | $ 957,908 | $ 940,430 | $ 233,909 | ||
New Zealand Podium Special Assessment | $ 753,141 | ||||
New Zealand Podium Payments | $ 37,657 | ||||
New Zealand Podium Special Assessment payments | 397,636 | ||||
Construction in progress included in other current liabilities and other long term liabilities | 957,908 | ||||
Construction in progress included in other current liabilities | 439,005 | ||||
Construction in progress included in other long term liabilities | $ 121,267 |
Related Party Transactions Di21
Related Party Transactions Disclosure (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Details | ||
Accounts Receivable From Hanalei-Bay International Investors | $ 490,459 | |
Recovery of bad debt | $ 0 | $ 36,947 |