-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IFDBgVW1BVA4i0Vzxb1rwZYEUhe8beCJvPW8+fvI4G+1NpT6fEh/UPCj6MiKgiw6 wB1fgCKXVWM+twPifm5ViQ== 0001010412-07-000316.txt : 20071213 0001010412-07-000316.hdr.sgml : 20071213 20071213141933 ACCESSION NUMBER: 0001010412-07-000316 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20071213 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20071213 DATE AS OF CHANGE: 20071213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASTLE GROUP INC CENTRAL INDEX KEY: 0000918543 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS, ROOMING HOUSE, CAMPS & OTHER LODGING PLACES [7000] IRS NUMBER: 990307845 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23338 FILM NUMBER: 071304271 BUSINESS ADDRESS: STREET 1: 500 ALA MOANA BLVD. STREET 2: 3 WATERFRONT PLAZA, SUITE 555 CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085240900 MAIL ADDRESS: STREET 1: 500 ALA MOANA BLVD. STREET 2: 3 WATERFRONT PLAZA, SUITE 555 CITY: HONOLULU STATE: HI ZIP: 96813 8-K 1 f8kforearningsprojectionsv21.htm 8-K CURRENT REPORT DATED DECEMBER 13, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION

United States Securities and Exchange Commission


Washington, D.C. 20549

______________

FORM 8-K

CURRENT REPORT

______________

Pursuant to Section 13 or 15[d] of the Securities Exchange Act of 1934

December 13, 2007

______________

Date of Report

[Date of Earliest Event Reported]


THE CASTLE GROUP, INC.

(Exact name of Registrant as specified in its Charter)



 

 

 

Utah

000-23338

99-0307845

(State or Other Jurisdiction of

(Commission File Number)

(I.R.S. Employer Identification No.)

Incorporation)

 

 

 

 

 


500 Ala Moana Boulevard, 3 Waterfront Plaza, Suite 555

Honolulu, Hawaii 96813

(Address of Principal Executive Offices)


(808) 524-0900

(Registrant’s Telephone Number, including area code)


N/A

(Former name or former address, if changed since last report.)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see general instruction A.2. below):


[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


[  ] Soliciting material pursuant to Rule 14-a-12 under the Exchange Act (17 CFR 240.14a-12)


[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1



Item 2. Management’s Discussion and Analysis or Plan of Operation.


Forward Looking Statements


Statements made in this Current Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) Castle’s ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may”, “would”, “could”, “should”, “expects”, “projects”, “anticipates”, “believes”, “estimates”, “plans”, “intends”, “targets” or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, the Company’s ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting Castle’s operations, products, services and prices (see the Company’s Form 10-KSB/1-A dated November 7, 2007(in particular Section 1A on page 13) and other filings  with the U.S. Securities and Exchang e Commission for a fuller discussion of these and other risk factors which might, inter alia, cause the projections and other forward looking statements to be inaccurate.)



Item 2.02 Results of Operations and Financial Condition.


The Company is herein describing its Prospects and Projections


Future Prospects for Castle and Projections.  Castle currently provides hospitality services to 26 properties in Hawaii, Guam, Micronesia, New Zealand, and Thailand.  Castle has recently entered a period of rapid growth and has substantially expanded its portfolio of management and services contracts.  Castle intends to continue its rapid growth in the coming quarters by adding additional properties to its portfolio of contracted properties.  The company expects that the overall Gross Property Revenues of its portfolio properties will exceed $100 million during 2008. Castle’s revenues represent a portion of these Gross Property Revenues.  Castle receives either fees or Attributed Property Revenues, (a portion of the Gross Property Revenues) and uses the measurement of overall Gross Property Revenues from all sources, as a metric to track the size and scope of its portfolio growth.  Since May 2007, Castle has added 6 new properties to its list of resorts.  Most recently Castle began managing the 596-room Maile Sky Court Hotel and managing Sales, Marketing and Reservations for the Queen Kapiolani Hotel in Honolulu, Hawaii. Collectively, all of these new contracts are expected to provide significant growth in revenues through the remainder of 2007 and 2008, as compared to prior periods.  As a result of these additional contracts, Castle is projecting a substantial increase in revenues in 2007 and substantial increases in revenues, EBITDA and net income in 2008. These new agreements and Castle’s existing business and contracts are the primary basis for Castle’s current projections for 2007 and 2008 included herein.    


Revenues for the first three quarters of 2007 totaled $16.7 million as compared to $15.8 million during the same period of 2006, an increase of 6% over last year.  As a result of the new contracts Castle estimates that revenues will total $22.6 million during 2007 with $5.9 million coming during the fourth quarter.  This will equate to a year over year increase of 7% for 2007 as compared to 2006.  


For 2008, Castle is expecting that the incremental revenues from these new contracts along with expansion of services provided to resort and condominium properties currently under contract and increases in revenues from existing contracts will increase revenues to $26.8 million, representing 18% growth from 2007.


Castle expects that its operating expenses will increase to approximately $22.5 million during 2007 from $20.0 million in 2006, an increase of 13%.  This increase in operating expenses is partially a result of costs incurred in staffing and infrastructure investments in advance of the commencement of the new contracts and the recognition of their associated revenues.  Operating expenses are anticipated to total approximately $25.0 million in 2008, an increase of 11% over 2007 as compared to the anticipated 18% growth in revenues noted above.


During the first three quarters of 2007 Castle’s Earnings Before Interest, Taxes and Depreciation and Amortization (EBITDA) totaled $235,000.  Castle expects that EBIDTA for the fourth quarter of 2007 will be approximately $103,000 and will total approximately $338,000 for the year.  This increase in cost efficiency is due largely to investments which Castle has made in its organization and infrastructure over the past few quarters such that incremental costs of managing the contracts and the associated revenues represented by the new contracts is less than the cost of managing the historical revenue base.  This trend is expected to continue into 2008 as Castle is projecting an increase in EBIDTA to approximately $2.1 million or 5 times estimated EBIDTA for 2007.


Due to the relatively fixed nature of Interest, Depreciation, and Amortization, Castle’s Net Income or Loss for the remainder of 2007 and throughout 2008 is anticipated to follow a trend similar to EBITDA.  Specifically, the company is estimating a slight loss of $27,000 in the fourth quarter of 2007, for a combined Net Loss of $162,000 for the full year of 2007..  Due to the projected increases in Revenue and efficiencies in operations, Total Net Income for 2008 is projected to be just under $1.0 million.


Castle’s projected Statement of Operations for 2007 and 2008 is shown below:








The Castle Group, Inc.

Projected Consolidated Statement of Operations

($ in Thousands)

 

2007

 

2008

Quarter

Q1

Q2

Q3

Q4*

2007*

 

Q1*

Q2*

Q3*

Q4*

2008*

 

 

 

 

 

 

 

$

Y/Y%

$

Y/Y%

$

Y/Y%

$

Y/Y%

Total

Y/Y%

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue Attributed from Property



$4,572.0



$4,307.1



$4,860.4



$4,561.0



$18,300.5

 



$5,255.7



15%



$4,689.3



9%



$5,422.5



12%



$5,204.3



14%



$20,571.8



12%

Management & Service


$847.5


$845.4


$1,040.9


$1,241.0


$3,974.8

 


$1,510.5


78%


$1,368.9


62%


1,574.4


51%


$1,667.9


34%


$6,121.7


54%

Other Income

$75.3

$86.8

$105.8

$101.0

$369.0

 

$21.9

-71%

$21.9

-75%

$21.9

-79%

$21.9

-78%

$87.6

-76%

Total Income

$5,494.8

$5,239.4

$6,007.1

$5,903.0

$22,644.2

 

$6,788.1

24%

$6,080.1

16%

$7,018.8

17%

$6,894.0

17%

$26,781.1

18%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

$4,166.3

$4,228.4

$4,421.5

$4,514.3

$17,330.5

 

$4,565.5

10%

$4,429.5

5%

$4,665.3

6%

$4,605.8

2%

$18,266.2

5%

Payroll & Office Expense


$910.8


$931.8


$979.3


$998.5


$3,820.4

 


$1,233.8


35%


$1,238.4


33%


$1,268.9


30%


$1,272.1


27%


$5,013.0


31%

Administrative & General


$231.4


$225.5


$411.1


$286.8


$1,154.8

 


$392.3


70%


$360.0


60%


$340.2


-17%


$333.4


16%


$1,426.0


23%

Depreciation & Amortization



$56.2



$59.7



$60.0



$58.0



$233.9

 



$56.0



0%



$56.0



-6%



$56.0



-7%



$56.0



-4%



$223.9



-4%

Total Operating Expenses



$5,364.7



$5,445.4



$5,871.9



$5,857.6



$22,539.6

 



$6,247.6



16%



$6,083.9



12%



$6,330.4



8%



$6,267.3



7%



$24,929.1



11%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income


$130.1


($206.0)


$135.2


$45.4


$104.7

 


$540.6


315%


($3.7)


-98%


$688.4


409%


$626.8


1281%


$1,852.0


1669%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Income


$36.9


$37.4


$37.9


$38.4


$150.5

 


$23.8

 


$23.8

 


$17.8

 


$17.8

 


$83.1

 

Interest Expense


($133.1)


($136.3)


($134.5)


($130.0)


($533.9)

 


($89.6)

 


($87.2)

 


($84.9)

 


($82.5)

 


($344.2)

 

Income Before Taxes


$34.0


($304.9)


$38.6


($46.3)


($278.6)

 


$474.7

 


($67.2)

 


$621.4

 


$562.1

 


$1,590.9

 

Income Taxes

$14.3

($134.7)

$23.3

($19.7)

($116.9)

 

$191.8

 

($27.2)

 

$251.0

 

$227.1

 

$642.7

 

Net Income

$19.7

($170.2)

$15.3

($26.5)

($161.7)

 

$282.9

 

($40.1)

 

$370.3

 

$335.0

 

$948.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution Margin


$405.6


$78.8


$438.9


$46.7


$969.9

 


$690.2


70%


$259.8


230%


$757.2


73%


$598.5


1182%


$2,305.7


138%

EBITDA

$186.3

($146.4)

$195.2

$103.4

$338.5

 

$596.6

220%

$52.2

-136%

$744.4

281%

$682.8

560%

$2,075.9

513%


*   Company estimate


Castle’s financial projections were based upon estimates of revenues and expenses derived primarily from existing management and service contracts with properties we currently serve.  Revenue projections were derived from estimates of room rates charged to guests, the number of units available to rent, and estimated occupancy rates, on a property-by-property basis.  These estimates consider historical trends for each property where available, which were then modified to include estimates of general economic trends, specific tourist market trends, seasonal trends, and items associated with individual properties such as



periods of construction or other disruptions. In order to derive Castle’s estimated revenues, formulas were applied to these gross property revenue estimates which conform to specific terms unique to each contract. In most instances these formulas were based on historical results and trends, however for new properties recently added to the portfolio, our experience with similar properties was applied to obtain the estimates.  These estimates include properties currently under contract as well as certain assumptions regarding renewal rates and changes in contract terms for those properties that may be up for renewal during the forecasted period. In certain cases where the Company’s revenues are dependent on achieving specific objectives, management believes that the addition of revenues from new contracts are likely to offset these shortfalls should they occur. Due to the uncertainty surrounding the nature and timing of acquirin g new management or service contracts, the Company did not otherwise include other potential new contracts into these estimates.


Castle recognizes revenue from the management of resort properties according to the specific terms of its various management contracts.  Castle has two basic types of agreements.  Under a “Gross Contract,” Castle records income as “Revenue Attributed from Properties,” which is based on a percentage of the gross rental proceeds ranging from 25% to 100% of the total amount received from the rental of the hotel or condominium units.  Under the Gross Contract, Castle is responsible for all of the operating expenses for the hotel or condominium unit.  Under a “Net Contract,” Castle receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of the 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 owner’s unit.  Also under the Net Contrac t, Castle typically receives an incentive management fee, which is based on the net operating profit of the covered property. These incentive management fees are recorded when earned, based upon the terms and conditions of the management contracts. Revenues received under the Gross Contract are recorded as Revenue Attributed from Properties, while revenues received under the Net Contract are recorded as, Management and Service Income.  Under both types of agreements, revenues are recognized after services have been rendered.  


For those properties which Castle manages on a Gross Contract Basis, the estimated Revenues Attributed from Properties is based on the percentage of gross rental proceeds appropriate for each contract.  For Net Contracts and Services, Castle estimates the Management or Service Fee Revenue from each contract based on the contract terms as applied to the estimated revenues and occupancy levels of each property.  These estimates also take into account potential performance bonus revenues as a result of Castle’s anticipated performance over target levels.  While Castle manages properties both on a Gross and Net contract basis, the majority of contracts added recently are Net Contracts.  As such, anticipated Net Contract Revenues are expected to grow faster on a percentage basis, than those from Gross contracts in the coming months.  Expenses for properties managed on a Gross Contract Basis are estimated based on historical trends of staffing levels, salary and wage levels, and other expenses related to the management of the respective property contracts.  General economic and inflationary trend assumptions are applied to derive the overall estimated Property Expenses for each property.  These expenses are then aggregated into total estimated Property Expenses.


Staffing expenses relating to Net Contract properties such as Payroll and corporate Administrative and General costs are estimated based on expected staffing levels necessary to support the contracts included in the revenue estimates during the relevant period.  Related office and other expenses are also estimated for the period, as well as expenditures related to future projects and growth initiatives planned for the coming quarters.  Anticipated Depreciation of Company owned assets and amortization of Intangible Property is then estimated as is the Interest Expense due on the Company’s debt and anticipated borrowings.  Estimated taxes are based on the Company’s incurred and anticipated tax rates in the jurisdictions in which it operates.  Net Income and EBITDA are calculated based on the results of the above estimates.


Item 8.01 Other Events.


The Company is planning to initiate a private placement of securities,. If it is successful in raising these funds, 2008 projections could be even more favorable than those shown included herein.




Item 9.01 Financial Statements and Exhibits.


Exhibit No. 99.1 Press Release Dated December 13, 2007


SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.


THE CASTLE GROUP, INC.


 

 

 

 

 

Date:

12/13/07

 

By:

/s/Howard Mendelsohn

 

 

 

 

Howard Mendelsohn

 

 

 

 

Chief Financial Officer




 EX-99 2 guidancefinal121207christi5.htm PRESS RELEASE DATED DECEMBER 13, 2007 FOR IMMEDIATE RELEASE

FOR IMMEDIATE RELEASE

December 13, 2007


The Castle Group, Inc. Announces Guidance for Q4 Fiscal Year 2007, and Fiscal Year 2008


2008 EBITDA expected to total five times the 2007 figure


Honolulu, Hawaii – The Castle Group, Inc. (OTC-BB: CAGU), holding company for Castle Resorts & Hotels, which provides hospitality services to 26 properties in Hawaii, Guam, Micronesia, New Zealand, and Thailand, today announced its financial guidance for its fiscal 2007 fourth quarter and full fiscal year, ending December 31, 2007.  


Management also announced guidance for fiscal year 2008, ending December 31, 2008.


Since May 2007, Castle has added six new properties to its list of hotels and condominium resorts, with the most recent additional properties under Castle management being the 596-room Maile Sky Court Hotel in Honolulu, Hawaii and the Queen Kapiolani, a 315-room hotel located in the heart of Honolulu, with spectacular views of Oahu’s two famous landmarks, Diamond Head and Waikiki Beach.


Commenting on the Company’s year 2007 results, Alan Mattson, president and chief operating officer of Castle Resorts & Hotels, said, “We are closing out the year very strongly and are on target for our growth objectives. Our presence in Waikiki has more than doubled in the past year, and with our expansion into Thailand, we are accelerating our international inventory growth. Taken together, properties newly under contract are expected to provide substantial increases in revenues, as compared to prior periods.”


Preliminary Q4 and Fiscal Year 2007 Results

Castle estimates that its revenues will total $22.6 million during 2007, representing a year-over-year increase of 7% for 2007 as compared to 2006.  This estimate is based on the Company’s financial performance in the three quarters of fiscal 2007 and management’s experience with the Company’s operations and markets in recent past years, as well as the expected performance of new contracts.


Operating expenses are expected to increase 13% to $22.5 million during 2007, from $20.0 million in 2006.  This increase in operating expenses is partially a result of staffing and infrastructure costs incurred in preparation for the commencement of new contracts but before related revenues can be realized.  


Castle has made investments in its organization and infrastructure over the past few quarters which have brought increases in cost efficiencies.  The incremental costs of managing new contracts and their associated revenues are less than the cost of managing the historical revenue base.  




Castle expects full-year 2007 earnings before interest taxes, depreciation and amortization (EBITDA) to total $338,000 and a net loss on a GAAP basis of $162,000 versus the $1.3 million in EBITDA and $372,000 in net income recorded for the year ended December 31, 2006.  The decrease in earnings is a result of the company’s execution of its strategy to expand into other Pacific Basin and Asian vacation destinations. Increases in staffing and enhancement of its systems and infrastructure during the past year were undertaken in anticipation of substantial growth in the number and geographical reach of the properties under contract in the coming quarters.


EBITDA, a financial measure not in accordance with generally accepted accounting principles (GAAP), reflects Castle’s earnings without the effect of depreciation, interest income or expense or taxes.  Castle’s management believes that in many ways it is a good alternative indicator of Castle’s financial performance as it removes the effects of non-cash depreciation and amortization of assets, as well as the fluctuations of interest costs based on its borrowing history and increases and decreases in tax expense brought about by changes in the provision for future tax effects rather than current income.  Readers should be aware that not all companies calculate EBITDA in the same way, potentially impairing EBITDA comparisons from company to company.


Due to the relatively fixed nature of the Company’s interest, depreciation, and amortization, Castle’s net income for the fourth quarter of 2007 is anticipated to follow a trend similar to EBITDA.  The Company is estimating a slight loss of $27,000 in the fourth quarter of 2007 for a combined net loss of $162,000 for the full year of 2007.  


Fiscal 2008 Guidance


Incremental revenues from the Company’s new contracts, along with expansion of services provided to resort and condominium properties currently under contract, are expected to increase 2008 revenues to $26.8 million, representing an 18% improvement over 2007.  


Fiscal 2008 operating expenses are anticipated to total $25.0 million, an increase of 11% over 2007, less than the anticipated 18% growth in revenues noted above.


Based on increased efficiency trends continuing into 2008, Castle is projecting an increase in EBIDTA to $2.1 million.  This represents five times the EBIDTA estimated for 2007.  


Due to the relatively fixed nature of interest, depreciation, and amortization, combined with projected revenue increases and operating efficiencies, Castle’s net income for 2008 is anticipated to follow a trend similar to EBITDA, and is projected to total slightly less than $1.0 million.  


“This year marks some major accomplishments for the Company. Not only have we substantially expanded our portfolio of companies under management and turned towards profitability, we just recently started trading on the Over the Counter Bulletin Board,”



said Rick Wall, chairman and chief executive officer of The Castle Group, Inc.  “Castle has entered a period of rapid growth and we intend to continue our rapid growth in the coming quarters by adding properties to our property management portfolio, providing more and higher-value services to the property owners we serve and leveraging the efficiencies we have woven into operations.  The properties in the portfolio for 2008 are expected to generate in excess of $100 million in annual Gross Property Revenues for their owners.”


Castle receives either fees or Attributed Property Revenues, (a portion of Gross Property Revenues) and uses the measurement of overall Gross Property Revenues, from all sources, as a metric to track the size and scope of its portfolio growth.


“Castle’s new and existing business and contracts give management strong confidence in our current projections for 2007 and 2008,” said Howard Mendelsohn, the Company’s chief financial officer. “Our planned and ongoing new business acquisition activities may allow us to accelerate our growth beyond the projections shown here for 2008 and continue that trajectory into 2009.”


About The Castle Group


The Castle Group manages hotels and condominiums on the Hawaiian islands of Oahu, Maui, Kauai, Molokai and Hawaii; on Saipan and Guam in Micronesia; Thailand and on New Zealand’s North Island.  Founded in 1994 with just 220 rooms, today Castle has contracts with 26 properties totaling more than 3,200 hotel rooms and condominium units and employs more than 600 resort, hotel and corporate staff. Castle offers travelers accommodations ranging from hotel guest rooms to fully equipped spacious resort condominiums. Castle has adopted a strategic plan to expand in Hawaii, Micronesia, New Zealand, and Thailand, as well as in regions throughout the Pacific, Asia and Central America.


This press release contains forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Forward looking statements are based upon the current plans, estimates and projections of The Castle Group's management and are subject to risks and uncertainties which could cause actual results to differ from the forward looking statements.  These include, but are not limited to risk factors and uncertainties set forth  in the Company's Form 10-KSB/A-1 dated November 7, 2007 and other filings with the U.S. Securities and Exchange Commission.  The Castle Group does not assume any obligation to update the information contained in this press release.


For more information, please contact:


Investor Relations Contact:

Christi Mottola, Managing Partner

CCG Investor Relations

Direct : (949) 851-1109



Fax: (949) 223-0028

Christi.Mottola@ccgir.com


Company Contact:

Donna Wheeler

The Castle Group

Toll-Free: 1-800-733-7753 (U.S./Canada/Guam/Saipan)

Direct: (808) 524-0900

Fax: (808) 521-9994

pr@castleresorts.com


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