Adult video and novelty chain Castle Megastore Corp. filed for bankruptcy protection last week citing difficult with financing as the cause, followed closely by American National Mortgage Partners, the company that brokered their loans.
Castle, which has 15 outlets in four states, filed for Chapter 11 protection in U.S Bankruptcy Court in Phoenix on last week. While info on the retail chains total debt are not available, the Arizona Department of Revenue is listed as the largest creditor on court records. Castle is disputing the $345,899 owed in sales taxes. The state filed a lien against the company last month.
"The whole purpose is to give the company a second chance and reorganize," said Taylor Coleman, Castle's president and CEO, told The Arizona Republic. "It's primarily a mismanagement of financing, not the core business."
Castle also owes a significant amount of money to both the Washington Department of Revenue and to New Mexico Taxation & Revenue, though Castle is also disputing both claims.
Coleman noted that his company had approximately $20 million in sales last year, and claims that the cause of the Chapter 11 filing is not tax problems, but excessive interest rates on $17 million in principal and interest for loans American National and Creative Financial Funding of Phoenix arranged for Castle over a period of three years.
American National Mortgage was Castle's second largest creditor, and is owed $173,600. The Arizona Corporation Commission is investigating American National for possible securities violations, including fraud. And the Arizona Banking Department last month revoked American National's banking license after allegations the company failed to comply with numerous banking regulations.
Frank Caspare, owner of American National, said his company's filing for Chapter 11 is intended to protect lenders who invested in Castle. "He's not the victim; we are the victims," Caspare said.
But Caspare said Coleman agreed to pay up to 36 percent annual interest on the loans.
In a related civil dispute in Maricopa County Superior Court between American National and Castle, Coleman is accused of writing $1.7 million in "worthless checks" to American National and related companies since April 2002.
Coleman, however, said he has no intention of shutting down.
"Have a nice day folks, we are not going anywhere," he said. "Chapter 11 was designed to reorganize a company."
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