<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-12346
IRONSTONE GROUP, INC.
(Name of small business issuer as specified in its charter)
DELAWARE 95-2829956
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
ONE BUSH STREET, SUITE 650, SAN FRANCISCO, CA 94104
(Address of principal executive offices, including zip code)
(415) 576-3537
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
The number of shares of the registrant's common stock outstanding as of
September 30, 1996 was 1,487,870.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
TOTAL NUMBER OF PAGES: 12 INDEX TO EXHIBITS AT PAGE: N/A
<PAGE> 2
IRONSTONE GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial statements (unaudited) Page
----
Condensed consolidated statements of operations for the three and nine months
ended September 30, 1996 and 1995............................................ 3
Condensed consolidated balance sheet at September 30, 1996.................... 5
Condensed consolidated statements of cash flows for the nine months
ended September 30, 1996 and 1995............................................ 6
Notes to condensed consolidated financial statements.......................... 7
Item 2. Management's discussion and analysis of financial condition
and results of operations...................................................... 9
PART II - OTHER INFORMATION
Item 1. Legal proceedings....................................................... 11
</TABLE>
2
<PAGE> 3
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 594,247 $ 1,363,220
Subscription fees 4,874 7,475
Interest and other income 12,236 15,671
----------- -----------
Total revenues 611,357 1,386,366
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 888,408 897,856
Depreciation 27,625 33,840
Amortization 22,939 108,710
Bad debt expense 35,662 82,367
Rent expense 108,951 106,672
Professional fees (1,055) 76,616
Advertising and promotion 29,928 58,120
Office expense 48,263 50,939
Referral and split fees 39,871 26,971
Travel and entertainment 23,750 21,124
Research expense 21,273 21,827
Communications 15,325 22,279
Interest expense 31,546 22,611
Other operating expenses 49,540 17,592
Non-operating expenses -- 100,529
----------- -----------
Total costs and expenses 1,342,026 1,648,053
----------- -----------
Loss before income taxes and
minority interest (730,669) (261,687)
Income taxes -- --
Minority interest (23,097) (31,494)
----------- -----------
Net loss $ (707,572) $ (230,193)
=========== ===========
Net loss per common and common equivalent share:
Net loss per share $ (0.48) $ (0.15)
=========== ===========
Average shares outstanding 1,487,870 1,487,870
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Revenues:
Consulting fees $ 3,134,047 $ 4,735,276
Subscription fees 14,624 20,383
Interest and other income 29,456 115,300
----------- -----------
Total revenues 3,178,127 4,870,959
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 2,965,946 3,149,527
Depreciation 79,737 83,430
Amortization 68,691 296,791
Bad debt expense 188,314 295,640
Rent expense 316,911 310,894
Professional fees 180,297 254,929
Advertising and promotion 85,848 206,967
Office expense 149,847 169,533
Referral and split fees 85,139 137,720
Travel and entertainment 113,089 97,817
Research expense 69,030 69,302
Communications 50,981 60,446
Interest expense 88,078 70,340
Other operating expenses 136,889 75,796
Non-operating expenses -- 301,205
----------- -----------
Total costs and expenses 4,578,797 5,580,337
----------- -----------
Loss before income taxes and
minority interest (1,400,670) (709,378)
Income taxes 3,300 --
Minority interest (75,917) (11,717)
----------- -----------
Net loss $(1,328,053) $ (697,661)
=========== ===========
Net loss per common and common equivalent share:
Net loss per share $ (0.89) $ (0.47)
=========== ===========
Average shares outstanding 1,487,870 1,487,870
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Current assets:
Cash $ 392,416
Marketable securities available for sale 1,052,800
Accounts receivable, net of allowance for doubtful
accounts of $627,412 1,873,089
Accrued interest receivable 1,924
Prepaid expenses 79,653
------------
Total current assets 3,399,882
------------
Property and equipment 195,784
Costs in excess of net assets of acquired businesses-net 185,009
Other assets 10,554
------------
Total assets $ 3,791,229
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 53,113
Accrued interest payable 21,753
Accrued compensation 455,846
Customer deposits 98,839
Line of credit 350,000
Due to officer 50,000
Capitalized lease obligations-current portion 48,476
Notes payable-current portion 585,086
Other current liabilities 189,098
------------
Total current liabilities 1,852,211
------------
Capitalized lease obligations-net of current portion 26,909
Notes payable-net of current portion 260,932
------------
Total non-current liabilities 287,841
Minority interest in consolidated subsidiaries 67,209
------------
Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized of which there are no issued and
outstanding shares
Common stock, $0.01 par value, 25,000,000 shares
authorized of which 1,487,870 shares are
issued and outstanding 14,879
Additional paid in capital 21,170,385
Accumulated deficit (19,767,919)
Unrealized holding gain on marketable securities
available for sale 166,623
------------
Total shareholders' equity 1,583,968
------------
Total liabilities and shareholders' equity $ 3,791,229
============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,328,053) $ (697,661)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 79,737 83,429
Amortization 68,691 296,792
Loss on purchase of minority interest 26,598 --
Undistributed minority interest (75,917) (11,717)
Changes in assets and liabilities:
Accounts receivable 2,002,047 (443,625)
Other current assets (31,368) 60,651
Other assets 2,688 (63,537)
Accounts payable (107,225) 55,932
Accrued compensation 12,251 83,039
Other liabilities (338,075) (477,597)
----------- -----------
Net cash provided (used) by operating activities 311,374 (1,114,294)
----------- -----------
INVESTING ACTIVITIES:
Collection of other receivable -- 788,632
Purchase of marketable securities available for sale (227,316) (150,300)
Purchase of property and equipment (30,149) (106,168)
----------- -----------
Net cash provided (used) by investing activities (257,465) 532,164
----------- -----------
FINANCING ACTIVITIES:
Purchase of minority interest (92,500) --
Borrowings from line of credit 225,000 --
Payments on capitalized lease obligations (32,986) (23,245)
Payments on notes payable (515,165) (604,000)
----------- -----------
Net cash used by financing activities (415,651) (627,245)
----------- -----------
Net decrease in cash (361,742) (1,209,375)
Cash at beginning of period 754,158 1,599,613
----------- -----------
Cash at end of period $ 392,416 $ 390,238
=========== ===========
</TABLE>
Supplemental disclosure of non-cash financing activities:
On July 27, 1996, BPA purchased from a minority shareholder of BPA, 700 shares
of BPA's issued and outstanding shares of common stock in exchange for $42,500
cash and a note payable of $150,000. (Note 3).
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles Of Consolidation And Business Activities
Ironstone Group, Inc., formerly OXOCO INC. (the "Company"), consolidates the
financial statements of its majority-owned subsidiaries, Belt Perry Associates,
Inc., an Arizona corporation ("BPA"), Belt Perry Associates, Inc., a California
corporation ("BPC"), Taxnet, Inc., an Arizona corporation ("Taxnet"), and DeMoss
Corporation, a California corporation ("DeMoss"). All significant inter-company
transactions have been eliminated in consolidation. The Company's significant
business activities include reducing, for a fee, ad valorem taxes assessed to
owners of real and personal property, generally in the Arizona and California
markets.
Adjustments
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. The accompanying
condensed consolidated financial statements should be read in conjunction with
the Company's most recent Annual Report and Form 10-KSB for the year ended
December 31, 1995.
Seasonality Of Consulting Fee Revenue
A significant portion of the Company's revenue is seasonal. Historically, a
substantial portion of BPA's revenue has been recognized in the second quarter
of the year. Due to a change in the Arizona statutes which has delayed
consideration of real property tax appeals in that jurisdiction until the
fourth quarter, a substantial portion of BPA's revenues will now be recognized
in the fourth quarter. In addition, certain types of BPC's revenues which have
generally been recognized in the third quarter will not be recognized until the
fourth quarter because certain real property value information was not made
available by the taxing authorities as of the end of the third quarter. For
this and other reasons, the results of operations for interim periods are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996 presentation.
7
<PAGE> 8
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
2. LINE OF CREDIT
In June 1996, the Company renewed its $500,000 revolving operating line of
credit. The line of credit bears interest on amounts borrowed at the lending
bank's prime rate plus 1.25% and is collateralized by BPA and BPC accounts
receivable and other business assets. At September 30, 1996, the Company had
$350,000 outstanding on the line of credit. The line of credit matures and is
payable in full in June 1997.
3. PURCHASE OF MINORITY INTEREST
On May 7, 1996, BPA purchased from a minority shareholder of BPA, 182 shares of
BPA's issued and outstanding shares of common stock in exchange for $50,000
cash. The carrying value of the minority interest purchased was $51,704.
On July 27, 1996, BPA purchased from a minority shareholder of BPA, 700 shares
of BPA's issued and outstanding shares of common stock in exchange for $42,500
cash and a note payable of $150,000. The note bears interest at Bank One,
Arizona, NA's prime rate with interest only payable September 1, 1996 and
principal and interest payable in three equal monthly installments beginning
October 1, 1996. The note is collateralized by BPA common stock held by the
Company, and the Company has provided a guaranty of this obligation. The
carrying value of the minority interest purchased was $165,902.
***
8
<PAGE> 9
IRONSTONE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity And Capital Resources
The Company's working capital decreased by $855,686 and $1,701,038 during the
three and nine month periods ended September 30 1996. Cash decreased by $261,585
and $361,742 during the same periods. The decreases in cash were primarily due
to the purchase of marketable securities and payments on notes payable to the
minority shareholders of BPA. Cash generated from operations was $311,374 for
the nine month period ended September 30, 1996. Management believes that its
current level of cash, anticipated cash flow from operations and line of credit
will be adequate to meet its operating needs through the end of 1996.
The Company may obtain additional capital through additional bank borrowings and
public or private sales of equity securities and exercises of outstanding stock
options. There can be no assurance, however, that such additional financing will
be available on terms favorable to the Company, or at all.
Results Of Operations
Company revenues for the three month period ended September 30, 1996 decreased
$775,009 or 55.9% as compared to the same period in 1995 primarily due to a
$833,201 decrease in the California revenues resulting in large part from a
delay in receiving certain additional real property value information from the
taxing authorities within the California jurisdictions. This additional
information was not made available from the taxing authorities as of the end of
the third quarter but is expected to be received in the fourth quarter. The
result is that revenues for the three month period ended September 30, 1996 is
not comparable to the same period in 1995. Company revenues for the nine month
period ended September 30, 1996 decreased $1,692,832 or 34.7% as compared to the
same period in 1995 primarily due to the aforementioned comment regarding the
California revenues as well as a $1,234,630 decrease in the Arizona revenues.
The decrease in the Arizona revenues results primarily from a change in the
Arizona statutes which has delayed consideration of real property tax appeals in
that jurisdiction until the fourth quarter as well as an overall decrease in the
Arizona revenues.
Costs and expenses for the three and nine month periods ended September 30, 1996
decreased 18.6% and 17.9% as compared to the same periods in 1995. Amortization
expense declined by 78.9% and 76.9% as a result of the write-down in 1995 of
costs in excess of net assets acquired (goodwill) associated with the
acquisition of BPA (see the Company's Form 10-KSB for the year ended December
31, 1995). Professional fees declined by 101.4% and 29.3% primarily due to a
reduced reliance on outside collection attorneys and a reduction in legal fees
associated with real property tax appeals in Arizona. Non-operating expenses
declined by 100% for both periods as the Company has focused on its core
businesses in 1996. Interest expense for the nine months ended September 30,
1996 increased by 25.2% as compared to the same period in 1995 primarily due to
an increase in borrowing on the Company's line of credit and brokerage accounts.
Due to the seasonal nature of BPA and BPC revenues (discussed in Note 1 to the
condensed consolidated financial statements), the Company does not believe that
its results of operations for the three and nine month periods ended September
30, 1996 are indicative of the results of operations in future periods.
9
<PAGE> 10
IRONSTONE GROUP, INC.
Special Note Regarding Forward-Looking Statements
Certain of the statements in this document that are not historical facts
including, without limitation, statements of future expectations, projections of
financial condition and results of operations, statements of future economic
performance and other forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to differ materially from
those contemplated in such forward-looking statements. In addition to the
specific matters referred to herein, important factors which may cause actual
results to differ from those contemplated in such forward-looking statements
include (i) the results of the Company's efforts to implement its business
strategy; (ii) actions of the Company's competitors and the Company's ability to
respond to such actions; (iii) changes in governmental regulation, tax rates and
similar matters; and (iv) other risks detailed in the Company's other filings
with the Commission.
10
<PAGE> 11
IRONSTONE GROUP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1994, as part of the Company's First Amended Plan of Reorganization
("the Plan"), the Company settled a disputed claim with an individual for
$100,000, the payment of which was to be made to the individual from the last
$100,000 owed and paid by St. George Crystal, Ltd. ("SGC") on certain promissory
notes, stocks and warrants ("the Notes"). In December 1994, the Company sold its
remaining 30% undivided interest in the Notes. In February 1995, and again on
May 6, 1996, the Company and the court-appointed receiver for the Notes,
received notice from the individual that as a result of the Company's
disposition of the Notes, the $100,000 owed to such individual was due. The
Company believes that no payment is due to such individual at this time and in
the event the Company were to make such payment it would be indemnified. To
date, no suit has been filed against the Company of which the Company is aware.
In April 1995, litigation was commenced by SGC in Pittsburgh, Pennsylvania
against the Company and others with regard to enforcement of obligations owing
under the Notes executed by SGC and the validity of the assignment of the Notes
by the Company. The case was transferred to the United States Bankruptcy Court
for the Northern District of California in San Francisco ("the Bankruptcy
Court"). On March 6, 1996, the Bankruptcy Court issued an Order Dismissing
Adversary Proceeding which provided in part that "Defendant Ironstone Group,
Inc....and Defendant Michael Y. McGovern hold(s) no interest in the proceeds of
the [SGC Loan Documents]," thereby confirming the validity of the assignment.
On June 10, 1996, a settlement agreement was entered into by SGC and various
other parties settling most but not all disputes among them. In particular, the
individual's claim against the Company for $100,000 referred to in the first
paragraph above seems to be resolved by the settlement.
On May 13, 1996, the Bankruptcy Court issued an order at the Company's request
which (i) confirmed that the Company's Plan had been fully administered and (ii)
closed the Company's Chapter 11 case.
Other than legal proceedings in which BPA and BPC are involved in the ordinary
course of business, the Company is not a party to any other material legal
proceedings.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 14th day of November, 1996.
IRONSTONE GROUP, INC.
By: /s/ Robert L. Miller
----------------------
Robert L. Miller
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 392,416
<SECURITIES> 1,052,800
<RECEIVABLES> 2,500,501
<ALLOWANCES> 627,412
<INVENTORY> 0
<CURRENT-ASSETS> 3,399,882
<PP&E> 399,485
<DEPRECIATION> 203,701
<TOTAL-ASSETS> 3,791,229
<CURRENT-LIABILITIES> 1,852,211
<BONDS> 921,403
0
0
<COMMON> 14,879
<OTHER-SE> 1,636,298
<TOTAL-LIABILITY-AND-EQUITY> 3,791,229
<SALES> 0
<TOTAL-REVENUES> 3,178,127
<CGS> 0
<TOTAL-COSTS> 4,578,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 188,314
<INTEREST-EXPENSE> 88,078
<INCOME-PRETAX> (1,324,753)
<INCOME-TAX> 3,300
<INCOME-CONTINUING> (1,328,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,328,053)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> (0.89)
</TABLE>
