<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 March 31, 1997
[ ] 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 Registrant as specified in its charter)
DELAWARE 95-2829956
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9665 CHESAPEAKE DRIVE, SUITE 430, SAN DIEGO, CA 92123
(Address of principal executive offices, including zip code)
(619) 292-8777
(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 filed by
Section 13 or 15(d) of the Exchange Act 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[ ]
As of March 31, 1997, 1,487,870 shares of Common Stock, $0.01 par value, were
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TOTAL NUMBER OF PAGES: 10 INDEX TO EXHIBITS AT PAGE: N/A
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IRONSTONE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations for the three months ended
March 31, 1997 and 1996..................................................................... 3
Condensed consolidated balance sheet at March 31, 1997....................................... 4
Condensed consolidated statements of cash flows for the three months ended
March 31, 1997 and 1996..................................................................... 5
Notes to condensed consolidated financial statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
SIGNATURES............................................................................................. 10
</TABLE>
2
<PAGE> 3
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 643,366 $ 1,420,031
Subscription fees -- 4,875
Interest and other income 6,816 6,487
----------- -----------
Total revenues 650,182 1,431,393
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 507,998 1,019,057
Depreciation 18,293 26,154
Amortization 22,440 22,876
Bad debt expense 38,632 85,319
Rent expense 101,799 110,264
Professional fees 25,388 65,584
Advertising and promotion 2,704 36,745
Office expense 25,407 58,258
Referral and split fees 658 29,787
Travel and entertainment 7,307 43,468
Research expense 16,412 26,378
Communications 6,550 21,306
Interest expense 16,922 25,409
Other operating expenses 17,459 55,183
----------- -----------
Total costs and expenses 807,969 1,625,788
----------- -----------
Loss before minority interest (157,787) (194,395)
Minority interest 974 (17,481)
----------- -----------
Net loss $ (158,761) $ (176,914)
=========== ===========
Net loss per common and common equivalent share:
Net loss per share $ (0.11) $ (0.12)
=========== ===========
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 BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash $ 906,054
Marketable securities available for sale 1,019,900
Accounts receivable, net of allowance for doubtful accounts
of $2,119,663 2,912,653
Prepaid expenses 114,647
------------
Total current assets 4,953,254
------------
Property and equipment - net 152,112
Costs in excess of net assets of acquired businesses - net 139,630
Other assets 6,023
------------
Total assets $ 5,251,019
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 136,124
Accrued compensation 463,994
Due to officer 252,022
Line of credit 350,000
Notes payable 319,695
Capitalized lease obligations - current portion 43,012
Deferred revenue 102,150
Income taxes payable 3,000
Accrued interest payable 2,581
Other current liabilities 179,506
------------
Total current liabilities 1,852,084
------------
Capitalized lease obligations - net of current portion 8,806
------------
Minority interest in consolidated subsidiaries 101,433
------------
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 (18,030,291)
Unrealized gain on marketable securities available for sale 133,723
------------
Total shareholders' equity 3,288,696
------------
Total liabilities and shareholders' equity $ 5,251,019
============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE> 5
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (158,761) $ (176,914)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 18,293 26,154
Amortization 22,440 22,876
Undistributed minority interest in consolidated subsidiaries 974 (17,481)
Loss on sale of assets 2,597 --
Changes in assets and liabilities:
Accounts receivable 1,014,110 85,125
Other current assets (4,794) (9,118)
Accounts payable (58,913) 49,529
Accrued compensation (196,044) 11,713
Other current liabilities (56,222) 125,616
----------- -----------
Net cash provided by operating activities 583,680 117,500
----------- -----------
INVESTING ACTIVITIES:
Purchase of marketable securities available for sale -- (227,316)
Purchase of property and equipment (461) (11,800)
Proceeds from sale of property and equipment 1,700 --
----------- -----------
Net cash provided (used) by investing activities 1,239 (239,116)
----------- -----------
FINANCING ACTIVITIES:
Borrowings from line of credit -- 225,000
Payments on capitalized lease obligations (11,945) (10,692)
Payments on notes payable (196,463) (370,960)
----------- -----------
Net cash used by financing activities (208,408) (156,652)
----------- -----------
Net increase (decrease) in cash 376,511 (278,268)
Cash at beginning of period 529,543 754,158
----------- -----------
Cash at end of period $ 906,054 $ 475,890
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE> 6
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles Of Consolidation And Business Activities
Ironstone Group, 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, 1996.
Seasonality Of Consulting Fee Revenue
Historically, a significant portion of the Company's revenue has been seasonal.
In fiscal 1996, a substantial portion of BPA's revenue was recognized in the
fourth quarter following taxing authority hearings scheduled during that period.
In addition, certain types of BPC's revenues which have been generally
recognized in the third quarter were not 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 these 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,
1997.
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 1996 amounts have been reclassified to conform to the 1997 presentation.
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 (8.5% at March 31, 1997) plus 1.25% and is collateralized by
BPA and BPC accounts receivable and other business assets. At March 31, 1997,
the Company had $350,000 outstanding on the line of credit. The line of credit
matures and is payable in full in June 1997.
6
<PAGE> 7
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
3. NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS No. 128"),
effective for financial statements issued after December 15, 1997. This
statement provides simplified standards for the computation and presentation of
earnings per share ("EPS"), making EPS comparable to international standards.
SFAS No. 128 requires dual presentation of "Basic" and "Diluted" EPS by entities
with complex structures, replacing "Primary" and "Fully Diluted" EPS under APB
Opinion No. 15.
Basic EPS excludes dilution from common stock equivalents and is computed by
dividing net income (loss) applicable to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution from common stock equivalents, similar to Fully Diluted
EPS, but uses only the average stock price during the period as part of the
computation.
Data used in calculating proforma EPS under SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Basic:
Net loss $ (158,761) $ (176,914)
=========== ===========
Weighted average number of common shares outstanding 1,487,870 1,487,870
=========== ===========
Diluted:
Net loss $ (158,761) $ (176,914)
=========== ===========
Weighted average number of common shares and common
equivalents outstanding 1,501,671 1,547,313
=========== ===========
</TABLE>
The following table reconciles the net loss applicable to common shareholders,
and basic and diluted shares and EPS for the following periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
LOSS SHARES EPS LOSS SHARES EPS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (158,761) $ (176,914)
----------- -----------
Basic EPS:
Loss applicable to
common shareholders $ (158,761) 1,487,870 $ (0.11) $ (176,914) 1,487,870 $ (0.12)
=========== ===========
Effect of dilutive securities:
Stock options 13,801 59,443
----------- ----------- ----------- -----------
Diluted EPS:
Loss applicable to
common shareholders and
assumed conversions $ (158,761) 1,501,671 $ (0.11) $ (176,914) 1,547,313 $ (0.11)
=========== =========== =========== =========== =========== ===========
</TABLE>
7
<PAGE> 8
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
4. SUBSEQUENT EVENT
In April 1997, the Company entered into an Asset Purchase Agreement with
Property Tax Consultants, Inc., a California corporation doing business as Tax
Management Group, Inc. ("TMG"), wherein the Company purchased certain assets
from TMG in exchange for $50,000 cash and a note payable of $15,000. The note is
payable in eight equal monthly installments beginning May 15, 1997.
***
8
<PAGE> 9
IRONSTONE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results Of Operations
Revenues for the three month period ended March 31, 1997 decreased $781,211 or
54.6% as compared to the same period in 1996 primarily due to a $720,224
decrease in the California revenues resulting in large part from a decrease in
the number of taxing authority hearings scheduled during the first quarter of
1997. In fiscal 1996, the taxing authorities, aided by additional funding from
the State of California, increased the number of hearings scheduled in 1996 in
an effort to reduce the number of pending property tax appeals. Accordingly,
hearings scheduled in the first quarter of 1997 and the number of pending
property tax appeals as of the end of the first quarter of 1997 have declined
from the same period in 1996.
Costs and expenses for the three month period ended March 31, 1997 decreased
$817,819 or 50.3% as compared to the same period in 1996 primarily due to the
Company's effort to reduce its overall operating costs. This decrease was
comprised primarily of decreases in salaries and wages and bad debt expense.
Salaries and wages decreased $511,059 or 50.2% due to reductions in staff that
occurred in January 1997, primarily in Arizona. Bad debt expense decreased
$46,687 or 54.7% due to the decline in revenues discussed above.
Due to the seasonal nature of consulting fee revenue (discussed in Note 1 to the
condensed consolidated financial statements), the Company does not believe that
its results of operations for the three month period ended March 31, 1997 are
necessarily indicative of the results of operations in future periods.
Liquidity And Capital Resources
Net cash provided by operating activities for the three month period ended March
31, 1997 was $583,680. Due primarily to a $366,111 reduction in the unrealized
gain on marketable securities held for sale and a $1,014,110 reduction in
accounts receivable due primarily to significant cash collections, the Company's
working capital decreased by $632,436 during the three month period ended March
31, 1997. Cash increased by $376,511 during the same period due to collections
of accounts receivables. Management believes that its current level of cash and
anticipated cash flow from operations will be adequate to meet its operating
needs through the end of 1997.
The Company may obtain additional equity or working capital through 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.
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.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report on Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
IRONSTONE GROUP, INC.
A DELAWARE CORPORATION
Date: May 14, 1997 By: /s/ Gerald G. Pinkston
-----------------------
Gerald G. Pinkston
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf on the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Gerald G. Pinkston Chief Executive Officer May 14, 1997
- ---------------------- (Principal Executive Officer)
Gerald G. Pinkston
/s/ Erin M. Graham Chief Financial Officer, May 14, 1997
- ------------------ Treasurer and Controller
Erin M. Graham (Principal Financial Officer and
Principal Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 906,054
<SECURITIES> 1,019,900
<RECEIVABLES> 5,032,316
<ALLOWANCES> 2,119,663
<INVENTORY> 0
<CURRENT-ASSETS> 4,953,254
<PP&E> 392,552
<DEPRECIATION> 240,440
<TOTAL-ASSETS> 5,251,019
<CURRENT-LIABILITIES> 1,852,084
<BONDS> 371,513
<COMMON> 14,879
0
0
<OTHER-SE> 3,375,250
<TOTAL-LIABILITY-AND-EQUITY> 5,251,019
<SALES> 0
<TOTAL-REVENUES> 650,182
<CGS> 0
<TOTAL-COSTS> 807,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,632
<INTEREST-EXPENSE> 16,922
<INCOME-PRETAX> (158,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (158,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158,761)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
