<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 June 30, 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 June 30, 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: 12 INDEX TO EXHIBITS AT PAGE: N/A
<PAGE> 2
IRONSTONE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations for the three and six months ended
June 30, 1997 and 1996....................................................................... 3
Condensed consolidated balance sheet at June 30, 1997......................................... 5
Condensed consolidated statements of cash flows for the six months ended
June 30, 1997 and 1996....................................................................... 6
Notes to condensed consolidated financial statements.......................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................................ 11
SIGNATURES.............................................................................................. 12
</TABLE>
2
<PAGE> 3
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 698,439 $ 1,119,769
Subscription fees -- 4,875
Interest and other income 16,361 10,733
----------- -----------
Total revenues 714,800 1,135,377
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 400,637 1,058,481
Depreciation 23,376 25,958
Amortization 33,822 22,876
Bad debt expense (33,089) 67,333
Rent expense 80,446 97,696
Professional fees 88,403 115,768
Advertising and promotion 15,703 19,175
Office expense 25,908 43,326
Referral and split fees 50,465 15,481
Travel and entertainment 7,106 45,871
Research expense 18,791 21,379
Communications 12,413 14,350
Interest expense 14,252 31,123
Other operating expenses 36,853 32,166
----------- -----------
Total costs and expenses 775,086 1,610,983
----------- -----------
Loss before income taxes and minority interest (60,286) (475,606)
Income tax provision 3,300 3,300
Minority interest (267) (35,339)
----------- -----------
Net loss $ (63,319) $ (443,567)
=========== ===========
Net loss per common and common equivalent share:
Net loss per share $ (0.04) $ (0.30)
=========== ===========
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>
SIX MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 1,341,805 $ 2,539,800
Subscription fees -- 9,750
Interest and other income 23,177 17,220
----------- -----------
Total revenues 1,364,982 2,566,770
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 908,635 2,077,538
Depreciation 41,669 52,112
Amortization 56,262 45,752
Bad debt expense 5,543 152,652
Rent expense 182,245 207,960
Professional fees 113,791 181,352
Advertising and promotion 18,407 55,920
Office expense 51,315 101,584
Referral and split fees 51,123 45,268
Travel and entertainment 14,413 89,339
Research expense 35,203 47,757
Communications 18,963 35,656
Interest expense 31,174 56,532
Other operating expenses 54,312 87,349
----------- -----------
Total costs and expenses 1,583,055 3,236,771
----------- -----------
Loss before income taxes and minority interest (218,073) (670,001)
Income tax provision 3,300 3,300
Minority interest 707 (52,820)
----------- -----------
Net loss $ (222,080) $ (620,481)
=========== ===========
Net loss per common and common equivalent share:
Net loss per share $ (0.15) $ (0.42)
=========== ===========
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
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Current assets:
Cash $ 663,448
Marketable securities available for sale 1,019,900
Accounts receivable, net of allowance for doubtful accounts
of $1,567,476 2,119,891
Prepaid expenses 92,886
------------
Total current assets 3,896,125
------------
Property and equipment - net 168,575
Costs in excess of net assets of acquired businesses - net 116,940
Other assets 56,325
------------
Total assets $ 4,237,965
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 99,252
Accrued compensation 165,782
Minority interest in consolidated subsidiaries 101,166
Notes payable 295,864
Capitalized lease obligations - current portion 40,104
Deferred revenue 102,000
Income taxes payable 3,000
Accrued interest payable 4,579
Other current liabilities 181,842
------------
Total current liabilities 993,589
------------
Capitalized lease obligations - net of current portion 18,999
------------
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 (18,093,610)
Unrealized gain on marketable securities available for sale 133,723
------------
Total shareholders' equity 3,225,377
------------
Total liabilities and shareholders' equity $ 4,237,965
============
</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>
SIX MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (222,080) $ (620,481)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 41,669 52,112
Amortization 56,262 45,752
Undistributed minority interest in consolidated subsidiaries 707 (52,820)
Net gain on sale of property and equipment (7,114) --
Changes in assets and liabilities:
Accounts receivable 1,806,872 1,181,276
Other current assets 16,967 (41,951)
Other assets (46,434) 2,688
Accounts payable (95,785) 29,535
Accrued compensation (494,256) (135)
Other current liabilities (304,058) (154,688)
----------- -----------
Net cash provided by operating activities 752,750 441,288
----------- -----------
INVESTING ACTIVITIES:
Purchase of marketable securities available for sale -- (227,316)
Purchase of property and equipment (22,750) (19,670)
Proceeds from sale of property and equipment 15,236 --
----------- -----------
Net cash used by investing activities (7,514) (246,986)
----------- -----------
FINANCING ACTIVITIES:
Purchase of minority interest -- (50,000)
Payments on capitalized lease obligations (26,037) (21,685)
Payments on notes payable (235,294) (447,774)
Borrowings from line of credit -- 225,000
Payments on line of credit (350,000) --
----------- -----------
Net cash used by financing activities (611,331) (294,459)
----------- -----------
Net increase (decrease) in cash 133,905 (100,157)
Cash at beginning of period 529,543 754,158
----------- -----------
Cash at end of period $ 663,448 $ 654,001
=========== ===========
Non-cash investing and financing activities:
Borrowings from capitalized lease obligations $ 21,377 $ --
Notes payable attained from asset purchase 15,000 --
</TABLE>
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
SIX MONTHS ENDED JUNE 30, 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 generally been
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 1997, the Company paid in full its revolving operating line of credit in
the amount of $350,000. The line of credit had a total available balance of
$500,000 and bore interest on amounts borrowed at the lending bank's prime rate
plus 1.25%. The line of credit was collateralized by BPA and BPC accounts
receivable and other business assets. At this time, the Company has not renewed
the line of credit.
7
<PAGE> 8
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
3. NEW ACCOUNTING PRONOUNCEMENT
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 actually outstanding during the period. Diluted
EPS reflects the potential dilution from common stock equivalents, except where
inclusion of such common stock equivalents would have an antidilutive effect,
similar to Fully Diluted EPS, but uses only the average stock price during the
period as part of the computation.
Proforma EPS under SFAS No. 128 is computed as follows for the following
periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
LOSS SHARES EPS LOSS SHARES EPS
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic and Diluted EPS:
Loss applicable to
common shareholders $ (63,319) 1,487,870 $ (0.04) $(443,567) 1,487,870 $ (0.30)
========= ========= ======== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
LOSS SHARES EPS LOSS SHARES EPS
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic and Diluted EPS:
Loss applicable to
common shareholders $(222,080) 1,487,870 $ (0.15) $(620,481) 1,487,870 $ (0.42)
========= ========= ======== ========= ========= ========
</TABLE>
Options on 22,655 and 118,523 shares of common stock as of June 30, 1997 and
June 30, 1996, respectively, were not included in computing diluted EPS because
their effects are antidilutive.
8
<PAGE> 9
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
4. ASSET PURCHASE
On April 17, 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.
5. SUBSEQUENT EVENT
On July 17, 1997, BPC and an officer and minority shareholder of BPC (the
"Officer"), entered into an agreement wherein BPC agreed to purchase 166 shares
of BPC's issued and outstanding shares of common stock from the Officer in
exchange for $101,433 cash. Minority interest associated with this transaction
has been classified as a current liability.
***
9
<PAGE> 10
IRONSTONE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results Of Operations
Revenues for the three and six month periods ended June 30, 1997 decreased
$420,577 and $1,201,788 or 37.04% and 46.82%, respectively, as compared to the
same periods in 1996. Such decreases are primarily due to a decline in the
California revenues resulting in large part from a reduction in the number of
taxing authority hearings scheduled during the first and second quarters 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 and second quarters of 1997 and the number of
pending property tax appeals as of the end of the first and second quarters of
1997 have declined from the same periods in 1996.
Costs and expenses for the three and six month periods ended June 30, 1997
decreased $835,897 and $1,653,716 or 51.89% and 51.09%, respectively, as
compared to the same periods in 1996 primarily due to the Company's effort to
reduce its overall operating costs. Such decreases are comprised primarily of
reductions in salaries and wages and bad debt expense. Salaries and wages
decreased $657,844 and $1,168,903 or 62.15% and 56.26% for the three and six
months periods ended June 30, 1997, respectively, primarily due to reductions in
staff that occurred in January 1997. Bad debt expense decreased $100,422 and
$147,109 or 149.14% and 96.37% for the three and six months periods ended June
30, 1997, respectively, primarily due to the decline in revenues discussed above
as well as the reversal in the second quarter of $75,000 of bad debt expense
originally recorded in 1996 related to revenues billed under the revised
California contracts (see Note 13 in the Company's Form 10-KSB for the year
ended December 31, 1996). This reversal was based on better than anticipated
cash collections related to these revenues.
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 and six month periods ended June 30,
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 and six month periods
ended June 30, 1997 was $169,070 and $752,750, respectively. Cash decreased
$242,606 for the three month period ended June 30, 1997 primarily due to the
payoff of the Company's line of credit in the amount of $350,000, payments on
accrued compensation and the payment of $252,022 due to an officer of the
Company, partially offset by collections of accounts receivable. Cash increased
$133,905 for the six month period ended June 30, 1997 primarily due to
collections of accounts receivable. Due in large part to a $366,111 reduction in
the unrealized gain on marketable securities held for sale that occurred in the
first quarter of 1997 and a $792,762 and $1,806,872 reduction in accounts
receivable for the three and six month periods ended June 30, 1997,
respectively, the Company's working capital decreased by $198,634 and $831,070
during the three and six month periods ended June 30, 1997, respectively.
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.
10
<PAGE> 11
IRONSTONE GROUP, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 11, 1997, the Company held its annual meeting of shareholders. The
Company elected the following two persons as directors, each to serve until the
next annual meeting of shareholders or until his successor is elected and
qualified. The Company's shareholders also voted to retain Deloitte & Touche,
LLP as the Company's independent public accountant for the fiscal year ending
December 31, 1997. The number of shares voted for or against each director and
the retention of Deloitte & Touche, LLP were as follows:
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS FOR AGAINST
- --------------------- --- -------
<S> <C> <C>
William R. Hambrecht 1,167,542 4,411
Edmund H. Shea. Jr. 1,167,577 4,376
</TABLE>
Approval to retain Deloitte & Touche, LLP as the Company's independent public
accountant for the fiscal year ending December 31, 1997:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
1,171,924 6 23
</TABLE>
11
<PAGE> 12
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: July 21, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Gerald G. Pinkston Chief Executive Officer July 21, 1997
- ----------------------------- (Principal Executive Officer)
Gerald G. Pinkston
/s/ Erin M. Graham Chief Financial Officer, July 21, 1997
- ----------------------------- Treasurer and Controller
Erin M. Graham (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 663,448
<SECURITIES> 1,019,900
<RECEIVABLES> 3,687,367
<ALLOWANCES> 1,567,476
<INVENTORY> 0
<CURRENT-ASSETS> 3,896,125
<PP&E> 403,572
<DEPRECIATION> 234,997
<TOTAL-ASSETS> 4,237,965
<CURRENT-LIABILITIES> 993,589
<BONDS> 354,967
<COMMON> 14,879
0
0
<OTHER-SE> 3,210,498
<TOTAL-LIABILITY-AND-EQUITY> 4,237,965
<SALES> 0
<TOTAL-REVENUES> 1,364,982
<CGS> 0
<TOTAL-COSTS> 1,583,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,543
<INTEREST-EXPENSE> 31,174
<INCOME-PRETAX> (218,780)
<INCOME-TAX> 3,300
<INCOME-CONTINUING> (222,080)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,080)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
