<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, 1998
[ ] 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, 1998, 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
<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 months ended
March 31, 1998 and 1997..................................................................... 3
Condensed consolidated balance sheet at March 31, 1998 ...................................... 4
Condensed consolidated statements of cash flows for the three months ended
March 31, 1998 and 1997..................................................................... 5
Notes to condensed consolidated financial statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 8
SIGNATURES........................................................................................ 10
</TABLE>
2
<PAGE> 3
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 276,820 $ 643,366
Interest and other income 8,317 6,816
----------- -----------
Total revenues 285,137 650,182
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 317,964 507,998
Depreciation 12,221 18,293
Amortization 35,798 22,440
Bad debt expense 16,612 38,632
Rent expense 80,617 101,799
Professional fees 117,017 25,388
Advertising and promotion 338 2,704
Office expense 4,731 25,407
Referral and split fees 6,559 658
Travel and entertainment 1,642 7,307
Research expense 6,559 16,412
Communications 5,435 6,550
Interest expense 3,594 16,922
Other operating expenses 23,370 17,459
----------- -----------
Total costs and expenses 632,457 807,969
----------- -----------
Loss before income taxes and minority interest (347,320) (157,787)
Income tax provision (3,300) --
Minority interest -- (974)
----------- -----------
Net loss $ (350,620) $ (158,761)
=========== ===========
Net loss per share - basic and diluted $ (0.24) $ (0.11)
=========== ===========
Average shares outstanding - basic 1,487,870 1,487,870
Average shares outstanding - diluted 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, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash $ 932,051
Marketable securities available for sale 1,348,900
Accounts receivable, net of allowance for doubtful accounts
of $668,271 956,567
Prepaid expenses 62,422
------------
Total current assets 3,299,940
------------
Property and equipment - net 92,257
Goodwill 48,622
Other assets 10,226
------------
Total assets $ 3,451,045
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 142,661
Accrued compensation 134,309
Margin loan 148,267
Capitalized lease obligations - current portion 15,470
Deferred revenue 102,000
Other current liabilities 49,001
------------
Total current liabilities 591,708
------------
Capitalized lease obligations - net of current portion 7,992
------------
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 (18,796,642)
Accumulated other comprehensive income 462,723
------------
Total shareholders' equity 2,851,345
------------
Total liabilities and shareholders' equity $ 3,451,045
============
</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,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (350,620) $ (158,761)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 12,221 18,293
Amortization 35,798 22,440
Undistributed minority interest in consolidated subsidiaries -- 974
Net loss on sale of property and equipment 7,834 2,597
Changes in assets and liabilities:
Accounts receivable 223,591 1,014,110
Other current assets (12,703) (4,794)
Accounts payable 58,127 (58,913)
Accrued compensation 29,389 (196,044)
Other current liabilities (83,966) (56,222)
----------- -----------
Net cash provided (used) by operating activities (80,329) 583,680
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment -- (461)
Proceeds from sale of property and equipment 15,550 1,700
----------- -----------
Net cash provided by investing activities 15,550 1,239
----------- -----------
FINANCING ACTIVITIES:
Payments on capitalized lease obligations (4,786) (11,945)
Payments on notes payable (150,000) (196,463)
----------- -----------
Net cash used by financing activities (154,786) (208,408)
----------- -----------
Net increase (decrease) in cash (219,565) 376,511
Cash at beginning of period 1,151,616 529,543
----------- -----------
Cash at end of period $ 932,051 $ 906,054
=========== ===========
</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, 1998 AND 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 intercompany 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. In
January 1998, the Company's Board of Directors approved a plan for the Company
to divest itself of the Belt Perry property and tax services group (Note 2).
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, 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 1997 amounts have been reclassified to conform to the 1998 presentation.
2. BUSINESS RESTRUCTURING
In January 1998, the Company's Board of Directors approved a plan for the
Company to divest itself of the Belt Perry property and tax services group and
to actively seek other business opportunities. The Company is currently seeking
a prospective purchaser of the property and tax services group. In addition, the
Company has taken steps to further reduce operating expenses by closing
nonprofitable locations. As of January 31, 1998, the Company's Arizona and
Northern California operations had ceased, and the process to sublease the
office spaces had commenced. The Southern California offices are currently
responsible for the day-to-day operations of the property and tax services group
during the Company's restructuring now in progress.
6
<PAGE> 7
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
3. EARNINGS PER SHARE - BASIC AND DILUTED
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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.
The weighted average number of shares of common stock for the three month
periods ended March 31, 1998 and 1997 was 1,487,870. The weighted average
dilutive common shares for the three month periods ended March 31, 1998 and 1997
was 1,487,870. Common stock equivalents for the three month periods ended March
31, 1998 and 1997 were not included in computing the weighted average dilutive
shares because their effects were anti-dilutive.
4. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires reporting and displaying comprehensive income (loss) and its components
which, for the Company, includes net income (loss) and unrealized gains and
losses on marketable securities available for sale. The adoption of SFAS 130 had
no impact on the Company's results of operations or financial position. In
accordance with SFAS 130, the accumulated balance of other comprehensive income
is disclosed as a separate component of shareholders' equity. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
For the three month periods ended March 31, 1998 and 1997, comprehensive income
(loss) consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net loss $(350,620) $(158,761)
Other comprehensive income:
Unrealized gain (loss) on
marketable securities
available for sale 98,700 (366,111)
--------- ---------
Comprehensive loss $(251,920) $(524,872)
========= =========
</TABLE>
***
7
<PAGE> 8
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, 1998 decreased $365,045 or
56.15% as compared to the same period in 1997. Such decline is primarily due to
a decrease in billings as a result of the closing of the Company's Arizona and
Northern California operations, combined with further reductions in the Southern
California business operations, as part of the Company's overall plan to divest
itself of the property and tax services group.
Costs and expenses for the three month period ended March 31, 1998 decreased
$175,512 or 21.72%, as compared to the same period in 1997 primarily due to the
Company's continuing efforts to reduce its overall operating costs. Such
decrease is comprised primarily of reductions in salaries and wages, bad debts
and rent expense, partially offset by an increase in professional fees. Salaries
and wages decreased $190,034 or 37.41% for the three month period ended March
31, 1998 primarily due to reductions in staff that occurred in January 1998 as a
result of the Company's restructuring the Southern California operations and
closure of the Arizona and Northern California operations. Bad debts decreased
$22,020 or 57.00% due to the reduction in revenues as discussed above, and rent
expense decreased $21,182 or 20.81% due to the Company's subleasing the majority
of its office space in Arizona. Professional fees increased $91,629 or 360.91%
for the three month period ended March 31, 1998 as compared to the same period
in 1997 primarily due to legal expenses incurred for the completion of the
appeal process of an Arizona court case.
Liquidity And Capital Resources
Net cash used by operating activities for the three month period ended March 31,
1998 was $80,329. Cash decreased $219,565 for the three month period ended March
31, 1998 primarily due to payments of accrued officer bonuses of $95,000 and
$150,000 of final note payments to former shareholders. Due in large part to the
$223,591 reduction in accounts receivable partially offset by the $98,700
increase in the unrealized gain on marketable securities held for sale, the
Company's working capital decreased by $182,359 during the three month period
ended March 31, 1998. Management believes that its current level of cash and
anticipated cash flow from operations will be adequate to meet its operating
needs during 1998.
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.
8
<PAGE> 9
IRONSTONE GROUP, INC.
Year 2000 Conversion
The Company recognizes the need to ensure its future operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations or other date-sensitive
applications using the Year 2000 date are a known risk. The Company will be
addressing this risk to the availability and integrity of financial systems and
the reliability of operational systems in order to identify, evaluate and
implement system and/or application changes necessary to achieve a Year 2000
conversion with minimal effect on customers or disruption to future business
operations. The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications.
Management has not yet assessed the Year 2000 compliance expense and related
potential effect on the Company's future earnings.
The Company will initiate formal communications with its significant suppliers
to determine the extent to which the Company's interface systems would be
vulnerable to those third parties' failure to remediate their own Year 2000
issue. There can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
9
<PAGE> 10
IRONSTONE GROUP, INC.
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 13, 1998 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 of 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, May 13, 1998
- ----------------------------- Secretary and Treasurer
Gerald G. Pinkston (Principal Executive Officer and
Principal Financial Officer)
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 932,051
<SECURITIES> 1,348,900
<RECEIVABLES> 1,624,838
<ALLOWANCES> 668,271
<INVENTORY> 0
<CURRENT-ASSETS> 3,299,940
<PP&E> 416,344
<DEPRECIATION> 324,087
<TOTAL-ASSETS> 3,451,045
<CURRENT-LIABILITIES> 591,708
<BONDS> 23,462
0
0
<COMMON> 14,879
<OTHER-SE> 2,836,466
<TOTAL-LIABILITY-AND-EQUITY> 3,451,045
<SALES> 0
<TOTAL-REVENUES> 285,137
<CGS> 0
<TOTAL-COSTS> 632,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,612
<INTEREST-EXPENSE> 3,594
<INCOME-PRETAX> (347,320)
<INCOME-TAX> 3,300
<INCOME-CONTINUING> (350,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350,620)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
