<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, 1999
[ ] 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
incorporation or organization) Identification No.)
550 15TH STREET, FLOOR 2, SAN FRANCISCO, CA
94103 (Address of principal executive offices,
including zip code)
(415) 551-8603
(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 September 30, 1999, 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>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations for the three and nine months ended
September 30, 1999 and 1998............................................................................... 3
Condensed consolidated statements of operations for the nine months ended
September 30, 1999 and 1998............................................................................... 4
Condensed consolidated balance sheet at September 30, 1999................................................. 5
Condensed consolidated statements of cash flows for the nine months ended
September 30, 1999 and 1998.............................................................................. 6
Notes to condensed consolidated financial statements...................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 9
SIGNATURE ..................................................................................................... 10
</TABLE>
2
<PAGE> 3
IRONSTONE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Consulting fees $ 1,782 $ 54,842
Interest and other income 1,875 5,677
---------- ----------
Total revenues 3,657 60,519
---------- ----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 23,030 110,487
Depreciation -- 12,000
Amortization -- 26,432
Bad debt expense -- 110,849
Rent expense 1,445 44,556
Professional fees 18,902 15,476
Office expense 334 1,825
Referral and split fees -- 16,177
Travel and entertainment 72 1,657
Research expense -- 1,081
Communications -- 2,415
Interest expense 3,187 3,336
Other operating expenses -- 67,388
Restructuring charges -- (98,723)
---------- ----------
Total costs and expenses 46,970 314,956
---------- ----------
Loss before income taxes (43,313) (254,437)
Income tax provision (2,400) --
---------- ----------
Net loss $ (45,713) $ (254,437)
========== ==========
Net loss per share - basic and diluted $(0.03) $(0.17)
========== ==========
Average shares outstanding - basic 1,487,870 1,487,870
Average shares outstanding - diluted 1,487,870 1,487,870
COMPREHENSIVE LOSS NET OF TAX:
Net loss $(45,713) $(254,437)
Unrealized holding loss arising during the period (852,975) (427,700)
---------- ----------
Comprehensive loss $ (898,688) $ (682,137)
========== ==========
</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,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Consulting fees $ 1,782 $ 512,688
Interest and other income 7,108 25,193
----------- -----------
Total revenues 8,888 537,881
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 65,092 543,495
Depreciation -- 36,192
Amortization -- 87,563
Bad debt expense -- 392,051
Rent expense 45,077 184,188
Professional fees 76,307 170,803
Advertising and promotion -- 2,272
Office expense 2,815 13,090
Referral and split fees -- 24,747
Travel and entertainment 4,719 5,435
Research expense -- 11,022
Communications -- 10,876
Interest expense 9,011 10,681
Other operating expenses -- 108,431
Restructuring charges -- 238,495
----------- -----------
Total costs and expenses 202,821 1,840,141
----------- -----------
Loss before income taxes (193,833) (1,302,260)
Income tax provision (6,740) (3,300)
----------- -----------
Net loss $(200,873) $(1,306,660)
=========== ===========
Net loss per share - basic and diluted $(0.13) $(0.88)
=========== ===========
Average shares outstanding - basic 1,487,870 1,487,870
Average shares outstanding - diluted 1,487,870 1,487,870
COMPREHENSIVE LOSS NET OF TAX:
Net loss $ (200,873) $(1,305,550)
Unrealized holding gain (loss) arising during the period $(1,438,470) 197,400
----------- -----------
Comprehensive loss $(1,638,143) $(1,108,160)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
IRONSTONE GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Current assets:
Cash $ 233,181
Marketable securities available for sale, cost of $1,052,522 1,030,875
Prepaid expenses 2,941
-----------
Total current assets 1,266,997
Other assets 1,911
-----------
Total assets $ 1,268,908
===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 9,101
Margin loan 166,378
Deferred revenue 102,000
Other current liabilities 6,351
-----------
Total current liabilities 283,830
-----------
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 (20,178,539)
Accumulated other comprehensive loss (21,647)
-----------
Total shareholders' equity 985,078
-----------
Total liabilities and shareholders' equity $ 1,268,908
===========
</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,
1999 1998
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(200,673) $(1,305,560)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation -- 36,192
Amortization -- 87,563
Net loss on disposition of intangibles, property and equipment -- 51,284
Changes in assets and liabilities:
Accounts receivable 26,870 930,086
Other current assets -- 37,342
Other assets -- (1,911)
Accounts payable (13,643) (77,426)
Accrued compensation -- (104,920)
Accrued restructuring charges -- 21,234
Other current liabilities 8,200 (119,650)
--------- ----------
Net cash used by operating activities (179,246) (445,766)
--------- ----------
INVESTING ACTIVITIES:
Purchase of marketable securities available for sale (166,345) --
Proceeds from sale of property and equipment -- 22,179
--------- ----------
Net cash used by investing activities (166,345) 22,179
--------- ----------
FINANCING ACTIVITIES:
Payments on capitalized lease obligations -- (16,619)
Payments on notes payable -- (150,000)
--------- ----------
Net cash used by financing activities -- (166,619)
--------- ----------
Net decrease in cash (345,591) (590,206)
Cash at beginning of period 578,772 1,151,616
--------- ----------
Cash at end of period $ 233,181 $ 561,410
========= ==========
Non-cash operating, investing and financing activities:
Write-downs expensed to accrued restructuring charges:
Property and equipment $ -- $ 21,234
</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
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(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 have included 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 service group.
During 1998 the Company closed its Arizona, Northern California, and Southern
California operations and ceased operations relating to its property tax
consulting business as of September 30, 1998, which represented substantially
all the operations of the Company for 1998 and 1997 (note 4).
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, 1998.
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 1998 amounts have been reclassified to conform to the 1999 presentation.
2. EARNINGS PER SHARE - BASIC AND DILUTED
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 nine month periods
ended September 30, 1999 and 1998 was 1,487,870. The weighted average dilutive
common shares for the nine month periods ended September 30, 1999 and 1998 was
1,487,870. Common stock equivalents for the nine month periods ended September
30, 1999 and 1998 were not included in computing the weighted average dilutive
shares because their effects were antidilutive.
7
<PAGE> 8
IRONSTONE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
3. COMPREHENSIVE LOSS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 requires reporting and displaying comprehensive income (loss) and its
components which, for the Company, includes net loss and unrealized gains and
losses on marketable securities available for sale. The adoption of SFAS No. 130
had no impact on the Company's results of operations or financial position. In
accordance with SFAS No. 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 No. 130.
For the three month periods ended September 30, 1999 and 1998, comprehensive
loss consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net loss $(45,713) $(254,437)
Other comprehensive income (loss):
Unrealized gain (loss) on
marketable securities
available for sale (852,975) (427,700)
--------- ---------
Comprehensive loss $(898,688) $(682,137)
========= =========
</TABLE>
4. RESTRUCTURING
During October 1998, the former officer of the Company completed an Asset
Purchase Agreement (the "Agreement") to acquire from the Company certain
furniture, equipment and intangibles in exchange for a lump sum purchase price
of $10,000 and the assumption of an existing equipment lease. The Agreement also
transferred ownership in the existing trade receivables in exchange for 50% of
all collections, net of expenses, for a period of approximately one year.
Separate from the Agreement, the former officer assumed the lease on the San
Diego office facilities.
8
<PAGE> 9
IRONSTONE GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results Of Operations
Comparison of 1999 to 1998
Revenues for the three and nine month periods ended September 30, 1999 decreased
$56,862 and $528,993 or 93.96% and 98.35% respectively, as compared to the same
periods in 1998. These declines are primarily due to a decrease in billings as a
result of the closing of the Company's Arizona, Northern California and Southern
California operations relating to its property tax consulting business as of
September 30, 1998.
Costs and expenses for the nine month period ended September 30, 1999 decreased
$267,986 or 85.09%, and $1,637,320 or 88.98% for the nine month period ended
September 30, 1999, as compared to the same periods in 1998 due to the closure
of the property tax consulting business discussed above.
Liquidity And Capital Resources
Net cash used by operating activities for the three and nine month periods ended
September 30, 1999 was $37,425 and $179,246 respectively. Cash decreased for the
three and nine month periods ended September 30, 1999 by $37,425 and $345,591
primarily due to the purchase of 78,000 shares of Flexi International Software,
Inc. The Company's working capital decreased by $898,688 and $1,639,143 during
the three and nine month periods ended September 30, 1999, respectively. The
reduction in working capital is primarily due to the unrealized loss of
marketable securities held for sale totaling $852,975 and $1,438,470 during the
three and nine periods ended September 30, 1999, respectively. Management
believes that its current level of cash will be adequate to meet its operating
needs during 1999 and beyond.
The Company may make an investment in other companies or obtain additional
equity or working capital through bank borrowings and public or private sale of
equity securities. 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.
Trends and Uncertainties
Termination of Historical Business Lines
By winding down the Belt Perry property and tax services group, the Company has
exited from its traditional lines of business. Management and the Board of
Directors are actively seeking appropriate business combination opportunities
for the Company. In the alternative, management and the Board are looking for an
investment opportunity for the Company to invest some or all of its remaining
liquid assets. In the interim, the Company's cash assets are invested in
corporate securities and demand deposit accounts. If the Company does not find
an operating entity to combine with, and if its assets are not invested in
certain types of securities (primarily government securities), it may be deemed
to be an investment company under the terms of the Investment Company Act of
1940, as amended.
Year 2000
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. Due to business
shutdown, there are no ongoing projects that may be affected by Year 2000. The
Company will not incur any additional cost for Y2K compliance. The Company has
updated its system and the software being used is believed to be Y2K compliant.
The Company does not believe there will be a material impact based on business
associations with vendors or clients.
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: November 13, 1999 By: /s/ Robert W. Rembowski
------------------------
Robert W. Rembowski
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/ Robert W. Rembowski Chief Executive Officer, November 13, 1999
- ----------------------- Secretary and Treasurer
Robert W. Rembowski (Principal Executive Officer and
Principal Financial Officer)
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 233,181
<SECURITIES> 1,030,875
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,266,997
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,268,908
<CURRENT-LIABILITIES> 283,830
<BONDS> 0
0
0
<COMMON> 14,879
<OTHER-SE> 970,199
<TOTAL-LIABILITY-AND-EQUITY> 1,268,908
<SALES> 1,782
<TOTAL-REVENUES> 3,657
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,187
<INCOME-PRETAX> (43,313)
<INCOME-TAX> 2,400
<INCOME-CONTINUING> (45,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,713)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
