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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 2829956
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
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[ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Check whether the Registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No[ ]
The Registrant's revenues for the fiscal year ended December 31, 1999 were
$10,394.
The approximate aggregate market value of voting stock held by non-affiliates of
the Registrant was $320,989 as of March 10, 2000 based on the closing bid price
on March 10, 2000. Shares of voting stock held by each officer and director and
by each person who owns 5% or more of the outstanding voting stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily conclusive.
As of March 10, 2000, 1,487,870 shares of Common Stock, $0.01 par value, were
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I:
Item 1. Business ...................................................................... 3
Item 2. Properties .................................................................... 6
Item 3. Legal Proceedings ............................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders ........................... 6
PART II:
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ......... 7
Item 6. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 7
Item 7. Financial Statements and Supplementary Data ................................... 8
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 8
PART III:
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act ........................................ 9
Item 10. Executive Compensation ....................................................... 9
Item 11. Security Ownership of Certain Beneficial Owners and Management ............... 11
Item 12. Certain Relationships and Related Transactions ............................... 11
PART IV:
Item 13. Exhibits and Reports on Form 8-K ............................................. 12
SIGNATURES ............................................................................ 13
</TABLE>
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PART 1
ITEM 1. BUSINESS
BACKGROUND
Ironstone Group, Inc, ("Ironstone") a Delaware corporation, was incorporated in
1972. Since 1986, a majority of Ironstone's outstanding shares has been owned by
Hambrecht & Quist Group, a San Francisco-based investment banking and venture
capital firm, and its affiliates (collectively "H&Q"). H&Q presently owns over
70% of Ironstone's outstanding voting shares.
BANKRUPTCY
In January 1991, Ironstone filed a voluntary petition for protection under Title
11 of the U.S. Code in the United States Bankruptcy Court for the Northern
District of California (the "Bankruptcy Court"). Ironstone's First Amended Plan
of Reorganization, as modified (the "Plan"), was confirmed by the Bankruptcy
Court on May 24, 1993, and the effective date pursuant to the terms of the Plan
was July 15, 1993. On May 13, 1996, the Bankruptcy Court issued an order at
Ironstone's request which (i) confirmed that Ironstone's Plan had been fully
administered and (ii) closed Ironstone's Chapter 11 case.
ACQUISITION OF BELT PERRY ASSOCIATES, INC.
In October 1993, Ironstone purchased from Belt Perry Associates, Inc., an
Arizona corporation ("BPA"), 80% of BPA's outstanding shares for consideration
consisting of (i) a $2,500,000 cash payment (all of which was used by BPA to
redeem certain of its outstanding shares from existing shareholders) and (ii) a
guaranty by Ironstone of certain obligations of BPA in a maximum aggregate
amount of $3,500,000 payable to the redeemed BPA shareholders. Simultaneously,
Ironstone purchased from an existing shareholder 16% of the outstanding shares
of Belt Perry Associates, Inc., a California corporation ("BPC"), of which BPA
is an 80% shareholder, for a cash payment of $50,000 and contingent incentive
payments if certain BPC profit targets and other goals are achieved.
During 1994 through 1996, BPA purchased from the minority shareholders of BPA
all remaining minority interests in BPA's outstanding shares. During 1995 and
1997, BPC purchased from the minority shareholder of BPC all remaining minority
interests in BPC's outstanding shares.
BPA and BPC are collectively referred to herein as "Belt Perry" and Ironstone
and its consolidated subsidiaries are collectively referred to herein as the
"Company".
BUSINESS
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 (see
Business Strategy). As of September 30, 1998, the Company had terminated all
property and tax service operations. Currently, the Company is reviewing options
to utilize significant tax loss carryforwards good through 2007 through
investments in other companies.
The Company's principal business activities were conducted through Belt Perry.
Belt Perry was engaged in the business of reviewing and, when deemed
appropriate, appealing on behalf of property owners real and personal property
tax assessments before governmental taxing authorities, concentrating primarily
on commercial, industrial and multi-tenant residential real estate in Arizona
and California. Belt Perry's agreements with its clients typically provided for
Belt Perry to be paid a portion of the amount, if any, by which the client's
property taxes were reduced as a result of an appeal processed by Belt Perry.
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REAL PROPERTY TAX APPEALS
Belt Perry performed real property tax consulting work for over 2,000
commercial, industrial and residential clients, primarily in the states of
Arizona and California through its former offices in Phoenix, Arizona and San
Diego, Los Angeles and San Rafael, California. Belt Perry obtained new clients
through its account executives via referrals and telephone and direct contact.
Counties charge real property taxes based on the assessed value of real property
multiplied by the applicable tax rate. Belt Perry's consulting services included
the review and analysis of property records and the filing of property tax
appeals. Belt Perry employed state-certified appraisers who were responsible for
preparing documentation supporting an opinion of property valuation and
negotiating and arguing property tax appeals at hearings on behalf of Belt
Perry's clients. A computer-generated appraisal report was the basic document
used by the appraiser to support the opinion of property valuation (see
"Proprietary System"). Belt Perry typically charged contingent fees based on a
percentage of the tax savings, if any, resulting from the property tax appeal.
The majority of the Company's revenues were generated from real property tax
appeals.
Arizona Appeal Process
Most of Arizona's real property tax appeals were handled as administrative
appeals, which typically began with a filing with the county assessor, and if
such process did not produce results satisfactory to BPA, BPA may have appealed
as far as the Tax Court Division of the Superior Court of Arizona (the "Superior
Court"). Property valuations were set by the county assessor and mailed to
property owners between January and March of each year. Property owners had 45
days to appeal the valuation under the administrative appeal process.
BPA downloaded certain counties' property tax valuations into its computer
system. An appraiser then used the computer system to obtain the county
assessor's valuation for each parcel owned by BPA's clients and determined
whether or not such valuations appeared reasonable based on the appraiser's
initial valuation of the property. If the appraiser concluded that the
assessor's valuation was too high, a property tax appeal was filed with the
assessor stating the appraiser's position regarding the appropriate valuation
and the basis for such valuation (i.e., income approach, market approach, etc.).
The assessor may have accepted or denied an appeal. If an appeal was denied, BPA
had the option of filing an appeal with the County Board of Equalization (the
"Equalization Board"), which heard arguments from BPA and the assessor and
subsequently determined the appropriate valuation. If the decision rendered by
the Equalization Board was unsatisfactory to BPA, BPA had the option of filing
an appeal with the State Board of Tax Appeals and, finally, with the Superior
Court.
California Appeal Process
The California real property tax appeal process was similar to that of Arizona,
but generally involved only two levels: the county assessor and County Board of
Equalization. Although there was occasionally a judicial review through the
Superior Court, it was typically very limited in scope. The normal assessment
period occurs between January 1 and July 1 of each year, and appeals filed with
the Equalization Board had to be filed by September 15 of the same year.
PERSONAL PROPERTY TAX APPEALS
Belt Perry filed personal property tax appeals on behalf of clients in more than
30 states. Municipalities typically charge personal property taxes based on the
assessed value of machinery, equipment, inventories not held for resale,
supplies and other miscellaneous items multiplied by the applicable tax rate.
Personal property tax appeals generally were filed to contest depreciation
rates, items not classified correctly, and assessor audits. Belt Perry typically
charged contingent fees based on a percentage of the tax savings, if any,
generated from the personal property tax appeal.
TAXNET
BPA's wholly owned subsidiary, TaxNet, was a national referral network of
property tax consultants providing tax appeal services throughout the United
States and Canada. BPA charged TaxNet affiliates certain subscription and other
fees.
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PROPRIETARY SYSTEM
BPA had developed a proprietary system, consisting of a database and software
system, that generated a substantial portion of the BPA appraisal report and
consequently, significantly reduced the amount of administrative time BPA
personnel devoted to each property tax appeal. The system held tens of thousands
of market and equity comparable property records, including the property tax
rolls for certain counties of Arizona. The software performed a number of
different functions, including analysis of pertinent details of county property
tax rolls to obtain valuations on selected properties and comparable properties,
preparation of market and equity comparable for selected properties, preparation
of the income analysis section of the appraisal report, and generation of a
substantial portion of the appraisal report utilizing a standardized format. The
database was updated on a regular basis with property sales information obtained
from third party sources and with additional information on comparable
properties selected from the county tax rolls.
BUSINESS STRATEGY
Currently, the Company is reviewing options to invest in new business
opportunities. The company has over $1,000,000 in marketable securities and
significant tax loss carryforwards at its disposal.
The Company's strategy was to provide property tax and tax-related services with
the primary focus on providing real and personal property tax consulting
services. The Company's acquisition of Belt Perry allowed the Company to provide
real and personal property tax consulting services primarily in the western
United States. Consistent with its strategy to seek out opportunities to expand
its core services, the Company purchased certain assets of the personal property
tax consulting division of Property Tax Consultants, Inc., a California
corporation doing business as Tax Management Group, Inc. during 1997.
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 pursue other business opportunities. The Company sold the property
and tax services group in October 1998. In addition, the Company had taken steps
to further reduce operating expenses by closing nonprofitable locations. The
Company's Arizona and Northern California operations ceased and the process to
sublease the office spaces had commenced.
There can be no assurance that the Company will acquire businesses, form
additional alliances, or expand its existing services. Failure to expand the
scope of services provided by the Company may have an adverse effect on the
Company's results of operations.
RESTRUCTURING
During 1998, the Board of Directors continued with the Company's withdrawal from
the real and personal property tax consulting business, including a
restructuring and wind down of the Belt Perry property and tax services group.
During September 1998, the company initiated an early lease termination on its
former San Diego office facilities, and in an effort to reduce its monthly rent
expense, signed a one-year lease for a smaller office space. In addition,
management had begun the process to terminate the Company's 401(k) Plan and
subsidiary corporations. As of September 30, 1998, the Company's operation
relating to its property tax consulting business had ceased.
During October 1998, a 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 transfers
ownership in the existing trade receivables in exchange for 50% of all
collections, net of expenses, for a period of one year.
Separate from the Agreement, the former officer assumed the lease on the San
Diego office facilities.
On September 30, 1998 the former officer's resignation took effect, and the
concurrent appointment of a new officer by the Company's Board of Directors took
place.
EMPLOYEES
As of March 30, 2000, the Company had one part-time employee. This employee is
not subject to a collective bargaining agreement.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located at 550 15th Street, Floor
2, San Francisco, California and its telephone number is (415) 551-8603. BPA
leases approximately 9,900 and 800 square feet of office space in Phoenix,
Arizona and San Rafael, California, respectively. Such leases expire in June
2000 and March 2000, respectively. The Company subleases the majority of its
office space in Phoenix, Arizona, as well as its San Rafael office space. The
Company believes that its current space is adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
In January 1994, as part of 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.
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 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 was resolved by the settlement.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company`s Common Stock is not eligible for publication of quotations on any
securities market and the Company is not aware of any recent material trading
activity in shares of its Common Stock. As of March 1, 2000, there were
approximately 1,005 holders of record of the Company's Common Stock. The Company
has not paid cash dividends on its Common Stock since its inception and does not
intend to pay cash dividends on its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Year ended December 31, 1999 Revenues for 1999 were $10,394, a decrease of
$542,629 or 98.1% as compared to 1998. The decrease was primarily due to
management's decision to close the Company's Arizona, Northern California, and
Southern California operations and cease the Company's operations relating to
its property tax consulting business as of September 30, 1998.
Costs and expenses for 1999 totaled $248,751, a decrease of $1,832,817 or 88.1%
as compared to 1998. This decrease was primarily due to management's decision to
close the Company's Arizona, Northern California, and Southern California
operations and cease the Company's operations relating to its property tax
consulting business as of September 30, 1998.
Salaries and wages decreased $456,496 or 84.0% due to the effects of closing
locations and discontinuing its property tax business as of September 30, 1998.
Bad debts expense decreased $559,241 or 100% due to the 1998 write off in full
of previously considered collectible accounts at the discontinuance of its
property tax consulting business as of September 30, 1998.
Rent expense decreased $153,015 or 76.6% due to the Company's consolidating
office space and renegotiating the leases related to the Phoenix, Arizona and
San Diego and San Rafael, California offices.
Legal and other professional fees decreased $135,421 or 60.9% due to
discontinuing its property tax consulting business as of September 30, 1998.
Other operating expenses decreased $123,204 or 93.7% due to discontinuing its
property tax consulting business as of September 30, 1998.
Restructuring charges decreased $218,262 or 100% due to discontinuing its
property tax consulting business as of September 30, 1998.
Year ended December 31, 1998 Revenues for 1998 were $553,023, a decrease of
$1,915,379 or 77.6% as compared to 1997. This decrease was primarily due to
reductions in the number of real property appeals filed in California and
Arizona, coupled with management's decision to close the Company's Arizona,
Northern California, and Southern California operations and cease the Company's
operations relating to its property tax consulting business as of September 30,
1998.
Costs and expenses for 1998 decreased $958,347 or 31.5% as compared to 1997.
This decrease was primarily due to reductions in salaries and wages and rent
expense as facilities and operations closed.
Salaries and wages decreased $1,238,909 or 69.5% primarily due to the effects of
closing locations and discontinuing its property tax consulting business as of
September 30, 1998.
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RESULTS OF OPERATIONS, Year ended December 31, 1998, (Continued) Bad debts
expense increased $480,249 or 608% as a result of the Company's restructuring
and wind down, collection and settlement efforts to resolve delinquent accounts
accelerates, and many accounts previously considered collectible have been
written off in full.
Rent expense decreased $108,761 or 35.2% primarily due to the Company's
consolidating office space and renegotiating the leases related to the Phoenix,
Arizona and San Diego and San Rafael, California offices.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the year ended December 31, 1999 was
$225,294. Due to a reduction in marketable securities, working capital at
December 31, 1999 was $958,049, a decrease of $1,664,261 or 63.4% from 1998.
Net cash used for the purchase of marketable securities available for sale for
the year ended December 31, 1999 was $166,345.
Cash decreased by $379,505 from $578,772 at the end of 1998 to $199,267 at the
end of 1999. Management believes that its current level of cash and marketable
securities will be adequate to meet its operating needs through 2000.
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.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required to be filed herewith begin on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVES OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
- ---- --- --------------
<S> <C> <C>
Edmund H. Shea, Jr. 69 1993
</TABLE>
Edmund H. Shea, Jr. has served as director of the Company since October 1993. He
is a co-founder of J. F. Shea Co., Inc., a diversified construction, land
development and venture capital investment company, and has served as its
Executive Vice President and a director since 1954. He is also a director of
ADAC Laboratories, Inc., Hambrecht & Quist Group and several privately held
companies. He holds a B.S. degree from M.I.T.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the Company's
executive officers as of March 30, 2000. A summary of the background and
experience of each of these individuals is set forth after the table.
<TABLE>
NAME AGE POSITION
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<S> <C> <C>
Robert W. Rembowski 53 Chief Executive Officer,
Chief Financial Officer
and Secretary
</TABLE>
Mr. Rembowski has served as Chief Executive Officer, Chief Financial Officer and
as Secretary since October 1998. Robert Rembowski has served as Executive Vice
President and CFO of Belvedere Winery and the Hambrecht Vineyards since 1994. He
is a director for Belvedere Winery and Carneros Creek Winery. In 1998 he was the
CFO of WR Hambrecht & Co., LLC, an on-line investment bank. He holds a B.S.
degree from San Jose State University.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive a fee for each
meeting attended in person (plus $500 for each committee meeting attended by
committee members on a day other than a Board meeting date). The members of the
Board of Directors are also eligible for reimbursement for the their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy.
Outside directors also receive stock option grants under the Company's 1993
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Only
non-employee directors of the Company or an affiliate of such directors (as
defined in the Internal Revenue Code of 1986, as amended from time to time,
hereinafter the "Code") are eligible to receive options under the Directors'
Plan. Options granted under the Directors' Plan are not intended to qualify as
incentive stock options under the code.
The Directors' Plan provides for the automatic grant of options to purchase
share of Common Stock to non-employee directors. In October 1993, Mr. Shea
received an option to purchase 1,600 shares of Common Stock at an exercise price
of $3.00 per share. In addition, upon compliance by the Company with certain
securities law requirements in May 1995, Mr. Shea received, pursuant to the
terms of the Directors' Plan, an option to purchase 375 shares of Common Stock
at an exercise price of $4.00 per share and an additional option to purchase
1,600 shares of Common Stock at an exercise price of $4.00 per share. All
options under the Directors' Plan have been or will be granted at fair market
value on the date of grant. The Directors' Plan also provides that any future
non-employee director who is elected or appointed to the Board for the first
time shall, upon the date of his initial election or appointment, automatically
be granted an option to purchase 1,600 shares of Common Stock. In addition, the
Directors' Plan provides that on the first business day of each calendar year,
each person who is then serving as a non-employee director of the Board shall be
granted an option to
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purchase up to 1,600 shares of Common Stock, the exact number being based pro
rata on the portion of the preceding year that the non-employee director served
as such. Consequently, on January 2, 1997, and again on January 2, 1998, Mr.
Shea received an option to purchase 1,600 shares of Common Stock at an exercise
price of $0.50 and $1.31 per share, respectively. In addition, on April 1, 1997
and again on January 2, 1998, Mr. Hambrecht received an option to purchase 1,600
shares and 1,200 shares of Common Stock, respectively, at an exercise price of
$0.50 and $1.31 per share, respectively. Options under the Directors' Plan have
a ten-year term; however, each option will terminate prior to the expiration
date if the optionee's service as a non-employee director, or, subsequently, as
an employee, of the Company terminates. The exercise price of each option under
the Directors' Plan must be equal to the fair market value of the Common Stock
on the date of grant. All options issued pursuant to the Directors' Plan vest at
a rate of 1/36 per month for 36 months following the date of the grant of the
option, or in the event the grant was delayed pending compliance by the Company
with certain securities law requirements, the date from which the grant was
delayed.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal year ended December 31, 1999,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer. The Company's Chief Executive Officer has served in this capacity since
October 1, 1998 and no other executive officers earned more than $100,000 during
the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY($) BONUS COMPENSATION($)
------------------ ---- --------- ----- ---------------
<S> <C> <C> <C> <C>
Robert W. Rembowski 1999 $73,333 -- --
Chief Executive 1998 -- -- --
Officer and Secretary
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
The 1994 Equity Incentive Plan (the "Plan") provides for the grant of (i) both
incentive and nonstatutory stock options and (ii) rights to purchase restricted
stock, together "Stock Awards", to the Company's directors, officers and
employees. Directors who are not salaried employees of or consultants to the
Company or to any affiliate of the Company are not eligible to participate in
the Plan. As of March 10, 2000, options to purchase a total of 11,175 shares
were outstanding under the Plan, no shares had been purchased pursuant to the
Plan and 228,825 shares remained available for future issuance thereunder.
The Plan is administered by the Board of Directors of the Company. The Board has
the power to construe and interpret the Plan and, subject to the provisions of
the Plan, to determine the number of persons to whom and the dates on which
Stock Awards will be granted, the number of shares that may be exercised, the
type or types of such Stock Awards to be granted, the exercise price of such
Stock Award when appropriate and other terms of the Stock Award.
The maximum term of options under the Plan is typically ten years; however, in
the event that an optionee's service to the Company terminates, that optionee's
options will expire 90 days after the optionee's service to the Company
terminates. Option grants under the Plan typically vest over a five-year period
at the rate of 1/10 on the date six months after the date of grant and 1/60 per
month thereafter. The exercise price of nonstatutory options may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of grant; the exercise price of incentive options may not be less than
100% of the fair market value of the Common Stock subject to the option on the
date of the grant.
No options or rights to purchase restricted stock were granted to the Company's
executive officers during the fiscal year ended December 31, 1999.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of March 10, 2000 by: (i) each director and
nominee for director; (ii) all officers and directors of the Company as a group;
and (iii) all those known by the Company to be beneficial owners of more than
five percent of its Common Stock.
BENEFICIAL OWNERSHIP(1)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT TOTAL
BENEFICIAL OWNER OF COMMON STOCK (2)
--------------- -------------
<S> <C> <C>
Venture Capital Entities affiliated with
Hambrecht & Quist Group(3) ............... 1,078,092 73
One Bush Street
San Francisco, CA 94104 ..............
William R. Hambrecht(4) ..................... 2,552 *
550 15th Street
San Francisco, CA 94103 ..............
Edmund H. Shea, Jr.(5) ...................... 8,010 *
All executive officers and directors
as a group (2 persons) ................... 1,088,654 73
</TABLE>
- --------------
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned.
(2) Applicable percentages are based on 1,487,870 shares outstanding on March
10, 2000 adjusted as required by rules promulgated by the SEC.
(3) Represents shares beneficially owned by Hambrecht & Quist Group (4,596
shares) and associated entities, including the following entities: H & Q
Ventures IV (131,989 shares), Hambrecht & Quist California (242,904
shares), Hambrecht & Quist Incorporated (3,656 shares), Hambrecht & Quist
Venture Partners (128,875 shares), The Hambrecht 1980 Revocable Trust
(346,754 shares), Hamquist (2,551 shares) and Venture Associates (BVI)
Limited (230,965 shares).
(4) Represents 2,552 shares subject to outstanding options that were
exercisable on March 20, 2000 or will become exercisable within 60 days
thereafter. Mr. Hambrecht was affiliated with entities described in Note
(3) above and thereby subject to aggregation requirements. Mr. Hambrecht
may have been deemed to share voting and investment power over those shares
held by Hambrecht & Quist Group and associated entities listed in note (3).
Mr. Hambrecht disclaims beneficial ownership as to all shares held by
Hambrecht & Quist Group and associated entities, except to the extent of
his pecuniary interest therein.
(5) Represents 8,010 shares subject to outstanding options that were
exercisable on March 20, 2000 or will become exercisable 60 days
thereafter.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
11
<PAGE> 12
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
21.1 Subsidiaries of Ironstone Group, Inc.
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None.
12
<PAGE> 13
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-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
IRONSTONE GROUP, INC.
A DELAWARE CORPORATION
Date: April 14, 2000 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, April 14, 2000
- ----------------------- Chief Financial Officer and
Robert W. Rembowski Secretary
(Principal Executive Officer and
Principal Financial Officer)
/s/ Edmund H. Shea, Jr. Director April 14, 2000
- -----------------------
Edmund H. Shea, Jr.
</TABLE>
13
<PAGE> 14
IRONSTONE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report........................................................ F-2
Consolidated balance sheet at December 31, 1999..................................... F-3
Consolidated statements of operations and comprehensive loss for the years ended
December 31, 1999 and 1998.......................................................... F-4
Consolidated statements of shareholders' equity for the years ended
December 31, 1999 and 1998.......................................................... F-5
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998.......................................................... F-6
Notes to consolidated financial statements.......................................... F-7 to F-13
</TABLE>
F-1
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Ironstone Group, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of Ironstone Group,
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Ironstone Group, Inc.
and subsidiaries at December 31, 1999, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 to the financial statements, during 1998 the Company
withdrew from property tax operations.
San Diego, California
March 23, 2000
F-2
<PAGE> 16
IRONSTONE GROUP, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Current assets:
Cash $ 199,267
Marketable securities available for sale, at fair value 1,042,380
Prepaid expenses 2,941
------------
Total current assets 1,244,588
Total assets $ 1,244,588
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 8,687
Margin loan 1,024
Margin loan payable to shareholder 168,477
Deferred Revenue 102,000
Other current liabilities 6,351
------------
Total current liabilities 286,539
------------
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 (20,217,073)
Accumulated other comprehensive loss (10,142)
------------
Total shareholders' equity 958,049
------------
Total liabilities and shareholders' equity $ 1,244,588
============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 17
IRONSTONE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Interest and other income $ 10,394 40,335
Consulting fees -- 512,688
----------- -----------
Total revenues 10,394 553,023
----------- -----------
Costs and expenses:
Salaries and wages, payroll taxes and benefits 86,999 543,495
Legal and Other Professional fees 86,839 222,260
Rent expense 46,800 199,815
Interest expense 12,133 13,548
Other operating expenses 8,276 131,480
Travel and entertainment 4,751 5,919
Office expense 2,953 14,296
Advertising and promotion -- 2,272
Amortization -- 87,563
Bad debt expense -- 559,241
Communications -- 11,456
Depreciation -- 36,192
Referral and split fees -- 24,747
Research expense -- 11,022
Restructuring charges -- 218,262
----------- -----------
Total costs and expenses 248,751 2,081,568
----------- -----------
Loss before income taxes (238,357) (1,528,545)
Income tax provision (850) (3,300)
----------- -----------
Net loss $ (239,207) $(1,531,845)
=========== ===========
COMPREHENSIVE LOSS, NET OF TAX:
Net loss $ (239,207) $(1,531,845)
Unrealized holding gain (loss) arising during the year (1,426,965) 1,052,800
----------- -----------
Comprehensive loss $(1,666,172) $ (479,045)
=========== ===========
Earnings per share:
Basic:
Net loss per share $ (0.16) $ (1.03)
=========== ===========
Weighted average shares 1,487,870 1,487,870
=========== ===========
Diluted:
Net loss per share $ (0.16) $ (1.03)
=========== ===========
Weighted average shares and assumed conversions 1,487,870 1,487,870
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 18
IRONSTONE GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
Additional Other
Common Stock Paid In Accumulated Comprehensive
Shares Amount Capital Deficit Income Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
January 1, 1998 1,487,870 $ 14,879 $ 21,170,385 $(18,446,021) $ 364,023 $ 3,103,266
Other Comprehensive
income 1,052,800 1,052,800
Net loss (1,531,845) (1,531,845)
Balances,
------------ ------------ ------------ ------------ ------------ ------------
December 31, 1998 1,487,870 14,879 21,170,385 (19,977,866) 1,416,823 2,624,221
Other Comprehensive
loss (1,426,965) (1,426,965)
Net loss (239,207) (239,207)
Balances,
------------ ------------ ------------ ------------ ------------ ------------
December 31, 1999 1,487,870 $ 14,879 $ 21,170,385 $(20,217,073) $ (10,142) $ 958,049
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 19
IRONSTONE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (239,207) $(1,531,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation -- 36,192
Amortization -- 87,563
Net loss on disposition of intangibles, property and equipment -- 73,553
Changes in assets and liabilities:
Accounts receivable 26,870 1,153,289
Other current assets -- 46,778
Other assets 1,911 (1,911)
Accounts payable (14,057) (61,790)
Accrued compensation -- (104,920)
Other current liabilities (811) (128,731)
----------- -----------
Net cash used in operating activities (225,294) (431,822)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities available for sale (166,345) --
Proceeds from sale of property and equipment -- 25,200
----------- -----------
Net cash provided by (used in) investing activities (166,345) 25,200
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Margin loan, net (156,343) 12,026
Margin loan from Shareholder 168,477 -----
Payments on capitalized lease obligations -- (28,248)
Payments on notes payable -- (150,000)
----------- -----------
Net cash provided by (used in) financing activities 12,134 (166,222)
----------- -----------
Net decrease in cash (379,505) (572,844)
Cash at beginning of year 578,772 1,151,616
----------- -----------
Cash at end of year $ 199,267 $ 578,772
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ -- $ 3,350
Income taxes $ -- $ --
Supplemental disclosure of non-cash activities:
Write-downs expensed to accrued restructuring charges:
Property and equipment $ -- $ 21,234
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 20
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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 AcadiEnergy, Inc., a Delaware corporation, 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. 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.
Restructuring
During 1998, the Company's Board of Directors decided to withdraw from the
property tax consulting business and approved a restructuring plan, which was
developed and implemented by management. The Company recorded one time
restructuring charges in the amount of approximately $218,000. Restructuring
charges included current cash requirements for severance cost. As of December
31, 1998, no restructuring accrual balance remained.
Marketable Securities
Marketable securities have been classified by management as available for sale
in accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). In accordance with SFAS No. 115, marketable securities are recorded at
fair value and any unrealized gains and losses are excluded from earnings and
reported as a separate component of shareholders' equity until realized. The
fair value of the Company's marketable securities at December 31, 1999 is based
on quoted market prices.
Consulting Fee Revenue
Ad valorem tax consulting fees are contracted primarily on a contingency basis.
Other methods of contracting include flat fees and mixed fees (i.e., a
combination of contingency and flat fees). Consulting fee revenues are generally
recognized when the assessed ad valorem values and resulting taxes are reduced
either by settlement through administrative appeal or judgment in court
proceedings where all appeals have been fully exhausted.
Income Taxes
The Company and its majority-owned subsidiaries file a consolidated federal
income tax return. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). In accordance with SFAS No. 109, deferred taxes are
recorded using a liability approach (Note 5).
F-7
<PAGE> 21
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of
estimated fair value information for financial instruments, whether or not
recognized in the Consolidated Balance Sheet. Fair values are based upon
estimates using present value or other valuation information techniques in cases
where quoted market prices are not available. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. SFAS No. 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The carrying values of
cash, accounts payable, margin loan payable and shareholder note approximate
their fair values due to the short-term nature of these items. The fair value of
marketable securities is based on quoted market prices.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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. MARKETABLE SECURITIES
All marketable securities are classified as available for sale. The amortized
cost and fair value of marketable securities at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
COST GAIN(LOSS) VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Corporate Equity Securities:
Interlinq Software Corporation $ 886,177 $ 100,823 $ 987,000
Flexinternational Software, Inc. 66,345 (110,965) 55,380
----------- ----------- -----------
$ 1,052,522 $ (10,142) $ 1,042,380
=========== =========== ===========
</TABLE>
3. MARGIN LOAN
The Company has entered into a margin loan agreement ("Margin Loan") with WR
Hambrecht and Co., LLC, a major shareholder of the Company, pledging all
marketable securities as collateral for the Margin Loan. The Margin Loan bears
interest at WR Hambrecht and Co., LLC's margin loan rate, which for the period
from January 1, 1998 through December 31, 1999 ranged between 8.751% and 7.25%
per annum (8.751% at December 31, 1999). At December 31, 1999, the Company owed
$1,024 on the Margin Loan. In addition the Company had a margin loan payable to
a major shareholder of $168,477. This liability was satisfied on January 12,
2000.
F-8
<PAGE> 22
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
4. INCOME TAXES
SFAS No. 109 requires the recognition of deferred tax assets and liabilities for
the expected future consequences of events that have been recognized in the
financial statements or tax returns. Deferred income taxes reflect the net tax
effects of (i) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes and (ii) operating loss and tax credit carryforwards. The tax effects
of significant items comprising the Company's deferred income taxes at December
31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 22,568,159
Deferred tax liabilities -------
Total deferred income taxes 22,568,159
Less valuation allowance (22,568,159)
Deferred income taxes - net $ -------
============
</TABLE>
The Company's income tax provision of $850 (1999) and $3,300 (1998) relates to
annual franchise and minimum taxes charged by the states in which the Company is
incorporated or does business. The primary difference between the income tax
provisions for the years ended December 31, 1999 and 1998 and the income tax
benefit (provision) which would be computed based upon the statutory income tax
rate and the net income (loss) is due to not recording the potential benefit of
the net operating loss carryforwards. As of December 31, 1999, the Company has
net operating loss carryforwards for tax purposes of approximately $65,683,321.
These carryforwards will expire in the years 2000 to 2019.
The Tax Reform Act of 1986 significantly limited the amount of net operating
loss carryforwards that are available to offset future taxable income when an
ownership change occurs. The amount of the net operating loss carryforward that
may be available for use in future years may be limited.
In the opinion of management, based on limitations on the use of net operating
loss carryforwards, the realization of such carryforwards is not likely, and
accordingly, a valuation reserve has been recorded to offset such amount in its
entirety.
The differences between the Federal statutory tax rate and the Company's
effective rate as a percentage of income before income taxes for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Federal statutory tax rate (34.0)% (34.0)%
Effect of net operating loss carryforward and 34.0 % 34.0 %
valuation allowance
State income tax, net of Federal benefit 0.4 % 0.2 %
------ ------
Effective income tax rate 0.4 % 0.2 %
====== ======
</TABLE>
F-9
<PAGE> 23
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
BPA and BPC have entered into leases for office space and certain equipment
under agreements that have been classified as operating leases for financial
reporting purposes. In connection with the office space leases, BPA and BPC are
responsible for certain monthly operating and maintenance expenses. The majority
portion of one of BPA's facilities has been subleased. Rent expense under all
operating leases, net of sublease income of $77,278 and $106,923 for the years
ended December 31, 1999 and 1998, respectively, was $46,800 and $199,815 for the
years ended December 31, 1999 and 1998, respectively.
Scheduled minimum lease payments under non-cancelable operating leases for the
year ended December 31st are as follows:
<TABLE>
Lease Sublease Net Lease
Obligations Revenues Obligations
----------- -------- -----------
<S> <C> <C> <C>
2000 $ 28,296 ($28,296) $ 0
-------- -------- --------
Total minimum operating lease payments $ 28,296 ($28,296) $ 0
======== ======== ========
</TABLE>
In addition, the Company has obligations on equipment leases which have been
sold to related parties. The related parties are required to make payments of
$2,220 in 2000, for which the Company is legally liable in case of non-payment.
No further obligation remains subsequent to 2000 as the lease terminates in
April 2000.
Deferred Revenue
During 1992, a judgment was rendered in Tax Court (the "1992 Judgment") in a
court case in which BPA had appealed a 1990 property tax valuation on behalf of
a client. The 1992 Judgment resulted in a significant property tax savings for
the client on which BPA's contingency fee was approximately $82,000. The taxing
authority subsequently filed an appeal to the Court of Appeals. The Court of
Appeals upheld the original 1992 Judgment and rejected a motion to reconsider.
The taxing authority then filed an appeal to the Arizona Supreme Court. The
Arizona Supreme Court reversed both the Court of Appeals' and the Tax Court's
decisions and judgments. The case is now back before the Tax Court and will be
heard along with other pending appeals for the 1991 through 1994 tax years filed
by BPA on behalf of the client. At December 31, 1999, the case remains
unresolved. During 1993, the County Treasurer made a payment to BPA on behalf of
BPA's client related to the 1992 Judgment of which $102,000 represents BPA's
contingent fee plus interest. Such amount is included in Deferred Revenue
pending the completion of the appeal process.
As a result of the 1992 Judgment, the Company's management and legal counsel has
estimated total contingency fees of approximately $435,000 for the 1990 through
1994 tax years related to the same client. Such amount has not been accrued as
of December 31, 1999 pending the completion of the appeal process.
Litigation
The Company is involved in various lawsuits arising out of the ordinary conduct
of its business. While the ultimate results of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the consolidated balance sheet of the Company.
6. DEFINED CONTRIBUTION PLAN
The Company has adopted a defined contribution plan under Section 401(k) of the
Internal Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, employees may
contribute a maximum of 15% of their annual wages subject to certain
restrictions. Company contributions are discretionary and, if made, are equal to
a percentage of the employee's eligible contributions. All employees are
eligible to participate in the 401(k) Plan. Company contributions were $0 and
$8,920 for the years ended December 31, 1999 and 1998, respectively.
F-10
<PAGE> 24
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7. SHAREHOLDER'S EQUITY
Preferred Stock The Company is authorized to issue up to five million shares of
preferred stock without further shareholder approval; the rights, preferences
and privileges of which would be determined at the time of issuance. No shares
have ever been issued.
Stock Option Plans The Company has adopted a 1989 Equity Incentive Plan, a 1993
Non-Employee Directors' Stock Option Plan and a 1994 Equity Incentive Plan
(collectively, the "Plans"). In March 1994, the 1989 Equity Incentive Plan was
amended to reduce the number of shares reserved thereunder and the Board of
Directors determined that no further grants would be made under this plan. As of
December 31, 1999 and 1998, 328,105 shares were available for grant under the
Plans. The Plans provide for incentive stock options to be granted at times and
prices determined by the Company's Board of Directors, to be granted at not less
than 100% of the fair value of the Company's common stock on the date of grant.
Options are generally subject to a three or four-year vesting schedule. Options
issued under the Plans expire at the earlier of the end of the exercise period
of no more than ten years from the date of grant or 90 days following the
grantee's end of service to the Company.
A summary of stock option transactions during 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1 11,175 $ 1.71 21,690 $ 3.23
Granted -- -- 2,800 1.13
Exercised -- -- -- --
Expired -- -- (13,315) (4.00)
Forfeited -- -- -- --
________ ________ ________ ________
Outstanding at December 31 11,175 $ 1.71 11,175 $ 1.71
======== ======== ======== ========
Options exercisable at 10,007 $ 1.79 7,979 $ 2.05
year-end
Weighted average fair value per share of
options granted during the year $ -- $ 0.56
</TABLE>
The following table summarizes information about fixed price stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Number Weighted Ave. Weighted- Number Weighted
Range of Outstanding Remaining Average Outstanding at Average
Exercise Prices 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
--------------- ----------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 3,200 7.1 years $0.50 3,015 $0.50
1.06 - 1.13 4,400 7.3 1.10 3,417 1.10
3.00 1,600 3.8 3.00 1,600 3.00
4.00 1,975 5.0 4.00 1,975 4.00
----- --- ---- ----- ----
$0.50 - $4.00 11,175 6.3 $1.71 10,007 $1.79
====== === ===== ====== =====
</TABLE>
F-11
<PAGE> 25
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation for the Company's
three stock option plans been determined based on the fair value at the grant
date for awards in 1998 and 1997 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------- -------------------------------------------------
Per Share Per Share
Net ------------------------------ Net ------------------------------
Loss Basic Diluted Loss Basic Diluted
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As Reported $ (239,207) $ (0.16) $ (0.16) $(1,531,845) $ (1.03) $ (1.03)
=========== =========== =========== =========== =========== ===========
Pro Forma $ (240,303) $ (0.16) $ (0.16) $(1,541,659) $ (1.04) $ (1.04)
=========== =========== =========== =========== =========== ===========
</TABLE>
In 1999 no options were granted to employees. In 1998 the fair value of options
granted is estimated as approximately $0.56 per share on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for the grants; dividend yield of 0%; expected volatility of
69%; risk free interest rate of 6.00%; and expected lives of 3 years.
8. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
Interest expense related to notes payable to former minority shareholders of BPA
was $1,829 for the year ended December 31, 1998.
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.
9. EARNINGS PER SHARE - BASIC AND DILUTED
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS No. 128"),
which provides simplified standards for the computation and presentation of
earnings of "Basic" and "Diluted" earnings per share ("EPS").
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 anti-dilutive effect,
using only the average stock price during the period in the computation.
F-12
<PAGE> 26
IRONSTONE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Income Per Share
(Loss) Shares Amount
----------- ----------- -----------
<S> <C> <C> <C>
For the year ended December 31, 1999:
BASIC EPS
Income available to common stockholders $ (239,207) 1,487,870 $ (0.16)
EFFECT OF DILUTIVE SECURITIES
None
----------- ----------- -----------
DILUTED EPS
Income available to common stockholders
plus assumed conversions $ (239,207) 1,487,870 $ (0.16)
=========== =========== ===========
For the year ended December 31, 1998:
BASIC EPS
Income available to common stockholders $(1,531,845) 1,487,870 $ (1.03)
EFFECT OF DILUTIVE SECURITIES
None
----------- ----------- -----------
DILUTED EPS
Income available to common stockholders
plus assumed conversions $(1,531,845) 1,487,870 $ (1.03)
=========== =========== ===========
</TABLE>
Options to purchase 11,175 shares of the Company's common stock were outstanding
during 1999 and 1998, but were not included in the computation of diluted EPS as
the Company incurred a net loss from operations.
10. SUBSEQUENT EVENT
A favorable determination to terminate the 401(k) plan was received in February
2000.
***
F-13
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF IRONSTONE GROUP, INC.
AcadiEnergy, Inc., a Delaware corporation, is a 100%-owned subsidiary of the
Company.
Belt Perry Associates, Inc., an Arizona corporation, ("BPA") is a 100%-owned
subsidiary of the Company.
Belt Perry Associates, Inc., a California corporation, is 83.33% owned by BPA
and 16.67% owned by the Company.
DeMoss Corporation, a California corporation, is a 100%-owned subsidiary of the
Company.
TaxNet, Inc., an Arizona corporation, is a 100%-owned subsidiary of BPA.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 199,267
<SECURITIES> 1,042,380
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,244,588
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,244,588
<CURRENT-LIABILITIES> 286,539
<BONDS> 0
0
0
<COMMON> 14,879
<OTHER-SE> 943,170
<TOTAL-LIABILITY-AND-EQUITY> 1,244,588
<SALES> 0
<TOTAL-REVENUES> 10,394
<CGS> 0
<TOTAL-COSTS> 248,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,133
<INCOME-PRETAX> (238,357)
<INCOME-TAX> (850)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,207)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
