FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000
or
[] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period of to
Commission File Number 0-8016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0341273
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of Principal Executive Offices) Zip Code
(401) 434-4632
(Registrant's Telephone Number, Including Area Code)
* Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 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:
The number of shares outstanding of the registrant's Common Stock, $1.00 par
value, as of September 30, 2000; 8,297,046.238.
<PAGE>
PART I - FINANCIAL INFORMATION: PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets - 1
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations - For the
Three Months and Nine Months Ended September 30, 2000
and 1999 2
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) - For the Nine Months
Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 2000 and 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 3. Defaults Upon Senior Securities 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
Unaudited
---------
ASSETS
<S> <C> <C>
Cash $ 4 $ 7
Short-term investments 120 156
Loans (net of reserve for loan losses of $29 in
2000 and in 1999) 26 28
Other assets 310 292
---------- ----------
TOTAL ASSETS $ 460 $ 483
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other Liabilities $ 1,428 $ 1,442
--------- ---------
TOTAL LIABILITIES 1,428 1,442
REDEEMABLE PREFERRED STOCK
Preferred stock, series B, $1.00 par value;
1,046,914 shares authorized, issued and
outstanding (Liquidation value $20,938) 20,840 20,692
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,300,175 shares issued in 1999
and 1998 8,300 8,300
Additional paid-in capital 91,145 91,293
Surplus 30,000 30,000
Accumulated deficit ( 150,110) ( 150,101)
Treasury stock, at cost; 54,000 shares in 2000
and 1999 ( 1,143) ( 1,143)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 21,808) ( 21,651)
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 460 $ 483
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
STOCKHOLDERS' EQUITY (DEFICIT)
($ In Thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
INCOME:
<S> <C> <C> <C> <C>
Interest income $ 6 $ 3 $ 16 $ 10
Other income 52 97 295 281
-------- -------- -------- --------
TOTAL INCOME 58 100 311 291
-------- -------- -------- --------
EXPENSES:
Salaries and employee benefits 46 42 134 122
Net occupancy expense 2 2 8 7
Equipment expense, including depreciation 2 3 7 6
Other expenses 30 48 171 201
-------- -------- --------- ---------
TOTAL EXPENSES 80 95 336
-------- -------- --------- ---------
Income (Loss) from continuing operations
before income taxes ( 22) 5 ( 9) ( 45)
Income taxes -0- -0- -0- -0-
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($ 22) $ 5 ($ 9) ($ 45)
========== ========== ========== =========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($ 699) ($ 672) ($ 2,040) ($ 2,076)
(LOSS) PER SHARE ($ .08) ($ .08) ($ .25) ($ .25)
========= ========= ========= =========
AVERAGE SHARES OUTSTANDING 8,297,046 8,297,046 8,297,046 8,297,046
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Nine Months Ended September 30, 2000 and 1999
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Treasury
Stock Capital Surplus (Deficit) Stock Total
----- ------- ------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 $ 8,300 $ 91,489 $ 30,000 ($150,071) ($1,143) ($ 21,425)
Net (loss) ( 45) ( 45)
Accretion of discount on
preferred stock, series B ( 147) ( 147)
--------- ---------- -------- --------- -------- ----------
September 30, 1999 $ 8,300 $ 91,342 $ 30,000 ($150,116) ($1,143) ($ 21,617)
------- -------- -------- ---------- -------- ----------
December 31, 1999 $ 8,300 $ 91,293 $ 30,000 ($150,101) ($1,143) ($ 21,651)
Net (loss) ( 9) ( 9)
Accretion of discount on
preferred stock, series B ( 148) ( 148)
---------- ---------- -------- ---------- -------- -----------
September 30, 2000 $ 8,300 $ 91,145 $ 30,000 ($150,110) ($1,143) ($ 21,808)
======= ======== ======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
($ In Thousands)
(Unaudited)
2000 1999
---- ----
Operating activities:
Net (loss) ($ 8) ($ 45)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Other, net ( 33) 40
Net cash (used) by operating activities ( 41) ( 5)
Investing activities:
Net decrease in investments 36 6
Net decrease in loans 2 1
Net cash provided by investing activities 38 7
Increase (decrease) in cash ( 3) 2
Cash at beginning of period 7 4
Cash at end of period $ 4 $ 6
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
COMPANY DESCRIPTION AND BASIS OF PRESENTATION
Until January 28, 1993, Old Stone Corporation ("Company") was a unitary savings
and loan holding company which conducted substantially all of its business
primarily through its ownership of Old Stone Bank, a Federal Savings Bank and
its subsidiaries ("Bank"). On January 29, 1993, the Office of Thrift Supervision
of the United States Department of the Treasury ("OTS") placed the Bank into
receivership due to the Bank being critically undercapitalized. The OTS created
a new institution, Old Stone Federal Savings Bank ("Old Stone Federal") to
assume all deposits and certain assets and liabilities of the Bank. The
Resolution Trust Corporation ("RTC") was appointed Receiver to handle all
matters related to the Bank and as Conservator of Old Stone Federal.
As a result of the receivership of the Bank, the Company has undergone material
changes in the nature of its business and is no longer operating as a unitary
savings and loan holding company. As of September 30, 2000 the Company's
business activities included its only surviving subsidiary, Old Stone Securities
Company, a registered securities broker-dealer which provides brokerage services
to retail and institutional clients.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included and operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and notes thereto included in the Old Stone Corporation's
Annual Report on Form 10-K for the year ended December 31, 1999. All material
intercompany transactions and balances have been eliminated. Certain previously
reported amounts have been restated to conform with the current presentation.
5
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
($ in Thousands except for per share data)
(Unaudited)
NOTE 3 - (LOSS) PER SHARE
The calculation of loss per share is as follows ($ in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
PRIMARY (LOSS):
<S> <C> <C> <C> <C>
Net Income (loss) ($ 22) ($ 5) ($ 9) ($ 45)
Deduct accretion of discount on
series B preferred stock and
preferred dividends 677 677 2,031 2,031
----------- ----------- ----------- -----------
Net (loss) applicable to common stock ($ 699) ($ 672) ($ 2,040) ($ 2,076)
=========== =========== =========== ===========
ALLOCATION OF PRIMARY (LOSS):
Income (Loss) from continued operations ($ 22) ($ 5) ($ 9) ($ 45)
Deduct accretion of discount on
series B preferred stock
and preferred dividends 677 677 2,031 2,031
----------- ----------- ----------- -----------
TOTAL NET (LOSS) ($ 699) ($ 672) ($ 2,040) ($ 2,076)
=========== =========== =========== ===========
Average shares outstanding 8,297,046 8,297,046 8,297,046 8,297,046
=========== =========== =========== ===========
PRIMARY (LOSS) PER
COMMON SHARE ($ .08) ($ .08) ($ .25) ($ .25)
=========== =========== =========== ===========
</TABLE>
NOTE 4 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share of the Cumulative
Voting Convertible Preferred Stock, Series B ("Preferred Stock") was suspended.
As of September 30, 2000, cumulative preferred dividends of $22,613,342 ($21.60
per share) had not been declared or paid on the Preferred Stock.
6
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
($ in Thousands except for per share data)
(Unaudited)
NOTE 5 - UNCERTAINTY
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. Substantially all of the
operations of the Company have been discontinued, it has a net equity deficiency
of approximately $21,808,000 at September 30, 2000 and is subject to a number of
commitments and contingencies, as follows:
o Management does not expect the operating results of its sole remaining
active subsidiary to improve in the near future to a level which would
provide significant capital or cash flow to the Company from this
subsidiary.
o The Company may be subject to legal proceedings related to its management
of the Bank prior to receivership.
o The Company has been unable to pay cumulative dividends on the Preferred
Stock outstanding (see Note 4). Also, management does not expect the
Company to be able to meet its redemption obligations with respect to the
Preferred Stock unless the Company is successful in its litigation against
the United States at a level commensurate with such obligations, net of
attorneys' fees and other litigation-related expenses. For further
information regarding the litigation against the United States, refer to
the notes to the consolidated financial statement in the Company's annual
report on Form 10-K for the year ended December 31, 1999 and to Part II,
Item 1 herein.
All of the above create an uncertainty as to the Company's ability to continue
as a going concern. The consolidated financial statements do not included any
adjustments that might result form the outcome of these uncertainties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Current Operations
As a result of the Bank Closing, the Company's present business activities
include its only surviving significant subsidiary, Old Stone Securities Company,
a registered securities broker-dealer which provides brokerage services to
retail and institutional clients.
Old Stone Securities' income before taxes was $23,334 for the nine month period
ended September 30, 2000, compared to $37,249 for the nine month period ended
September 30, 1999.
7
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
($ in Thousands except for per share data)
(Unaudited)
Management has invested, and intends in the future to invest, the Company's
assets on a short-term basis. While the Company's Board of Directors has
considered selling Old Stone Securities, the Board has determined not to do so
at the present time.
Liquidity and Capital Resources
At September 30, 2000, the Company had $.5 million in assets, $1.4 million in
total liabilities, $20.9 million in redeemable preferred stock, and a
stockholders' deficit of ($21.8) million, compared to $.4 million in assets,
$1.4 million in total liabilities, $20.6 million in redeemable preferred stock
and stockholders' deficit of ($21.6) million at December 31, 1999.
The Company's assets are currently being invested short-term, and expenses have
been reduced to a level that management believes is commensurate with the
Company's current activities pending resolution of any potential claims.
Results of Operations
Total income decreased $42,000 for the three month period ended September 30,
2000 as compared to the same period in 1999. This decrease was primarily
attributable to a decrease in other income of $45,000 in the 2000 period over
the comparable period in 1999. Total income year to date increased by $20,000 as
compared to the same period in 1999. The increase was primarily attributable to
an increase in other income of $14,000 in the 2000 period over the comparable
period in 1999.
Interest income was $6,000 and $3,000 respectively, for the three month periods
ended September 30, 2000 and 1999. Other income was $52,000 for the three month
period ended September 30, 2000, compared to $97,000 for the three month period
ended September 30, 1999.
Total expenses decreased $15,000 for the three month period ended September 30,
2000 as compared to the three month period ended September 30, 1999. The
decrease was attributable to a decrease in other expenses of $18,000, which were
primarily legal and professional expenses, over the comparable period in 1999.
Total expenses year to date decreased $16,000 as compared to the same period in
1999, which were primarily attributable to legal and professional fees.
8
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
($ in Thousands except for per share data)
(Unaudited)
The Company's primary operating expenses have been legal and accounting expenses
as well as the operating expenses of Old Stone Securities. Operating expenses
(including salaries and benefits) were $46,000 for the three month period ended
September 30, 2000, compared to $42,000 for the same period in 1999. Operating
expenses year to date were $320,000 compared to $336,000 for the same period in
1999.
As a result of the foregoing, the Company reported a net loss of ($22,000) for
the three month period ended September 30, 2000, compared to net income of
$5,000 for the same period in 1999.
The loss per share available for common stockholders was ($.08) for the three
month period ended September 30, 2000 after the deduction of preferred dividends
of $677,000. The loss per share available for common stockholders was ($.08) for
the three month period ended September 30, 1999 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Company does not expect to pay dividends in the
foreseeable future. Further, the Company is prohibited from paying dividends on
the Common Stock until the aggregate deficiency on the preferred stock dividends
is paid in full. Total loss per share year to date, was ($.25) as compared to
($.25) for the same period in 1999.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 16, 1992, the Company and the Bank ("Plaintiffs") instituted a suit
against the United States ("Defendant") in the U.S. Court of Federal Claims (the
"Claims Court"). In connection with certain government-assisted acquisitions by
Plaintiffs in the 1980's, the Defendant (through its agencies the Federal Home
Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance
Corporation) in exchange for the Bank's purchasing certain assets and assuming
certain liabilities of two FSLIC-insured thrift institutions supervised by the
FHLBB, agreed among other things to provide Plaintiffs with certain valuable
capital credits and authorized Plaintiffs to treat those credits and supervisory
goodwill as regulatory capital to be amortized over a period of 25 to 30 years
on the Bank's regulatory financial statements. Furthermore, the Company entered
into a Net Worth Maintenance Stipulation in which it agreed to maintain the net
worth of the Bank at agreed upon regulatory levels, which included the capital
credits and supervisory goodwill in the calculation thereof.
Following the passage of the Financial Institutions Reform, Recovery, and
Enforcement Act in August, 1989, the OTS (successor in interest to the FHLBB)
required the Bank to discontinue treating these capital credits and supervisory
goodwill as part of regulatory capital and caused the Bank to write off
immediately approximately $80 million of such capital credits and supervisory
goodwill. Based upon this requirement, Plaintiffs allege breach of contract by
the United States, resulting in substantial injury to Plaintiffs, effecting a
taking of Plaintiffs' property without just compensation, and unjustly enriching
the Defendant at the expense of Plaintiffs. Plaintiffs seek compensation for the
damages caused by the breach, just compensation for the property taken, and
disgorgement of the amounts by which the Defendant has been unjustly enriched.
The Defendant has filed a counterclaim against the Company for alleged breach of
the Company's net worth maintenance agreement. The Company has filed an answer
denying such counterclaim.
Following the Bank Closing, the Bank's claims and the claims of the Company were
split into two separate actions. The Company's claims are separate and distinct
from the claims of the Bank. An agency of the Defendant serves as Receiver for
the Bank and is maintaining the Bank's claims against the Defendant.
On February 26, 1998, the Company filed a motion for summary judgment, which the
Defendant is opposing. The Claims Court has not ruled on this motion. The Bank's
summary judgment motion was filed on April 3, 1998. The Company and the
Defendant have been involved in discovery proceedings, which were recently
completed.
There are several similar cases pending before the Claims Court. The Company's
case is dependent, in part, upon the outcome of cases that are currently being,
or will soon be, litigated on damages. No prediction as to the timing or the
outcome of the Company's case can be made at this time.
10
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company discontinued dividends to holders of its Preferred Stock, during
1991 and does not expect to pay any dividends on such stock for the foreseeable
future. As a result of the failure to pay dividends on the Preferred Stock for
more than four quarters, the holders of the Preferred Stock collectively are
entitled to elect a number of directors of the Company constituting twenty
percent (20%) of the total number of directors of the Company at the next
meeting of stockholders at which directors are to be elected. Until the
aggregate deficiency is declared and fully paid on the Preferred Stock, the
Company may not declare any dividends or make any other distributions on or
redeem the Common Stock. The total amount of the arrearage as of September 30,
2000 was $22,613,343.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD STONE CORPORATION
Date: November 15, 2000 /s/ Bernard V. Buonanno
------------------------------------
Bernard V. Buonnano
Chairman
