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 March 31, 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 incorporation or (I.R.S. Employer
organization) Identification Number)
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, $1.00 par
value, as of March 31, 2000; 8,297,046.238
<PAGE>
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets - 1
March 31, 2000 and December 31, 1999
Consolidated Statements of Operations - For the 2
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Changes in Stockholders' 3
Equity
Consolidated Statements of Cash Flows - For the 4
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
Unaudited
---------
ASSETS
<S> <C> <C>
Cash $ 9 $ 7
Short-term investments 182 156
Loans (net of reserve for loan losses of $29 in
2000 and in 1999) 27 28
Other assets 290 292
----------- -----------
TOTAL ASSETS $ 508 $ 483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other Liabilities $ 1,424 $ 1,442
----------- -----------
TOTAL LIABILITIES 1,424 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) 20,741 20,692
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,351,046 shares issued in 2000
and 1999 8,300 8,300
Additional paid-in capital 91,244 91,293
Surplus 30,000 30,000
Accumulated deficit ( 150,058) ( 150,101)
Treasury stock, at cost; 54,000 shares in 2000
and 1999 ( 1,143) ( 1,143)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 21,657) ( 21,651)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 508 $ 483
=========== ===========
</TABLE>
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
($ In Thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
INCOME:
<S> <C> <C>
Interest income $ 5 $ 3
Other income 153 86
----------- -----------
TOTAL INCOME 158 89
----------- -----------
EXPENSES:
Salaries and employee benefits 47 38
Net occupancy expense 3 2
Equipment expense, including depreciation 2 1
Other expenses 63 62
----------- -----------
TOTAL EXPENSES 115 103
----------- -----------
Income (loss) from continuing operations before income taxes 43 ( 14)
Income taxes -0- -0-
----------- -----------
NET INCOME (LOSS) $ 43 $( 14)
=========== ===========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS $( 634) $( 691)
(LOSS) PER SHARE $( .08) $( .08)
AVERAGE SHARES OUTSTANDING 8,297,046 8,297,046
</TABLE>
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Three Months Ended March 31, 2000 and 1999
($ 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, 1998 $ 8,300 $ 91,489 $ 30,000 ($150,071) ($1,143) ($ 21,425)
Net (loss)
Accretion of discount on
preferred stock, series B ( 49)
------- --------- -------- -------- ------ --------
March 31, 1999 $ 8,300 $ 91,440 $ 30,000 ($150,085) ($1,143) ($ 21,488)
======= ======== ======== ========= ====== ========
December 31, 1999 $ 8,300 $ 91,293 $ 30,000 ($150,101) ($1,143) ($ 21,651)
Net income 43 43
Accretion of discount on
preferred stock, series B ( 49) ( 49)
------- -------- ------- ------- ------ --------
March 31, 2000 $ 8,300 $ 91,244 $ 30,000 ($150,058) ($1,143) ($ 21,657)
======= ========= ======== ========= ====== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
($ In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
Operating activities:
<S> <C> <C> <C>
Net income (loss) $ 43 $( 14)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Other, net ( 15) -0-
------- -----------
Net cash provided by (used) by operating activities 28 ( 14)
Investing activities:
Net decrease in investments 26 19
------- -----------
Net cash provided by investing activities 26 19
Increase in cash 2 5
Cash at beginning of period 7 4
------- -----------
Cash at end of period $ 9 $ 9
======= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
NOTE 1 - ORGANIZATION
Until January 28, 1993, Old Stone Corporation (the "Company" or "OSC") 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 (the "Bank" or "Old Stone"). On January 29,
1993, the Office of Thrift Supervision of the United States Department of the
Treasury (the "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 Old Stone. The Resolution Trust Corporation (the
"RTC") was appointed Receiver to handle all matters related to Old Stone 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 March 31, 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 three months ended March 31, 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 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
March 31, March 31,
2000 1999
---- ----
PRIMARY (LOSS):
<S> <C> <C> <C>
Net income (loss) $ 43 $ ( 14)
Deduct accretion of discount on series B preferred
stock and preferred dividends ( 677) 677
----------- -----------
Net (loss) applicable to common stock $ ( 634) $ ( 691)
=========== ===========
ALLOCATION OF PRIMARY (LOSS):
Income (loss) from continued operations $ 43 $ ( 14)
Deduct accretion of discount on series B preferred
stock and preferred dividends 677 677
----------- -----------
TOTAL NET (LOSS) $( 634) $ ( 691)
=========== ===========
AVERAGE SHARES OUTSTANDING 8,297,046 8,297,046
PRIMARY (LOSS) PER COMMON SHARE: $( .08) $ ( .08)
=========== ===========
</TABLE>
NOTE 4 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share of the Preferred
Series B of stock was suspended. As of March 31, 2000, cumulative preferred
dividends $21,357,045 ($20.40 per share) had not been declared or paid.
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 $21,657,000 at March 31, 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 Series B
preferred stock outstanding (see note 4). Also, management does not
expect the Company to be able to meet its redemption obligations,
unless the Company is successful in its litigation against the United
States. 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.
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 include any adjustments that might result from 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 Corporation'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 income taxes was $45,068 for the three month
period ended March 31, 2000, compared to a $11,634 for the three month period
ended March 31, 1999.
Management has invested, and intends in the future to invest, the Corporation's
assets on a short-term basis. While the Corporation'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 March 31, 2000, the Corporation had $.5 million in assets, $1.4 million in
total liabilities, $20.7 million in redeemable preferred stock, and a
stockholders' deficit of ($21.7) million, compared to $.5 million in assets,
$1.4 million in total liabilities, $20.7 million in redeemable preferred stock
and stockholders' deficit of ($21.7) million at December 31, 1999.
The Corporation's assets are currently being invested short-term, and expenses
have been reduced to a level that management believes is commensurate with the
Corporation's current activities pending resolution of any potential claims.
RESULTS OF OPERATIONS
Total income increased $69,000 for the three month period ended March 31, 2000
as compared to the same period in 1999. This increase was primarily attributable
to an increase in other income of $67,000 in the 2000 period over the comparable
period in 1999.
Interest income was $5,000 for the three month period ended March 31, 2000,
compared to $3,000 for the three month period ended March 31, 1999. Other income
was $153,000 for the three month period ended March 31, 2000, compared to
$86,000 for the three month period ended March 31, 1999.
Total expenses increased $12,000 for the three month period ended March 31, 2000
as compared to the three month period ended March 31, 1999.
The Corporation's primary operating expenses have been legal and accounting
expenses as well as the operating expenses of Old Stone Securities Company.
Operating expenses (including salaries and benefits) were $115,000 for the three
month period ended March 31, 2000, compared to $103,000 for the same period in
1999.
As a result of the foregoing, the Corporation reported net income of $43,000 for
the three month period ended March 31, 2000, compared to a loss of $14,000 for
the same period in 1999.
The loss per share available for common stockholders was ($.08) for the three
month period ended March 31, 2000 after the deduction of preferred dividends of
$628,000. The loss per share available for common stockholders was ($.08) for
the three month period ended March 31, 1999 after the deduction of preferred
dividends of $628,000. No preferred or common dividends have been paid since the
third quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 16, 1992, the Corporation and the Bank ("Plaintiffs") instituted a
suit against the United States ("Defendant") in the U.S. Court of Federal
Claims. 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
("FSLIC")), 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 Corporation
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 breach, 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 Corporation for alleged
breach of the Corporation's net worth maintenance agreement. The Corporation has
filed an answer denying such counterclaim.
Following the Bank Closing, the Bank's claims and the claims of the Corporation
were split into two separate actions. The Corporation'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 27, 1998, we filed a motion for summary judgment which the Defendant
is opposing.
There are several similar cases pending before the U.S. Court of Federal Claims.
Our case is dependent, upon the outcome of other cases which are currently
being, or will soon be, litigated on damages. No prediction as to the timing or
the outcome of the Corporation's case can be made at this time.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We discontinued dividends to holders of our Cumulative Voting Convertible
Preferred Stock, Series B (the "Preferred Stock"), during the third quarter of
1991 and we do 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 our directors constituting twenty percent (20%) of
the total number of our directors 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, we may not declare any dividends or make any
other distributions on or redeem the Common Stock. The total amount of the
arrearage as of March 31, 2000 was $21,357,045.
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: May 15, 2000 /s/ Bernard V. Buonanno
----------------------------------------
Bernard V. Buonanno
Chairman
