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 June 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, $1.00 par
value, as of June 30, 2000: 8,297,046.238
<PAGE>
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets - 1
June 30, 2000 and December 31, 1999
Consolidated Statements of Operations -
For the Three and Six 2
Consolidated Statements of Changes in Stockholders'
Equity 3
Consolidated Statements of Cash Flows - For the Six
Months Ended 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and 7
PART II - OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
<TABLE>
<CAPTION>
June 30, 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 265 292
________ ________
TOTAL ASSETS $ 483 $ 483
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other Liabilities $ 1,429 $ 1,442
________ ________
TOTAL LIABILITIES 1,429 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) 20,792 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 91,193 91,293
Surplus 30,000 30,000
Accumulated deficit (150,088) (150,101)
Treasury stock, at cost; 54,000 shares in 2000
and 1999 ( 1,143) ( 1,143)
________ ________
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 21,738) ( 21,651)
________ ________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 483 $ 483
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ In Thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
INCOME:
<S> <C> <C> <C> <C>
Interest income $ 5 $ 4 $ 10 $ 7
Other income 90 98 243 184
__________ __________ __________ __________
TOTAL INCOME 95 102 253 191
__________ __________ __________ __________
EXPENSES:
Salaries and employee benefits 41 42 88 80
Net occupancy expense 3 3 6 5
Equipment expense, including depreciation 3 2 5 3
Other expenses 78 91 141 153
__________ __________ __________ __________
TOTAL EXPENSES 125 138 240 241
__________ __________ __________ __________
Income (loss) from continuing operations
before income taxes ( 30) ( 36) 13 ( 50)
Income taxes -0- -0- -0- -0-
__________ __________ __________ __________
NET INCOME (LOSS) ($ 30) ($ 36) $ 13 ($ 50)
========== ========== ========== ==========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($ 707) ($ 713) ($ 1,341) ($ 1,404)
(LOSS) PER SHARE ($ .09) ($ .09) ($ .16) ($ .17)
========== ========== ========== ==========
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.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Six Months Ended June 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, 1998 $ 8,300 $ 91,489 $ 30,000 ($150,071) ($ 1,143) ($ 21,425)
Net (loss) ( 50) ( 50)
Accretion of discount on
preferred stock, series B ( 96) ( 96)
________ ________ ________ ________ ________ _______
June 30, 1999 $ 8,300 $ 91,393 $ 30,000 ($150,121) ($ 1,143) ($ 21,571)
======== ======== ======== ======== ======== =======
December 31, 1999 $ 8,300 $ 91,293 $ 30,000 ($150,101) ($ 1,143) ($ 21,651)
Net income 13 13
Accretion of discount on
preferred stock, series B ( 100) ( 100)
________ ________ ________ ________ ________ _______
June 30, 2000 $ 8,300 $ 91,193 $ 30,000 ($150,088) ($ 1,143) ($ 21,738)
======== ======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
($ In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
2000 1999
Operating activities:
<S> <C> <C>
Net income (loss) $ 13 ($ 50)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Other, net 14 ( 50)
____ _____
Net cash provided (used) by operating activities 27 -0-
Investing activities:
Net (increase) in investments (26) ( 2)
Net (increase) decrease in loans 1 1
____ _____
Net cash (used) by investing activities (25) ( 1)
Increase (decrease) in cash 2 ( 1)
Cash at beginning of period 7 4
____ _____
Cash at end of period $ 9 $ 3
==== =====
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 2000 and 1999
(Unaudited)
NOTE 1 - ORGANIZATION:
COMPANY DESCRIPTION AND BASIS OF PRESENTATION
Until January 28, 1993, Old Stone Corporation ("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 subsidiaries ("Bank" or "Old Stone"). 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 Old Stone. The Resolution Trust Corporation ("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 June 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 six months ended June 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.
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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
PRIMARY (LOSS):
<S> <C> <C> <C> <C>
Net income (loss) ($ 30) ($ 36) $ 13 ($ 50)
Deduct accretion of discount on series B
preferred stock and referred dividends 677 677 1,354 1,354
_________ _________ _________ _________
Net (loss) applicable to common stock ($ 707) ($ 713) ($ 1,341) ($ 1,404)
========= ========= ========= =========
ALLOCATION OF PRIMARY (LOSS):
Income (loss) from continued operations ($ 30) ($ 36) $ 13 ($ 50)
Deduct accretion of discount on series B
preferred stock and preferred dividends 677 677 1,354 1,354
_________ _________ _________ _________
TOTAL NET (LOSS) ($ 707) ($ 713) ($ 1,341) ($ 1,404)
========= ========= ========= =========
Average shares outstanding 8,297,046 8,297,046 8,297,046 8,297,046
========= ========= ========= =========
PRIMARY (LOSS) PER
COMMON SHARE ($ .09) ($ .09) ($ .16) ($ .17)
========= ========= ========= =========
</TABLE>
NOTE 4 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share on the Cummulative
Voting Convertible Preferred Stock, Series B ("Preferred Stock") was suspended.
As of June 30, 2000, cumulative preferred dividends of $21,985,194 ($21.00 per
share) on the Preferred Stock 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 $21,738,000 at June 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 the Bank 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 on the Preferreed
Stock unless the Company is successful in its litigation against the United
States at a level that would exceed the redemption obligation, net of
attorneys' fees and other litigation 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.
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.
<PAGE>
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 taxes was $35,758 for the six month period
ended June 30, 2000, compared to a loss of $19,517 for the six month period
ended June 30, 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 June 30, 2000, the Corporation had $.5 million in assets, $1.4 million in
total liabilities, $20.8 million in redeemable preferred stock, and a
stockholders' deficit of ($21.7) million, compared to $.4 million in assets,
$1.5 million in total liabilities, $20.6 million in redeemable preferred stock
and stockholders' deficit of ($21.6) 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 decreased $7,000 for the three month period ended June 30, 2000 as
compared to the same period in 1999. This decrease was primarily attributable to
a decrease in other income of $8,000 in the 2000 period over the comparable
period in 1999. Total income year to date increased by $62,000 as compared to
the same period in 1999. The increase was primarily attributable to an increase
in other income of $59,000 in the 2000 period over the comparable period in
1999.
Interest income was $5,000 and $4,000 respectively, for the three month period
ended June 30, 2000 and 1999. Other income was $90,000 for the three month
period ended June 30, 2000, compared to $98,000 for the three month period ended
June 30, 1999.
Total expenses decreased $13,000 for the three month period ended June 30, 2000
as compared to the three month period ended June 30, 1999. The decrease was
attributable to a decrease in other expenses of $13,000 of which were primarily
legal and professional expenses, over the comparable period in 1999.
Total expenses year to date decreased $1,000 as compared to the same period in
1999, which were primarily attributable to legal and professional fees.
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 $125,000 for the three
month period ended June 30, 2000, compared to $138,000 for the same period in
1999. Operating expenses year to date were $240,000 compared to $241,000 for the
same period in 1999.
As a result of the foregoing, the Corporation reported net loss of ($30,000) for
the three month period ended June 30, 2000, compared to ($36,000) for the same
period in 1999.
The loss per share available for common stockholders was ($.09) for the three
month period ended June 30, 2000 after the deduction of preferred dividends of
$677,000. The loss per share available for common stockholders was ($.09) for
the three month period ended June 30, 1999 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full. Total loss per share year to date, was ($.16)
as compared to ($.17) for the same period in 1999.
<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, the Corporation filed a motion for summary judgment which
the Defendant is opposing. The Court has not ruled on this motion. The
Plaintiffs and the Defendant have been involved in discovery proceedings which
were recently completed.
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Corporation 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 Corporation constituting twenty
percent (20%) of the total number of directors of the Corporation 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
Corporation may not declare any dividends or make any other distributions on or
redeem the Common Stock. The total amount of the arrearage as of June 30, 2000
was $21,985,194.
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: August ___, 2000 /s/ Geraldine Nelson
----------------------------------
Geraldine Nelson
President and Treasurer
(Chief Executive and
Chief Accounting Officer)
