##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

(Mark One)



| |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
| |  | --------------------------------------------------------------------------------------------------------------------------



| |  | ANNUAL 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
(State or other jurisdiction of
incorporation or organization) |  | 95-2829956
(IRS Employer Identification No.)

539 Bryant Street, San Francisco, California 94107
(Address of principal executive offices, including zip code)

(415) 551-3260
(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, 2001 were $0.

The approximate aggregate market value of voting stock held by non-affiliates
of the Registrant was $96,485 as of January 24, 2002 based on the closing bid
price on January 24, 2002. 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 January 24, 2002, 1,487,847 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



|             |                                                                                                                          |  |  |  |  |  |  | 
|------------ | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART 1      
|             | ITEM 1. BUSINESS                                                                                                        
|             | ITEM 2. PROPERTIES                                                                                                      
|             | ITEM 3. LEGAL PROCEEDINGS                                                                                               
|             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             
|PART II     
|             | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                           
|             | ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS                                                      
|             | ITEM 7. FINANCIAL STATEMENTS                                                                                            
|             | ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            
|PART III    
|             | ITEM 9. DIRECTORS, EXECUTIVES OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|             | ITEM 10. EXECUTIVE COMPENSATION                                                                                         
|             | ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                 
|             | ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                 
|PART IV     
|             | ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                                                                               
|SIGNATURES  
|EXHIBIT 21.1



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TABLE OF CONTENTS

|           |  |                                                                                                                 |    |  |   |      |  | 
|---------- |  | --------------------------------------------------------------------------------------------------------------- | -- |  | - | ---- |  | 
|           |  |                                                                                                                 |    |  |   | Page
|           |  |                                                                                                                 |    |  |   |     
|PART I:   
|Item 1.    |  | Business                                                                                                        |    |  | 3 |     
|Item 2.    |  | Properties                                                                                                      |    |  | 3 |     
|Item 3.    |  | Legal Proceedings                                                                                               |    |  | 3 |     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |    |  | 3 |     
|PART II:  
|Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                                           |    |  | 4 |     
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operations                                                      |    |  | 4 |     
|Item 7.    |  | Financial Statements                                                                                            |    |  | 5 |     
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |    |  | 5 |     
|PART III: 
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act |    |  | 6 |     
|Item 10.   |  | Executive Compensation                                                                                          |    |  | 6 |     
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |    |  | 8 |     
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |    |  | 8 |     
|PART IV:  
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                                                |    |  | 9 |     
|SIGNATURES |  |                                                                                                                 | 10 | 

2



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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.

BUSINESS STRATEGY

Currently, the Company is reviewing options to invest in new business
opportunities. The Company has over $490,000 in marketable securities and
significant tax loss carryforwards at its disposal.

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.

EMPLOYEES

As of March 30, 2002, the Company had one part-time employee. This employee is
not subject to a collective bargaining agreement.




ITEM 2. PROPERTIES

The Companys principal executive offices are located at 539 Bryant Street, San
Francisco, California and its telephone number is (415) 551-3260.




ITEM 3. LEGAL PROCEEDINGS

None.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of stockholders during 2001.

3



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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 February 14, 2002, there were
approximately 1,000 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 OR PLAN OF OPERATIONS

RESULTS OF OPERATIONS

Year ended December 31, 2001

Revenues for 2001 were $0, a decrease of $102,615 as compared to 2000.

Costs and expenses for 2001 totaled $69,906, a decrease of $55,229 or 44.14% as
compared to 2000. This decrease was primarily due to lower operating costs as
lease terms expired and legal costs declined.

Professional fees decreased $9,642 or 20.69% due to lower costs for operations
and minimal costs related to SEC and tax filings.

Salaries and wages decreased $45,854 or 72.78% due to reduced operating
requirements.

Rent expense decreased $2,411 or 56.98% as the remaining lease for operating
space terminated.

Other operating expenses decreased $4,501 or 84.91% as business support
expenses declined.

Year ended December 31, 2000

Revenues for 2000 were $102,615, an increase of $92,221 as compared to 1999.
This increase was primarily due to the recognition of $102,000 of previously
deferred revenue associated with a long pending Arizona property tax case.

Costs and expenses for 2000 totaled $124,135, a decrease of $124,416 or 50.02%
as compared to 1999. This decrease was primarily due to lower operating costs
as lease terms expired and legal costs declined.

Professional fees decreased $40,247 or 46.35% due to lower costs for operations
and minimal costs related to SEC and tax filings.

Salaries and wages decreased $23,996 or 27.58% due to reduced operating
requirements.

Rent expense decreased $42,569 or 90.96% as the remaining leases for operating
space terminated.

Other operating expenses decreased $17,604 or 62.62% as business support
expenses declined.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities for the year ended December 31, 2001 was
$42,493. Due to a reduction in marketable securities, working capital at
December 31, 2001 was $313,770, a decrease of $122,517 or 28.1% from 2000.

Cash increased by $2,507 from $7,583 at the end of 2000 to $10,090 at the end
of 2001. Management believes that its current level of cash and marketable
securities will be adequate to meet its operating needs through 2002.

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

None.

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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

|                    |  |     |    |                |  |  |      | 
|------------------- |  | --- | -- | -------------- |  |  | ---- | 
|Name                |  | Age |    | Director Since
|                    |  |     |    |               
|Edmund H. Shea, Jr. |  |     | 71 |                |  |  | 1993 | 

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, 2001. A summary of the background and
experience of each of these individuals is set forth after the table.

|                     |  |     |    |          |  |                                                               
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Nicholas J. Giordano |  |     | 26 |          |  | Chief Executive Officer, Chief Financial Officer
and Secretary

Mr. Giordano has served as Chief Executive Officer, Chief Financial Officer and
as Secretary since June 2001. Nicholas Giordano has served as financial advisor
to the Hambrecht 1980 Revocable Trust, and Chief Financial Officer and Director
of the Sarah and William Hambrecht Foundation since June 2000. Formerly he
worked as a Certified Public Accountant of Andersen, LLP. He holds a B. S.
degree from Bucknell 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
6Table of Contents

COMPENSATION OF DIRECTORS (continued)

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 June 2001 and no other executive officers earned more than $100,000
during the fiscal year ended December 31, 2000.

|                     |                                       |      |      |            |  |       |        |                  |  |  |   |  |  |              |   |  | 
|-------------------- | ------------------------------------- | ---- | ---- | ---------- |  | ----- | ------ | ---------------- |  |  | - |  |  | ------------ | - |  | 
|NAME AND PRINCIPAL   |                                       |      |      |            |  |       |        |                  |  |  |   |  |  | OTHER ANNUAL
|POSITION             |                                       | YEAR |      | SALARY ($) |  | BONUS |        | COMPENSATION ($)
|                     |                                       |      |      |            |  |       |        |                 
|Nicholas J. Giordano |                                       |      | 2001 |            |  |       |       |                  |  |  |  |  |  |              |  | 
|                     | Chief Executive Officer
and Secretary |      |      |            |  |       |        |                  |  |  |   |  |  |              |   |  | 
|Robert W. Rembowski  |                                       |      | 2000 |            |  | $     | 62,000 |                  |  |  |  |  |  |              |  | 
|                     | Chief Executive
Officer and Secretary |      |      |            |  |       |        |                  |  |  |   |  |  |              |   |  | 

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 January 24, 2002, 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 officer during the fiscal year ended December 31, 2001.

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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 January 24, 2002 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)

|                                                                     |                         |                 |                  |           |         |  |    |  | 
|-------------------------------------------------------------------- | ----------------------- | --------------- | ---------------- | --------- | ------- |  | -- |  | 
|                                                                     |                         |                 | NUMBER OF SHARES |           | PERCENT
|BENEFICIAL OWNER                                                     |                         | OF COMMON STOCK |                  | TOTAL (2)
|                                                                     |                         |                 |                  |          
|Venture Capital Entities affiliated with
Hambrecht & Quist Group (3) |                         |                 | 1,090,271        |           |         |  | 73 | 
|                                                                     | One Bush Street         |                 |                  |           |         |  |    |  | 
|                                                                     | San Francisco, CA 94104 |                 |                  |           |         |  |    |  | 
|William R. Hambrecht (4)                                             |                         |                 | 2,800            |           |         |  | *  | 
|                                                                     | 539 Bryant Street       |                 |                  |           |         |  |    |  | 
|                                                                     | San Francisco, CA 94107 |                 |                  |           |         |  |    |  | 
|Edmund H. Shea, Jr. (5)                                              |                         |                 | 8,375            |           |         |  | *  | 
|All executive officers and directors
as a group (2 persons)          |                         |                 | 1,100,833        |           |         |  | 73 | 



---

|*   |  | 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 1,487,847 shares outstanding on
January 24, 2002 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
(344,735 shares), Hamquist (2,551 shares) and Venture Associates (BVI)
Limited (230,965 shares).                                                                                                                                                               
|   
|   
|   
|   
|(4) |  | Represents 2,800 shares subject to outstanding options that were
exercisable on January 24, 2002 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 8,375 shares subject to outstanding options that were
exercisable on January 24, 2002 or will become exercisable 60 days
thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

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PART IV




ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

|        |  |                                      
|------- |  | -------------------------------------
|Exhibit |  |                                      
|Number  |  | Description                          
|        |  |                                      
|21.1    |  | Subsidiaries of Ironstone Group, Inc.

(b)  REPORTS ON FORM 8-K

None.

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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: March 30, 2001 | By:                                          | /s/   Nicholas J. Giordano
|                     |                                             
|                     | Nicholas J. Giordano
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.

|                                               |  |                                                                                                                              |  |               
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                                                        |  | Date          
|                                               |  |                                                                                                                              |  |               
|                                              
|/s/   Nicholas J. GiordanoNicholas J. Giordano |  | Chief Executive Officer, Chief Financial Officer and Secretary
(Principal Executive Officer and Principal Financial Officer) |  | March 30, 2002
|                                              
|/s/   Edmund H. Shea, Jr.Edmund H. Shea, Jr    |  | Director                                                                                                                     |  | March 30, 2002

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IRONSTONE GROUP, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                            |  |             |     | 
|----------------------------------------------------------------------------------------------------------- |  | ----------- | --- | 
|                                                                                                            |  | Page       
|                                                                                                            |  |            
|Report of Independent Public Accountants                                                                    |  |             | F-2 | 
|Consolidated balance sheet at December 31, 2001                                                             |  |             | F-3 | 
|Consolidated statements of operations and comprehensive loss for the years ended
December 31, 2001 and 2000 |  |             | F-4 | 
|Consolidated statements of shareholders equity for the years ended
December 31, 2001 and 2000              |  |             | F-5 | 
|Consolidated statements of cash flows for the years ended
December 31, 2001 and 2000                        |  |             | F-6 | 
|Notes to consolidated financial statements                                                                  |  | F-7 to F-10

F-1





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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders
Ironstone Group, Inc.

We have audited the accompanying consolidated balance sheet of IRONSTONE GROUP,
INC. AND SUBSIDIARIES as of December 31, 2001, and the related consolidated
statements of operations and comprehensive loss, shareholders equity and cash
flows for each of the two years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IRONSTONE GROUP,
INC. AND SUBSIDIARIES at December 31, 2001, and their results of operations and
cash flows for each of the two years then ended, in conformity with accounting
principles generally accepted in the United States of America.



| | J. H. COHN LLP
| | --------------

San Diego, California
March 22, 2002

F-2





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IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2001

|                                      |                                                                                                                   |              |                                            |             |         |         | 
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------ | ----------- | ------- | ------- | 
|ASSETS:                               |                                                                                                                   |              |                                            |            
|Current assets:                       |                                                                                                                   |              |                                            |            
|                                      | Cash                                                                                                              |              | $                                          | 10,090      |        
|                                      | Marketable securities available for sale, at fair value                                                           |              |                                            | 490,528     |        
|                                      |                                                                                                                   |              |                                            |            
|                                      |                                                                                                                   | Total assets |                                            | $           | 500,618 |        
|                                      |                                                                                                                   |              |                                            |            
|LIABILITIES AND SHAREHOLDERS EQUITY: |                                                                                                                   |              |                                            |            
|Current liabilities:                  |                                                                                                                   |              |                                            |            
|                                      | Accounts payable                                                                                                  |              | $                                          | 20,511      |        
|                                      | Loan interest payable to shareholder                                                                              |              |                                            | 16,974      |        
|                                      | Loan payable to shareholder                                                                                       |              |                                            | 147,920     |        
|                                      | Other current liabilities                                                                                         |              |                                            | 1,443       |        
|                                      |                                                                                                                   |              |                                            |            
|                                      |                                                                                                                   |              | Total liabilities                          |             |         | 186,848 | 
|                                      |                                                                                                                   |              |                                            |            
|Commitments and contingencies         |                                                                                                                   |              |                                            |            
|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 1,487,847 shares are issued and outstanding  |              |                                            | 14,878      |        
|                                      | Additional paid-in capital                                                                                        |              |                                            | 21,170,385  |        
|                                      | Accumulated deficit                                                                                               |              |                                            | (20,309,499 | )      
|                                      | Accumulated other comprehensive loss                                                                              |              |                                            | (561,994    | )      
|                                      |                                                                                                                   |              |                                            |            
|                                      |                                                                                                                   |              | Total shareholders equity                 |             |         | 313,770 | 
|                                      |                                                                                                                   |              |                                            |            
|                                      |                                                                                                                   |              | Total liabilities and shareholders equity |             | $       | 500,618 | 
|                                      |                                                                                                                   |              |                                            |            

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended December 31, 2001 and 2000

|                                |                                                 |   |         |           |      |   |         |           |   |  | 
|------------------------------- | ----------------------------------------------- | - | ------- | --------- | ---- | - | ------- | --------- | - |  | 
|                                |                                                 |   |         |           | 2001 |   | 2000   
|                                |                                                 |   |         |           |      |   |        
|Revenues:                       |                                                 |   |         |           |      |   |         |          
|                                | Consulting fees                                 |   | $       |          |      |   | $       | 102,000   |  
|                                | Interest and other income                       |   |         |          |      |   |         | 615       |  
|                                |                                                 |   |         |           |      |   |         |          
|                                | Total revenues                                  |   |         |          |      |   |         | 102,615   |  
|                                |                                                 |   |         |           |      |   |         |          
|Costs and expenses:             |                                                 |   |         |           |      |   |         |          
|                                | Salaries and wages, payroll taxes and benefits  |   |         | 17,149    |      |   |         | 63,003    |  
|                                | Legal and other professional fees               |   |         | 36,950    |      |   |         | 46,592    |  
|                                | Rent expense                                    |   |         | 1,820     |      |   |         | 4,231     |  
|                                | Interest expense                                |   |         | 12,022    |      |   |         | 5,343     |  
|                                | Other operating expenses                        |   |         | 800       |      |   |         | 5,301     |  
|                                | Office expenses                                 |   |         | 1,165     |      |   |         | 665       |  
|                                |                                                 |   |         |           |      |   |         |          
|                                | Total costs and expenses                        |   |         | 69,906    |      |   |         | 125,135   |  
|                                |                                                 |   |         |           |      |   |         |          
|Net loss                        |                                                 | $ | (69,906 | )         |      | $ | (22,520 | )        
|                                |                                                 |   |         |           |      |   |         |          
|COMPREHENSIVE LOSS, NET OF TAX: |                                                 |   |         |           |      |   |         |          
|                                | Net loss                                        |   | $       | (69,906   | )    |   | $       | (22,520   | )
|                                | Unrealized holding loss arising during the year |   |         | (52,611   | )    |   |         | (499,241  | )
|                                |                                                 |   |         |           |      |   |         |          
|                                | Comprehensive loss                              |   | $       | (122,517  | )    |   | $       | (521,761  | )
|                                |                                                 |   |         |           |      |   |         |          
|Basic earnings per share:       |                                                 |   |         |           |      |   |         |          
|                                | Net loss per share                              |   | $       | (0.05     | )    |   | $       | (0.02     | )
|                                |                                                 |   |         |           |      |   |         |          
|                                | Weighted average shares                         |   |         | 1,487,847 |      |   |         | 1,487,847 |  
|                                |                                                 |   |         |           |      |   |         |          

The accompanying notes are an integral part of these consolidated financial statements.

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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2001 and 2000

|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   |          |             |  |   |          |   |  | 
|--------------------------- |  |  | --------- | ------------ |  | ---------- | ------ | ----------- |  | ------------- | ---------- | ----- |  | ----- | ----------- | - |  | - | -------- | ----------- |  | - | -------- | - |  | 
|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   |          | Accumulated |  |   |          |  
|                            |  |  |           | Common Stock |  | Additional |        |             |  |               |            | Other |  |       |             |  
|                            |  |  |           |              |  | Paid In    |        | Accumulated |  | Comprehensive |            |       |  |      
|                            |  |  |           | Shares       |  | Amount     |        | Capital     |  | Deficit       |            | Loss  |  | Total
|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |      
|Balances,
January 1, 2000   |  |  | 1,487,847 |              |  | $          | 14,878 |             |  | $             | 21,170,385 |       |  | $     | (20,217,073 | ) |  | $ | (10,142  | )           |  | $ | 958,048  |  
|Other comprehensive
loss    |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   | (499,241 | )           |  |   | (499,241 | )
|Net loss                    |  |  |           |              |  |            |        |             |  |               |            |       |  |       | (22,520     | ) |  |   |          |             |  |   | (22,520  | )
|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   |          |             |  |   |          |  
|Balances, December 31, 2000 |  |  | 1,487,847 |              |  |            | 14,878 |             |  |               | 21,170,385 |       |  |       | (20,239,593 | ) |  |   | (509,383 | )           |  |   | 436,287  |  
|Other comprehensive
loss    |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   | (52,611  | )           |  |   | (52,611  | )
|Net loss                    |  |  |           |              |  |            |        |             |  |               |            |       |  |       | (69,906     | ) |  |   |          |             |  |   | (69,906  | )
|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   |          |             |  |   |          |  
|Balances, December 31, 2001 |  |  | 1,487,847 |              |  | $          | 14,878 |             |  | $             | 21,170,385 |       |  | $     | (20,309,499 | ) |  | $ | (561,994 | )           |  | $ | 313,770  |  
|                            |  |  |           |              |  |            |        |             |  |               |            |       |  |       |             |   |  |   |          |             |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.

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IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000

|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |         |         |          |          |  
|------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | --------------------------- | --------------------------------------------------- | ------ | ------ | -------- | ------- | ------- | -------- | -------- | -
|                                                  |                                                                             |                                              |                             |                                                     |        | 2001   |          | 2000   
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                                                             |                                              |                             |                                                     |        |        |          |        
|                                                  | Net loss                                                                    |                                              | $                           | (69,906                                             | )      |        | $        | (22,520 | )      
|                                                  | Adjustments to reconcile net loss to net cash
used in operating activities: |                                              |                             |                                                     |        |        |          |         |        
|                                                  |                                                                             | Changes in operating assets and liabilities: |                             |                                                     |        |        |          |         |         |         
|                                                  |                                                                             |                                              | Other assets                |                                                     |        |       |          |         |         | 2,941    |         
|                                                  |                                                                             |                                              | Accounts payable            |                                                     |        | 15,392 |          |         |         | (150     | )       
|                                                  |                                                                             |                                              | Accrued compensation        |                                                     |        |       |          |         |         | (3,418   | )       
|                                                  |                                                                             |                                              | Interest payable            |                                                     |        | 12,021 |          |         |         | (102,000 | )       
|                                                  |                                                                             |                                              | Loan payable to shareholder |                                                     |        |        |          |         |         | 44       |         
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|                                                  |                                                                             |                                              |                             | Net cash used in operating activities               |        |        | (42,493  | )       |         |          | (125,103 | )
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                                             |                                              |                             |                                                     |        |        |          |        
|                                                  |                                                                             | Borrowing from shareholder                   |                             |                                                     | 45,000 |        |          |         |        |         
|                                                  |                                                                             | Margin loan, net                             |                             |                                                     |       |        |          |         | (1,024  | )       
|                                                  |                                                                             | Margin loan from shareholder                 |                             |                                                     |       |        |          |         | (65,557 | )       
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|                                                  |                                                                             |                                              |                             | Net cash provided by (used in) financing activities |        |        | 45,000   |         |         |          | (66,581  | )
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|Net increase (decrease) in cash                   |                                                                             |                                              | 2,507                       |                                                     |        |        | (191,684 | )      
|Cash at beginning of year                         |                                                                             |                                              | 7,583                       |                                                     |        |        | 199,267  |        
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|Cash at end of year                               |                                                                             | $                                            | 10,090                      |                                                     |        | $      | 7,583    |        
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        
|Supplemental disclosure of cash flow information: |                                                                             |                                              |                             |                                                     |        |        |          |        
|Cash paid during the year for:                    |                                                                             |                                              |                             |                                                     |        |        |          |        
|                                                  |                                                                             | Interest                                     |                             | $                                                   |       |        |          | $       | 112     |         
|                                                  |                                                                             |                                              |                             |                                                     |        |        |          |        

The accompanying notes are an integral part of these consolidated financial statements.

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IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001 and 2000

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activities

Ironstone Group, Inc.s (the Company) significant business activities
included reducing, for a fee, ad valorem taxes assessed to owners of real and
personal property, generally in the Arizona and California markets. In January
1998, the Companys Board of Directors approved a plan for the Company to
divest itself of the property and tax services group. The Company is actively
seeking appropriate business combination opportunities. In the alternative,
the Company is looking for an investment opportunity for some or all of its
remaining liquid assets.

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, 2001 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 2000 amounts have been reclassified to conform to the 2001
presentation.

Income Taxes

The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred tax assets and liabilities be
computed for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

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IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001 and 2000

Earnings <Loss> per share

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, 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.

Options to purchase 11,175 shares of the Companys common stock were
outstanding during 2001 and 2000, but were not included in the computation of
diluted EPS as the Company incurred a net loss from operations.

2. MARKETABLE SECURITIES

All marketable securities are classified as available for sale. The cost and
fair value of marketable securities at December 31, 2001 are as follows:

|                                 |  |      |           |      |  |            |          |   |  |   |         | 
|-------------------------------- |  | ---- | --------- | ---- |  | ---------- | -------- | - |  | - | ------- | 
|                                 |  |      |           |      |  | Unrealized |          |   |  |  
|                                 |  | Cost |           | Loss |  | Fair Value
|                                 |  |      |           |      |  |           
|Corporate Equity Securities:     |  |      |           |      |  |            |          |   |  |   |         | 
|Interlinq Software Corporation   |  | $    | 886,177   |      |  | $          | (401,889 | ) |  | $ | 484,288 | 
|Flexinternational Software, Inc. |  |      | 166,345   |      |  |            | (160,105 | ) |  |   | 6,240   | 
|                                 |  |      |           |      |  |            |          |   |  |   |         | 
|                                 |  | $    | 1,052,522 |      |  | $          | (561,994 | ) |  | $ | 490,528 | 
|                                 |  |      |           |      |  |            |          |   |  |   |         | 

3. SHAREHOLDER LOAN

The Company had 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 bore
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.

During 2001 the major stockholder of the Company loaned the Company $45,000.
The unsecured loan bears interest at 10% per annum and is due on demand.
During 2001, interest expense of $12,022 was accrued but remains unpaid at
December 31, 2001.

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IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001 and 2000

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, 2001 are as follows:

|                             |  |   |             |  
|---------------------------- |  | - | ----------- | -
|Deferred tax assets:         |  |   |             |  
|Operating loss carryforwards |  | $ | 12,100,000  |  
|Other comprehensive loss     |  |   | 200,000     |  
|                             |  |   |             |  
|Total deferred income taxes  |  |   | 12,300,000  |  
|Less valuation allowance     |  |   | (12,300,000 | )
|                             |  |   |             |  
|Deferred income taxes  net  |  | $ |            |  
|                             |  |   |             |  

As of December 31, 2001, the Company has net operating loss carryforwards for
tax purposes of approximately $30,300,000. These carryforwards will expire in
the years 2002 to 2021.

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 allowance has been recorded to offset such amount in
its entirety.

5. COMMITMENTS AND CONTINGENCIES

During 1992, a judgment was rendered in Tax Court (the 1992 Judgment) in a
court case in which Belt Perry Associates (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 remained 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. During 2000, the Company was informed that, due to the
anticipated costs involved in continuing the appeal process, the appeal process
would not be pursued any further. As a result, the revenues previously
deferred pending completion of the appeal process have been recognized in the
accompanying 2000 Consolidated Statement of Operations.

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IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001 and 2000

6. SHAREHOLDERS 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, 2001 and 2000, 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.

During 2001 and 2000, options to purchase 11,175 shares of common stock with a
weighted average exercise price of $1.71 were outstanding. Of those options,
11,175 and 10,007 were exercisable at December 31, 2001 and 2000, respectively.
During 2001 and 2000, no options were granted, exercised, expired or were
forfeited.

In 2001 and 2000 no options were granted to employees.

The following table summarizes information about fixed price stock options
outstanding at December 31, 2001:

|                |  |                                     |        |                  |  |                |     |   |      |   |      | 
|--------------- |  | ----------------------------------- | ------ | ---------------- |  | -------------- | --- | - | ---- | - | ---- | 
|                |  | Options Outstanding and Exercisable
|                |  |                                    
|                |  | Number                              |        | Weighted Ave.    |  | Weighted-     
|Range of        |  | Outstanding                         |        | Remaining        |  | Average       
|Exercise Prices |  | 12/31/01                            |        | Contractual Life |  | Exercise Price
|                |  |                                     |        |                  |  |               
|$0.50           |  |                                     | 3,200  |                  |  | 6.1 years      |     | $ | 0.50 |  
|1.06 - 1.13     |  |                                     | 4,400  |                  |  |                | 6.3 |   |      |   | 1.10 | 
|3.00            |  |                                     | 1,600  |                  |  |                | 2.8 |   |      |   | 3.00 | 
|4.00            |  |                                     | 1,975  |                  |  |                | 4.0 |   |      |   | 4.00 | 
|                |  |                                     |        |                  |  |                |     |   |      |   |      | 
|$0.50 - $4.00   |  |                                     | 11,175 |                  |  |                | 5.3 |   |      | $ | 1.71 | 
|                |  |                                     |        |                  |  |                |     |   |      |   |      | 

F-10