UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
2014
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-12346
IRONSTONE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 95-2829956 |
(State or other jurisdiction of | (IRS Employer Identification No.) |
incorporation or organization) |
Pier 1, Bay 3,909 Montgomery Street, San Francisco, California 9411194133
(Address of principal executive offices, including zip code)
(415) 551-3260
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
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 Exchange Act of 1934 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non- accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]
As of August 1, 2013, 1,872,96413th, 2014, 2,191,691 shares of Common Stock, $0.01 par value, were outstanding.
TOTAL NUMBER OF PAGES:20INDEX TO EXHIBITS AT PAGE: N/A
IRONSTONE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSTABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | |||
Item 1. | Financial Statements (unaudited) | ||
Condensed consolidated balance sheets at June 30, | 3 | ||
Condensed consolidated statements of operations and comprehensive | 4 | ||
Condensed consolidated statements of cash flows for the six months ended June 30, | 5 | ||
Notes to condensed consolidated financial statements | 6 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 14 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | | 15 |
Item 4. Controls and Procedures | | 15 | |
PART II—OTHER INFORMATION | |||
Item | | 16 | |
Item 1A. Risk Factors | 16 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 16 | ||
Item 3. Defaults Upon Senior Securities | 16 | ||
Item 4. Mine Safety Disclosures | 16 | ||
Item 5. Other Information | ` | 16 | |
Item 6. Exhibits | 17 | ||
Signatures | 18 | ||
Exhibit Index |
IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) | ||||||||
June 30, 2014 | December 31, 2013 (1) | |||||||
ASSETS: | ||||||||
Cash | $ | 76,599 | $ | 242,443 | ||||
Investments: | ||||||||
Marketable securities | 18,720 | 12,480 | ||||||
Marketable securities - related party | 371,092 | 944,772 | ||||||
Non-marketable securities | 2,104,931 | 2,001,919 | ||||||
Total assets | $ | 2,571,342 | $ | 3,201,614 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||
Line of credit borrowings | $ | 350,000 | $ | 350,000 | ||||
Accounts payable and accrued expenses | 15,356 | 17,895 | ||||||
Interest payable - related party | 17,115 | 10,120 | ||||||
Advances for future stock issuance | 1 | 230,000 | ||||||
Note payable, net of discount | 1,154,203 | 1,102,580 | ||||||
Note payable - related party | 182,000 | 182,000 | ||||||
Total liabilities | 1,718,675 | 1,892,595 | ||||||
Stockholders' equity (deficit) | ||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no sharesissued and outstanding | ||||||||
Common stock, $0.01 par value, 25,000,000 shares authorized, of which2,618,500 shares are issued and outstanding as of December 31, 2013;2,749,929 shares are issued and outstanding as of June 30, 2014 | 27,499 | 26,185 | ||||||
Additional paid-in capital | 21,808,600 | 21,564,850 | ||||||
Accumulated deficit | (21,714,316 | ) | (21,580,341 | ) | ||||
Accumulated other comprehensive income | 1,253,458 | 1,820,899 | ||||||
1,375,241 | 1,831,593 | |||||||
Less: Treasury Stock, 745,536 shares, at cost | (522,574 | ) | (522,574 | ) | ||||
Total stockholders' equity | 852,667 | 1,309,019 | ||||||
Total liabilities and stockholders' equity | $ | 2,571,342 | $ | 3,201,614 |
(1) Derived from the Company's audited consolidated financial statements
(unaudited) | ||||||||
June 30, 2013 | December 31, 2012 | |||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash | $ | 1,543 | $ | 3,378 | ||||
Marketable securities available for sale, at fair value | 7,800 | 8,580 | ||||||
Salon Media Group, Inc. common stock, at fair value | 7,997 | 7,198 | ||||||
Salon Media Group, Inc. Series C Preferred, at fair value | 84,300 | 75,870 | ||||||
TangoMe Inc. Preferred, at fair value | 1,000,000 | 1,000,000 | ||||||
Total assets | $ | 1,101,640 | �� | $ | 1,095,026 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||
Current liabilities: | ||||||||
Line of credit borrowings | $ | 350,000 | $ | 350,000 | ||||
Note payable to related party | 100,700 | 59,000 | ||||||
Accounts payable and accrued expenses | 38,914 | 38,585 | ||||||
Total liabilities | 489,614 | 447,585 | ||||||
Note payable | 1,054,828 | 1,009,519 | ||||||
Total liabilities | 1,544,442 | 1,457,104 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorizedof which there are no issued and outstanding shares | ||||||||
Common stock, $0.01 par value, 25,000,000 shares authorized, 2,618,500 shares are issued and 1,872,964 are outstanding | 26,188 | 26,188 | ||||||
Additional paid-in capital | 21,558,391 | 21,554,521 | ||||||
Accumulated deficit | (21,503,637 | ) | (21,410,594 | ) | ||||
Accumulated other comprehensive income | (1,170 | ) | (9,619 | ) | ||||
79,772 | 160,496 | |||||||
Less: Treasury Stock, 745,536 shares, at cost | (522,574 | ) | (522,574 | ) | ||||
Total stockholders' equity | (442,802 | ) | (362,078 | ) | ||||
Total liabilities and stockholders' equity | $ | 1,101,640 | $ | 1,095,026 |
The accompanying notes are an integral part of these condensed consolidated financial statements
IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)LOSS
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | $ | 26,396 | $ | 17,535 | $ | 38,716 | $ | 20,305 | ||||||||
State filing fee | 5,240 | 2,400 | 8,240 | 7,000 | ||||||||||||
Stock-based compensation | 6,471 | 774 | 15,064 | 3,870 | ||||||||||||
General and administrative expenses | 35 | 110 | 35 | 200 | ||||||||||||
Total operating expenses | 38,142 | 20,819 | 62,055 | 31,375 | ||||||||||||
Loss from operations | (38,142 | ) | (20,819 | ) | (62,055 | ) | (31,375 | ) | ||||||||
Other expense: | ||||||||||||||||
Interest expense | (32,792 | ) | (29,769 | ) | (64,925 | ) | (58,785 | ) | ||||||||
Interest expense to related party | (3,517 | ) | (1,797 | ) | (6,995 | ) | (2,880 | ) | ||||||||
Net loss | $ | (74,451 | ) | $ | (52,385 | ) | $ | (133,975 | ) | $ | (93,040 | ) | ||||
COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
Net loss | $ | (74,451 | ) | $ | (52,385 | ) | $ | (133,975 | ) | $ | (93,040 | ) | ||||
Unrealized holding gain (loss) arising during the period | (15,189 | ) | 1,560 | (567,440 | ) | 8,449 | ||||||||||
Comprehensive loss | $ | (89,640 | ) | $ | (50,825 | ) | $ | (701,415 | ) | $ | (84,591 | ) | ||||
Basic and diluted loss per share | ||||||||||||||||
Net loss per share | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.04 | ) | ||||
Weighted average shares outstanding | 2,191,689 | 2,618,500 | 2,188,058 | 2,618,500 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2012 | 2013 | 2012 | |||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | $ | 17,535 | $ | 15,940 | $ | 20,305 | $ | 17,248 | ||||||||
State filing fee | 2,400 | 2,400 | 7,000 | 2,400 | ||||||||||||
Amortization | 1,390 | 2,809 | 2,780 | 2,809 | ||||||||||||
General and administrative expenses | 884 | 60 | 4,070 | 324 | ||||||||||||
Total operating expenses | 22,209 | 21,209 | 34,155 | 22,781 | ||||||||||||
Loss from operations | (22,209 | ) | (21,209 | ) | (34,155 | ) | (22,781 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | (30,176 | ) | (20,899 | ) | (58,885 | ) | (33,082 | ) | ||||||||
Net (loss) | $ | (52,385 | ) | $ | (42,108 | ) | $ | (93,040 | ) | $ | (55,863 | ) | ||||
COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
Net loss | $ | (52,385 | ) | $ | (42,108 | ) | $ | (93,040 | ) | $ | (55,863 | ) | ||||
Unrealized holding gain (loss) arising during the period | 1,560 | (3,900 | ) | 8,449 | 41,469 | |||||||||||
Comprehensive income (loss) | $ | (50,825 | ) | $ | (46,008 | ) | $ | (84,591 | ) | $ | (14,394 | ) | ||||
Basic and diluted loss per share: | ||||||||||||||||
Net loss per share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
Weighted average shares | 2,618,500 | 1,872,964 | 2,618,500 | 1,310,660 |
The accompanying notes are an integral part of these condensed consolidated financial statements
IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (133,975 | ) | $ | (93,040 | ) | ||
Adjustments to reconcile net loss to net cash used inoperating activities: | ||||||||
Accretion of discount on notes payable | 5,589 | 2,780 | ||||||
Stock-based compensation amortization | 15,064 | 3,870 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts payable and accrued expenses | (2,539 | ) | 39,975 | |||||
Interest payable - related party | 6,995 | 2,880 | ||||||
Net cash used in operating activities | (108,866 | ) | (43,535 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of non-marketable securities | (103,012 | ) | - | |||||
Net cash used in investing activities | (103,012 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Pay-in-kind interest added to principal | 46,034 | - | ||||||
Note payable to related party | - | 41,700 | ||||||
Net cash provided from financing activities | 46,034 | 41,700 | ||||||
Net decrease in cash | (165,844 | ) | (1,835 | ) | ||||
Cash at beginning of period | 242,443 | 3,378 | ||||||
Cash at end of period | $ | 76,599 | $ | 1,543 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 13,525 | $ | 13,525 | ||||
Supplemental noncash investing and financing activities: | ||||||||
Net unrealized loss on marketable and non-marketableinvestments, net of tax | $ | (464,428 | ) | $ | - | |||
Conversion of advance to common stock | $ | 230,000 | $ | - |
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (93,040 | ) | $ | (55,863 | ) | ||
Adjustments to reconcile net loss to net cash used inoperating activities: | ||||||||
Discount amortization | 2,780 | 2,809 | ||||||
Stock-based compensation | 3,870 | |||||||
Changes in operating assets and liabilities: | 42,855 | 33,118 | ||||||
Accounts payable and Accrued expenses | (43,535 | ) | (19,936 | ) | ||||
Net cash used in operating activities | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchased Non Marketable TangoMe, Inc | (1,000,000 | ) | ||||||
Net cash used in investing activities | - | (1,000,000 | ) | |||||
| ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Note payable to related party | 41,700 | 19,000 | ||||||
Note payable | 1,000,000 | |||||||
Net cash provided from financing activities | 41,700 | 1,019,000 | ||||||
| ||||||||
Net increase (decrease) in cash | (1,835 | ) | (936 | ) | ||||
| ||||||||
Cash at beginning of period | 3,378 | 5,154 | ||||||
| ||||||||
Cash at end of period | $ | 1,543 | $ | 4,218 | ||||
| ||||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for interest | $ | 13,525 | $ | 13,600 |
The accompanying notes are an integral part of these condensed consolidated financial statements
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20132014
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Ironstone Group, Inc. and subsidiaries have no operations but are seeking appropriate business combination opportunities.
Ironstone Group, Inc. (“Ironstone” or the “Company”), a Delaware corporation, was incorporated in 1972.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Ironstone Group, Inc. and its subsidiaries, AcadiEnergy, Inc., Belt Perry Associates, Inc., DeMoss Corporation, and TaxNet, Inc., (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The unaudited condensed consolidated financial statements included herein have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2014, the results of its operations for the three and six month periods ended June 30, 2014 and June 30, 2013, and its cash flows for the six month periods ended June 30, 2014 and June 30, 2013. The results of operations for the periods presented are not necessarily indicative of those that may be expected for the full year. The condensed consolidated financial statements presented herein have been prepared by management, without audit by independent auditors who do not express an opinion thereon, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The December 31, 2013 condensed consolidated balance sheet data was derived from audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 but does not include all disclosures required for annual periods. Certain reclassifications have been made to conform to the current period’s presentation.
There have been no significant changes in the Company’s significant accounting policies that were disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Marketable and Non-Marketable Securities
Marketable and non-marketable securities have been classified by management as available for sale in accordance with ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, marketable securities are recorded at fair value and any unrealized gains orand losses are excluded from earnings and reported as a separate component of stockholders’shareholders’ equity until realized. The fair value of the Company’s marketable securities and investments at June 30, 20132014 is based on quoted market prices. For the purpose of computing realized gains and losses, cost is identified on a specific identification basis. For marketable securities for which there is an other-than-temporary impairment, an impairment loss is recognized as a realized loss, and related adjustments are not made for recovery in value.
Unaudited Interim Financial StatementsIRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities determined to be non-marketable by the Company do not have readily determinable fair values. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted inCompany estimates the United Statesfair value of America for interim financial information. Certain informationthese instruments using various pricing models and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although Ironstone believes that the following disclosures are adequate to make the information presented not misleading. Inavailable to the opinionCompany that it deems most relevant. Among the factors considered by the Company in determining the fair value of management, all adjustments considered necessaryfinancial instruments are discounted anticipated cash flows, the cost, terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield, the Black-Scholes Options Valuation methodology adjusted for active market, the share price of recent round of financings by an outsider, and other considerations on a faircase-by-case basis and comparable presentation have been included and areother factors generally pertinent to the valuation of a normal recurring nature. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2012.
instruments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaUS GAAP 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. Significant estimates made in the financial statements relate to the valuation of the Company’s non-marketable investments. Actual results could differ from those estimates.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS”) excludes dilution and is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares actually outstanding during the period. Diluted EPS reflects the dilution from potentially dilutive securities, except where inclusion of such potentially dilutive securities would have an anti-dilutive effect, using the average stock price during the period in the computation and because of the net loss for the periods presented.
Income Taxes
The Company and its wholly owned subsidiaries file a consolidated federal income tax return. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred income taxes. Deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Deferred income taxes are also recognized for net operating loss carryforwards that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Recent Accounting PronouncementsIronstone follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Company to determine whether a tax position of Ironstone is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company has determined that there is no effect on the financial statements from this authoritative guidance.
The Company doesfiles tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local, and foreign jurisdictions, where applicable. All tax years are subject to examination by the U.S. and California tax authorities due to the carryforward of unutilized net operating losses. The Company had no accrual for interest or penalties as of June 30, 2014 and December 31, 2013.
Stock-Based Compensation
Ironstone recognizes the fair value of stock options granted on a straight-line basis over the requisite service period of the option grant, which is the standard vesting term of four years.
The full impact of stock-based compensation in the future is dependent upon, among other things, the total number of stock options granted, the fair value of the stock options at the time of grant and the tax benefit that Ironstone may or may not expectreceive from stock-based expenses. Additionally, stock-based compensation requires the adoptionuse of any recent accounting pronouncements will havean option-pricing model to determine the fair value of stock option awards. This determination of fair value is affected by Ironstone’s stock price as well as assumptions regarding a material impact onnumber of highly complex and subjective variables. These variables include, but are not limited to Ironstone’s expected stock price volatility over the Company’s consolidated financial statements.term of the awards.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
(UNAUDITED)Basic and Diluted Loss per Share
Basic loss per share (“EPS”) excludes dilution 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 dilution from potentially dilutive securities, except where inclusion of such potentially dilutive securities would have an anti-dilutive effect because of the net loss for the periods presented.As of June 30, 2014, the Company does not have any potentially dilutive securities.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(“ASU 2013-11”) to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 was effective for the Company in the first quarter of fiscal 2014 and its adoption did not have an impact on the Company’s consolidated financial statements in the quarter ended June 30, 2014.
2. FAIR VALUE of FINANCIAL INSTRUMENTSMEASUREMENTS
Due toFair value is defined under the short maturity of cash, accounts payable, the line of credit,Financial Accounting Standards Board (“FASB”) Accounting Standards Board (“ASC”) 820, “Fair Value Measurement and the note payable, the carrying amount reported in the consolidated balance sheets approximates fair market value.
Effective January 1, 2008, the Company adopted ASC 820, “Fair Value Measurements and Disclosures”Disclosures”. ASC 820 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of AmericaU.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:as follows:
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In addition to using the guidelines set forth in ASC 820 for valuing fixed income securities, each company is also required to disclose information that enables users of its financial statements to assess the inputs used to develop those valuations.Market values were determined for each security in the investment portfolio Level 1–Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, prices and quoted market prices for similar securities.valuation of these products does not entail a significant degree of judgment.
Quoted Market Prices In Active Markets Significant Other Observable Input Significant Other Unobservable Input Total Carrying Value In The Consolidated Balance Sheet at Description (Level 1) (Level 2) (Level 3) Securities available for sale Level 2–Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. June 30, 2013 $ 15,797 $ 1,084,300 $ 1,098,537
Quoted Market Prices In Active Markets Significant Other Observable Input Significant Other Unobservable Input Total Carrying Value In The Consolidated Balance Sheet at Description (Level 1) (Level 2) (Level 3) Securities available for sale Level 3–Valuations based on inputs that are unobservable and significant to the overall fair value measurement. December 31, 2012 $ 15,778 $ 1,075,870 - $ 1,091,648
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement.
The Company’s assets and liabilities that are measured at fair value on a non-recurring basis include cash, accounts payable, accrued expenses, and interest payable given their short-term nature. Furthermore, the fair value of the Company’s notes payable are initially measured at fair value given that they are estimated based on current rates that would be available for debt of similar terms.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. FAIR VALUE MEASUREMENTS(continued)
The following tables provide information about the Company’s financial instruments measured at fair value on a recurring basis at June 30, 2014 and December 31, 2013 by the fair value hierarchy:
Balance as of | ||||||||||||||||
June 30, | ||||||||||||||||
Level 1 | Level 2 | Level 3 | 2014 | |||||||||||||
Investments: | ||||||||||||||||
Publicly traded common stock | $ | 389,812 | $ | - | $ | - | $ | 389,812 | ||||||||
Private company preferred stock | - | - | 2,104,931 | 2,104,931 | ||||||||||||
Total | $ | 389,812 | $ | - | $ | 2,104,931 | $ | 2,494,743 |
Balance as of | ||||||||||||||||
December 31, | ||||||||||||||||
Level 1 | Level 2 | Level 3 | 2013 | |||||||||||||
Investments: | ||||||||||||||||
Publicly traded common stock | $ | 957,252 | $ | - | $ | - | $ | 957,252 | ||||||||
Private company preferred stock | - | - | 2,001,919 | 2,001,919 | ||||||||||||
Total | $ | 957,252 | $ | - | $ | 2,001,919 | $ | 2,959,171 |
The following tables present the Company’s investments measured at fair value using significant unobservable inputs (Level 3), including the valuation technique and unobservable inputs used to measure the fair value of those financial instruments:
Fair Value as of | |||||||
June 30, | |||||||
2014 | Valuation Technique | Unobservable Inputs | |||||
Private company preferred stock | $ | 2,104,931 | A recent round of financing | Third party transaction |
Fair Value as of | |||||||
December 31, | |||||||
2013 | Valuation Technique | Unobservable Inputs | |||||
Private company preferred stock | $ | 2,001,919 | A recent round of financing | Third party transaction |
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. FAIR VALUE MEASUREMENTS (concluded)
The following table presents additional information about Level 3 assets measured at fair value on a recurring basis. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, unrealized gains or (losses) during the period for assets and liabilities within the Level 3 category presented in the table below may include changes in fair value during the period that were attributable to both observable and unobservable inputs.
Investments | ||||
Balance as of January 1, 2013 | $ | - | ||
Transfers into Level 3 | 1,000,000 | |||
Unrealized gain on investments | 1,001,919 | |||
Balance as of December 31, 2013 | 2,001,919 | |||
Purchases of Level 3 | 103,012 | |||
Balance as of June 30, 2014 | $ | 2,104,931 |
Transfers of financial instruments occur when there are changes in pricing observability levels. Transfers of financial instruments among the levels occur at the beginning of the reporting period. Transfers into Level 3 for fiscal year 2013 are attributed to the lack of observable inputs available for these securities beginning January 1, 2013.
3. INVESTMENTS
TANGO ME, INC.TangoMe, Inc.
On March 30, 2012, the Company purchased 468,121 shares of Series A Preferred stock from related party William R. Hambrecht at $2.1362$2.14 per share, ($1,000,000). Theresulting in a total investment of $1,000,000. For the year ended December 31, 2013, the Company recorded an unrealized gain of $1,001,919, bringing the total value of this transaction was determined using the investment in TangoMe, Inc. to $2,001,919 as of December 31, 2013. The fair value as of December 31, 2013 was based on a round of financing where similar securities were sold to related and unrelated third parties. ThereThis recent round of financing was no changealso determined to be the best estimate of fair value as of June 30, 2014. The use of a recent round of financing for TangoMe, Inc. is the primary significant unobservable input used in the fair value measurement of this investment to June 30, 2013.the Company’s investment. Significant increases (decreases) in any subsequent rounds of financing would result in a significantly higher (lower) fair value measurement.
SALON MEDIA GROUP, INC.Arcimoto, Inc.
On June 6, 2014 the Company purchased 37,000 shares of Series A-1 Preferred Stock from Arcimoto, Inc. This purchase price of $103,012 was determined to be the best estimate of fair value as of June 30, 2014. Significant increases (decreases) in any subsequent rounds of financing would result in a significantly higher (lower) fair value measurement.
Salon Media Group, Inc.
The Company owns 1,926,857 shares of Common Stock of Salon Media Group, Inc. These shares resulted from the April 24, 2013 exchange of 843 shares of Series C Preferred Stock of Salon Media Group Inc. This investment ofin common shares of Salon is valued at the $.0438$0.16 and $.0394$0.45 per share, or $84,300$308,297 and $75,870$867,086 at June 30, 20132014 and December 31, 20122013, respectively. For the three months ended June 30, 2014 and 2013, the Company recorded a related unrealized loss of $19,269 and a related unrealized gain of $8,430, respectively. For the six months ended June 30, 2014 and 2013, the companyCompany recorded a related unrealized loss of $558,789 and a related unrealized gain of $8,430, respectively.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INVESTMENTS (concluded)
Additionally, in conjunction with making the investment in Salon, the Company received warrants to purchase common stock in Salon. In 2006, the Company exercised its warrants to purchase a total of 79,970 shares of common stock of Salon. This investment in common shares of Salon is valued at $.10$0.16 and $.09$0.45 per share, or $7,997and $7,198$12,795 and $35,987, at June 30, 20132014 and December 31, 2012,2013, respectively. For the three months ended June 30, 2014, the Company recorded a related unrealized loss of $798. The Company did not recognize a change in value of the shares for the three months ended June 30, 2013. For the six months ended June 30, 2014 and 2013, the Company recorded a related unrealized loss of $23,192 and a related unrealized gain of $799, respectively.
FlexiInternational Software, Inc.
The Company owns 78,000 shares of FlexiInternational Software stock. The investment in common shares of FlexiInternational is valued at $0.24 and $0.16 per share, or $18,720 and $12,480 at June 30, 2014 and December 31, 2013, respectively. For the three months ended June 30, 2014 and 2013, the Company recorded a related unrealized gain of $799.
The quoted market price for the Salon Media Group at June 30, 2012 was $.13; however, as we recorded an other-than-temporary loss on these securities in 2009, we did not adjust the carrying value for this subsequent recovery in value.
Flexi
The Company owns 78,000 shares of Flexi International Software stock$4,680 and accounts for this investment as an available-for-sale security on its balance sheet. The investment in common shares of Flexi is valued at $.10 and $.11 per share, or $7,800and $8,580 at June 30, 2013 and December 31, 2012,$1,560, respectively. For the six months ended June 30, 2014 and 2013, the Company recorded a related unrealized gain of $6,240 and unrealized loss of $780.$780, respectively.
IRONSTONE GROUP, INC. AND SUBSIDIARIESTruett-Hurst, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company owns 10,000 shares of Truett-Hurst stock, which were purchased on November 20, 2013. The investment in common shares of Truett-Hurst is valued at $5.00 and $4.17 per share, or $50,000 and $41,700 at June 30, 2014 and December 31, 2013,
(UNAUDITED) respectively. For the three and six months ended June 30, 2014 the Company recorded a related unrealized gain of $200 and $8,300, respectively.
4. RELATED PARTY TRANSACTIONS
A Director and a former President and Chief Executive Officer of Salon is the sister of a member of the Board of Directors and the daughter of the Chief Executive Officer.
Mr. William R Hambrecht, Chief Executive Officer, is a minority stockholdershareholder in Salon Media Group.Group, Inc. and Truett-Hurst, Inc.
On January 14, 2013Ms. Elizabeth Hambrecht, Chief Financial Officer, is currently the Company borrowed $5,000 from Mr. William R.interim Chief Financial Officer of Salon Media Group, Inc. Ms. Hambrecht at 7.75% interest withformerly served as President and Chief Executive Officer of Salon Media Group, Inc. Ms. Hambrecht is also the sister of a December 31, 2013 maturity.
On February 13, 2013member of the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.
On April 1, 2013Board of Directors, and is the Company borrowed $4,600 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.
On April 5, 2013daughter of the Company borrowed $11,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.
On April 17, 2013 the Company borrowed $6,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.
On May 10, 2013 the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.
On June 12, 2013 the Company borrowed $5,100 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2013 maturity.Chief Executive Officer.
5. NOTENOTES PAYABLE
On March 31, 2012, the Company received $1,000,000 from a third party and issued a related promissory note. ThisThe note carries an 8% interest rate, per annum, and has a maturity date of March 31, 2017. Interest accrues on the balance and converts to separate notes payable on a quarterly basis. The total amounts due under this agreement, including the notes related to accrued interest, are due in full at the end of the term. The note is secured by all of the assets of the Company through an accompanying security agreement. If the Company defaults on the note or security agreement, interest would accrue at 10% per annum. The gross amounts payable under the agreement as of June 30, 2014 and December 31, 2013 were $1,195,028 and $1,148,994, respectively.
In connection with the note agreement, the Company also issued warrants to this third party to purchase 187,296 shares of the Company’s common stock, at a pricefor total consideration of $1. If the third party elects to purchase only a portion of the allotted shares, then the purchase price shall be prorated for the portion purchased. The warrants were separately valued using the Black-Scholes model, and it was determined the fair value of the warrants at March 31, 2012 was $56,188. This amount has been recorded as a discount on the $1,000,000 note payable and willpayableto be amortized over the 5 year term of the note.
The inputs tounamortized balance of the Black-Scholes model werediscount was $40,825 and $46,414 as follows: Stock price at March 31, 2012 of $.30; Exercise price of $.000005; Expected term of 10 years; Risk-free interest rate of 4.84%; Dividend rate of 0; Volatility of 60%. All 187,296 warrants were issued and outstanding at June 30, 2014 and December 31, 2013.
Shares Exercise Price Expiration Options outstanding at January 1, 2012 Granted March 31,2017 Options outstanding at June 30, 2013 0 187,296 .000005 187,296
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. NOTES PAYABLE (concluded)
Furthermore, on December 31, 2013 the Company entered into a note payable agreement with a related party, William R. Hambrecht. This note carries a 7.75% interest rate per annum and has a maturity date of December 31, 2014. The note payable carried a principal balance of $182,000 as of June 30, 2014 and December 31, 2013, with additional accrued interest of $17,115 and $10,120, respectively.
The scheduled maturities of notes payable outstanding as of June 30, 2014 are as follows:
2014 | 2015 | 2016 | 2017 | Total | ||||||||||||||||
Notes Payable | $ | - | $ | - | $ | - | $ | 1,195,028 | $ | 1,195,028 | ||||||||||
Notes Payable - related party | 182,000 | - | - | - | $ | 182,000 | ||||||||||||||
Total | $ | 182,000 | $ | - | $ | - | $ | 1,195,028 | $ | 1,377,028 |
6. LINE OF CREDIT ARRANGEMENT
The Company has a line of credit arrangement with First Republic Bank (the “lender”) with a borrowing limit of $350,000. Interest is based upon the lender’s prime rate plus 4.5% and is payable monthly. At June 30, 2014 and December 31, 2013, interest was being paid at a rate of 7.75%. The line is guaranteed by both William R. Hambrecht, Director and Chief Executive Officer, and Robert H. Hambrecht, Director. Furthermore, the line of credit is due on demand and is secured by all of the Company’s business assets. At June 30, 2014 and December 31, 2013, the outstanding balance under the line was $350,000, respectively. The total recorded interest expense on this note for the three months ended June 30, 2014 and June 30, 2013 was $6,837, respectively. The total recorded interest expense on this note for the six months ended June 30, 2014 and June 30, 2013 was $13,525, respectively. The line of credit is renewable on a yearly basis based upon the lender’s review and matures on September 11, 2014.
7. INCOME TAXES
The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating losses and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such assets will not be realized. The Company continues to monitor the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limitation on the availability of net operating loss carryforwards to offset taxable income when an ownership change occurs. Due to the redemption of shares of common stock in 2003, the Company underwent such an “ownership change.” Therefore, the Company’s use of losses incurred through the date of the “ownership change” will be limited to approximately $49,000 per year.
In the opinion of management, based on the uncertainty that the Company will be able to generate taxable income in the future, the realization of the loss carryforwards is not likely and, accordingly, a valuation allowance has been recorded to offset such amount in its entirety.
The Company is subject to taxation in the U.S. and the state of California.All tax years are subject to examination by the U.S. and California tax authorities due to the carryforward of unutilized net operating losses. The Company had no accrual for interest or penalties on the balance sheet at June 30, 2014 and December 31, 2013.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. STOCKHOLDERS’8. SHAREHOLDERS’ EQUITY
Common Stock
On January 2, 2014, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with new investors and existing investors (each, a “Share Purchaser” and, collectively, the “Share Purchasers”), pursuant to which, the Company issued and sold to such Share Purchasers 131,429 shares of the Company’s Common Stock, representing approximately 7% of Ironstone’s outstanding equity securities on the date of purchase, for an aggregate purchase price of $230,000.
On May 1, 2014, a third party exercised warrants for 187,296 shares of the Company’s Common Stock. As of June 30, 2014, the Company had yet to issue 187,296 shares from the warrant exercise to the third party. The shares payable of $1 are included in Advances for future stock issance in the Company’s consolidated balance sheet.
Treasury Stock –
On September 15, 2003, the Board of Directors authorized the Company to purchase 745,536 shares of Company common stock at $0.70 per share for an aggregate purchase price of $521,875. The repurchase represented 50.11% of the issued and outstanding shares of the Company. During the year ended December 31, 2008, the Company paid $699 for fractional Treasury shares. As of June 30, 2014 and December 31, 2013, the treasury shares are held by the Company.
Preferred Stock –
The Company is authorized to issue up to five million shares of preferred stock without further shareholder approval;approval, the rights, preferences and privileges of which would be determined at the time of issuance. No shares have ever been issued.issued as of June 30, 2014 and December 31, 2013.
Stock Option Plans --
The Company has adopted a 2013 Equity Incentive Plan. As of January 30, 2013, 187,296 shares were available for grant under the Plan. The plan provideprovides for incentive stock options to be granted at times and prices determined by the Company’s Board of Directors,Directors. The stock options are to be granted to directors, officers and employees of the Company, as well as certain consultants and other persons providing services to the Company.
70,000 stock options were granted on January 30, 2013. The fair value of these options granted under the Plan were estimated using the Black-Scholes model with following price and assumptions: Stock Price $.20, Exercise Price $.20, Time to Maturity 6.33 years, Risk-free Interest Rate 4%, Annualized Volatility 121%.
An additional 100,000 stock options were granted on August 20, 2013. The fair value of these options granted under the Plan were estimated using the Black-Scholes model with following price and assumptions: Stock Price $1.20, Exercise Price $1.20, Time to Maturity 4.0 years, Risk-free Interest Rate 1.1%, Annualized Volatility 93%.
For the sixthree months period ended June 30, 2014 and 2013, the Company recorded share based compensation expense related to stock options in the amount of $3,870 on the 70,000 stock options issued January 30, 2013.
7. LINE OF CREDIT ARRANGEMENT
The Company has a line of credit arrangement with First Republic Bank (the “lender”) with a borrowing limit of $350,000 with interest based upon the lender’s prime rate. Interest is payable monthly at 7.75%at June 30, 2013. The line is guaranteed by William R. Hambrecht, Chief Executive Officer, Director$6,471 and Robert H. Hambrecht, Director. The line of credit is due on demand and is secured by all of the Company’s business assets. At June 30, 2013, the outstanding balance under the line was $350,000.The total recorded interest expense on this note for$0, respectively. For the six months ended June 30, 2014 and 2013, the Company recorded share based compensation expense related to stock options in the amount of $15,062 and 2012 was $13,525 and $13,600 (this amount was also paid during each respective period).
8. GOING CONCERN$3,870, respectively.
As reflected inof June 30, 2014 and December 31, 2013, Ironstone had an aggregate of $77,068 and $80,765 of stock-based compensation, respectively, remaining to be amortized to expense over the accompanying financial statementsremaining requisite service period of the Company has net lossesunderlying options. As of June 30, 2014, Ironstone expects this stock-based compensation balance to be amortized as follows: $12,942 during fiscal year 2014; $25,884 during fiscal year 2015; $25,884 during fiscal year 2016; and has a negative cash flow from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. If necessary the Company may seek to sell additional debt or equity securities or enter into new credit facilities to meet its cash needs. The Company cannot make assurances that it will be able to complete any financing or liquidity transaction, that such financing or liquidity transaction will be adequate for the Company’s needs, or that a financing or liquidity transaction will be completed in a timely manner.$12,358 during fiscal year 2017.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Item 2. Management's Discussion and Analysis of Financial Condition and ResultsResult of OperationsOperation
Special Note Regarding Forward-Looking Statements
Certain of the statements in this document that are not historical facts, including, without limitation, statements of future expectations, projections of financial condition and results of operations, statements of future economic performance and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to differ materially from those contemplated in such forward-looking statements. In addition to the specific matters referred to herein, important factors which may cause actual results to differ from those contemplated in such forward-looking statements include (i) the results of the Company’s efforts to implement its business strategy; (ii) actions of the Company’s competitors and the Company’s ability to respond to such actions; (iii) changes in governmental regulation, tax rates and similar matters; and (iv) other risks detailed in the Company’s other filings with the Commission.SEC.
Results of Operations
Comparison of 20132014 to 20122013
Operating expenses forFor the three-monththree month period ended June 30, 20132014, operating expenses increased $1,000$17,323 or 5%83% as compared to the same period in 2012. This was primarily due to an increase note amortization and general administrative expenses
Operating expenses for the six-month period ended June 30, 2013 increased $11,374 or 50% as compared to the same period in 2012.fiscal year 2013. This was primarily due to an increase in professional fees, state filingand stock-based compensation expense.
For the six-month period ended June 30, 2014, operating expenses increased $30,680 or 98% as compared to the same period in fiscal year 2013. This was primarily due to an increase in professional fees, and general administrative expenses.
stock-based compensation expense.
Liquidity and Capital Resources
Net cash used in operating activities for the three months ended June 30, 2014 and 2013 was $69,810 and $32,742 respectively. The net cash used in operating activities for the three and six months ended June 30, 2014 and 2013 was $43,535. We have working capital$108,866 and $43,535, respectively. The Company has cash and marketable securities of $466,411 at June 30, 20132014. We believe that our current cash and marketable security balances will be sufficient to meet our operating and capital requirements for at December 31, 2012 of $632,026least the next 12 months. We may use cash from time to time to make additional investment acquisitions. We may be required to raise funds through public or private financings, strategic relationships or other arrangements. We cannot assure you that such funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and $647,441, respectively.debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed could harm our ability to pursue our business strategy and achieve and maintain profitability.
To meet its cash needs duringThe Company has a line of credit arrangement with First Republic Bank with a borrowing limit of $350,000 with interest based upon the second quarter of 2013,lender’s prime rate. Interest is payable monthly at 7.75%. The line is guaranteed by William R. Hambrecht, lent $31,700 toChief Executive Officer, Director and Robert H. Hambrecht, Director. Furthermore, the Company.line of credit is due on demand and is secured by all of the Company’s business assets. At June 30, 2014 and December 31, 2013 the outstanding balance under the line was $350,000.
The Company may obtain additional equity or working capital through additional 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.
While the Company explores new business opportunities, the primary capital resource of the Company isrelates to the March 30, 2012 purchase of 468,121 shares of non-marketable investment TangoMe, Inc. The investment in TangoMe, Inc. shares is valued at $2,001,919 at June 30, 2014 and December 31, 2013, respectively. Given that the investment in TangoMe, Inc. does not have a pricereadily determinable fair value, the Company exerts significant judgment in estimating the fair value using various pricing models and the information available to the Company that it deems most relevant.
Furthermore, on June 6, 2014 the Company purchased 37,000 shares of $2.1362Series A-1 Preferred stock from Acrimoto, Inc. at $2.703 per share, or $1,000,000 at June 30, 2013.$103,012. Given that the investment in Acrimoto, Inc. does not have a readily determinable fair value, the Company exerts significant judgment in estimating the fair value using various pricing models and the information available to the Company that it deems most relevant.
Also anotherAnother capital resource of the Company is 1,926,857 shares of Common Stock of Salon Media Group, Inc. common. These shares were converted onresulted from the April 24, 2013 fromexchange of 843 shares of Series C Preferred Stock.Stock of Salon Media Group Inc. The investment in common shares of Salon is valued at a price of $.0438 per share, or $84,300$308,297 and $867,086 at June 30, 2013.2014 and December 31, 2013, respectively. For the three months ended June 30, 2014 and 2013, the Company recorded a related unrealized loss of $19,269 and a related unrealized gain of $8,430, respectively. For the six months ended June 30, 2014 and 2013, the Company recorded a related unrealized loss of $558,789 and a related unrealized gain of $8,430, respectively.
The quoted market price for the Salon Media Group, common at June 30, 2013 was $.13 per share, however, as we recorded an other-than-temporary loss on these securitiesAdditionally, in 2009, we did not adjust the carrying value for this subsequent recovery in value.
As of July 12, 2013, Salon’s common stock was quoted at $.12 per share. There can be no assurance that a market will continue to exist for the common stock of Salon.
Item 2. Management's Discussion and Analysis and Results of Operations (concluded)
In conjunction with making the investment in Salon, the Company received warrants to purchase common stock in Salon. In 2006, the Company exercised its warrants to purchase a total of 79,970 shares of common stock of Salon.TheSalon. This investment in common shares of Salon is valued at $.10 per share, or $7,997 at$12,795 and $35,987 as of June 30, 2013.
The quoted market price2014 and December 31, 2013, respectively. For the three months ended June 30, 2014, the Company recorded a related unrealized loss of $798. There was no change in value of the shares for the Salon Media Group, common atthree months ended June 30, 2013. For the six months ended June 30, 2014 and 2013, was $.13 per share, however, as wethe Company recorded an other-than-temporarya related unrealized loss on these securities in 2009 (down to $.10 per share), we did not adjust the carrying value for this subsequent recovery in value.of $23,192 and a related unrealized gain of $799, respectively.
AsThe Company owns 10,000 shares of July 12,Truett-Hurst stock and accounts for this investment as an available-for-sale security on its balance sheet. The investment was purchased on November 20, 2013. The investment in common shares of Truett-Hurst is valued at $50,000and $41,700 at June 30, 2014 and December 31, 2013, Salon’s common stock was quoted at $.12 per share. There can be no assurance thatrespectively. For the three and six months ended June 30, 2014, the Company recorded a market will continue to exist for the common stockrelated unrealized gain of Salon.$200 and $8,300, respectively.
The Company owns 78,000 shares of Flexi InternationalFlexiInternational Software stock and accounts for this investment as an available-for-sale security on its balance sheet. The investment in common shares of Flexi is valued at $.10 and $.11 per share, or $7,800and $8,580$18,720and $12,480 at June 30, 20132014 and December 31, 2012,2013, respectively. For the three months ended June 30, 2014 and 2013, the Company recorded a related unrealized gain of $4,680 and $1,560, respectively. For the six months ended June 30, 2014 and 2013, the Company recorded a related unrealized gain of $6,240 and unrealized loss of $780.$780, respectively.
Trends and Uncertainties
Termination of Historical Business Lines
Since winding down the Company’s traditional lines of business, Management and the Board of Directors have been seeking appropriate business opportunities for the Company. In the alternative, management and the Board are looking for an investment opportunity for the Company to invest some or all of its remaining liquid assets. Otherwise, the Company’s cash assets are invested in corporate securities and demand deposit accounts. If the Company does not find an operating entity to combine with, and if its assets are not invested in certain types of securities (primarily government securities), it may be deemed to be an investment company under the terms of the Investment Company Act of 1940, as amended.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4T.4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to the Company is made known to the officers who certify the financial statements and to other members of senior management and the Board of Directors.
We conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as ofasof June 30, 2013,2014, our disclosure controls and procedures are not effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting for the three-months endedthree monthsended June 30, 20132014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Controls over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Therefore, even effective internal control over financial reporting can provide only reasonable, and not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time.
Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of June 30, 2013.2014. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our evaluation, management concluded that, as of June 30, 2013,2014, our internal control over financial reporting was not effective based on those criteria because of the existence of the following material weaknesses.weaknesses:
1) | The Company does not have an adequate number of independent board members |
2) | Our limited number of employees results in the Company’s inability to have a sufficient segregation of duties within its accounting and financial reporting activities. |
These absences constitute material weaknesses in the Company’s corporate governance structure. These weaknesses were also reported in our December 31, 20122013 Form 10-K filing. Despite the existence of these material weaknesses, management of the Company believes the financial information presented in this report is materially correct and in accordance with Generally Accepted Accounting Principles.
PART II - Other Information
ITEM 1 – LEGAL PROCEEDINGS
None.
ITEM 1a – RISK FACTORS
The Company’s main assets are investments in non-marketable securities of TangoMe, Inc. and Arcimoto, Inc., and marketable securities of Salon Media Group, Inc, Truett-Hurst, Inc., and FlexiInternational Software Inc. There can be no assurance that a market will continue to exist for these investments.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFTY DISCLOSURES
None.
ITEM 5 – OTHER INFORMATION
Item 5. Other InformationNone.
On January 29, 2013 Helen Miazga was appointed Secretary, replacing Robert H Hambrecht in this position.
PART II – OTHER INFORMATION
Item 6. Exhibits
ITEM 6 - EXHIBITS
31.1 | Section 302 – Principal Executive Officer Certification |
31.2 | Section 302 – Principal Financial Officer Certification |
32.1 | Section 1350 – Certification – Chief Executive Officer |
32.2 | Section 1350 – Certification – Chief Financial Officer |
101.INS**101.INS XBRL Instance
101.SCH**101.SCH XBRL Taxonomy Extension Schema
101.CAL**101.CAL XBRL Taxonomy Extension Calculation
101.DEF**101.DEF XBRL Taxonomy Extension Definition
101.LAB**101.LAB XBRL Taxonomy Extension Labels
101.PRE**101.PRE XBRL Taxonomy Extension Presentation
** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933,
as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability
under these sections.
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-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
IRONSTONE GROUP, INC. | ||
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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.
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/s/ |
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| William R. Hambrecht |
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| Chief Executive Officer |
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