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 QUARTER ENDED JUNE 30, 2015 |
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☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-12346
IRONSTONE GROUP, INC.
(Exact nameName of Registrant as specified in its charter)
Delaware | 95-2829956 | |
(State or other jurisdiction of |
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incorporation or organization) |
| (IRS Employer Identification No.) |
909 Montgomery Street, San Francisco, California 94133
(Address of principal executive offices, including zip code)
(415) 551-8600
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
NONENone
(Former name, former address and former fiscal year,
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
Indicate by check mark if changed since last report)the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No[X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No[X]
Indicate by check mark whether the registrantRegistrant (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 registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,Web site, 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][X ] No [ ]
Indicate by check mark whether the registrantRegistrant 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”as defined in Rule 12b-2 of the Exchange Act.
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| 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 [ ] No [X]No[ X ]
As of November 13th, 2014, 2,191,691August 15, 2015, 2,191,689 shares of Common Stock, $0.01 par value, were outstanding.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page | |
| PART | |
Item 1. Financial Statements (unaudited) | |
Condensed consolidated balance sheets | 3 |
Condensed consolidated statements of | 4 |
Condensed consolidated statements of cash flows for the | 5 |
| Notes to condensed consolidated financial statements | 6 – 14 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results | 15 - 16 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 16 |
Item 4. Controls and Procedures |
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PART | |
Item 1. Legal Proceedings |
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Item 1A. Risk Factors |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
18 |
Item 3. Defaults Upon Senior Securities |
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Item 4. Mine Safety Disclosures |
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Item 5. Other Information | 18 |
Item 6. Exhibits | 18 |
Signatures | 19 |
Exhibit Index |
PART I. FINANCIAL INFORMATION
ITEM I – FINANCIAL STATEMENTS
IRONSTONE GROUP, INCINC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (unaudited) | ||||||||
| September 30, | December 31, | |||||||
| 2014 | 2013 (1) | |||||||
ASSETS: | ||||||||
Cash | $ | 48,183 | $ | 242,443 | ||||
Investments: | ||||||||
Marketable Securities | 13,260 | 12,480 | ||||||
Marketable Securities - related party | 838,162 | 944,772 | ||||||
Non-marketable securities | 2,674,677 | 2,001,919 | ||||||
Total Assets | $ | 3,574,282 | $ | 3,201,614 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Line of credit borrowings | $ | 350,000 | $ | 350,000 | ||||
Accounts payable and accrued expenses | 9,016 | 17,895 | ||||||
Interest payable - related party | 20,670 | 10,120 | ||||||
Advances for future stock issuance | - | 230,000 | ||||||
Note payable, net of discount | 1,181,051 | 1,102,580 | ||||||
Note payable - related party | 182,000 | 182,000 | ||||||
Total Liabilities | 1,742,737 | 1,892,595 | ||||||
Stockholders' equity | ||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.01 par value, 25,000,000 shares authorized, of which 2,618,500 shares are issued and outstanding as of December 31, 2013; 2,937,225 shares are issued and outstanding as of September 30, 2014 | 29,372 | 26,185 | ||||||
Additional paid-in capital | 21,813,199 | 21,564,850 | ||||||
Accumulated deficit | (21,776,266 | ) | (21,580,341 | ) | ||||
Accumulated other comprehensive income | 2,287,814 | 1,820,899 | ||||||
| 2,354,119 | 1,831,593 | |||||||
Less: Treasury stock, 745,536 shares at cost | (522,574 | ) | (522,574 | ) | ||||
Total Stockholders' equity | 1,831,545 | 1,309,019 | ||||||
Total Liabilities and stockholders' equity | $ | 3,574,282 | $ | 3,201,614 | ||||
(1) Derived from the Company's audited consolidated financial statements
(unaudited) | ||||||||
June 30, 2015 | December 31, 2014 (1) | |||||||
ASSETS: | ||||||||
Cash | $ | 5,493 | $ | 25,817 | ||||
Investments: | ||||||||
Marketable securities | 23,220 | 51,400 | ||||||
Marketable securities - related party | 260,887 | 260,887 | ||||||
Non-marketable securities | 2,697,358 | 2,674,677 | ||||||
Total assets | $ | 2,986,958 | $ | 3,012,781 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY: | ||||||||
Line of credit borrowings | $ | 350,000 | $ | 350,000 | ||||
Accounts payable and accrued expenses | 38,087 | 12,089 | ||||||
Interest payable - related party | 31,220 | 24,225 | ||||||
Note payable, net of discount | 1,263,803 | 1,208,416 | ||||||
Note payable - related party | 182,000 | 182,000 | ||||||
Total liabilities | 1,865,110 | 1,776,730 | ||||||
Stockholders' equity | ||||||||
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 which2,937,225 shares are issued and outstanding as of June 30, 2015and December 31, 2014 | 29,372 | 29,372 | ||||||
Additional paid-in capital | 21,832,610 | 21,819,668 | ||||||
Accumulated deficit | (21,982,024 | ) | (21,839,094 | ) | ||||
Accumulated other comprehensive income | 1,764,464 | 1,748,679 | ||||||
| 1,644,422 | 1,758,625 | |||||||
Less: Treasury Stock, 745,536 shares, at cost | (522,574 | ) | (522,574 | ) | ||||
Total stockholders' equity | 1,121,848 | 1,236,051 | ||||||
Total liabilities and stockholders' equity | $ | 2,986,958 | $ | 3,012,781 | ||||
(1) | Derived from the Company’s audited consolidated financial statements |
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 | Nine Months Ended | |||||||||||||||
September 30, | September | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | $ | 20,550 | $ | 13,800 | $ | 59,268 | $ | 34,105 | ||||||||
State filing fee | (2,970 | ) | - | 5,270 | 7,000 | |||||||||||
Stock-based compensation | 6,471 | 774 | 21,533 | 4,644 | ||||||||||||
General and administrative expenses | 510 | 590 | 545 | 790 | ||||||||||||
Total operating expenses | 24,561 | 15,164 | 86,616 | 46,539 | ||||||||||||
Loss from operations | (24,561 | ) | (15,164 | ) | (86,616 | ) | (46,539 | ) | ||||||||
Other expense: | ||||||||||||||||
Interest expense | (33,863 | ) | (30,637 | ) | (98,759 | ) | (89,299 | ) | ||||||||
Interest expense to related party | (3,555 | ) | (2,112 | ) | (10,550 | ) | (5,116 | ) | ||||||||
Net loss | $ | (61,979 | ) | $ | (47,913 | ) | $ | (195,925 | ) | $ | (140,954 | ) | ||||
COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
Unrealized holding gain arising during the period | 1,034,356 | 1,170 | 466,915 | 9,619 | ||||||||||||
Comprehensive income (loss) | $ | 972,377 | $ | (46,743 | ) | $ | 270,990 | $ | (131,335 | ) | ||||||
Basic and diluted loss per share | ||||||||||||||||
Net loss per share | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.05 | ) | ||||
Weighted average shares outstanding | 2,191,689 | 2,618,500 | 2,189,282 | 2,618,500 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating expenses: | ||||||||||||||||
Professional fees | $ | 13,432 | $ | 26,396 | $ | 37,363 | $ | 38,716 | ||||||||
State filing fee and tax | 4,340 | 5,240 | 13,197 | 8,240 | ||||||||||||
General and administrative expenses | 9,411 | 6,506 | 18,692 | 15,099 | ||||||||||||
Total operating expenses | 27,183 | 38,142 | 69,252 | 62,055 | ||||||||||||
Loss from operations | (27,183 | ) | (38,142 | ) | (69,252 | ) | (62,055 | ) | ||||||||
Other expense: | ||||||||||||||||
Interest expense and other | (35,461 | ) | (32,792 | ) | (66,722 | ) | (64,925 | ) | ||||||||
Interest expense to related party | (3,517 | ) | (3,517 | ) | (6,956 | ) | (6,995 | ) | ||||||||
Net loss | $ | (66,161 | ) | $ | (74,451 | ) | $ | (142,930 | ) | $ | (133,975 | ) | ||||
COMPREHENSIVE LOSS, NET OF TAX: | ||||||||||||||||
Net loss | $ | (66,161 | ) | $ | (74,451 | ) | $ | (142,930 | ) | $ | (133,975 | ) | ||||
Unrealized holding gain (loss) arising during the period | (57,025 | ) | (15,189 | ) | 15,781 | (567,440 | ) | |||||||||
Comprehensive loss | $ | (123,186 | ) | $ | (89,640 | ) | $ | (127,149 | ) | $ | (701,415 | ) | ||||
Basic and diluted loss per share | ||||||||||||||||
Net loss per share | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.06 | ) | ||||
Weighted average shares outstanding | 2,191,689 | 2,191,689 | 2,191,689 | 2,188,058 | ||||||||||||
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)
Nine Months Ended | ||||||||
September 30, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Loss | $ | (195,925 | ) | $ | (140,954 | ) | ||
Adjustments to reconclie net loss to net cash used inoperating activities: | ||||||||
Accretion of discount on notes payable | 8,340 | 4,170 | ||||||
Stock-based compenstion amortization | 21,533 | 4,644 | ||||||
| Pay-in-kind interest added to principal | 70,133 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts payable and accrued expenses | (8,879 | ) | 72,500 | |||||
Interest payable - related party | 10,550 | 5,166 | ||||||
Net cash used in operating activites | $ | (94,248 | ) | (54,474 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of non-marketable securities | (100,012 | ) | - | |||||
Net cash used in investing activites | (100,012 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Note payable to related party | - | 52,000 | ||||||
Net cash provided by financing activites | - | 52,000 | ||||||
Net decrease in cash | (194,260 | ) | (2,474 | ) | ||||
Cash at beginning of period | 242,443 | 3,378 | ||||||
Cash at end of period | $ | 48,183 | $ | 904 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 20,362 | $ | 20,362 | ||||
Supplemental noncash investing and financing activities: | ||||||||
Net unrealized gain on marketable and non-marketable investments | $ | 466,915 | $ | - | ||||
Conversion of advance to common stock | $ | 230,000 | $ | - | ||||
Six Months Ended | ||||||||
June 30 | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (142,930 | ) | $ | (133,975 | ) | ||
Adjustments to reconcile net loss to net cash used inoperating activities: | ||||||||
Accretion of discount on notes payable | 5,560 | 5,589 | ||||||
Stock-based compensation expense | 12,942 | 15,064 | ||||||
Pay-in-kind interest added to principal | 49,827 | 46,034 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts payable and accrued expenses | 25,998 | (2,539 | ) | |||||
Interest payable - related party | 6,995 | 6,995 | ||||||
Net cash used in operating activities | (41,608 | ) | (62,832 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of non-marketable securities | - | (103,012 | ) | |||||
Proceeds from sale of marketable securities | 21,284 | - | ||||||
Net cash provided by (used in) financing activities | 21,284 | (103,012 | ) | |||||
Net decrease in cash | (20,324 | ) | (165,844 | ) | ||||
Cash at beginning of period | 25,817 | 242,443 | ||||||
Cash at end of period | $ | 5,493 | $ | 76,599 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for interest | $ | 13,525 | $ | 13,525 | ||||
Supplemental noncash investing and financing activities: | ||||||||
Advances for future common stock share purchase | $ | - | $ | 230,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(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.,Inc, (“Ironstone” or the “Company”) is a Delaware corporation, that 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 SeptemberJune 30, 2015 and December 31, 2014, the results of its operations for the three and ninesix month periods ended SeptemberJune 30, 20142015 and SeptemberJune 30, 20132014 and its cash flows for the ninesix month periods ended SeptemberJune 30, 20142015 and SeptemberJune 30, 2013.2014. 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, 2013.2014. The December 31, 20132014 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, 20132014 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 from those were disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013.2014.
Marketable andNon-Marketable Securities
Marketable and non-marketable securities have been classified by management as available for sale in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, marketable securities are recorded at fair value and any unrealized gains and losses are excluded from earnings and reported as a separate component of stockholders’ equity until realized. The fair value of the Company’s marketable securities and investments at SeptemberJune 30, 20142015 and December 31, 2013 is2014 are 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.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company has not realized any such impairment losses to date.
Securities determined to be non-marketable by the Company do not have readily determinable fair values. The Company estimates the fair value of these instruments using various pricing models and the information available to the Company that it deems most relevant. Among the factors considered by the Company in determining the fair value of financial 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 case-by-case basis and other factors generally pertinent to the valuation of financial instruments.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with USU.S. 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.
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. As of June 30, 2015 and December 31, 2014, a full valuation allowance has been recorded to offset loss carryforwards as, in management’s opinion, there is uncertainty as to whether or not the Company will be able to generate taxable income in the future.
IronstoneThe Company 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 files 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. As of SeptemberJune 30, 2014,2015, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations areis from the year 20102012 forward for Federal and from the year 20092011 forward for California (with limited exceptions).
During the six months ended June 30, 2015 and 2014, the Company did not recognize any interest or penalties related to income taxes in its consolidated statement of operations.
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 receive from stock-based expenses. Additionally, stock-based compensation requires the use of an 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 number of highly complex and subjective variables. These variables include, but are not limited to Ironstone’s expected stock price volatility over the expected term of the awards.
Basic and Diluted Loss per Share
Basic loss per share ("EPS") excludes dilution and is computed by dividing the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing the net loss for the period by the weighted average number of common and dilutive potential common shares outstanding during the period, except where inclusion of such potentially dilutve securities would have an anti-dilutive effect.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)(continued)
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.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15,“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. The Company is currently evaluatingcontinues to evaluate the impact that the adoption of ASU 2014-15 will have on the Company’s consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation" ("ASU 2014-12"). ASU 2014-12 is intended to resolve diverse accounting treatment for share based awards in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15,February 2015, and may be applied prospectively or retrospectively. The Company does not expect adoption of this standard will have a significant impact on the Company's consolidated financial statements.
In July 2013, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting StandardsStandard 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”)(ASU) 2015-02, Comprehensive Income (Topic 810) – Amendments to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11Consolidation Analysis, which 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 benefitevaluate whether they should be presentedconsolidate certain legal entities. The amendments in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 wasthis Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. The Company inis reviewing the first quarterapplicability of fiscal 2014 and its adoption did not have an impact on the Company’s consolidated financial statements in the quarter ended September 30, 2014.this amendment.
2. FAIR VALUE MEASUREMENTS
Fair value is defined under the Financial Accounting Standards Board (“FASB”) Accounting Standards Board (“ASC”)FASB ASC 820, “Fair Value Measurement and Disclosures”. ASC 820 defines fair value, establishes a framework for measuring fair value under U.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 as follows:
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, valuation of these products does not entail a significant degree of judgment.
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.
Level 3–Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
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 – (Continued)
(UNAUDITED)
2. FAIR VALUE MEASUREMENTS(continued)
The following tables provide information about the Company’s financial instrumentsassets measured at fair value on a recurring basis at Septemberas of June 30, 20142015 and December 31, 20132014 by the fair value hierarchy:
Balance as of | Balance as of | |||||||||||||||||||||||||||||||
September 30, | June 30, | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | 2014 | Level 1 | Level 2 | Level 3 | 2015 | |||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||
Publicly traded common stock | $ | 851,422 | $ | - | $ | - | $ | 851,422 | $ | 284,107 | $ | - | $ | - | $ | 284,107 | ||||||||||||||||
Private company preferred stock | - | 2,674,677 | 2,674,677 | - | - | 2,697,358 | 2,697,358 | |||||||||||||||||||||||||
Total | $ | 851,422 | $ | - | $ | 2,674,677 | $ | 3,526,099 | $ | 284,107 | $ | - | $ | 2,697,358 | $ | 2,981,465 | ||||||||||||||||
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 | ||||||||
Balance as of | ||||||||||||||||
December 31, | ||||||||||||||||
Level 1 | Level 2 | Level 3 | 2014 | |||||||||||||
Investments: | ||||||||||||||||
Publicly traded common stock | $ | 312,287 | $ | - | $ | - | $ | 312,287 | ||||||||
Private company preferred stock | - | - | 2,674,677 | 2,674,677 | ||||||||||||
Total | $ | 312,287 | $ | - | $ | 2,674,677 | $ | 2,986,964 | ||||||||
The following tables presents 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 | |||||||
September 30, | |||||||
2014 | Valuation Technique | Unobservable Inputs | |||||
| Private company preferred stock | $ | 2,574,665 | A recent sale of stock | Third party transaction | |||
Private company preferred stock | $ | 100,012 | A recent round of financing | Third party transaction | |||
Fair Value as of | |||||||||
June 30, | |||||||||
2015 | Valuation Technique | Unobservable Inputs | |||||||
Private Company Preferred Stock | $ | 2,574,666 | Market approach | Third party transaction | |||||
Private Company Preferred Stock | $ | 122,692 | A recent round of financing | Third party transaction | |||||
Fair Value as of | |||||||||
December 31, | |||||||||
2014 | Valuation Technique | Unobservable Inputs | |||||||
Private Company Preferred Stock | $ | 2,574,666 | Market approach | Third party transaction | |||||
Private Company Preferred Stock | $ | 100,011 | A recent round of financing | Third party transaction | |||||
Fair Value as of December 31, 2013 Valuation Technique Unobservable Inputs Private company preferred stock A recent round of financing Third party transaction $ 2,001,919
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(UNAUDITED)
2. FAIR VALUE MEASUREMENTS (concluded)(concluded)
The following table presents additional information about Level 3 assets measured at fair value on a recurring basis.basis for the six months ended June 30, 2015 and 2014. 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 tables 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 | 100,012 | |||
Unrealized gain on investments | 572,746 | |||
Balance as of September 30, 2014 | $ | 2,674,677 | ||
Six Months Ended | ||||
June 30, 2015 | ||||
Balance as of December 31, 2014 | $ | 2,674,677 | ||
Unrealized gain on investments | 22,681 | |||
Balance as of June 30, 2015 | $ | 2,697,358 | ||
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.
Six Months Ended | ||||
June 30, 2014 | ||||
Balance as of December 31, 2013 | $ | 2,001,919 | ||
Purchases of investments | 103,012 | |||
Balance as of June 30, 2014 | $ | 2,104,931 | ||
3. INVESTMENTS
TangoMe, Inc.
On March 30, 2012, the Company purchased 468,121 shares of Series A Preferred stock from related party William R. Hambrecht at $2.14 per share, resulting in a total investment of $1,000,000. For$1,000,000.For the year ended December 31, 2013,2014, the Company recorded an unrealized gain of $1,001,919,$572,747, bringing the total value of the investment in TangoMe, Inc. to $2,001,919$2,574,666 as of December 31, 2013.2014. There was no change in value as of June 30, 2015, with the valuation remaining at $2,574,666. The fair value as of December 31, 2013 wasis based on a round of financing where similar securities were sold to certain related and unrelated third parties. On August 24, 2014, a TangoMe, Inc. shareholder sold shares of TangoMe, Inc. preferred stock at a price of $5.50 per share to a third party. The third party purchaser was comprised of certain related and unrelated parties of the Company. The Company determined that this transaction price is the best estimate of fair value of the 468,121 shares held by the Company as of September 30, 2014. As such, the Company recorded an unrealized gain of $572,746 for the three and nine months ended September 30, 2014, bringing the total value of the value of the investment in TangoMe, Inc. to $2,574,665 as of September 30, 2014. The use of a recent saleround of financing for TangoMe, preferred shares between two partiesInc. is the primary significant unobservable input used in the fair value measurement of the Company’s investment. Significant increases (decreases) in any subsequent financing or transaction events would result in a significantly higher (lower) fair value measurement.
Arcimoto, Inc.
On June 6, 2014 the Company Purchased 37,000 shares of Series A-1 Preferred stock from Arcimoto, Inc. at approximately $2.703 per share. This purchase price of $100,012 was determined to be the best estimate of fair value as of September 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 1,926,8572,006,827 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. ThisInc (“Salon”) common stock. The investment in common shares of Salon is valued at $0.39 and $0.45$0.13 per share, or $751,474 and $867,086 at September$260,888, as of June 30, 20142015 and December 31, 2013, respectively. For2014. The Company recorded unrealized losses of $60,205 and $20,067 for the three months ended SeptemberJune 30, 2015 and 2014 and 2013,respectively. For the Company recorded a related unrealized gain of $443,177 and no gain or loss for threesix months ended SeptemberJune 30, 2013.2015, there was no change in fair value. For the ninesix months ended SeptemberJune 30, 2014, the Company recorded a relatedan unrealized loss of $115,612 and no gain or loss for nine months ended September 30, 2013.$581,981.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(UNAUDITED)
3. INVESTMENTS (concluded)(continued)
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 $0.39 and $0.45 per share, or $31,188 and $35,987, at September 30, 2014 and December 31, 2013, respectively. For the three months ended September 30, 2014 and 2013, the Company recorded a related unrealized gain of $18,393 and no related unrealized gain or loss, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded a related unrealized loss of $4,799 and no related unrealized gain or loss, respectively.
FlexiInternational Software, Inc.
The Company owns 78,000 shares of Flexi International Software stock. The investment in common shares of FlexiInternationalFlexi is valued at $0.17$0.21, or $16,380 at June 30, 2015 and $0.16$0.15 per share, or $13,260 and $12,480$11,700 at September 30, 2014 and December 31, 2013, respectively. For the three months ended September 30, 2014 and 2013, the Company recorded a related unrealized loss of $5,460 and an unrealized gain of $1,170, respectively.For the nine months ended September 30, 2014 and 2013, the Company recorded a related unrealized gain of $780 and unrealized gain of $390, respectively.
Truett-Hurst, Inc.
31,2014. 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 $5.55 and $4.17 per share, or $55,500 and $41,700 at September 30, 2014 and December 31, 2013, respectively. For the three and nine months ended September 30, 2014 the Company recorded related unrealized gains of $5,500$5,460, and $13,800,$4,680 for the three and six months ended June 30, 2015 respectively.
Truett-Hurst, Inc.
The company owned 10,000 shares of Truett-Hurst common stock as of March 31, 2015. During the second quarter of 2015 (April 1 through June 30) the Company sold 7,000 shares for a realized loss of $3,347. The sale was executed to provide the Company with liquidity. The remaining 3,000 share investment in Truett-Hurst is valued at $2.28 per share, or $6,840 at June 30, 2015. The 10,000 share investment was valued at $3.97 per share, or $39,700 for the year ended December 31, 2014. The Company recorded related unrealized losses on the remaining 3,000 share investment of $2,280 and $5,070 for the three and six months ended June 30, 2015 respectively.
Arcimoto, Inc.
During fiscal year 2014 the Company purchased 37,000 shares of Arcimoto, Inc. series A-1 preferred stock for $100,011. During March 2015, Arcimoto, Inc. had a round of financing at a share valuation 23% higher than the Company’s cost, resulting in an unrealized gain of $22,682 and bringing the total investment value of Arcimoto as of March 31, 2015 to $122,693. The fair value as of March 31, 2015, was based on this recent financing, which is a third party transaction and is the primary significant unobservable input used in the fair value measurement of the Company's investment in Acrimoto, Inc. The fair value as of June 30, 2015 remains unchanged at $122,693 as there was no observable change in valuation input since March 31, 2015. Significant increases (decreases) in any subsequent transactions would result in a significantly higher (lower) fair value measurement. For the year ended December 31, 2014, the Company had valued this investment at its cost.
4. RELATED PARTY TRANSACTIONS
Mr. William R Hambrecht, Chief Executive Officer, is a minority shareholder in Salon Media Group and Truett-Hurst, Inc.Group.
Ms. Elizabeth Hambrecht, the former Chief Financial Officer of the Company,Director, is currently a member of the Board of Directors and also the interim Chief Financial Officer of Salon Media Group, Inc.Ms. Hambrecht formerly served as theformer President and Chief Executive officerOfficer of Salon Media Group, Inc.Ms.Inc. Ms. Hambrecht is also the sister of a member of the Board of Directors, and is the daughter of the Chief Executive Officer.
On December 31, 2014 the Company combined all the various notes payable, which were issued at various times to Mr. William R. Hambrecht, to one note for $182,000 at 7.75% interest, with a December 31, 2015 maturity.
The Company has non-marketable investments in TangoMe, Inc. and Acrimoto, Inc. The valuation of these investments as of June 30, 2015 has been calculated based on prices obtained from third party transactions with the aforementioned companies. These third party transactions have been inclusive of entities related to Ironstone Group, Inc.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(UNAUDITED)
5. NOTESNOTE PAYABLE
On March 31, 2012, the Company received $1,000,000 from a third party and issued a related promissory note. The 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 amountamounts payable under the agreement as of SeptemberJune 30, 20142015 and December 31, 20132014 were $1,219,125$1,293,537 and $1,148,994,$1,243,708 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, for total consideration of $1. 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 toand will be amortized over the 5 year term of the note. The unamortized balanceAs of the discount was $38,074 and $46,414 as of SeptemberJune 30, 20142015 and December 31, 2013,2014, the unamortized discount was $29,734 and $35,294, respectively.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. NOTES PAYABLE (concluded) On May 21, 2014, the warrant for 187,296 shares was exercised and shares were issued.
Furthermore, On December 31, 2013 the Company entered intohas 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, 2014.2015. The note payable carried a principal balance of $182,000 as of SeptemberJune 30, 2014,2015 and December 31, 20132014 with additional accrued interest of $20,670$31,220 and $10,120$24,255 respectively.
The scheduled maturities of notes payable outstanding as of SeptemberJune 30, 20142015 are as follows:
2014 | 2015 | 2016 | 2017 | Total | ||||||||||||||||
Notes Payable | $ | - | $ | - | $ | - | $ | 1,219,125 | $ | 1,219,125 | ||||||||||
Notes Payable - related party | 182,000 | - | - | - | $ | 182,000 | ||||||||||||||
Total | $ | 182,000 | $ | - | $ | - | $ | 1,219,125 | $ | 1,401,125 | ||||||||||
2015 | 2016 | 2017 | Total | |||||||||||||
Notes payable | $ | - | $ | - | $ | 1,293,537 | $ | 1,293,537 | ||||||||
Notes payable - related party | 182,000 | - | - | 182,000 | ||||||||||||
Total | $ | 182,000 | $ | - | $ | 1,293,537 | $ | 1,475,537 | ||||||||
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$350,000 with interest based upon the lender’s prime rate plus 4.5% and is payable monthly. At SeptemberJune 30, 20142015 and December 31, 2013,2014, 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, theThe line of credit is due on demand and is secured by all of the Company’s business assets. At SeptemberAs of June 30, 20142015 and December 31, 2013,2014, the outstanding balance under the line was $350,000, respectively. The total$350,000.Total recorded interest expense on this note for the three months ended SeptemberJune 30, 2015 and June 30, 2014 and September 30, 2013 was $6,837, respectively. The total$6,781. Total recorded interest expense on this note for the ninesix months ended SeptemberJune 30, 2015 and June 30, 2014 and September 30, 2013 was $20,362, respectively. The line of credit is renewable on a yearly basis, but matured on September 11, 2014 and is currently being renegotiated.$13,562.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(UNAUDITED)
7. STOCKHOLDERS’ 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 September 30, 2014, the Company issued 187,296 shares from the warrant exercise to the third party.
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 SeptemberJune 30, 2015 and December 31, 2014, 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; the rights, preferences and privileges of which would be determined at the time of issuance. No shares have been issued as of SeptemberJune 30, 20142015 and December 31, 2013.2014.
Stock-Based Compensation
For the six months ended June 30, 2015 and June 30, 2014, the Company recorded stock-based compensation expense of $12,942 and $15,062, respectively. As of June 30, 2015, Ironstone had an aggregate of $51,184 of stock-based compensation remaining to be expensed over the remaining requisite service period of the underlying options, which is expected to be over a weighted average period of 2 years. Ironstone currently expects this stock-based compensation balance to be expensed as follows: $12,942 during the remaining two quarters of fiscal year 2015; $25,884 during fiscal year 2016 and $12,358 during fiscal year 2017.
Stock Option Plans
The Company has adopted a 2013 Equity Incentive Plan. As of January 30, 2013,Plan (“Plan”) and 187,296 shares were available for grant under the Plan. The planPlan provides for incentive stock options to be granted at times and prices determined by the Company’s Board of 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 the following price and assumptions: Stock Price $.20,$0.20, Exercise Price $.20,$0.20, Time to Maturity 6.33 years, Risk-free Interest Rate 4%0.4%, Annualized Volatility 121%.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(UNAUDITED)
7. STOCKHOLDERS’ EQUITY (continued)
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%1.0%, Annualized Volatility 93%.
For the three months ended September 30, 2014 and 2013, the Company recorded share based compensation expense related to stock options in the amount of $6,471 and $774, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded share based compensation expense related to stock options in the amount of $21,533 and $4,644, respectively.
As of September 30, 2014 and December 31, 2013, Ironstone had an aggregate of $70,597 and $80,765 of stock-based compensation remaining to be amortized to expense over the remaining requisite service period of the underlying options, respectively. As of September 30, 2014, Ironstone expects this stock-based compensation balance to be amortized as follows: $6,471 during fiscal year 2014; $25,884 during fiscal year 2015; $25,884 during fiscal year 2016 and $12,358 during fiscal year 2017.
Earnings (Loss) Per Share
Basic lossnet income (loss) per share (“EPS”) excludes dilution and is computed by dividing the net income (loss) applicable toby the weighted number of shares of common shareholdersstock outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income(loss) for the period by the weighted average number of common and dilutive potential common shares actually outstanding during the period. Diluted EPS reflects the dilution from potentiallyperiod, if dilutive. Potentially dilutive securities, except where inclusion of such potentially dilutive securities would have an anti-dilutive effect becausecommon equivalent shares are composed of the incremental common shares issuable upon the exercise of stock options. The following is the computations of the basic and diluted net lossincome per share and the anti-dilutive common stock equivalents excluded from the computations for the periods presented. Although there were common stock equivalents outstanding, as of September 30, 2014 and 2013 they were not included in the calculation of EPS because their inclusion would have an anti-dilutive effect.presented:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (61,979 | ) | $ | (47,913 | ) | $ | (195,925 | ) | $ | (140,954 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding | 2,191,689 | 2,618,500 | 2,189,282 | 2,618,500 | ||||||||||||
Dilutive effect of employee stock options | -- | -- | -- | -- | ||||||||||||
Weighted average common shares outstanding,assuming dilution | 2,191,689 | 2,618,500 | 2,189,282 | 2,618,500 | ||||||||||||
Net loss per share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.05 | ) | ||||
Diluted | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.05 | ) | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||
Numerator: | ||||||||||||||||
Net Loss | $ | (66,161 | ) | $ | (74,451 | ) | $ | (142,930 | ) | $ | (133,975 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average shares outstanding - basic | 2,191,689 | 2,191,689 | 2,191,689 | 2,188,058 | ||||||||||||
Effect of dilutive potential shares | - | - | - | - | ||||||||||||
Weighted average shares outstanding - diluted | 2,191,689 | 2,183,023 | 2,191,689 | 2,183,023 | ||||||||||||
Net loss per share - basic | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.06 | ) | ||||
Net loss per share - diluted | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | (0.06 | ) | ||||
Anti-dilutive stock options and awards not included inthe net loss per share calculation | 170,000 | 170,000 | 170,000 | 170,000 | ||||||||||||
8.MANAGEMENT’S PLANS
As reflected in the accompanying financial statements, the Company has net losses and has a negative cash flow from operations. If necessary, the Company may seek to sell additional debt or equity securities, or enter into new credit facilities. 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. Furthermore, the Company may seek to sell its marketable securities to meet its operating needs. However, the fair value of these marketable securities fluctuates and may not be adequate for the Company’s needs. Management also believes it will be able to renew its line of credit with the lender with similar terms to the recently expired line of credit. If the line of credit is not renewed, management may liquidate securities to satisfy its obligations.
ItemITEM 2. Management's Discussion and Analysis of Financial Condition and Result of OperationMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
Special Note Regarding Forward-Looking StatementsSPECIAL 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 SEC.SEC
Use of Estimates and Critical Accounting PoliciesUSE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP")U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets and related disclosure. On an ongoing basis, we evaluate our estimates, including those related to non-marketable securities. We base our estimates on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are reviewed by management on an ongoing basis and by our board of directors at the end of each quarter prior to the public release of our financial results.
As of the date of the filing of this quarterly report, we believe there have been no material changes to our critical accounting policies and estimates during the three months ended June 30, 2015 compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 as filed with the SEC. Additional information about these critical accounting policies may be found in the "Management's Discussion & Analysis of Financial Condition and Results of OperationsOperations" section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
RESULTS OF OPERATIONS
Comparison
Three and six months ended June 30, 2015
Operating expenses for six months ended June 30, 2015 totaled $69,252, an increase of 2014 to 2013
For the three month period ending September 30, 2014, operating expenses increased $14,237$7,197 or 62% 11.6%as compared to the same period in fiscal year 2013. Thissix months ended June 30, 2014. The increase was primarily due to an increase in state filing fees of $4,957, and general and administrative costs of $3,593, partially offset by a decrease in professional fees note amortization, and stock-based compensation expense.
Forof $1,353. Other expenses for the nine-month periodsix months ended SeptemberJune 30, 2014, operating expenses increased $54,9712015 totaled $73,678, an increase of $1,758 or 86%2.4% as compared to the same period in fiscal year 2013.six months ended June 30, 2014.
Operating expenses for the three months ended March 31, 2015 decreased $10,959 or 28.7% as compared to the three months ended March 31, 2014. This was primarily due to a decrease in professional fees of $12,964, partially offset by an increase in professional fees, note amortization,general and stock-based compensation expense.administrative expenses of $2,905. Other expenses for the three months ended March 31, 2015 increased $2,669 or 7.4% as compared to the three months ended March 31, 2014. The increase was due to higher interest expenses.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
The netNet cash used in operating activities was $41,608 and $62,832 for ninethe six months ended SeptemberJune 30, 2015 and 2014, and 2013 was $164,380 and $54,474, respectively. The Company has cash and marketable securities of $899,605 at September 30, 2014. We believe that our current cash and marketable security balances will be sufficient to meet our operating and capital requirements for at least 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 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.
The Company has a line of credit arrangement with First Republic Bank with a borrowing limit of $350,000 with interest based upon the lender’s prime rate.rate plus 4.5%. Interest is currently payable monthly at 7.75%. The line is guaranteed by William R. Hambrecht, Chief Executive Officer, Director and Robert H. Hambrecht, Director. Furthermore, theThe line of credit is due on demand and is secured by all of the Company’s business assets. At SeptemberJune 30, 2014 and December 31, 20132015, the outstanding balance under the line was $350,000. The line
At June 30, 2015, the outstanding balance the Company borrowed from related party Mr. William R. Hambrecht was $182,000 with interest at 7.75% per annum. This note matures in December, 2015. Furthermore, as of credit is renewable on a yearly basis, but matured on September 11, 2014 and is currently being renegotiated.June 30, 2015 the Company had notes payable to the third party totaling $1,293,537. These notes mature in March, 2017.
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. The Company may also borrow additional funds from Mr. William R. Hambrecht. 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 relates 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 $2,574,665 at September$2,574,666 for the six months ended June 30, 20142015 and $2,001,919 atyear ended December 31, 20132014, respectively. Given that the investment in TangoMe, 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.
Furthermore, on June 6, 2014 the Company Purchased 37,000 shares of Series A-1 Preferred stock from Arcimoto, Inc. at $2.703 per share, or $100,012. 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.
Another capital resource of the Company is 1,926,8572,006,827 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.Inc (“Salon”) common stock. The investment in common shares of Salon is valued at $751,474 and $867,086 at September$0.13 per share, or $260,888, as of June 30, 20142015 and December 31, 2013 respectively. For2014. The Company recorded unrealized losses of $60,205 and $20,067 for the three months ended SeptemberJune 30, 20142015 and 2013, the Company recorded a related unrealized gain of $443,177 and no related unrealized gain or loss,2014 respectively. For the ninesix months ended SeptemberJune 30, 2014 and 2013 the Company recorded a related unrealized loss of $115,612 and unrealized gain of $8,430, respectively.
Additionally,2015, there was no change 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 $31,188 and $35,987 as of September 30, 2014 and December 31, 2013, respectively.fair value. For the threesix months ended SeptemberJune 30, 2014, the Company recorded a related unrealized gain of $18,393 and no related unrealized gain or loss, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded a relatedan unrealized loss of $4,799 and unrealized gain of $799, respectively.
The Company owns 10,000 shares of 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 $55,500and $41,700 at September 30, 2014 and December 31, 2013, respectively. For the three and nine months ended September 30, 2014 the Company recorded a related unrealized gains of $5,500 and $13,800, respectively.
The Company owns 78,000 shares of Flexi International 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 $13,260and $12,480 at September 30, 2014 and December 31, 2013, respectively. For the three months ended September 30, 2014 and 2013, the Company recorded a related unrealized loss of $5,460 and a related unrealized gain of $1,170, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded a related unrealized gain of $780 and unrealized gain of $390 respectively.$581,981.
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, theThe 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.
ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.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.
ItemITEM 4. Controls and ProceduresCONTROLS 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 seniorOur 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 evaluated the effectiveness of our disclosure“disclosure controls and proceduresprocedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) underas of June 30, 2015 in connection with the Securities Exchange Actfiling of 1934).this Annual Report on Form 10K. Based on thisthat evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, asof Septemberas of June 30, 2014,2015, in light of the material weakness described below, our disclosure controls and procedures were not effective to ensure that information we are not effective.required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Notwithstanding the material weakness, our company’s financial statements in this Form 10K fairly present in all material respects, the financial condition, results of operations and cash flows of our company as of and for the periods presented in accordance with generally accepted accounting principles in the United States.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting for the three-monthsended Septemberthree-months ended June 30, 20142015 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 Officerchief executive officer and Chief Financial Officer,chief financial officer, assessed the effectiveness of our internal control over financial reporting as of SeptemberJune 30, 2014.2015. 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 SeptemberJune 30, 2014,2015, 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, nor therefore an independent audit committee. |
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, 2013 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– OTHER INFORMATION
ITEM 1 –1. LEGAL PROCEEDINGS
None.
ITEM 1a –1A. RISK FACTORS
The Company’s main assets are investments in non-marketable securities of TangoMe Inc., Arcimoto Inc. and marketable securities of Salon Media Group Inc,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 –4. MINE SAFTYSAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 5 – OTHER INFORMATION
None.
ITEM 6 -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 XBRL Instance
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation
101.DEF XBRL Taxonomy Extension Definition
101.LAB XBRL Taxonomy Extension Labels
101.PRE XBRL Taxonomy Extension Presentation
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.
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IRONSTONE GROUP, INC. | |||
a Delaware corporation |
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Date: August 18, 2015 |
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| By: | ||
| /s/ William R. Hambrecht | ||
William R. Hambrecht | |||
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| Chief Executive Officer |
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