UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
o
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
(State or other jurisdiction of
incorporation or organization)
|
|
95-2829956
(IRS Employer Identification No.)
|
Pier 1, Bay 3, San Francisco, California 94111
(
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 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 November 1, 2012, 1,872,964 shares of Common Stock, $0.01 par value, were outstanding.
TOTAL NUMBER OF PAGES:
20
INDEX TO EXHIBITS AT PAGE: N/A
IRONSTONE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I—FINANCIAL INFORMATION
|
Item 1. Financial Statements (unaudited)
|
|
|
|
|
|
Condensed consolidated balance sheets at September 30, 2012 and December 31, 2011
|
3
|
|
|
|
|
Condensed consolidated statements of operations and comprehensive income (loss)
for the three months
|
|
|
ended September 30, 2012 and 2011and for nine months ended September 30, 2012 and 2011
|
4
|
|
|
|
|
Condensed consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011
|
5
|
|
|
|
|
Notes to condensed consolidated financial statements
|
6
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
12
|
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
13
|
|
|
|
|
Item 4T. Controls and Procedures
|
14
|
|
|
|
|
|
|
|
PART II—OTHER INFORMATION
|
|
|
|
|
|
|
|
|
Item 6. Exhibits
|
15
|
|
|
|
|
Signatures
|
16
|
|
Exhibit 31.1
|
17
|
|
Exhibit 31.2
|
18
|
|
Exhibit 32.1
|
19
|
|
Exhibit 32.2
|
20
|
IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
(unaudited)
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,414
|
|
|
$
|
5,154
|
|
|
Marketable securities available for sale, at fair value
|
|
|
1,005,460
|
|
|
|
7,800
|
|
|
Salon Media Group, Inc. common stock, at fair value
|
|
|
7,997
|
|
|
|
3,998
|
|
|
Salon Media Group, Inc. Series C Preferred, at fair value
|
|
|
84,300
|
|
|
|
42,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,102,171
|
|
|
$
|
59,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Line of credit borrowings
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
Note payable to related party
|
|
|
44,000
|
|
|
|
279,500
|
|
|
Accounts payable and accrued expenses
|
|
|
34,955
|
|
|
|
83,434
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
428,955
|
|
|
|
712,934
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable net of discount of $50,569
|
|
|
989,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,418,898
|
|
|
|
712,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000 shares authorized
of which there are no issued and outstanding shares
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 25,000,000 shares authorized,
2,618,500 shares are issued and 1,872,964 are outstanding on September 30, 2012; 1,487,644 shares are issued and 742,108 shares are outstanding on December 31, 2011
|
|
|
26,188
|
|
|
|
14,878
|
|
|
Additional paid-in capital
|
|
|
21,554,521
|
|
|
|
21,170,385
|
|
|
Accumulated deficit
|
|
|
(21,371,352
|
)
|
|
|
(21,269,202
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(3,510
|
)
|
|
|
(47,319
|
)
|
|
|
|
|
205,847
|
|
|
|
(131,258
|
)
|
|
Less: Treasury Stock, 745,536 shares, at cost
|
|
|
(522,574
|
)
|
|
|
(522,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(316,727
|
)
|
|
|
(653,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
1,102,171
|
|
|
$
|
59,102
|
|
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 LOSS
(unaudited)
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
8,742
|
|
|
$
|
5,665
|
|
|
$
|
25,989
|
|
|
$
|
23,015
|
|
|
State filing fee
|
|
|
-
|
|
|
|
313
|
|
|
|
2,400
|
|
|
|
2,037
|
|
|
Amortization
|
|
|
2,809
|
|
|
|
-
|
|
|
|
5,619
|
|
|
|
-
|
|
|
General & administrative expenses
|
|
|
590
|
|
|
|
560
|
|
|
|
914
|
|
|
|
620
|
|
|
Total operating expenses
|
|
|
12,141
|
|
|
|
6,538
|
|
|
|
34,922
|
|
|
|
25,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,141
|
)
|
|
|
(6,538
|
)
|
|
|
(34,922
|
)
|
|
|
(25,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(34,144
|
)
|
|
|
(11,894
|
)
|
|
|
(67,226
|
)
|
|
|
(34,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,285
|
)
|
|
$
|
(18,432
|
)
|
|
$
|
(102,148
|
)
|
|
$
|
(60,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS, NET OF TAX:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46,285
|
)
|
|
$
|
(18,432
|
)
|
|
$
|
(102,148
|
)
|
|
$
|
(60,048
|
)
|
|
Unrealized holding gain (loss) arising during the period
|
|
|
2,340
|
|
|
|
-
|
|
|
|
43,809
|
|
|
|
(3,120
|
)
|
|
Comprehensive loss
|
|
$
|
(43,945
|
)
|
|
$
|
(18,432
|
)
|
|
$
|
(58,339
|
)
|
|
$
|
(63,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares usesd to calculate net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,872,964
|
|
|
|
742,108
|
|
|
|
1,501,515
|
|
|
|
742,108
|
|
|
Diluted
|
|
|
2,060,260
|
|
|
|
742,108
|
|
|
|
1,627,290
|
|
|
|
742,108
|
|
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,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(102,148
|
)
|
|
$
|
(60,048
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
Discount amortization
|
|
|
5,619
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
46,789
|
|
|
|
14,013
|
|
|
Net cash used in operating activities
|
|
|
(49,740
|
)
|
|
|
(46,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
49,000
|
|
|
|
50,000
|
|
|
Note payable
|
|
|
1,000,000
|
|
|
|
|
|
|
Net cash provided from financing activities
|
|
|
1,049,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(740
|
)
|
|
|
3,965
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
5,154
|
|
|
|
1,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,414
|
|
|
$
|
5,531
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
20,437
|
|
|
$
|
20,362
|
|
|
Supplemental disclosure of noncash fiancing activities;
|
|
|
|
|
|
|
|
|
Issuance of common stock for note payable( $284,500) and
and accrued interest ($54,757) to related party.
|
|
$
|
339,257
|
|
|
$
|
-
|
|
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, 2012
(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.
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.
Marketable Securities
Marketable securities have been classified by management as available for sale in accordance with ASC 320, marketable securities are recorded at fair value and any unrealized gains or 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 September 30, 2012 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 Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information. Certain information 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. In the opinion of management, all adjustments considered necessary for a fair and comparable presentation have been included and are 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, 2011
.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 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. As of September 30,2012, the Company does not have any potentially dilutive securities.
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 Pronouncements
The Company does not expect the adoption of any recent accounting pronouncements will have a material impact on the Company’s consolidated financial statements.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(UNAUDITED)
2. FAIR VALUE of FINANCIAL INSTRUMENTS
Due to the short maturity of cash, accounts payable, the line of credit, 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”. ASC 820 defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America 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:
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2
|
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
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 based on quoted market prices and quoted market prices for similar securities.
|
Description
|
|
Quoted
Market Prices
In Active
Markets
(Level 1)
|
|
|
|
|
|
Significant
Other
Unobservable
Input
(Level 3)
|
|
|
Total Carrying
Value In The
Consolidated
Balance Sheet at
September 30, 2012
|
|
|
Securities available for sale
|
|
$
|
13,457
|
|
|
$
|
1,084,300
|
|
|
|
-
|
|
|
$
|
1,097,757
|
|
|
Description
|
|
Quoted
Market Prices
In Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Input
Level 2)
|
|
|
Significant
Other
Unobservable
Input
(Level 3)
|
|
|
Total Carrying
Value In The
Consolidated
Balance Sheet at
December 31, 2011
|
|
|
Securities available for sale
|
|
$
|
11,798
|
|
|
$
|
42,150
|
|
|
|
-
|
|
|
$
|
53,948
|
|
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(UNAUDITED)
3. INVESTMENTS
TANGO ME, INC.
On March 30, 2012, the Company purchased 468,121 shares of Series A Preferred stock from William R. Hambrecht at $2.1362 per share ($1,000,000). The value of this transaction was determined using the fair value of similar securities sold to unrelated third parties. There was no change in the fair value of this investment to September 30, 2012.
SALON MEDIA GROUP, INC.
The Company owns 843 shares of Series C Preferred Stock of Salon Media Group, Inc. (“Salon”). These shares resulted from the December 31, 2003 conversion of Convertible Promissory Notes purchased by the Company and are convertible to common stock at any time. The Series C Preferred Stock is convertible into common stock of Salon at the conversion rate determined by dividing the Series C Preferred Stock per share price of $800 by the Series C Conversion Price of $0.80, or at the rate of one share of Series C Preferred Stock to 1,000 shares of common stock. If converted, the Company’s shares of Series C Preferred Stock represent 843,000 common shares of Salon, or
7.4% of Salon’s common
stock outstanding as of September 30, 2012. The investment in Series C Preferred Stock of Salon is valued at the converted common stock value of $.10 and $.05
per share, or $84,300 and $42,150 at September 30, 2012 and December 31, 2011, respectively. For the nine months ended September 30, 2012, the Company recorded a related unrealized gain of $42,150.
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. The investment in common shares of Salon is valued at $.10 and $.05 per share, or $7,997
and $3,998 at September 30, 2012 and December 31, 2011, respectively. For the nine months ended September 30, 2012, the Company recorded a related unrealized gain of $3,999.
The quoted market price for the Salon Media Group at September 30, 2012 was $.12; however, as we recorded an other-than-temporary loss on these securities in 2009 (down to $.10 per share), 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 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 $.07 and $.10 per share, or $5,460
and $7,800 at September 30, 2012 and December 31, 2011, respectively. For the nine months ended September 30, 2012, the Company recorded a related unrealized loss of $2,340.
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30 2012
(UNAUDITED)
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 stockholder in Salon Media Group.
On March 13, 2012 the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On April 12, 2012 the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On April 13, 2012 the Company borrowed $7,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On June 7, 2012 the Company borrowed $2,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On July 23,2012 the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On August 8, 2012 the Company borrowed $20,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
On August 29, 2012 the Company borrowed $5,000 from Mr. William R. Hambrecht at 7.75% interest with a December 31, 2012 maturity.
5. NOTE PAYABLE
On March 31, 2012, the Company received $1,000,000 from a third party and issued a related promissory note. This note carries an 8% interest rate, per annum, and has a maturity date of March 31, 2017. 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.
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 price 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 will be amortized over the 5 year term of the note.
The inputs to the Black-Scholes model were 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 September 30, 2012.
|
|
|
Shares
|
|
|
Exercise Price
|
|
Expiration
|
|
Options outstanding at January 1, 2012
|
|
|
0
|
|
|
|
|
|
|
Granted
|
|
|
187,296
|
|
|
|
.000005
|
|
March 31,2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September , 2012
|
|
|
187,296
|
|
|
|
|
|
|
IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(UNAUDITED)
6. STOCKHOLDERS’ EQUITY
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 September 30, 2012, 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 ever been issued.
Stock Option Plans
-- The Company has adopted a 1989 Equity Incentive Plan, a 1993 Non-Employee Directors' Stock Option Plan and a 1994 Equity Incentive Plan (collectively, the "Plans"). In March 1994, the 1989 Equity Incentive Plan was amended to reduce the number of shares reserved there under and the Board of Directors determined that no further grants would be made under this plan. As of September 30, 2012, 331,680 shares were available for grant under the Plans (no options are issued or outstanding at September 30, 2012). The Plans provide for incentive stock options to be granted at times and prices determined by the Company’s Board of Directors, to be granted at not less than 100% of the fair value of the Company’s common stock on the date of grant. Options are generally subject to a three or four-year vesting schedule. Options issued under the Plans expire at the earlier of the end of the exercise period of no more than ten years from the date of grant or 90 days following the grantee’s end of service to the Company.
On March 30, 2012 the Company paid the loan and interest due William R. Hambrecht in the amount of $339,257 through the issuance of 1,130,856 common shares at a price of $.30 per share.
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 September 30, 2012. The line is guaranteed by William R. Hambrecht, Chief Executive Officer, Director and Robert H. Hambrecht, Secretary, Director. The line of credit is due on demand and is secured by all of the Company’s business assets
.
At September 30, 2012, the outstanding balance under the line was $350,000.The total recorded interest expense on this note for the nine months ended September 30, 2012 and 2011 was $20,437 and $20,362 (this amount was also paid during each respective period).
8. GOING CONCERN
As reflected in the accompanying financial statements the Company has net losses 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
Results of Operations
Comparison of 2012 to 2011
Operating expenses for the three-month period ended September 30, 2012 increased $5,603 or 86% as compared to the same period in 2011. This was primarily due to the increase in professional fees of $3,077 and the amortization of the note payable discount of $2,809 in 2012.
Operating expenses for the nine-month period ended September 30, 2012 increased $9,250 or 36% as compared to the same period in 2011. This was primarily due to the increase in professional fees of $2,975 and the amortization of the note payable discount of $5,919 in 2012.
Liquidity and Capital Resources
Net cash used in operating activities for the nine months ended September 30, 2012 was $49,740. We have working capital at September 30, 2012 of $673,216, and negative working capital at December 31, 2011 of $653,832. The positive change is due mainly to paying off short term debt and issuing a long term note payable..Cash decreased by $740 from $5,154 at December 31, 2011
to $4,414
at September 30, 2012.
To meet its cash needs during the third quarter of 2012, William R. Hambrecht lent $30,000 to the Company.
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 is the March 30, 2012 purchase of 468,121 shares of TangoMe, Inc. The investment in TangoMe, Inc. is valued at a price of $2.1362 per share, or $1,000,000 at September 30, 2012.
Also another capital resource of the Company is 843 shares of Series C Preferred Stock of Salon Media Group, Inc. (“Salon”). These shares were converted on December 31, 2003 from Convertible Promissory Notes purchased by the Company and are convertible to common stock at any time. The Series C Preferred Stock is convertible into common stock of Salon at the conversion rate determined by dividing the Series C Preferred Stock per share price of $800 by the Series C Conversion Price of $0.80, or at the rate of one share of Series C Preferred Stock to 1,000 shares of common stock. If converted, the Company’s shares of Series C Preferred Stock represent 843,000 shares
or 7.4% of Salon’s
common stock outstanding as of September 30, 2012. The investment in Salon is valued at the converted common stock value of $.10 per share, or $84,300 at September 30, 2012.
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.
The investment in common shares of Salon is valued at $.10 per share, or $7,997 at September 30, 2012.
The quoted market price for the Salon Media Group at September 30, 2012 was $.12, however, as we recorded an other-than-temporary loss on these securities in 2009 (down to $.10 per share), we did not adjust the carrying value for this subsequent recovery in value.
As of October 23, 2012, 2012, Salon’s common stock was quoted at $.12 per share. There can be no assurance that a market will continue to exist for either the Series C Preferred Stock or the common stock of Salon.
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 $.07 and $.10 per share, or $5,460
and $7,800 at September 30, 2012 and December 31, 2011, respectively. For the nine months ended September 30, 2012, the Company recorded a related unrealized loss of $2,340.
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. 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
of September 30, 2012, 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
ended September 30, 2012
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 September 30, 2012. 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 September 30, 2012, our internal control over financial reporting was not effective based on those criteria because of the existence of the following material 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, 2011
Form 10-K filing.
Item 5. Other Information
PART II – OTHER INFORMATION
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*XBRL Instance Document.
101.SCH*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.CAL*XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL*XBRL Taxonomy Extension Label Linkbase Document.
101.CAL*XBRL Taxonomy Extension Presentation Linkbase Document.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not “filed” for purposes Section18of the Exchange Act, or otherwise subject to the liability of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference.
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.
a Delaware corporation
|
|
Date: November 1, 2012
|
|
|
|
|
By:
|
/s/ William R. Hambrecht
William R. Hambrecht
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ William R. Hambrecht
|
Director, Chief Executive Officer
|
November 1, 2012
|
|
William R. Hambrecht
|
(
Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Quock Q. Fong
|
Chief Financial Officer
|
November 1, 2012
|
|
Quock Q. Fong
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert H. Hambrecht
|
Director, Secretary
|
November 1, 2012
|
|
Robert H. Hambrecht
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Denis T. Rice
|
Director
|
November 1, 2012
|
|
Denis T. Rice
|
|
|