PART II:
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
4
Item 6 Selected Consolidated Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operation
5-6
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
6
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
18
Item 9A Controls and Procedures
19
Item 9B. Other Information
PART III:
Item 10. Directors and Executive Officers of the Registrant
20
Item 11. Executive Compensation
21-22
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
23
Item 13. Certain Relationships and Related Transactions
23
Item 14. Principal Accountant Fees and Services
24
PART IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
25
2
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Ironstone Group, Inc, (“Ironstone”) a Delaware corporation, was incorporated in 1972. Since 1986, a majority of Ironstone’s outstanding shares has been owned by Hambrecht & Quist Group, a San Francisco-based investment banking and venture capital firm, and its affiliates (collectively “H&Q”). In September 2003, Ironstone repurchased all of these shares. Such repurchased shares are currently being held as treasury stock. The Hambrecht 1980 Revocable Trust presently owns over 50% of Ironstone’s outstanding voting shares.
BUSINESS STRATEGY
Currently, the Company is reviewing options and new business opportunities. At December 31, 2011, the Company had $7,800 in marketable securities, $5,154 in cash, an investment in Salon Media Group, Inc. valued at $46,148 and tax loss carry-forwards at its disposal.
There can be no assurance that the Company will acquire businesses, form additional alliances, or expand its existing services. Failure to expand the scope of services provided by the Company may have an adverse effect on the Company’s results of operations.
EMPLOYEES
As of December 31, 2011, the Company had one part-time employee. This employee received no compensation and is not subject to a collective bargaining agreement.
ITEM 1A. RISK FACTORS
The company’s main asset is an investment in Salon Media Group, Inc. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. DESCRIPTION OF PROPERTY
The Company’s principal executive offices are located at Pier 1, Bay 3, San Francisco, California 94111 and its telephone number is (415) 551-3260.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during 2011.
3
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the recent trading activity of the Company‘s Common Stock is reported on the OTC Bulletin Board and the Company is not aware of any recent material trading activity in shares of its Common Stock. As of December 31, 2011, there were approximately 500 holders of record of the Company’s Common Stock. The Company has not paid cash dividends on its Common Stock since its inception and does not intend to pay cash dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31
2011
2010
Net revenues
Net loss
Unrealized gain (loss) on holdings
Comprehensive gain (loss)
Cash and cash equivalents
Marketable securities
Non-marketable securities
Total assets
4
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATION
CRITICAL ACCOUNTING POLICIES
While the Company continues to evaluate business opportunities, its sole source of revenue is from the sale of marketable securities. Management has classified these marketable securities, in accordance with ASC 320, as available for sale. These securities are recorded at fair market value, and any unrealized gains and losses are reported as a separate component of shareholders’ equity. For marketable securities for which there is an other-than-temporary impairment, an impairment loss is recognized as a realized loss.
Ironstone’s primary expenses are generated from maintaining regulatory reporting compliance, such as quarterly review and annual audit of the financial statements, seeking legal counsel when appropriate, and consulting fees.
RESULTS OF OPERATIONS
Year ended December 31, 2011
Operating expenses for 2011 totaled $34,287, an increase of $4,308 or 14.4% as compared to 2010. The increase was primarily due to a increase in professional fees of $6,390 and a decrease in state filing fees of $1,932. Interest expense for 2011 totaled $46,469, an increase of $4,594 or 11.0% as compared to 2010. The increase was due to an increase in borrowings.
5
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $61,412 for the year ended December 31, 2011, and $57,704 for the year ended December 31, 2010.
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. Interest is payable monthly at 7.75%. 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 December 31, 2011, the outstanding balance under the line was $350,000.
The Company borrowed from Mr. William R Hambrecht $214,500 with interest at 7.75% per annum in the years 2008, 2009 and 2010. During the year 2011 the Company borrowed from Mr. William R Hambrecht $65,000 with interest at 7.75% per annum. At December 31, 2011 the total borrowed from Mr. William R Hambrecht was $279,500.
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 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 6.7% of Salon’s common stock outstanding as of December 31, 2011. The investment in Salon is valued at the converted common stock value of $.05 per share, or $42,150, at December 31, 2011.
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 $.05 per share, or $3,998, at December 31, 2011. Additionally, the Company has an investment in another available for sale security with a fair value of $7,800 at December 31, 2011.
As of January 30, 2012, Salon’s common stock was trading at $.05 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.
ITEM 7A. 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 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Reports of Independent Registered Public Accounting Firms
7
Consolidated balance sheets at December 31, 2011 and 2010
8
Consolidated statements of operations and comprehensive (loss) for the years ended December 31, 2011 and 2010
Consolidated statements of operations and comprehensive (loss) for the years ended December 31, 2011 and 2010
9
Consolidated statements of stockholders’ equity for the years ended December 31, 2011 and 2010
Consolidated statements of stockholders’ equity for the years ended December 31, 2011 and 2010
10
Consolidated statements of cash flows for the years ended December 31, 2011 and 2010
Consolidated statements of cash flows for the years ended December 31, 2011 and 2010
11
Notes to Consolidated Financial Statements
12
6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Ironstone Group, Inc.
We have audited the accompanying consolidated balance sheets of Ironstone Group, Inc. and Subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2011. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.