IRONSTONE PROPERTIES, INC. - Quarter Report: 2005 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

IRONSTONE GROUP, INC.

(Name of Registrant as specified in its charter)

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

539 Bryant St., San Francisco, California 94107
(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)

Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

As of August 10, 2005, 742,108 shares of Common Stock, $0.01 par value, were outstanding.

Transitional Small Business Disclosure Format: Yes o No þ

 

 

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations and comprehensive income (loss) for the three months ended June 30, 2005 and 2004			3
Condensed consolidated statements of operations and comprehensive income for the six months ended June 30, 2005 and 2004			4
Condensed consolidated balance sheet at June 30, 2005			5
Condensed consolidated statements of cash flows for the six months ended June 30, 2005 and 2004			6
Notes to condensed consolidated financial statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 3. Controls and Procedures			10
PART II — OTHER INFORMATION
Item 5. Other Information			10
Item 6. Exhibits			10
SIGNATURES			11
EXHIBIT 31.1
EXHIBIT 32.1

IRONSTONE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)

		Three Months Ended
		June 30,
		2005				2004
Revenues — interest and other income		$	2			$	3
Total revenue			2				3
Costs and expenses:
Legal and other professional fees			6,050				22,198
Other expenses			2,713				870
Total costs and expenses			8,763				23,068
Loss from operations			(8,761	)			(23,065	)
Other expense — interest			843				—
Net loss		$	(9,604	)		$	(23,065	)
COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Net loss		$	(9,604	)		$	(23,065	)
Unrealized holding gain (loss) arising during the period			(1,882,950	)			664,260
Comprehensive income (loss)		$	(1,892,554	)		$	641,195
Basic and diluted loss per share:
Net loss per share		$	(0.01	)		$	(0.03	)
Weighted average shares			742,311				742,311

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
(unaudited)

		Six Months Ended
		June 30,
		2005				2004
Revenues — interest and other income		$	3			$	9
Total revenue			3				9
Costs and expenses:
Legal and other professional fees			31,932				42,726
Other expenses			18,850				884
Total costs and expenses			50,782				43,610
Loss from operations			(50,779	)			(43,601	)
Other expense — interest			1,140				—
Net loss		$	(51,919	)		$	(43,601	)
COMPREHENSIVE INCOME, NET OF TAX:
Net loss		$	(51,919	)		$	(43,601	)
Unrealized holding gain arising during the period			1,131,720				2,617,020
Comprehensive income		$	1,079,801			$	2,573,419
Basic and diluted loss per share:
Net loss per share		$	(0.07	)		$	(0.06	)
Weighted average shares			742,311				742,311

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

IRONSTONE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2005
(unaudited)

ASSETS:
Current assets:
Cash		$	2,362
Marketable securities available for sale, at fair value			12,090
Investment in Salon Media Group Series C Preferred, at fair value			2,866,200
Warrants to purchase Salon Media Group, Inc. common stock, at fair value			253,500
Total assets		$	3,134,152
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Line of credit borrowings		$	58,383
Accounts payable			8,950
Total liabilities			67,333
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized of which there are no issued and outstanding shares			—
Common stock, $0.01 par value, 25,000,000 shares authorized of which 1,487,847 shares are issued			14,878
Additional paid-in capital			21,170,385
Accumulated deficit			(20,025,630	)
Accumulated other comprehensive income			2,429,061
			3,588,694
Less: Treasury stock 745,536 shares			(521,875	)
Total shareholders’ equity			3,066,819
Total liabilities and shareholders’ equity		$	3,134,152

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

IRONSTONE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Six Months Ended
		June 30,
		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(51,919	)		$	(43,601	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Accounts payable			8,788				(3,212	)
Net cash used in operating activities			(43,131	)			(46,813	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit			38,133				—
Net cash provided from financing activities			38,133				—
Net decrease in cash			(4,998	)			(46,813	)
Cash at beginning of period			7,360				53,327
Cash at end of period		$	2,362			$	6,514
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	843			$	—

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

IRONSTONE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2005 and 2004
(UNAUDITED)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activities

Ironstone Group, Inc. (the “Company”) currently has no operations but is seeking appropriate business combination opportunities. Alternatively, the Company is looking for an investment opportunity for some or all of its remaining liquid assets.

Marketable Securities

Marketable securities have been classified by management as available for sale in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). In accordance with SFAS No. 115, marketable securities are recorded at fair value and any unrealized gains or losses are excluded from earnings and reported as a separate component of shareholders’ equity until realized. The fair value of the Company’s marketable securities and investments at June 30, 2005 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.

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. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments and reclassifications 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-KSB for the year ended December 31, 2004.

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.

Earnings <Loss> per Share – Basic and Diluted

Basic earnings (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 potential 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.

Options to purchase 7,600 shares of the Company’s common stock were outstanding during the six-month period ended June 30, 2005 and 2004, but were not included in the computation of diluted EPS as their effect would have been anti-dilutive.

IRONSTONE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2005 and 2004
(UNAUDITED)

2. INVESTMENT IN 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 $0.04, or at the rate of one share of Series C Preferred Stock to 20,000 shares of common stock. If converted, the Company’s shares of Series C Preferred Stock represent 16,860,000 common shares of Salon, or 8.7% of Salon’s common stock outstanding as of June 30, 2005. The investment in Salon is valued at the converted common stock value of $0.17 per share, or $2,866,200 at June 30, 2005.

Additionally, in conjunction with making the investment in Salon, the Company received 1,950,000 warrants to purchase common stock in Salon at prices from $0.04182 — $0.05256 per share. The warrants are under anti-dilution protection and in February 2004 were revalued downward to a range of $0.04169 — $0.05181 in conjunction with the issuance of Series C Preferred Stock. The warrants have a weighted average price of $0.04, are fully exercisable and expire three years from issuance. The warrants were valued at $0.13 per share, or $253,500, at June 30, 2005.

3. LINE OF CREDIT

With Board approval, on September 23, 2004, the Company entered into a line of credit arrangement with First Republic Bank (the “lender”). The line of credit has a borrowing limit of $100,000 with interest based upon lender’s prime, with a floor rate of 4.25%. Interest is payable monthly and was 6.0% at June 30, 2005. The line expires September 23, 2005, and will automatically renew upon review by the lender. The line of credit is guaranteed by an officer and a member of the Board Director. At June 30, 2005, the outstanding balance under the line was $58,383.

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 2005 to 2004

Costs and expenses for the three-month period ended June 30, 2005 decreased $14,305 or 62% compared to the same period in 2004. This was primarily due to the timing of professional fees, which were incurred in the first quarter of 2005 rather than the second quarter 2005. For the six-month period ended June 30, 2005, costs and expenses increased by $7,172 or 16% compared to the same period in 2004. This increase was primarily due to an increase in professional fees for the six-month period ended June 30, 2005 as compared to the same period in 2004.

Liquidity and Capital Resources

Cash decreased $4,998 from $7,360 at December 31, 2004 to $2,362 at June 30, 2005. Net cash used in operating activities for the six-month period ended June 30, 2005 was $43,131. Cash provided by the line of credit for the period was $38,133. At June 30, 2005, the outstanding balance under the line was $58,383. See Note 3 of Notes to Condensed Consolidated Financial Statements for more information.

The Company’s investment in Salon Media Group, Inc. decreased from $4,552,200 to $2,886,200 and the warrants decreased in value from $448,500 to $253,500 from March 31, 2005 to June 30, 2005, due to the decrease in value of the underlying common stock of Salon Media Group, Inc. See Note 2 of Notes to Condensed Consolidated Financial Statements for more information.

The Company may make an investment in other companies or obtain additional equity or working capital through bank borrowings and public or private sale of equity securities. There can be no assurance, however, that such additional financing will be available on terms favorable to the Company, or at all.

Trends and Uncertainties

Termination of Historical Business Lines

Since winding down the Belt Perry property and tax services group, the Company’s management and the Board of Directors have been seeking appropriate business combination opportunities for the Company. In the alternative, management and the Board have looked for investment, such as its investment in Salon Media Group, Inc., 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. Controls and Procedures

As of June 30, 2005, the Company carried out an evaluation, under the supervision of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s design and operation of the Company’s disclosure controls and procedures as pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 (the “exchange Act”). Based upon that evaluation, the Company’s principal executive and financial officer concluded that as of June 30, 2005, there was a material weakness in the Company’s disclosure controls and procedures that affected the timely providing of material information relating to the Company, as required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company does not have an audit committee. The absence of that important oversight constitutes a material weakness in the Company’s corporate governance structure. In addition, the resignation of the Company’s CFO on June 14, 2005, has resulted in the Company not having sufficient segregation of duties amongst its executive officers, and therefore the internal controls are not effective.

Changes in Internal Controls

There were no significant changes in the Company’s internal controls or other factors that could significantly affect those controls subsequent to the date of the Company’s evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II – OTHER INFORMATION

Item 5. Other Information

As of June 14, 2005, Anna Schweizer, Ironstone’s Chief Financial Officer, resigned her position at the Company. In her absence, Robert H. Hambrecht, the Company’s Chief Executive Officer, has taken on the role of acting Chief Financial Officer.

Item 6. Exhibits

	31.1		Section 302 – Principal Executive Officer Certification
	32.1		Section 1350 – Certification – Chief Executive Officer

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-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.

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/ Robert H. Hambrecht   Robert H. Hambrecht		Director, Chief Executive Officer, Chief Financial Officer and Secretary (Principal Executive Officer)		August 10, 2005
/s/ Edmund H. Shea, Jr.   Edmund H. Shea, Jr.		Director		August 10, 2005
/s/ William R. Hambrecht   William R. Hambrecht		Director		August 10, 2005

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