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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

☒

ANNUAL REPORT UNDER SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

 

 

☐

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

Commission File Number 0-12346

 

IRONSTONE PROPERTIES, INC.

(Name of Registrant as specified in its charter)

 

Delaware 

95-2829956 

(State or other jurisdiction of 

(IRS Employer Identification No.) 

incorporation or organization)

 

 

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:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.01 par value

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

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 ☒

 

Indicate by check mark whether the Registrant (1) has 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 ☒    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. ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 ☒ No ☐

 

Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Act.

Large accelerated filer ☐      Accelerated filer ☐      Non- accelerated filer ☐      Smaller reporting company ☒      Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐    No ☒

 

The approximate aggregate market value of voting stock held by non-affiliates of the Registrant was $1,324,599 as of December 31, 2021 based on the closing bid price on December 31, 2021. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.

 

Check whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒

 

As of March 25, 2022, 2,191,689 shares of Common Stock, $0.01 par value, were outstanding.

 

 
Table of Contents
 

 

 

TABLE OF CONTENTS

 

PART I:

Page
     

Item 1.

Business

3

Item 1A.

Risk Factors

3

Item 1B.

Unresolved Staff Comments

3

Item 2.

Properties

3

Item 3.

Legal Proceedings

3

Item 4.

Mine Safety Disclosures

3
     

PART II:

  
     

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

4

Item 6

Selected Consolidated Financial Data

5

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5 - 7

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

8

Item 8.

Financial Statements and Supplementary Data

8 - 22

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

23

Item 9A

Controls and Procedures

23

Item 9B.

Other Information

24
     

PART III:

  
     

Item 10.

Directors and Executive Officers and Corporate Governance

24

Item 11.

Executive Compensation

25 -27

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

28

Item 13.

Certain Relationships, Related Transactions, and Director Independence

29

Item 14.

Principal Accountant Fees and Services

29
     

PART IV:

  
     

Item 15.

Exhibits, Financial Statement Schedules

29
     

SIGNATURES

30

 

2
Table of Contents

 

 

PART I

 

ITEM 1. BUSINESS

 

BACKGROUND

 

Ironstone Properties, Inc., (“Ironstone” or the “Company”) formerly named Ironstone Group, Inc. 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. William R. Hambrecht, Director and Chief Executive Officer, owns approximately 32.5% of Ironstone’s outstanding voting shares as of December 31, 2021. During September 2021, Ironstone Group, Inc. changed its name to Ironstone Properties, Inc.

 

BUSINESS STRATEGY

 

Currently, the Company is reviewing options and new business opportunities. At December 31, 2021, the Company had $604,318 in marketable securities, $30,717 in cash, and $4,960,344 in non-marketable investments,

 

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, 2021, the Company had one part-time contract employee. The contract employee received $21,405 in cash compensation for the years ended December 31, 2021 and 2020, and are not subject to a collective bargaining agreement.

 

ITEM 1A. RISK FACTORS

 

The Company’s main assets are investments in non-marketable securities of TangoMe Inc., and Buoy Health, Inc., and marketable securities of Arcimoto Inc. There can be no assurance that a market will continue to exist for these investments.

 

The Company has been unable to contract a PCAOB auditor for an examination of the 2021 and 2020 financial statements and records. The Company continues to search for an auditor.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

The Company’s principal executive offices are located at 909 Montgomery Street, San Francisco, California 94133, in office space leased by its WR Hambrecht+Co., LLC.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

3
Table of Contents

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

 

Our common stock trades on the OTC Markets under the trading symbol IRNS. The table below sets forth, for the fiscal quarters indicated, the reported high and low sale prices of our common stock, as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Also, due to the very limited and sporadic nature of trading in our common stock, we believe there is not an established public trading market in our common stock, and there can be no assurance that such a trading market will develop. The following table sets forth the range of high and low closing sale prices for our common stock for each period indicated: 

 

2020

  

High

    

Low

  
                 

Quarter 1

   $ 0.80     $ 0.25  

Quarter 2

     0.56       0.35  

Quarter 3

     0.65       0.35  

Quarter 4

     1.40       0.55  

 

2021

  

High

    

Low

  
                 

Quarter 1

   $ 5.80     $ 1.40  

Quarter 2

     8.37       2.55  

Quarter 3

     8.37       5.76  

Quarter 4

     6.00       2.85  

 

Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) impose sales practice and disclosure requirements on certain brokers-dealers who engage in transactions involving a “penny stock.” The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. We believe that the penny stock rules may discourage investor interest in and limit the marketability of our common shares.

 

As of December 31, 2021, 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.

 

On January 30, 2013 the Company granted 70,000 stock options to directors and officers of the Company. On August 20, 2013, the Company granted an additional 100,000 stock options to an employee of the Company. The option grants were intended as compensation for services provided to the Company. The options vested over four years and have a 10 year term. The exercise price of the stock options granted in January 2013 is $0.20 per share and for those granted in August 2013 is $1.20 per share. On April 29, 2021 the Company revised its existing Equity Incentive Plan. As of April 29, 2021, 175,000 options were granted under the Plan, with an exercise price of $1.99 per share, which is based on the weighted average price for the trailing six-month average price and an illiquidity discount of 15%. The options vest straight line over three years and expire seven years following the grant date. The plan 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.

 

The stock options were issued in reliance on the exception from registration provided by Section 4(a) (2) of the Securities Act of 1933. 

 

4
Table of Contents

 

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

 

Year ended December 31

  

2021

    

2020

  
                 

Net revenues

   $ -     $ -  
                 

Net loss

   $ (523,401 )   $ (301,658 )
                 

Unrealized gain

   $ 1,776,306     $ 915,728  
                 

Comprehensive gain after income taxes

   $ 934,599     $ 614,070  
                 

Cash

   $ 30,717     $ (39 )
                 

Marketable securities

   $ 604,318     $ 1,034,868  
                 

Non-marketable securities

   $ 4,960,344     $ 2,574,665  
                 

Total assets

   $ 5,595,379     $ 3,609,494  

 

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 and non-marketable securities. Management has classified these securities as available for sale in accordance with ASC Topic 320, “Investments – Debt and Equity Securities.” These securities are recorded at fair value, and any unrealized gains and losses are reported as other comprehensive income. For securities for which there is an other-than-temporary impairment, an impairment loss is recognized as a realized loss.

 

Ironstone Property’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.

 

Fair Value Measurements

 

The accounting principles general accepted in the United States of America (“GAAP”) defines fair value, establishes a framework that the Company uses to measure fair value and provides for certain disclosures about the fair value measurements included in the Company's financial statements. Refer to Note 2 in the Notes to Financial Statements for these disclosures. Fair value is defined by GAAP 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 willing market participants on the measurement date.

 

5
Table of Contents

 

In determining fair value, the Company uses various valuation approaches. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company’s management. Unobservable inputs are inputs that reflect management’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs 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.

 

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the management in determining fair value is greatest for instruments categorized in Level 3.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date.

 

RESULTS OF OPERATIONS

 

Years ended December 31, 2021 and December 31, 2020

 

Operating expenses for 2021 totaled $523,401, an increase of $221,743 or 74% as compared to 2020. The increase was primarily due to increases in professional fees of $33,571 and stock compensation expense of $167,018. Interest expense for fiscal year 2021 totaled $246,812, an increase of $9,046 or 4% as compared to fiscal year 2020, which is attributed to an increase in the Company's notes payable.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Net cash used in operating activities was $90,459 and $0 for the years ended December 31, 2021 and 2020, respectively. The increase over fiscal year 2020 is attributed to restarting operations and an increase in cash used to pay accounts payable and accrued expenses. Net cash used in investing activities was $178,824 and $0 for the years ended December 31, 2021 and 2020, respectively. The increase is due to an investment made in non-marketable securities by the Company in fiscal year 2021. Net cash provided by financing activities was $300,000 and $0 for the years ended December 31, 2021 and 2020, respectively.

 

6
Table of Contents

 

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 plus 4.5%. Interest is payable monthly at 7.75%. The line is guaranteed by William R. Hambrecht, Chief Executive Officer and Director. The line of credit is due on demand and is secured by all of the Company’s business assets. At December 31, 2021, the outstanding balance under the line was $348,843.

 

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. The note payable carried a principal balance of $182,000 as of December 31, 2021 and December 31, 2020 with additional accrued interest of $122,960 and $108,855 respectively. The loan maturity has been extended to December 31, 2025.

 

A loan was made to Ironstone Properties, Inc. by William R. Hambrecht resulting from William R. Hambrecht paying the interest on the Bank Letter of Credit from the time period January 2016 through March 2021. The loan from William R. Hambrecht interest rate is 7.75%. The loan balances at December 31, 2021 and December 31, 2020 were $142,313 and $135,625 respectively. Accrued interest at December 31, 2021 was $44,265 and December 31, 2020 was $30,437. Maturity of the note is March 31, 2026.

 

On March 10, 2021 William R. Hambrecht loaned Ironstone Properties, Inc. $300,000 at 6.0% interest rate with a March 11, 2026 maturity. Interest payable at December 31, 2021 was $14,680.

 

Additionally, the Company has a note payable due to an unrelated party of $1,292,666 as of December 31, 2021 and pay-in-kind interest of $1,036,844 as of December 31, 2021, for a total amount due of $2,329,510.

 

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 $4,781,521 and $2,574,665 for the years ended December 31, 2021 and 2020, respectively, For the year ended December 31, 2021, the Company recorded an unrealized gain of $2,206,855 on the investment. 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. The investment fair value is based on using a Best-fit valuation for TangoMe Inc. as determined by the MESE big data analysis system and SPAC inquiries for TangoMe, Inc. These are the primary significant unobservable inputs used in the fair value measurement of the Company’s investment. 

 

During fiscal year 2014 the Company purchased 37,000 shares of Arcimoto, Inc. series A-1 preferred stock for $100,011. The A-1 preferred stock was converted to common stock during 2017 prior to Arcimoto filing for its initial public offering. During 2017, prior to the initial public offering, there was a two for one stock split, increasing the shares held to 74,000. On October 2, 2015 the Ironstone Group, Inc. was granted 2,500 Arcimoto options, strike price $4.121 per share, expiration October 2, 2025. Following the two for one stock split, the options held increased to 5,000 with a $2.0605 strike price per share. On September 17, 2017, Arcimoto listed on Nasdaq. The closing price on December 31, 2021 $13.23 per share, resulting in a stock holdings valuation of $575,720 and in-the-money options valuation of $28,598. On December 31, 2021 the closing price was $7.78 per share, a common stock valuation of $575,720 resulting in a loss for the quarter ended December 31, 2021 of $270,100, and options in-the-money valuation of $28,598, resulting in a loss of $18,250 for the quarter ended December 31, 2021.

 

Additionally, the Company purchased 11,233 common shares of the private company Buoy Health, Inc. on March 17, 2021 at $15.92 per share. The total value of the investment was $178,824 at December 31, 2021.

 

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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
   

Consolidated balance sheets at December 31, 2021 and 2020

9

 

 

Consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2021 and 2020

 10

 

 

Consolidated statements of stockholders’ equity for the years ended December 31, 2021 and 2020

11

 

 

Consolidated statements of cash flows for the years ended December 31, 2021 and 2020

12

 

 

Notes to consolidated Financial Statements

13

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

  

December 31, 2021

  

December 31, 2020

 
         

ASSETS:

        

Cash

 $30,717  $(39)

Investments:

        

Marketable securities

  604,318   1,034,868 

Non-marketable securities

  4,960,344   2,574,665 
         

Total assets

 $5,595,379  $3,609,494 
         
         

LIABILITIES AND STOCKHOLDERS' EQUITY:

        

Accounts payable and accrued expenses

 $34,201  $151,121 

Line of credit borrowings

  348,843   350,000 

Interest payable line of credit

  1,259   - 

Note payable

  2,329,510   2,109,857 

Note payable - related party

  624,313   317,625 

Interest payable - related party

  181,906   139,291 

Deferred income tax payable

  318,306   - 
         

Total liabilities

  3,838,338   3,067,894 
         
         

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 2,937,225 shares are issued and outstanding as of December 31, 2021 and December 31, 2020

  29,372   29,372 

Additional paid-in capital

  21,839,083   21,839,083 

Additional paid-in capital - stock options

  212,506   22,744 

Accumulated deficit

  (22,498,875)  (23,204,025)

Accumulated other comprehensive Income

  2,697,529   2,377,000 
   2,279,615   1,064,174 

Less: Treasury Stock, 745,536 shares, at cost

  (522,574)  (522,574)
         

Total stockholders' equity

  1,757,041   541,600 
         

Total liabilities and stockholders' equity

 $5,595,379  $3,609,494 

 

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

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE PROFIT

(unaudited)

 

                 
                 
  

Three Months Ended

  

Twelve Months Ended

 
  

December 31,

  

December 31,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Operating expenses:

                

Compensation - stock options

 $84,953  $22,744  $189,762  $22,744 

Professional fees

  10,141   -   33,571   234 

General and administrative expenses

  2,930   -   (1,386)  - 

State and local taxes

  (930)  3,250   12,027   15,400 

Total operating expenses

  97,094   25,994   233,975   38,378 
                 

Loss from operations

  (97,094)  (25,994)  (233,975)  (38,378)
                 

Other expense:

                

Interest expense

  (64,115)  (61,634)  (246,812)  (237,766)

Interest expense to related party

  (11,690)  (6,713)  (42,614)  (25,513)
                 
                 

Net operating loss

 $(172,900) $(94,342) $(523,401) $(301,658)
                 
                 

COMPREHENSIVE PROFIT (LOSS), NET OF TAX:

                

Net operating loss

 $(172,900) $(94,342) $(523,401) $(301,658)

Unrealized holding gain (loss) arising during the period

  (288,350)  525,350   1,776,306   915,728 

Deferred income tax

  (318,306)  -   (318,306)  - 
                 

Comprehensive profit (loss) after income taxes

 $(779,556) $431,008  $934,599  $614,070 
                 
                 
                 

Basic gain (loss) per share

                

Net operating loss per share

 $(0.08) $(0.04) $(0.24) $(0.14)

Net comprehensive profit per share

 $(0.36) $0.20  $0.43  $0.28 

Shares outstanding

  2,191,689   2,191,689   2,191,689   2,191,689 

 

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

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Years ended December 31, 2021 and 2020

(unaudited)

 

  

Common

      

Additional

  

Accumulated

  

Treasury

         
  

Stock

      

Paid-In

  

Comprehensive

  

Stock

         
  

Shares

  

Amount

  

Capital

  

Deficit

  

Shares

  

Amount

  

Total

 
                             

Balances, January 1, 2020

  2,937,225  $29,372  $21,839,083   (21,441,095)  (745,536) $(522,574) $(95,214)
                             

Stock-based compensation

         $22,744                 
                             

Unrealized gain

             $915,728             
                             

Net loss

             $(301,658)            
                             

Balances, December 31, 2020

  2,937,225  $29,372  $21,861,827  $(20,827,025)  (745,536) $(522,574) $541,600 
                             

Stock-based compensation

         $189,762                 
                             

Unrealized gain

             $1,776,306             
                             

Prior period adjustment

             $91,080             

Deferred income taxes

             $(318,306)            
                             

Net loss

             $(523,401)            
                             

Balances, December 31, 2021

  2,937,225  $29,372  $22,051,589  $(19,801,346)  (745,536) $(522,574) $1,757,041 

 

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

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

  

Twelve Months Ended

 
  

December 31

 
  

2021

  

2020

 
         

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net lncome (loss)

 $(523,401) $(301,658)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Changes in operating assets and liabilities:

        

Accounts payable and accrued expenses

  (81,819)  15,634 

Interest payable

  185,812   210,641 

Interest payable - related party

  42,614   25,513 

Net cash used in operating activities

  (376,795)  (49,869)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Proceeds from issuance of notes payable

  306,688   27,125 

Principal payment of LOC

  (1,157)  - 

Paid in capital stock options

  189,762   - 

Prior period adjustment accrued expenses

  91,081   - 

Net cash provided by financing activities

  586,375   27,125 
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Marketable securities mark to market

      - 

Investment in non-marketable securities

  (178,824)  - 

Net cash provided (used) by financing activities

  (178,824)  - 
         

Net increase (decrease) in cash

  30,756   (22,744)
         

Cash at beginning of period

  (39)  22,705 
         

Cash at end of period

 $30,717  $(39)
         

Cash paid during the period for interest

 $20,369  $- 

Cash paid during the period for state franchise taxes

 $24,717  $- 
         

Supplemental noncash investing and financing activities:

        

Officer and director common stock options issued

 $189,762  $- 

Deferred income taxes payable

 $318,306  $- 

 

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

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business Activities

 

Ironstone Group, Inc. and subsidiaries have no operations but are seeking appropriate business combination opportunities. Ironstone Group, Inc, (“Ironstone” or the “Company”) a Delaware corporation, was incorporated in 1972.

 

Principles of Consolidation

 

The accompanying 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 and Non-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 shareholders’ equity until realized. The fair value of the Company’s marketable securities and investments at December 31, 2021 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.

 

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.

 

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. 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.

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

Ironstone 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 December 31, 2021, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2018 forward for Federal and 2017 forward for California (with limited exceptions).

 

During the year ended December 31, 2021, the Company recognized and paid $2,443 of interest and penalties related to state income and franchise taxes in its 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 Company estimates the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes option-pricing model, in accordance with ASC Topic 718, “Stock-based Compensation”.

 

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 term of the awards.

 

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, using the average stock price during the period in the computation and because of the net loss for the periods presented.

  

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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 has adopted ASU 2014-15.

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. ASU 2018-13 removes certain disclosures, modifies others and introduces additional disclosure requirements for entities. The amendments in ASU 2018-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted the new standard on January 1, 2020. The adoption did not have a material impact on the Company’s financial statements.

 

Liquidity

 

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 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recovery and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

 

2. FAIR VALUE MEASUREMENTS

 

Fair value is defined under the Financial Accounting Standards Board (“FASB”) Accounting Standards Board (“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.

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

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 carrying value of cash, accounts payable, accrued expenses, and interest payable approximate fair value given their short-term nature. The carrying value of the Company's notes payable approximate fair value based on time to maturity and prevailing interest rates.

 

The following tables provide information about the Company’s financial instruments measured at fair value on a recurring basis as of December 31 by the fair value hierarchy:

 

              

Balance as of

 
              

December 31,

 
  

Level 1

  

Level 2

  

Level 3

  

2021

 

Investments:

                

Publicly traded common stock

 $575,720  $-  $-  $575,720 

Publicly traded options

  28,598           28,598 

Private company common stock

  -   -   178,824   178,824 

Private company preferred stock

  -   -   4,781,520   4,781,520 

Total

 $604,318  $-  $4,960,344  $5,564,662 

 

              

Balance as of

 
              

December 31,

 
  

Level 1

  

Level 2

  

Level 3

  

2020

 

Investments:

                

Publicly traded common stock

 $979,020  $-  $-  $979,020 

Publicly traded options

 $55,848           55,848 

Private company common stock

  -   -       - 

Private company preferred stock

  -   -   2,574,665   2,574,665 

Total

 $1,034,868  $-  $2,574,665  $3,609,533 

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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

    
  

December 31, 2021

 

Valuation Technique

 

Unobservable Inputs

        

Private Company Common Stock

 $178,824 

Purchase price 3-10-2021

 

Acquisition cost

Private Company Preferred Stock

 $4,781,520 

company valuation average range $1.2bn to $5.0bn, best fit $2.6bn

 

Big data technology "MESE" system, and SPAC inqueries

 

  

Fair Value as of

    
  

December 31, 2020

 

Valuation Technique

 

Unobservable Inputs

        

Private Company Preferred Stock

 $2,574,665 

comapnay valuation average range $1.0bn to $1.5bn

 

Big data technology "MESE" system, and SPAC inqueries

 

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for fiscal years 2021 and 2020. 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.

 

  

Twelve Months Ended

 
  

December 31, 2021

 

Balance as of December 31, 2020

 $2,574,665 

Unrealized gain on investments

  2,206,855 

Purchase of investment

  178,824 

Balance as of December 31, 2021

 $4,960,344 

 

  

Twelve Months Ended

 
  

12./31/2020

 

Balance as of December 31, 2019

 $2,574,665 

Unrealized gain on investments

  - 

Purchase of investment

  - 

Balance as of December 31, 2020

 $2,574,665 

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

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 the year ended December 31, 2020 there was no valuation gain or loss for TangoMe, Inc., remaining at a valuation of $2,574,666. Updating the “MESE” valuation system with current available data from TangoMe, Inc., results in a “Best-fit” company valuation of $2.6bn, translating to a valuation of $4,781,521 as of December 31, 2021. This represents a gain of $2,206,856 for the twelve months ended December 31, 2021. The investment fair value is based on using a Best-fit valuation for TangoMe Inc. as determined by the MESE big data analysis system and SPAC inquiries for TangoMe, Inc. These are the primary significant unobservable inputs used in the fair value measurement of the Company’s investment. 

 

Buoy Health, Inc.

 

On March 17, 2021 the Company purchased 11,233 common shares of the private company Buoy Health, Inc. at $15.92 per share. The total value of the investment was $178,824 at September 30, 2021.

 

Arcimoto, Inc.

 

During fiscal year 2014 the Company purchased 37,000 shares of Arcimoto, Inc. series A-1 preferred stock for $100,011. The A-1 preferred stock was converted to common stock during 2017 prior to Arcimoto filing for its initial public offering. During 2017, prior to the initial public offering, there was a two for one stock split, increasing the shares held to 74,000. On October 2, 2015 the Ironstone Group, Inc. was granted 2,500 Arcimoto options, strike price $4.121 per share, expiration October 2, 2025. Following the two for one stock split, the options held increased to 5,000 with a $2.0605 strike price per share. On September 17, 2017, Arcimoto listed on Nasdaq. The closing price on December 31, 2020 $13.23 per share, resulting in a stock holdings valuation of $979,020 and in-the-money options valuation of $55,848. On December 31, 2021 the closing price was $7.78 per share, a common stock valuation of $575,720 resulting in a loss for the quarter ended December 31, 2021 of $270,100, and options in-the-money valuation of $28,598, resulting in a loss of $18,250 for the quarter ended December 31, 2021.

 

 

4. RELATED PARTY TRANSACTIONS

 

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. The note payable carried a principal balance of $182,000 as of December 31, 2021 and December 31, 2020 with additional accrued interest of $122,960 and $108,855 respectively. The loan maturity has been extended to December 31, 2025.

 

A loan was made to Ironstone Properties, Inc. by William R. Hambrecht resulting from William R. Hambrecht paying the interest on the Bank Letter of Credit from the time period January 2016 through March 2021. The loan from William R. Hambrecht interest rate is 7.75%. The loan balances at September 30, 2021 and December 31, 2020 were $142,313 and $135,625 respectively. Accrued interest at December 31, 2021 was $44,265 and December 31, 2020 was $30,437. Maturity of the note is March 31, 2026.

 

On March 10, 2021 William R. Hambrecht loaned Ironstone Properties, Inc. $300,000 at 6.0% interest rate with a March 11, 2026 maturity. Interest payable at December 31, 2021 was $14,680.

 

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IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

5. NOTE 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 company was unable to meet its payment obligation by the prescribed deadline, therefore the interest rate stepped up to 10% and interest has been accrued using at the stepped up rate starting April 1, 2017. The gross amounts payable under the agreement as of December 31, 2021 and December 31, 2020 were $2,329,510 and $2,109,857 respectively.

 

Furthermore, during the year the Company extended the maturity date 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, 2025. The note payable carried a principal balance of $182,000 as of December 31, 2021 and 2020 with additional accrued interest of $122,960 and $108,855 respectively.

 

The scheduled maturities of notes payable outstanding as of December 31, 2021 are as follows:

 

  

2025

  

2026

  

pending

  

Total

 
                 

Notes payable

 $-  $-  $2,329,510  $2,329,510 
                 

Letter of Credit

  -   -   348,843   348,843 
                 

Notes payable - related party

  182,000   442,313   -   624,313 
                 

Total

 $182,000  $442,313  $2,678,353  $3,302,666 

 

 

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 with interest based upon the lender’s prime rate plus 4.5% and is payable monthly. At December 31, 2021 and 2020, 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. The line of credit is due on demand and is secured by all of the Company’s business assets. At December 31, 2021 and 2020, the outstanding balance under the line was $348,843 and $350,000 respectively. The total recorded interest expense on this note for the years ended December 31, 2021 and December 31, 2020 was $27,160 and $27,125 respectively. The interest from January 2020 through March 2021 was paid by William Hambrecht. The Company recorded these payments as interest expense and loan payable to William Hambrecht. The line of credit is pending renew.

 

19
Table of Contents

 

IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 

 

 

7. INCOME TAXES

 

ASC 740, “Income Taxes” requires the recognition of deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of (i) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (ii) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's deferred income taxes at December 31, 2021 and 2020 are as follows:

 

  

2021

  

2020

 
         

Deferred tax asset - Operating loss carryforward

 $3,190,522  $2,737,027 

Deferred tax liability – unrealized gain on marketable and non-marketable securities

  (4,257,230

)

  (2,453,674

)

Less valuation allowance

  -   (283,353

)

Deferred income tax asset (liability) – net

 $(1,066,708) $- 

 

The reasons for the difference between the amount computed by applying the statutory federal income tax rate to losses before income tax benefit and the actual income tax benefit for the years ended December 31, 2021 and 2020 are as follows:

 

  

2021

  

2020

 

Expected Federal income tax benefit (liability)

 $(224,009) $59,504 

State income tax benefit (liability) net of federal tax

  (94,297)  25,408 

Total before valuation allowance

  (318,306

)

  84,553 

Change in valuation allowance

  -   (84,553)

Income tax benefit (liability)

 $(318,306) $- 

 

In the opinion of management, based on the uncertainty that the Company will be able to generate taxable income in the future, the realization of the loss carryforwards is not likely and, accordingly, a valuation allowance has been recorded to offset such amount in its entirety.

 

The Company is subject to taxation in the U.S. and the state of California. As of December 31, 2021, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2018 forward for Federal and 2017 forward for California (with limited exceptions).

 

At December 31, 2021, the Company had approximately $3,190,522 of federal and $3,253,281 of state net operating loss carryforwards. It is possible that subsequent ownership changes may limit the utilization of these tax attributes. Approximately $1,879,491 of the federal net operating loss carryforwards will expire in year 2022 through 2042. The remainder of the federal net operating loss carryforwards generated in 2018 and later have indefinite carryforward periods however are limited to 80% of taxable income in any given year. The California net operating loss carryforwards will expire in year 2028 through 2041.

 

The valuation allowance was $0 as of December 31, 2021 due to the positive mark-to-market of securities owned which resulted in a net deferred tax liability, vs December 31, 2020 which was a net tax asset, where the valuation allowance was $84,553 to write off the tax asset due to uncertainty if it would be able to be used in the future.

 

20
Table of Contents

 

IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

8. STOCKHOLDERS’ EQUITY

 

Common Stock

The Company has 25,000,000 common equity shares authorized, and a total of 2,937,225 are issued and outstanding, including 745,536 common equity shares held in treasury.

 

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 December 31, 2021 and 2020, 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 December 31, 2021 and 2020.

 

Stock-Based Compensation

 

Ironstone recognized stock-based compensation expense of $189,762 during the year ended December 31, 2021. As of December 31, 2021, Ironstone had an aggregate of $573,407 of stock-based compensation remaining to be amortized to expense over the remaining requisite service period of the underlying options. Ironstone currently expects this stock-based compensation balance to be amortized as follows; $271,581 during fiscal year 2022; $261,584 during fiscal year 2023 and $81,128 during fiscal year 2024.

 

Stock Option Plans

 

On April 29, 2021 the Company is revised its 2013 Equity Incentive Plan. As of April 29, 2021, an additional 175,000 options were granted under the Plan, with an exercise price of $1.99 per share, which is based on the weighted average price for the trailing six-month average price and an illiquidity discount of 15%. The options vest straight line over three years and expire seven years following the grant date. The options are amortized over the three-year vesting period. 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 $2.34, Exercise Price $1.99, Time to Maturity 3 years, Risk-free Interest Rate 0.35%, Annualized Volatility 185%. The plan 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.

 

21
Table of Contents

 

IRONSTONE PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Concluded)

 

The Company previously adopted a 2013 Equity Incentive Plan. The plan provides for incentive stock options to be granted at times and prices determined by the Company’s Board of Directors. The stock options were 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, Exercise Price $.20, Time to Maturity 6.33 years, Risk-free Interest Rate 4%, Annualized Volatility 121%.

 

An additional 100,000 stock options were granted on August 20, 2013. The fair value of these options granted under the Plan were estimated using the Black-Scholes model with following price and assumptions: Stock Price $1.20, Exercise Price $1.20, Time to Maturity 4.0 years, Risk-free Interest Rate 1.1%, Annualized Volatility 93%.

 

For the year ended December 31, 2021 the Company recorded share based compensation expense related to stock options in the amount of $167,018 on the 175,000 options issued on April 29, 2021, $3,096 on the 70,000 stock options issued January 30, 2013 and $19,648 on the stock options issued August 20, 2013.

 

 

9. NET INCOME (LOSS) PER SHARE

 

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock 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 outstanding during the period, if dilutive. Potentially dilutive common 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 income per share and the anti-dilutive common stock equivalents excluded from the computations for the periods presented:

 

  

Quarters Ended

  

Twelve months ended

 
  

December 31, 2021

  

December 31, 2020

  

December 31, 2021

  

December 31, 2020

 
                 

Numerator:

                

Net Operating Loss

 $(172,900) $(94,342) $(523,401) $(301,658)

Denominator:

                

Weighted average shares outstanding - basic

  2,191,689   2,191,689   2,191,689   2,191,689 

Effect of dilutive potential shares

  345,000   -   345,000   - 

Shares outstanding - diluted

  2,536,689   2,191,689   2,536,689   2,191,689 

Net loss per share - basic

 $(0.08) $(0.04) $(0.24) $(0.14)

Net loss per share - diluted

 $(0.07) $(0.04) $(0.21) $(0.14)

 

  

Quarters Ended

  

Twelve months ended

 
  

December 31, 2021

  

December 31, 2020

  

December 31, 2021

  

December 31, 2020

 
                 

Numerator:

                

Net Comprehensive Earnings after income taxes

 $(779,556) $431,008  $934,599  $614,070 

Denominator:

                

Weighted average shares outstanding - basic

  2,191,689   2,191,689   2,191,689   2,191,689 

Effect of dilutive potential shares

  345,000   -   345,000   - 

Shares outstanding - diluted

  2,536,689   2,191,689   2,536,689   2,191,689 

Net gain (loss) per share - basic

 $(0.36) $0.20  $0.43  $0.28 

Net gain (loss) per share - diluted

 $(0.31) $0.20  $0.37  $0.28 

 

22
Table of Contents
 

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) as of December 31, 2021 in connection with the filing of this Annual Report on Form 10K. Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, in light of the material weakness described below, our disclosure controls and procedures were not effective to ensure that information we are 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-months ended December 31, 2021 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 December 31, 2014. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our evaluation, management concluded that, as of December 31, 2021, 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.

 

23
Table of Contents

 

ITEM 9B. OTHER INFORMATION 

 

None.

 

 

PART III

 

ITEM 10. DIRECTORS, AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

DIRECTORS

 

Name

Age

Director Since

William R. Hambrecht

86

2007

William Mayer

81

2021
George Hambrecht 50 2021

Michael Huyghue

60

2021
Harold Bradley 64 2021

 

EXECUTIVE OFFICERS

 

The following table sets forth the names, ages and positions of the Company’s executive officers as of December 31, 2021. A summary of the background and experience of each of these individuals is set forth after the table.

 

Name

Age

Position

Held Since

 

 

 

 

William R. Hambrecht

86

Chief Executive Officer

2007

 

 

 

 

Eugene Yates

58

Chief Financial Officer

2021

 

Code of Ethics

 

The Company has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of the Company’s employees (including its executive officers) and directors. The Company shall provide to any person without charge, upon request, a copy of the Code. Any such request must be made in writing to the Company, c/o William R. Hambrecht, 909 Montgomery Street, San Francisco, CA 94133.

 

24
Table of Contents

 

PART III – (Continued)

 

ITEM 11. EXECUTIVE COMPENSATION

 

COMPENSATION OF DIRECTORS

 

Outside directors may also receive stock option grants under the Company’s 2013 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”). Only non-employee directors of the Company or an affiliate of such directors (as defined in the Internal Revenue Code of 1986, as amended from time to time, hereinafter the “Code”) are eligible to receive options under the Directors’ Plan. Options granted under the Directors’ Plan are not intended to qualify as incentive stock options under the Code.

 

Options under the Directors’ Plan have either a ten-year or seven-year term depending on the grant; however, each option will terminate prior to the expiration date if the optionee’s service as a non-employee director, or, subsequently, as an employee, of the Company terminates. All options issued pursuant to the Directors’ Plan vest at a rate of 1/36 per month for 36 months following the date of the grant of the option, or in the event the grant was delayed pending compliance by the Company with certain securities law requirements, the date from which the grant was delayed.

 

The table below shows the compensation paid to the Company’s non-employee directors during 2021.

 

   

Director Compensation

  
 Name  

Fees earned or

paid in cash

($)

    


Option
awards

    

Total
($)

  
                         
                         

William Mayer

     -       50,000       -  
                         

William R. Hambrecht

     -       25,000       -  
                         

George Hambrecht

     -       25,000       -  
                         

Michael Huyghue

     -       25,000       -  
                         

Harold Bradley

     -       25,000       -  

 

 

(1)

See note 8 to the Company audited Consolidated Financial statements included in Item 8 to this report for a description of the assumption underlying the calculation of grant date fair value. The options have a term of ten years, however the optionee’s options will expire 90 days after the optionee’s service to the Company terminates. The option vest over a four-year period at the rate of 1/10 on the date six months after the date of grant and 1/48 per month thereafter. The exercise price of stock options may not be less than 100% of the fair market value of the Common Stock subject to the option on the date of the grant.

 

 

(2)

William Mayer Company’s Chairman of the Board of Directors effective March 25, 2021

 

 

(3)

George Hambrecht, Michael Huyghue, and Harold Bradley were appointed to the Company Board of Directors effective March 25, 2021.

 

25
Table of Contents

 

PART III – (Continued)

 

COMPENSATION OF EXECUTIVE OFFICERS

 

SUMMARY OF COMPENSATION

 

The following table shows that, for the fiscal year ended December 31, 2021, compensation was awarded in the form of stock options to the Company’s Chief Executive Officer or the Company’s Chief Financial Officer. In addition, the Company’s Chief Financial Officer earned $21,405 in non-employee compensation.

 

NAME AND PRINCIPAL

POSITION

YEAR

  

SALARY

($)

    

BONUS

    

OPTION

AWARDS

    

NON-EQUITY

INCENTIVE

PLAN

    

OTHER COMPENSATION

($)

    

TOTAL

  

William R. Hambrecht

Chief Executive Officer

2021

     --       --       25,000       --       -       --  
                                                   

Eugene Yates

Chief Financial Officer (2)

2021

     --       --       25,000       --     $ 21,405     $ 21,405  

 

 

(1)

See note 8 to the Company audited Consolidated Financial statements included in Item 8 to this report for a description of the assumption underlying the calculation of grant date fair value. The options have a term of seven years, however the optionee’s options will expire 90 days after the optionee’s service to the Company terminates. The option vest over a three-year period at the rate of 1/36 per month.

 

 

(2)

Mr. Yates was appointed as the Company’s Chief Financial Officer effective March 25, 2021

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Option Awards

 

Name

  

Number of

    

Number of

    

Option

  

Option
   

securities

    

securities

    

exercise

  

expiration
   

unexercised

    

unexercised

    

price

  

date
   

options (#)

    

options (#)

            
   

exercicisable

    

unexercicisable

            

(a)

  

(b)

    

( c )

    

(e)

  

(f)
                           

William R. Hambrecht

     5,556       19,444     $ 1.99  

4/30/2028
                           

Eugene Yates

     5,556       19,444     $ 1.99  

4/30/2028

 

See the Summary Compensation Table for information regarding vesting.

 

26
Table of Contents

 

PART III – (Continued)

 

ADDITONAL EQUITY COMPENSATION PLAN INFORMATION

 

The following table summarizes information regarding shares of common stock that may be issued upon exercise of stock options under the Company's updated Equity Incentive Plan as of December 31, 2021, which was the only plan or arrangement under which equity compensation was outstanding or could be awarded at that date.

 

Plan Category

  

A. Number of securities to be issued upon exercise of outstanding options, warrants, and rights

    

B. Weighted-average exercise price of outstanding options, warrants, and rights

    

C. Number of securities remaining available for future issuance under equity compensation plans (excluding securities) reflected in column A)

  

Equity compensation plans

    

345,000

    

$

1.398

      

0

  
                         

Total

    

345,000

              

0

  

 

27
Table of Contents

 

PART III – (Continued)

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding the ownership of the Company’s Common Stock as of December 31, 2021 by: (i) each director; (ii) each named executive officer; and (iii) all those known by the Company to be beneficial owners of more than five percent of its Common Stock.

 

BENEFICIAL OWNERSHIP (1)

 

   

NUMBER OF

          
   

SHARES OF

          
   

COMMON

    

PERCENT

  

BENEFICIAL OWNER

  

STOCK

    

TOTAL

  
                 

William R. Hambrecht

     952,998       43.5 %
                 

Michael Huyghue

     250,000       11.4 %
                 

Shea Ventures

     187,296       8.5 %
                 

Elizabeth Hambrecht

     157,143       7.2 %
                 

William Mayer

     142,857       6.5 %
                 

Thomas Thurston

     140,714       6.4 %
                 

Edmund H. Shea, Jr (deceased and related entities)

     113,173       5.2 %
                 

George Hambrecht

     17,143       *  
                 

Harold Bradley

     500       *  
                 

All executive officers, directors and over 5% owners as a group

     1,961,324       89.5 %
                 

Unaffiliated public ownership

     230,365       10.5 %
                 

Total Shares Issued and Outstanding

     2,191,689       100.0 %

 

* Less than 5% ownership

 

(1)

This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G, if any, filed with the Securities and Exchange Commission (the “SEC”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.

 

(2)

The Company Stock options exercisable currently or within 60 days after March 31, 2022 are 233,194.

 

(3)

Applicable percentages are based on 2,191,689 shares outstanding on March 31, 2022.

 

28
Table of Contents

 

PART III – (Continued)

 

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

On March 10, 2021, the Company borrowed from related party Mr. William R. Hambrecht $300,000 at 6.0% per annum.

 

During the period November 2015 through February 2021, Mr. William R. Hambrecht paid the interest on an outstanding third-party letter of credit. These payments were recorded as a loan from Mr. Hambrecht for $142,313.

 

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, 2025 maturity.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The Company has been unable to contract a PCAOB auditor for an examination of the 2021 and 2020 financial statements and records. The Company continues to search for an auditor.

 

Auditor Name:  N/A

Auditor Location:  NA

Auditor Firm Id:  9999

 

Since the Board of Directors does not have an audit committee, the principal auditor is engaged by the Chief Executive Officer and the Chief Financial Officer on behalf of the Company’s Board of Directors.

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

 

1.

Financial Statements

 

 

2.

Financial Statement Schedules

 

None

 

 

3.

Exhibits

 

The following Exhibits are filed as part of, or incorporated by reference into, this Report.

 

Exhibit                                                            

Number

Description

 

21.1

Subsidiaries of Ironstone Group, Inc.

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*

Inline XBRL Instance Document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101 CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101 DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document .

101 LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101 PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

29
Table of Contents

 

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

 

 

 

IRONSTONE PROPERTIES, INC.
  a Delaware corporation 

 

 

 

 

 

 

 

 

Date:     March 31, 2022

By:

/s/ William R. Hambrecht

 

 

 

William R. Hambrecht

 

 

 

Chief Executive Officer

 
       
       
Date:     March 31, 2022 By: /s/ Eugene Yates  
    Eugene Yates  
    Chief Financial 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,

March 31, 2022

William R. Hambrecht   

(Principal Executive Officer)

  
     

/s/ Eugene Yates

Chief Financial Officer,

March 31, 2022

Eugene Yates 

(Principal Financial Officer)

  
     

/s/ William Mayer 

Chairman, Board of Directors

March 31, 2022

William Mayer

    
     

/s/ George Hambrecht  

Director

March 31, 2022

George Hambrecht 

    
     

/s/ Harold Bradley

Director

March 31, 2022

Harold Bradley

    
     

/s/ Michael Huyghue

Director

March 31, 2022

Michael Huyghue

    

 

 

30
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