1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activities

Ironstone Group, Inc. and subsidiaries purchases business interests where the Company has a relationship and influence; examples include being a current or prior board of director member, providing seed level capital, and serving in an advisory capacity. Currently Ironstone Group, Inc. is seeking appropriate business combination opportunities. Ironstone Group, Inc, (“Ironstone” or the “Company”) a Delaware corporation, was incorporated in 1972.

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1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

2. FAIR VALUE MEASUREMENTS

Fair value is defined under FASB ASC 820, “Fair Value Measurement and Disclosures”. ASC 820 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1–Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since

valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2–Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3–Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement.

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2. FAIR VALUE MEASUREMENTS (continued)

The Company’s assets and liabilities that are measured at fair value on a non-recurring basis include cash, accounts payable, accrued expenses, and interest payable given their short-term nature. Furthermore, the fair value of the Company’s notes payable are initially measured at fair value given that they are estimated based on current rates that would be available for debt of similar terms.

The following tables provide information about the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 by the fair value hierarchy:

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:

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2. FAIR VALUE MEASUREMENTS (concluded)

The following table presents additional information about Level 3 assets measured at fair value on a recurring basis for six months ended June 30, 2022 and 2021. 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.

3. INVESTMENTS

TangoMe, Inc.

On March 30, 2012, the Company purchased  i 468,121 shares of Series A Preferred stock from related party William R. Hambrecht at $ i 2.14 per share, resulting in a total investment of $ i 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 $ i 2,574,666. There was no change in value as of June 30, 2021, with the valuation remaining at $ i 2,574,666. The investment fair value is based on using an average company 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 input used in the fair value measurement of the Company’s investment. 

Arcimoto, Inc.

During fiscal year 2014 the Company purchased  i 37,000 shares of Arcimoto, Inc. series A-1 preferred stock for $ i 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  i two for one stock split, increasing the shares held to  i 74,000. On October 2, 2015 the Ironstone Group, Inc. was granted  i 2,500 Arcimoto options, strike price $ i 4.121 per share, expiration October 2, 2025. Following the two for one stock split, the options held increased to  i 5,000 with a $ i 2.0605 strike price per share. On September 17, 2017, Arcimoto listed on Nasdaq. During the second quarter of 2022,  i 5,000 shares of Arcimoto were sold to fund operations, reducing the Arcimoto common stock holdings to  i 69,000 shares at June 30, 2022.

The Arcimoto closing price on June 30, 2022 was $ i 3.27 per share, resulting in a stock holdings valuation of $ i 225,630 and in-the-money options valuation of $ i 6,048. On December 31, 2021 the closing price was $ i 7.78 per share, representing a common stock valuation of $ i 575,720 resulting in a valuation loss of $ i 350,090 the six months ended June 30, 2022. At December 31, 2021 the in-the-money options valuation was $ i 28,598, resulting in a valuation loss of $ i 22,550 for the six months ended June 30, 2022.

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Buoy Health, Inc.

On March 17, 2021 the Company purchased  i 11,233 common shares of the private company Buoy Health, Inc. at $ i 15.92 per share. The total value of the investment was $ i 178,824 at June 30, 2022.

Aristotle

On June 10, 2022 the Company purchased  i 5,037 preferred shares of the private company Aristotle Inc. from CEO and Board of directors member William Hambrecht at $ i 19.85 per share totaling $ i 100,000. On June 16, 2022 the Company purchased  i 5,037 preferred shares of the private company Aristotle Inc. from its Chairman of the Board, William Mayer for at $19.85 per share totaling $ i 19.85 per share. Aristotle’s predominant business is operating an internet based political election betting platform. The total investment of  i 10,074 shares was valued at $ i 200,000 as of June 30, 2022.

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 Hambrecht, to one note for $ i 182,000 at  i 7.75% interest.

A loan was made to Ironstone Group by William Hambrecht resulting from William Hambrecht paying the interest on the Bank Letter of Credit from the time period January 2016 through March 2021. The loan from William Hambrecht interest rate is  i 7.75%.

On March 10, 2021 William Hambrecht loaned Ironstone Group, Inc. $ i 300,000 at  i 6.0% interest rate with a March 11, 2026 maturity.

On May 27, 2022 William Hambrecht converted to common stock the entirety of the debt outstanding to him, including the aforementioned loans and related accrued interest owed by the Ironstone Properties, Inc. totaling $ i 824,269 for  i 404,054 common shares of Ironstone Properties, Inc. at $ i 2.04 per share.

On June 6, 2022 Harold Bradley, Board of Director member Ironstone Properties Inc. purchased  i 121,212 common shares from Ironstone Properties Inc. at $ i 1.65 per share, totaling $ i 200,000.

On June 10, 2022 Ironstone Properties, Inc. purchased  i 5,037 preferred shares of private company Aristotle Inc. from William Hambrecht, CEO at $ i 19.85 per share totaling $ i 100,000.

On June 16, 2022 Ironstone Properties, Inc. purchased  i 5,037 preferred shares of private company Aristotle Inc. from Harold Bradley, Board of Directors member at $ i 19.85 per share totaling $ i 100,000.

5. NOTE PAYABLE

On March 31, 2012, the Company received $ i 1,000,000 from a third party and issued a related promissory note. The note carries an  i 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  i 10% per annum. The company was unable to meet its payment obligation by the prescribed deadline, therefore the interest rate stepped up to  i 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 June 30, 2022 and December 31, 2021 were $ i 2,446,460 and $ i 2,329,510 respectively. Ironstone Properties and the lending entity have recently verbally agreed to revised terms and maturity, and are currently finalizing the terms and conditions.

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The scheduled maturities of notes and LOC payable outstanding as of June 30, 2021 are as follows:

6. LINE OF CREDIT ARRANGEMENT

The Company has a line of credit arrangement with First Republic Bank (the “lender”) with a borrowing limit of $ i 350,000 with interest based upon the lender’s prime rate plus  i 4.5% and is payable monthly. At June 30, 2020 and December 31, 2020, interest was being paid at a rate of  i 7.75%. The line is guaranteed by both William R. Hambrecht, Director and Chief Executive Officer, and Robert H. Hambrecht. The line of credit is due on demand and is secured by all of the Company’s business assets. As of June 30, 2022 and December 31, 2021, the outstanding balance under the line was $ i 348,843. The total recorded interest expense on this note for the quarter ended June 30, 2022 and quarter ended December 31, 2021 was $ i 6,740 and $ i 6,843 respectively.

7. STATE FRANCHISE TAXES PAYABLE

During the three months ended June 30, 2022 the Company incurred no state franchise tax expense, and for the three months ended June 30, 2021 the Company recorded $ i 3,250 in state franchise tax and $ i 2,925 in interest penalties to the State of Delaware for franchise taxes in arrears. The tax amounts in arrears and all related interest penalties were resolved with the State of Delaware during Q3 2021.

8. STOCKHOLDERS’ EQUITY

Common Stock

On January 2, 2014, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with new investors and existing investors (each, a “Share Purchaser” and, collectively, the “Share Purchasers”), pursuant to which, the Company issued and sold to such Share Purchasers  i 131,429 shares of the Company’s Common Stock, representing approximately  i 7% of Ironstone’s outstanding equity securities on the date of purchase, for an aggregate purchase price of $ i 230,000.

On May 1, 2014, a third party exercised warrants for  i 187,296 shares of the Company’s Common Stock. As of September 30, 2014, the Company issued  i 187,296 shares from the warrant exercise to the third party.

On May 27, 2022, William Hambrecht, CEO converted a total of $ i 824,269 of debt and accrued interest for  i 404,054 shares of Ironstone Properties, Inc. common stock at a price of $ i 2.04 per share.

On June 6, 2022 Board of Director member Harold Bradley purchased  i 121,212 new issue common shares from the Company for a total of $ i 200,000 at a price of $ i 1.65 per share.

Treasury Stock

On September 15, 2003, the Board of Directors authorized the Company to purchase  i 745,536 shares of Company common stock at $ i 0.70 per share for an aggregate purchase price of $ i 521,875. The repurchase represented  i 50.11% of the issued and outstanding shares of the Company. During the year ended December 31, 2008, the Company paid $ i 699 for fractional Treasury shares. As of June 30, 2022 and December 31, 2021, the treasury shares are held by the Company.

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Preferred Stock

The Company is authorized to issue up to  i 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.  i No shares have been issued as of June 30, 2022 and December 31, 2021.

Stock Option Plans

On April 29, 2021 the Company is revised its existing Equity Incentive Plan. As of April 29, 2021,  i 175,000 options were granted under the Plan, with an exercise price of $ i 1.99 per share, which is based on the weighted average price for the trailing six month average price and an illiquidity discount of  i 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.

Stock-Based Compensation

For the quarter ended June 30, 2022 the Company recorded stock options based compensation relating to the Equity Incentive Plan of $ i 61,533.

Operating Earnings (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted 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 from operations and the dilutive common stock equivalents for the periods presented:

Comprehensive Earnings (Loss) Per Share

Comprehensive earnings include Operating earnings (loss) above, and securities and options investments held mark-to-market gains (loss).

9. MANAGEMENT’S PLANS

As reflected in the accompanying financial statements, the Company has net losses and has a negative cash flow from operations. The attainment of profitable operations is dependent upon future events, including liquidity events in privately held investments in excess of purchase price, and or the profitable sale of publicly traded investments. If necessary, to provide liquidity, the Company may seek to sell additional equity securities, or convert existing privately held debt to equity, providing the debt holders are agreeable to the terms and share conversion price. The Company cannot make assurances that it will be able to complete any financing, liquidity, or debt conversion transaction, that such financing, liquidity, or debt conversion transaction will be adequate for the Company’s needs, or that a financing, liquidity or debt conversion transaction will be completed in a timely manner. Furthermore, the Company may seek to sell its marketable securities to meet its operating needs. However, the fair value of these marketable securities fluctuates and may not be adequate for the Company’s needs. The Company has extended its line of credit payment terms with the lender with similar terms to the recently expired line of credit.