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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB (Mark One)x
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-12346 IRONSTONE GROUP, INC.  Delaware
    
    95-2829956(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer Identification No.)
 539 Bryant Street, San Francisco, California 94107
(Address of principal executive offices, including zip code) (415) 551-3260
(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 Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]  No [  ] Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B 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-KSB or any
amendment to this Form 10-KSB.  [X] 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
[X]   No [  ] The Registrants revenues for the fiscal year ended December 31, 2003 were
$121,640. The approximate aggregate market value of voting stock held by non-affiliates
of the Registrant was $137,574 as of December 31, 2003 based on the closing bid
price on December 31, 2003. 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. As of December 31, 2003, 742,311 shares of Common Stock, $0.01 par value, were
outstanding. Transitional Small Business
Disclosure Format: Yes [  ]   No [X]




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TABLE OF CONTENTS PagePART I:Item 1.   Business
    
    
    3Item 2.   Properties
    
    
    3Item 3.   Legal Proceedings
    
    
    3Item 4.   Submission of Matters to a Vote of Security Holders
    
    
    3PART II:Item 5.   Market for Registrants Common Equity and Related Stockholder Matters
    
    
    4Item 6.   Managements Discussion and Analysis or Plan of Operations
    
    
    4Item 7.   Financial Statements
    
    
    5Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    5PART III:Item 9.   Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act
    
    
    6Item 10. Executive Compensation
    
    
    7Item 11. Security Ownership of Certain Beneficial Owners and Management
    
    
    9Item 12. Certain Relationships and Related Transactions
    
    
    9PART IV:Item 13. Exhibits and Reports on Form 8-K
    
    
    10SIGNATURES
    
    
    11EXHIBIT 21.1EXHIBIT 31.1EXHIBIT 32.1
 2




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PART 1 
 ITEM 1. BUSINESS BACKGROUND Ironstone Group, Inc, (Ironstone) a Delaware corporation, was incorporated in
1972. Since 1986, a majority of Ironstones outstanding shares has been owned
by Hambrecht & Quist Group, a San Francisco-based investment banking and
venture capital firm, and its affiliates (collectively H&Q). In September
2003, Ironstone repurchased all of these shares. Such repurchased shares are
currently being held as treasury stock. The Hambrecht 1980 Revocable Trust
presently owns over 50% of Ironstones outstanding voting shares. BUSINESS STRATEGY Currently, the Company is reviewing options and new business opportunities.
The Company has almost $16,000 in marketable securities, $53,327 in cash, and
tax loss carryforwards at its disposal. There can be no assurance that the Company will acquire businesses, form
additional alliances, or expand its existing services. Failure to expand the
scope of services provided by the Company may have an adverse effect on the
Companys results of operations. EMPLOYEES As of December 31, 2003, the Company had one part-time consultant who was the
chief executive officer and chief financial officer of the company. This
consultant is not subject to a collective bargaining agreement. 
 ITEM 2. PROPERTIES The Companys principal executive offices are located at 539 Bryant Street, San
Francisco, California and its telephone number is (415) 551-3260. 
 ITEM 3. LEGAL PROCEEDINGS None. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during 2003. 3




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Companys Common Stock is not eligible for publication of quotations on any
securities market and the Company is not aware of any recent material trading
activity in shares of its Common Stock. As of December 31, 2003, there were
approximately 800 holders of record of the Companys Common Stock. The Company
has not paid cash dividends on its Common Stock since its inception and does
not intend to pay cash dividends on its Common Stock in the foreseeable future. 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS CRITICAL ACCOUNTING POLICIES While the Company continues to evaluate business opportunities, its sole source
of revenue is from the sale of marketable securities. Management has
classified these marketable securities, in accordance with SFAS No. 115, as
available for sale. These securities are recorded at fair market value, and
any unrealized gains and losses are reported as a separate component of
shareholders equity. Ironstones primary expenses are generated from maintaining regulatory
procedures, such as quarterly review and annual audit of the financial
statements, seeking legal counsel when appropriate, and consulting fees. RESULTS OF OPERATIONS Year ended December 31, 2003 Revenues for 2003 were $121,640, a decrease of $591,222 as compared to 2002.
The revenue decrease was due to the sale of certain marketable securities and
the return on investment of the proceeds. Costs and expenses for 2003 totaled $137,398, an increase of $25,943 or 23.28%
as compared to 2002. This increase was primarily due to higher professional
fees related to higher costs for operations and legal counsel associated with
SEC and tax filings. On September 17, 2003, the Company repurchased 745,536 shares of its
outstanding common stock (the Shares) at a purchase price of $0.70 per share
for an aggregate purchase price of $521,875. Prior to such repurchase, the
Shares represented 50.11% of the issued and outstanding shares of common stock
of the registrant. The selling shareholders  Hambrecht & Quist California, a
California corporation, Hambrecht & Quist Venture Partners, a California
limited partnership, Hamquist, a California limited partnership, H&Q Ventures
IV, a California limited partnership, Venture Associates (BVI) Limited, a
British Virgin Islands company, and J.P. Morgan Securities Inc., a Delaware
corporation  are all affiliates of J.P. Morgan  Chase. The Company holds the
Shares as treasury stock. Year ended December 31, 2002 Revenues for 2002 were $712,862, an increase of $712,862 as compared to 2001.
The revenue increase was due to the sale of certain marketable securities and
the return on investment of the proceeds. Costs and expenses for 2002 totaled $111,455, an increase of $42,349 or 61.28%
as compared to 2001. This increase was primarily due to higher professional
fees related to higher costs for operations and legal counsel associated with
SEC and tax filings. Rent expense decreased $1,820 or 100% as the remaining lease for operating
space terminated. 4




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LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the year ended December 31, 2003 was
$179,950. Working capital at
December 31, 2003 was $755,279, a decrease of $507,073 or 40% from 2002. Cash decreased by $1,256,709 from $1,310,036 at the end of 2002 to $53,327 at
the end of 2003. Management believes that its current level of cash and
marketable securities will be adequate to meet its operating needs through
2004, but there can be no assurance that available cash and marketable
securities will be sufficient to meet all of the Companys needs in 2004 or
beyond. While the Company explores new business opportunities, the primary capital
resource of the Company is 843 shares of Series C Preferred Stock of Salon
Media Group, Inc. (Salon). These shares were converted on December 31, 2003
from Convertible Promissory Notes purchased by the Company and are convertible
to common stock after the following: (1) Salon has amended its Certificate of
Incorporation; and (2) Salon has received the necessary approvals from its
Board of Directors and shareholders to increase the authorized number of shares
of common stock. The Series C Preferred Stock is convertible into common stock
of Salon at the conversion rate determined by dividing the Series C Preferred
Stock per share price of $800 by the Series C Conversion Price of $.04, or at
the rate of one share of Series C Preferred Stock to 20,000 shares of common
stock. If converted, the Companys shares of Series C preferred Stock
represent 13.78% of Salons common stock outstanding as of December 31, 2003.
There can be no assurance that a market exists for either the Series C
Preferred Stock currently owned by the Company or the common stock should such
stock be converted. The Company may obtain additional equity or working capital through bank
borrowings and public or private sales of equity securities and exercises of
outstanding stock options. There can be no assurance, however, that such
additional financing will be available on terms favorable to the Company, or at
all. 
 ITEM 7. FINANCIAL STATEMENTS The financial statements required to be filed herewith begin on page F-1. 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None Item 8A. Controls and Procedures. Evaluation of disclosure controls and procedures As of December 31, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Companys management, including
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934
(the Exchange Act). Based upon that evaluation, the Companys principal
executive and financial officers concluded that the Companys disclosure
controls and procedures are effective in timely providing them with material
information relating to the Company, as required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act, within the time
periods specified in the Securities and Exchange Commissions rules and forms. Changes in internal controls There were no significant changes in the Companys internal controls or
other factors that could significantly affect those controls subsequent to the
date of the Companys evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses. 5




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PART III 
 ITEM 9. DIRECTORS, EXECUTIVES OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT DIRECTORS Name
    
    Age
    
    Director SinceEdmund H. Shea, Jr.
    
    
    72
    
    
    
    1993William R. Hambrecht
    
    
    68
    
    
    
    2003Robert H. Hambrecht
    
    
    37
    
    
    
    2003
 Edmund H. Shea, Jr. has served as director of the Company since October 1993.
He is a co-founder of J. F. Shea Co., Inc., a diversified construction, land
development and venture capital investment company, and has served as its
Executive Vice President and a director since 1954. He is also a director of
ADAC Laboratories, Inc., Hambrecht & Quist Group and several privately held
companies. He holds a B. S. degree from M. I. T. William R. Hambrecht is the Chairman/CEO of WR Hambrecht + Co which he founded
in January 1998. He was co-founder of Hambrecht & Quist in 1968 where he held
various executive management positions until he resigned in December 1997. He
holds a B.S. from Princeton University. Robert H. Hambrecht was a founding partner of W.R. Hambrecht + Co., an
investment banking firm, founded in January 1998, and is presently a Managing
Director. From 1996 through January 1998, Mr. Hambrecht was Vice President of
H&Q Venture Partners, a venture capital firm. From 1994 to 1996, Mr. Hambrecht
was employed by Unterberg Harris, an investment banking firm. Mr. Hambrecht
earned a masters degree in public administration from Columbia University in
1993. Mr. Hambrecht also serves on the Board of Directors of four
privately-held companies. EXECUTIVE OFFICERS The following table sets forth the names, ages and positions of the Companys
executive officers as of December 31, 2003. A summary of the background and
experience of each of these individuals is set forth after the table. Name
    
    Age
    
    PositionNicholas J. Giordano
    
    
    28
    
    
    Chief Executive Officer, Chief Financial Officer
and Secretary
 Nicholas J. Giordano has served as Chief Executive Officer, Chief Financial
Officer and as Secretary since June 2001.
Mr. Giordano has served as financial advisor to the Hambrecht 1980 Revocable
Trust, and Chief Financial Officer and Director of the Sarah and William
Hambrecht Foundation since June 2000. Formerly he worked as a Certified Public
Accountant of Andersen, LLP. He holds a B. S. degree from Bucknell University. In January 2004 Mr. Giordano tendered his resignation which was accepted by the
Board of Directors. Thereafter the Board of Directors appointed Robert H.
Hambrecht to the positions of Chief Executive Officer, Chief Financial Officer,
and Secretary. Mr. Hambrecht was previously appointed as Director to the Board
of Directors in 2003. 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 Robert H. Hambrecht, 530 Bryant Street, Suite 100,
San Francisco, CA 94107. 6




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ITEM 10. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Each non-employee director of the Company is entitled to receive a fee for each
meeting attended in person (plus $500 for each committee meeting attended by
committee members on a day other than a Board meeting date). The members of
the Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy. Outside directors also receive stock option grants under the Companys 1993
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 a ten-year term; 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. The exercise price of each option under the Directors Plan must
be equal to the fair market value of the Common Stock on the date of grant.
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. 7




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COMPENSATION OF EXECUTIVE OFFICERS SUMMARY OF COMPENSATION The following table shows for the fiscal year ended December 31, 2003,
compensation awarded or paid to, or earned by, the Companys Chief Executive
Officer. The Companys Chief Executive Officer has served in this capacity
since June 2001 and no other executive officers earned more than $100,000
during the fiscal year ended December 31, 2003. OTHER ANNUALNAME AND PRINCIPAL POSITION
    
    YEAR
    
    SALARY ($)
    
    BONUS
    
    COMPENSATION ($)Nicholas J. Giordano
    
    
    2003
    
    
    
    
    
    
    
    30,000Chief Executive Officer
and Chief Financial Officer
 STOCK OPTION GRANTS AND EXERCISES The 1994 Equity Incentive Plan (the Plan) provides for the grant of (i) both
incentive and nonstatutory stock options and (ii) rights to purchase restricted
stock, together Stock Awards, to the Companys directors, officers and
employees. Directors who are not salaried employees of or consultants to the
Company or to any affiliate of the Company are not eligible to participate in
the Plan. As of December 31, 2003, options to purchase a total of 11,175
shares were outstanding under the Plan, no shares had been purchased pursuant
to the Plan and 228,825 shares remained available for future issuance there
under. The Plan is administered by the Board of Directors of the Company. The Board
has the power to construe and interpret the Plan and, subject to the provisions
of the Plan, to determine the number of persons to whom and the dates on which
Stock Awards will be granted, the number of shares that may be exercised, the
type or types of such Stock Awards to be granted, the exercise price of such
Stock Award when appropriate and other terms of the Stock Award. The maximum term of options under the Plan is typically ten years; however, in
the event that an optionees service to the Company terminates, that optionees
options will expire 90 days after the optionees service to the Company
terminates. Option grants under the Plan typically vest over a five-year
period at the rate of 1/10 on the date six months after the date of grant and
1/60 per month thereafter. The exercise price of nonstatutory options may not
be less than 85% of the fair market value of the Common Stock subject to the
option on the date of grant; the exercise price of incentive 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. No options or rights to purchase restricted stock were granted to the Companys
executive officer during the fiscal year ended December 31, 2003. 8




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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of
the Companys Common Stock as of December 31, 2003 by: (i) each director and
nominee for director; (ii) all officers and directors of the Company as a
group; 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 SHARESBENEFICIAL OWNER
    
    OF COMMON STOCK
    PERCENT TOTAL (2)William R. Hambrecht
    
    
    381,254
    
    
    
    51.4539 Bryant StreetSan Francisco, CA 94107Edmund H. Shea, Jr. and related entities
    
    
    113,173
    
    
    
    15.3655 Brea Canyon RoadWalnut, CA 91789Emmett R. DeMoss Jr.
    
    
    51,350
    
    
    
    6.91321 Butterfield RoadSan Anselmo, CA 94960All executive officers and directors
as a group (3 persons)
    
    
    545,777
    
    
    
    73.6
   (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)
    
    Applicable percentages are based on 742,311 shares outstanding on
December 31, 2003 adjusted as required by rules promulgated by the SEC. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Commencing February 11, 2003, the Company executed a series of convertible
promissory notes with Salon Media Group that converted to 843 shares of Series
C Preferred Stock on December 30, 2003. In April 2003 Salon announced the
appointment of Elizabeth Hambrecht as its Chief Financial Officer, Treasurer
and Secretary. In October 2003 she was appointed President of Salon Media
Group. Ms. Hambrecht is the daughter of William R. Hambrecht and the sister of
Robert H. Hambrecht. 9




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PART IV 
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a)      Exhibits ExhibitNumber
    
    Description21.1
    
    Subsidiaries of Ironstone Group, Inc.31.1
    
    Certification under Section 302 of
the Sarbanes-Oxley Act of 200231.1
    
    Certification under Section 906 of
the Sarbanes-Oxley Act of 2002 (b)      Reports on FORM 8-K None. 10




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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-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized. IRONSTONE GROUP, INC.
a Delaware corporationDate: March 30, 2004
    
    By:
    
    /s/ Robert H. HambrechtRobert H. Hambrecht
Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Robert H. Hambrecht
Robert H. Hambrecht
    
    Chief Executive Officer,Chief Financial Officer and
Secretary
(Principal Executive Officer and
Principal Financial Officer)
    
    March 30, 2004/s/ Edmund H. Shea, Jr.
Edmund H. Shea, Jr.
    
    Director
    
    March 30, 2004/s/ William R. Hambrecht
William R. Hambrecht
    
    Director
    
    March 30, 2004/s/ Robert H. Hambrecht
Robert H. Hambrecht
    
    Director
    
    March 30, 2004
 11




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IRONSTONE GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Public Accountants
    
    F-2Consolidated balance sheet at December 31, 2003
    
    F-3Consolidated statements of operations and comprehensive income for the years ended
December 31, 2003 and 2002
    
    F-4Consolidated statements of shareholders equity for the years ended
December 31, 2003 and 2002
    
    F-5Consolidated statements of cash flows for the years ended
December 31, 2003 and 2002
    
    F-6Notes to consolidated financial statements
    
    F-7 to F-10
 F-1




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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders
Ironstone Group, Inc. We have audited the accompanying consolidated balance sheet of
IRONSTONE GROUP, INC. AND SUBSIDIARIES as of December 31, 2003, and
the related consolidated statements of operations and comprehensive
income, shareholders equity and cash flows for each of the two years
in the period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Ironstone Group, Inc. and Subsidiaries as of December 31,
2003, and their results of operations and cash flows for each of the
two years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America. /s/ J. H. Cohn LLP San Diego, California
January 30, 2004 F-2




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IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2003 ASSETS:Current assets:Cash
    
    $
    53,327Marketable securities, available for sale, at fair value
    
    
    15,600Investment in Salon Media Group, Inc. Series C Preferred Stock
    
    
    674,400Warrants, at fair value
    
    
    19,500Other
    
    
    578Total assets
    
    $
    763,405LIABILITIES AND SHAREHOLDERS EQUITY:Liabilities - accounts payable
    
    $
    8,126Commitments and contingenciesShareholders equity:Preferred stock, $0.01 par value, 5,000,000 shares authorized of
which there are no issued and outstanding shares
    
    
    Common stock, $0.01 par value, 25,000,000 shares authorized of
which 1,487,847 shares are issued
    
    
    14,878Additional paid-in capital
    
    
    21,170,385Accumulated deficit
    
    
    (19,757,514
    )Accumulated other comprehensive loss
    
    
    (150,595
    )1,277,154Less: Treasury stock, 745,536 shares
    
    
    (521,875
    )Total shareholders equity
    
    
    755,279Total liabilities and shareholders equity
    
    $
    763,405
 The accompanying notes are an integral part of these consolidated financial statements. F-3




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IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years Ended December 31, 2003 and 2002 2003
    
    2002Revenues:Gain on sale of marketable securities
    
    $
    94,976
    
    
    $
    709,267Interest and other income
    
    
    26,664
    
    
    
    3,595Total revenues
    
    
    121,640
    
    
    
    712,862Costs and expenses:Legal and other professional fees
    
    
    125,707
    
    
    
    101,305Interest expense
    
    
    
    
    
    
    9,490Miscellaneous expenses
    
    
    11,691
    
    
    
    660Total costs and expenses
    
    
    137,398
    
    
    
    111,455Income (loss) from operations
    
    
    (15,758
    )
    
    
    601,407Other income
- warrants received, at fair value
    
    
    19,500Income before income tax provision
    
    
    3,742
    
    
    
    601,407Income tax provision
    
    
    
    
    
    
    53,164Net Income
    
    $
    3,742
    
    
    $
    548,243COMPREHENSIVE INCOME, NET OF TAX:Net income
    
    $
    3,742
    
    
    $
    548,243Unrealized holding gain arising during the year:Unrealized holding gain arising during the period
    
    
    106,036
    
    
    
    1,109,606Less: reclassification adjustment for gains included in net income
    
    
    (94,976
    )
    
    
    (709,267
    )Comprehensive income
    
    $
    14,802
    
    
    $
    948,582Basic earnings per share:Net income per share
    
    $
    0.00
    
    
    $
    0.37Weighted average shares
    
    
    1,273,378
    
    
    
    1,487,847
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2003 and 2002 AccumulatedAdditional
    
    
    
    
    
    OtherCommon Stock
    
    Paid In
    
    Accumulated
    
    Comprehensive
    
    Treasury StockShares
    
    Amount
    
    Capital
    
    Deficit
    
    Income/(Loss)
    
    Shares
    
    Amount
    
    TotalBalances,January 1, 2002
    
    
    1,487,847
    
    
    $
    14,878
    
    
    $
    21,170,385
    
    
    $
    (20,309,499
    )
    
    $
    (561,994
    )
    
    
    
    
    
    $
    
    
    
    $
    313,770Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,339
    
    
    
    
    
    
    
    
    
    
    
    400,339Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548,243Balances,December 31, 2002
    
    
    1,487,847
    
    
    
    14,878
    
    
    
    21,170,385
    
    
    
    (19,761,256
    )
    
    
    (161,655
    )
    
    
    
    
    
    
    
    
    
    
    1,262,352Repurchase of stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    745,536
    
    
    
    (521,875
    )
    
    
    (521,875
    )Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,060
    
    
    
    
    
    
    
    
    
    
    
    11,060Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,742Balances,December 31, 2003
    
    
    1,487,847
    
    
    $
    14,878
    
    
    $
    21,170,385
    
    
    $
    (19,757,514
    )
    
    $
    (150,595
    )
    
    
    745,536
    
    
    $
    (521,875
    )
    
    $
    755,279
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 and 2002 2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    3,742
    
    
    $
    548,243Adjustments to reconcile net income to net cash
used in operating activities:Realized gain from sale of marketable securities
    
    
    (94,976
    )
    
    
    (709,267
    )Warrants received, at fair value
    
    
    (19,500
    )Changes in operating assets and liabilities:Interest receivable
    
    
    (24,978
    )
    
    
    Accounts payable
    
    
    8,126
    
    
    
    (20,511
    )Income tax payable
    
    
    (52,364
    )
    
    
    52,364Interest payable
    
    
    
    
    
    
    (16,974
    )Other current liabilties
    
    
    
    
    
    
    (1,443
    )Net cash used in operating activities
    
    
    (179,950
    )
    
    
    (147,588
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of marketable securities
    
    
    388,795
    
    
    
    1,595,454Purchase of marketable securities
    
    
    (293,679
    )
    
    
    Issuance of notes receivable
    
    
    (650,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (554,884
    )
    
    
    1,595,454CASH FLOWS FROM FINANCING ACTIVITIES:Purchase of treasury stock
    
    
    (521,875
    )
    
    
    Borrowing from shareholder
    
    
    
    
    
    
    10,000Repayments to shareholder
    
    
    
    
    
    
    (157,920
    )Net cash used in financing activities
    
    
    (521,875
    )
    
    
    (147,920
    )Net increase (decrease) in cash
    
    
    (1,256,709
    )
    
    
    1,299,946Cash at beginning of year
    
    
    1,310,036
    
    
    
    10,090Cash at end of year
    
    $
    53,327
    
    
    $
    1,310,036Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    
    
    
    $
    26,464Supplemental disclosure of non-cash investing activities:Conversion of notes receivable of $650,000 and interest receivable of $24,400 into
investment in Series C Preferred Stock
    
    $
    674,400
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities Ironstone Group, Inc.s (the Company) was incorporated in 1972. Since 1986,
a majority of the Companys outstanding shares have been owned by Hambrecht &
Quist Group, a San Francisco based investment banking and venture capital firm.
Since that time, the Company has actively sought appropriate business
combination opportunities. In the alternative, the Company is looking for an
investment opportunity for some or all of its remaining liquid assets. Marketable Securities Marketable securities have been classified by management as available for sale
in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS No.
115). In accordance with SFAS No. 115, marketable securities are recorded at
fair value and any unrealized gains 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 at December 31, 2003 is based
on quoted market prices. For the purpose of computing realized gains and
losses, cost is identified on a specific identification basis. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Reclassifications Certain 2002 amounts have been reclassified to conform to the 2003
presentation. Income Taxes The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred tax assets and liabilities be
computed for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities. F-7




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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002 Earnings per share Basic EPS excludes dilution from common stock equivalents and is computed by
dividing net income applicable to common shareholders by the weighted average
number of common shares actually outstanding during the period. Diluted EPS
reflects the potential dilution from common stock equivalents, except where
inclusion of such common stock equivalents would have an anti-dilutive effect,
using only the average stock price during the period in the computation. Options to purchase 11,175 shares of the Companys common stock were
outstanding during 2003 and 2002, but were not included in the computation of
diluted EPS as their effect would be anti-dilutive. 2. MARKETABLE SECURITIES All marketable securities are classified as available for sale. The cost and
fair value of marketable securities at
December 31, 2003 are as follows: UnrealizedCost
    
    Loss
    
    Fair ValueCorporate Equity Securities:Flexi International Software, Inc.
    
    $
    166,335
    
    
    $
    (150,735
    )
    
    $
    15,600
 3. INVESTMENT IN SALON GROUP, INC. During the year ended December 31, 2003, the Company acquired seven convertible
promissory notes totaling $650,000 from Salon Group, Inc. The notes accrued
interest at 6% per annum and were secured by assets of the issuer. On December
30, 2003, the notes and accrued interest of $24,400 were converted into 843
shares at $800 per share for an aggregate of $674,400 of Series C Preferred
stock in Salon Group, Inc. Each Series C Preferred share can be converted into
20,000 shares of common stock at $.04 per share which approximates fair value
at December 31, 2003. Additionally, in conjunction with the seven promissory notes, the Company
received warrants to purchase 1,950,000 shares of common stock in Salon Group,
Inc. at prices ranging from $0.04182 - $0.05256 per share. The warrants are
fully exercisable and expire three years from issuance. The warrants were
valued at $.01 per share using the Black-Scholes Pricing Model assuming
volatility of 52%, interest at 3% and dividend yield at 0%. The value of the
warrants received of $19,500 has been recorded as other income in the
accompanying 2003 consolidated statement of operations. A member of the management of Salon Group, Inc. is a family member of an
officer and stockholder of the Company. F-8




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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002 4. INCOME TAXES SFAS No. 109 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, 2003 are as follows: Deferred tax assets:Operating loss carryforwards
    
    $
    10,081,000Less valuation allowance
    
    
    (10,081,000
    )Deferred tax assets  net
    
    $
    
 As of December 31, 2003, the Company has Federal net operating loss
carryforwards for tax purposes of approximately $29,111,000 and California net
operating loss carryforwards of approximately $3,147,000. These carryforwards
will expire in 2004 to 2023. The utilization of California net operating loss
carryforwards have been suspended. Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual
limitation on the availability of net operating loss carryforwards to offset
taxable income when an ownership change occurs. Due to the redemption of
shares of common stock in 2003, the Company underwent such an ownership
change. Therefore, the Companys use of losses incurred through the date of
the ownership change will be limited to approximately $48,000 per year. In the opinion of management, based on the Section 382 limitation discussed
above, and the remaining carryover period, the realization of such
carryforwards is not likely and, accordingly, a valuation allowance has been
recorded to offset such amount in its entirety. F-9




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##### Table of Contents



IRONSTONE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003 and 2002 5. SHAREHOLDERS EQUITY Treasury Stock - On September 15, 2003, the Board of Directors authorized the
Company to purchase 745,536 shares of Company common stock at $0.70 per share
for an aggregate purchase price of $521,875. The repurchase represented 50.11%
of the issued and outstanding shares of the Company. As of December 31, 2003,
the treasury shares are held by the Company. Preferred Stock  - The Company is authorized to issue up to 5,000,000 shares of
preferred stock without further shareholder approval; the rights, preferences
and privileges of which would be determined at the time of issuance. No shares
have ever been issued. Stock Option Plans  - The Company has adopted a 1989 Equity Incentive Plan, a
1993 Non-Employee Directors Stock Option Plan and a 1994 Equity Incentive Plan
(collectively, the Plans). In March 1994, the 1989 Equity Incentive Plan was
amended to reduce the number of shares reserved thereunder and the Board of
Directors determined that no further grants would be made under this plan. As
of December 31, 2003 and 2002, 328,105 shares were available for grant under
the Plans. The Plans provide for incentive stock options to be granted at
times and prices determined by the Companys Board of Directors, to be granted
at not less than 100% of the fair value of the Companys common stock on the
date of grant. Options are generally subject to a three or four-year vesting
schedule. Options issued under the Plans expire at the earlier of the end of
the exercise period of no more than ten years from the date of grant or 90 days
following the grantees end of service to the Company. During 2003 and 2002, no options were granted, exercised, expired or were
forfeited. The following table summarizes information about fixed price stock options
outstanding at December 31, 2003: Options Outstanding and ExercisableNumber
    
    Weighted Ave.
    
    Weighted-Range of
    
    Outstanding
    
    Remaining
    
    AverageExercise Prices
    
    12/31/03
    
    Contractual Life
    
    Exercise Price$0.50
    
    
    3,200
    
    
    4.1 years
    
    $
    0.501.06 - 1.13
    
    
    4,400
    
    
    
    4.3
    
    
    
    1.103.00
    
    
    1,600
    
    
    
    0.8
    
    
    
    3.004.00
    
    
    1,975
    
    
    
    2.0
    
    
    
    4.00$0.50 - $4.00
    
    
    11,175
    
    
    
    3.3
    
    
    $
    1.71
 F-10