UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
================================================================================
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
COMMISSION FILE NO. 333-138184
TOMBSTONE CARDS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
COLORADO 51-0541963
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2400 Central Avenue, Suite G, Boulder, CO 80301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 684-6644
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 []
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The Registrant's revenues for its fiscal year ended December 31, 2007 were
$43,759.
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant on March 24, 2008 was approximately $0, due to the fact that
while our common stock is listed on the over-the-counter bulletin board, the
shares have not traded, since their listing. As of March 24, 2008, there were
3,230,000 shares issued and outstanding, of which 2,205,000 shares were held by
non-affiliates.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
TOMBSTONE CARDS, INC.
2007 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
Part I.
Item 1. Description of Business 3
Item 2. Description of Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II.
Item 5. Market for Common Equity and Related Stockholder Matters 9
Item 6. Management's Discussion and Analysis of Financial Condition or 11
Plan of Operation
Item 7. Financial Statements 20
Item 8. Changes in and Disagreements With Accountants on Accounting and 21
Item 8a. Controls and Procedures. 21
Part III.
Item 9. Directors, Executive Officers, Promoters and Control Persons: 22
Item 10. Executive Compensation 24
Item 11. Security Ownership of Certain Beneficial Owners and Management 26
Item 12. Certain Relationships and Related Transactions 26
Part IV.
Item 13. Exhibits. 27
Item 14. Principal Accountant Fees and Services. 30
FORWARD-LOOKING STATEMENTS
In addition to historical information, some of the information presented in
this Annual Report on Form 10-KSB contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Although Tombstone Cards, Inc., ("Tombstone" or the "Company," which may
also be referred to as "we," "us" or "our") believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations: there can be no assurance that actual results will not
differ materially from our expectations. Such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated. Cautionary statements regarding the risks,
uncertainties and other factors associated with these forward-looking statements
are discussed on page 15 below. You are urged to carefully consider these
factors, as well as other information contained in this Annual Report on Form
10-KSB and in our other periodic reports and documents filed with the SEC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY OF TOMBSTONE CARDS, INC.
Tombstone Cards, Inc. was incorporated on April 29, 2005, in the state of
Colorado, as Stack the Deck, Inc. On November 1, 2005, we changed our name to
Tombstone Cards, Inc. Our Corporate offices are located at 2400 Central Avenue,
Suite G, Boulder, Colorado and our phone number is 303-684-6644. We maintain a
website at www.tombstonecards.com , which is not incorporated in and is not a
part of this report.
COMPANY OVERVIEW
In the period of the time since our incorporation, we have very limited
operations. These operations have focused on the structure and capital formation
of the Company. We have developed the software technology to print our
customized playing cards. We have put into place a management team and have
secured capital to launch of the Company's business plan to manufacture and
market customized playing cards.
Although, there is no shortage of competitors, we believe that our real strength
may be in the development and sale of a new, extremely focused product line
using the proprietary Web-based design system that we have developed to support
the interactivity and functionality required for our customers to personally
create their orders. It is our belief that no one else is offering the
capabilities equal to our web-based software.
Tombstone Technologies Division
During the fourth quarter of 2007, we created our Tombstone Technologies
Division (the Technology Division). The Technology Division was created in order
to handle the development, marketing and licensing of our proprietary
OIEPrint(TM) software, a web to print template driven application. Web to print
is the overall process of integrating technology, from ordering and pre-press to
post-press and delivery in order to reduce time and costs.
1
On December 27, 2007, we filed a provisional patent application with the United
States Patent and Trademark Office (USPTO) titled Internet Application for the
Design of High Resolution Digital Graphics.
Products
Playing Cards. Our playing cards, consists of a standard deck of
poker-sized cards, printed in full color and packaged in pre-printed
Tombstone-branded tuck boxes that allow the custom design of the cards
to be seen and displayed. During the year ended 2007, we have worked to
develop new products and existing product upgrades.
OIEPrint 2.0 Software. OIEPrint software is a web to print template
driven application that allows the users to personalize and customize
designs. The software will be available to be licensed through either
purchase or as a hosted solution. A full purchase allows the customer
to license the software, while the hosted solution allows the user to
use the software through our website at www.tombstonetechnologies.com.
We will continue to use our existing software product in the design of
our playing card product.
Product Strategy
We intend to offer a single card product, but with an almost infinite number of
customization options for the consumer and business markets. Our product
provides customers the ability to make personal statements about themselves,
design unique gifts, advertise their business with an item that is both "cool"
and "fun," in addition to the cards being an ancillary product that can generate
revenues for them.
We intend to offer our OIEPrint software product through the internet. The
software has been developed to be used with several platforms. We intend for the
product to help meet the needs of printers, specialty product producers and
others to satisfy the growing customer demand for personalization of products.
Advertising, Promotions, and Public Relations
Our advertising, promotions, and public relations strategy is to profile us as
the premier distributor of not only custom playing cards, but also as a licensor
of custom printing software. One of the keys of the strategy is not to compete
on price alone, thus avoiding any comparison in which we would be forced to deal
with the products as a commodity.
We intend to utilize the following media and methods to carry our message to
potential customers:
o Internet promotions using Web search engines and, where appropriate,
banner ads on complementary sites
o Direct mail using the most suitable lists from industry magazines, poker
clubs, and associated organizations
o Sponsorships of local and regional poker tournaments
o Public relations campaigns to targeted publications stressing the unique
attributes of the product and the process
o Print advertising in selected industry publications
On an ongoing basis, we intend to budget our advertising and marketing
investment as a percentage of total sales. By consistently tracking the results
2
of our campaigns, we will be able to determine the effectiveness of various
initiatives. This will allow us to adjust the budget allocation appropriately to
improve marketing efforts.
Sales Strategy
Our products will be available over the Web and through direct sales efforts for
commercial and business accounts. Customers will be attracted to the Web site
through our direct marketing to high-yield organizations (poker clubs, etc.) and
businesses, and web advertising through numerous avenues.
Inventory, Production Costs, and Capital Investment
Playing Cards
Key factors in the manufacturing and distribution processes of our playing cards
include:
o Cost, availability, and lead time required for delivery of specialized
paper,
o Press availability,
o Cost of template and graphic development,
o Shipping costs, and
o Internet availability and security.
Raw materials, components, and subassemblies required for production of our
playing cards are handled directly by sub-contractors. The only inventory
requirement will be for pre-printed tuck boxes which are available with a three
week lead at a cost of $.10 per box, based on an order of 50,000 units. We will
not maintain a preprinted finished inventory of playing cards.
Key Suppliers
Key suppliers for our playing cards may include:
o StoreFront Software (under contract)
o Viatek - Web hosting/application servers (under contract)
o OtherSide Creative, Inc. - Graphic Design (not under contract)
We intend to order or engage these suppliers on an as needed, project by project
basis.
Production and Delivery
Production will be provided by strategic partners and full-service printing and
fulfillment companies with significant experience in producing playing cards and
they will maintain any necessary inventory as part of their ongoing business
operations. Key considerations in terms of production and delivery include the
rising costs of fuel and electricity, transportation costs, availability of raw
materials, adequate personnel to meet demand, and technology integration. At
this time, we expect that we will hold no inventory of finished card decks, but
will maintain limited inventory of pre-printed "tuck" boxes.
Delivery options for the finished product will be offered to and paid for by the
customer and processed through our Web site.
3
MARKETS AND COMPETITION
Markets
Our target market for our playing cards includes:
o Individuals who host their own games and want a unique identifier,
o Poker clubs that want to brand their identities,
o Poker tournaments that want to move beyond nondescript branding and
attract more competitors,
o Businesses that want a more useful advertising "giveaway,"
o Individuals and groups not directly associated with poker that would
like to create customized gifts for special occasions (weddings,
reunions, bar/bat mitzvahs, birthdays, etc.), and/or
o Businesses wanting additional revenue-producing products.
Our target market for our printing software includes:
o Customers of print shops, and/or
o Product customizers.
Customer Profiles
Playing Cards
We believe that there are three common customer types that make up our target
market for our playing cards:
The most typical customer for our product is a male, 25 to 65 years old, with an
outgoing personality and an interest in poker. The customer will believe that he
has certain flair and will compete with his peers to demonstrate this as an
actuality.
Poker clubs and regional tournaments that want something special to brand their
events. Businesses that purchase the product for special celebrations and to
promote their organizations.
It is likely that potential customers are going to be familiar with similar and
existing products and that they will accept our new offering provided that we
can clearly and succinctly demonstrate the product advantages.
Printing Software
Our printing software has been designed for use, not only by the customers of
printing shops but also by specialty product producers. The customers of our
printing software will be interested in being able to individualize their
product, since they will be able to use the printing software to create and
customize graphics and text.
4
Competition
-----------
Playing Cards
Our competitors in this market are Gemaco, Newt's Playing Cards, House of Cards
India, and virtually any other company with a printer. It is even possible to
purchase "playing card paper stock" and print personal cards from a home printer
attached to ones computer.
However, we believe no competitor currently offers the combination of high
quality/high value with low order size/low per-unit cost. In doing this,
competitors provide, among other options:
o Single-color printing on a pre-selected background (e.g., marble or
patterned)
o Photographic printing with little or no customization options
In addition, the minimum order may be as high as 50 decks from competitors.
Our strategy for meeting the competition is to add to and improve the online
design/purchasing experience; secure partnerships, licensing arrangements, and
advertising co-op arrangements with high-visibility brand owners that share our
customer base (e.g., motorcycle manufacturers and dealers, military
organizations, beer companies, etc.); and make sure that it stays easy to do
business with us.
Printing Software
Our competitors in the market for our printing software are primarily
pre-existing, large-run lithographic print companies.
We believe that we are posed to be able to provide a way, through our printing
software, to meet the specialized needs of market to produce individual
high-resolution, print to ready images, in a cost-effective, efficient and
automated way that our competitors are unable.
PROPRIETARY TECHNOLOGY/INTELLECTUAL PROPERTY
Our products will be protected under the following:
o Tombstone Cards is the trademark of Tombstone Cards, Inc. Registration
of the trademark is in process.
o We own the domain names "tombstonecards.com," "tombstone-cards.com"
and "tombstonetechnologies."
o On December 27, 2007, we filed a provisional patent application with the
United States Patent and Trademark Office (USPTO) titled Internet Appli-
cation for the Design of High Resolution Digital Graphics.
We have completed the development of our custom "pip" design for the faces of
the cards, (A "pip" is the term used to describe the faces of the cards
including the suit designs {hearts, clubs, spades and diamonds}, the font
5
selection and the proprietary design of the "court cards" {Jacks, Queens, Kings,
Aces}). We are in the process of developing proprietary templates and an
associated customization process for the Web.
Number of Persons Employed.
--------------------------
As of December 31, 2007, we had four full-time employees. Of those four
employees, three are officers and directors of the Company. We believe that our
relations with our employees is good.
OUR COMPANY RISK FACTORS
------------------------
Our business is a development stage company and unproven and therefore risky.
-----------------------------------------------------------------------------
We have only very recently been organized to perform the operations described
above. Potential investors should be made aware of the risk and difficulties
encountered by a new enterprise in the card business, especially in view of the
intense competition from existing businesses in the industry.
A decline in Poker popularity or activity may adversely affect our business.
----------------------------------------------------------------------------
If Poker declines in popularity or activity, there is significant risk that the
demand for playing cards, our sole proposed product, will be negatively impacted
resulting in lack of sales revenues, if any are ever developed. This decline
could result from adverse economic conditions, which negatively affect
disposable income, changes in gaming habits, and enforcement activities related
to illegal gambling.
Our Weaknesses may affect our ability to sell, compete and generate revenues.
o Because of our position as a startup, we are not a household name
among prospective customers, and the cost to raise us to "top-of-mind"
awareness will be higher than for an established company.
o Documented processes and procedures, along with the integrated
technology deployment, are still in the development stage and an
unforeseen delay or loss of key personnel could hold up the product
launch.
Any of these could cause our revenue model to be unprofitable and cause failure
of our business.
We have identified potential threats to our business model.
o The fast-growing interest in poker could be a fad that burns out
quickly, leaving a smaller core than expected.
o A significant downturn in the American economy would reduce the amount
of disposable income available to our target audience.
o Other competitors could move quickly to match our performance by
offering similar products and design amenities, forcing us to invest
more than expected in product development.
o Too much success too quickly could overwhelm our systems, creating
order and fulfillment problems including the increased possibility of
poor work slipping through to the marketplace, resulting in high
levels of customer dissatisfaction.
Any of these could cause our revenue model to be unprofitable and cause failure
of our business.
6
Our officers and directors may have conflicts of interest which may not be
--------------------------------------------------------------------------------
resolved favorably to us.
-------------------------
Certain conflicts of interest may exist between us and our officers and
directors. Our Officers and Directors have other business interests to which
they devote their attention and may be expected to continue to do so although
management time should be devoted to our business. As a result, conflicts of
interest may arise that can be resolved only through exercise of such judgment
as is consistent with fiduciary duties to us. See "Directors, Executive
Officers, Promoters and Control Persons" (page 24), and "Conflicts of Interest".
(page 25) Our officers are spending- up to 50 hours per week.
We will need additional financing for which we have no commitments, and this may
--------------------------------------------------------------------------------
jeopardize execution of our business plan.
------------------------------------------
We have limited funds, and such funds may not be adequate to carryout the
business plan. Our ultimate success depends upon our ability to raise additional
capital. We have not investigated the availability, source, or terms that might
govern the acquisition of additional capital and will not do so until it
determines a need for additional financing. If we need additional capital, we
have no assurance that funds will be available from any source or, if available,
that they can be obtained on terms acceptable to us. If not available, our
operations will be limited to those that can be financed with our modest
capital.
Our Warrant holders and Option holders may not exercise their purchase rights.
------------------------------------------------------------------------------
It is very unlikely that any security holder would exercise either our Warrants
or the Options.
We have not set up an escrow to receive proceeds of Warrant or Option exercise.
-------------------------------------------------------------------------------
We do not have any escrow provisions, and we do not have any intention of
returning any sale proceeds to investors if the maximum amount is not raised
from sale of any of our shares.
We have a minimal operating history, so investors have no way to gauge our long
--------------------------------------------------------------------------------
term performance.
-----------------
We were formed on April 29, 2005 based on a concept to sell customized,
professional-quality playing cards via the Internet. As evidenced by the
financial reports we have had minimal revenue. It must be regarded as a new or
development venture with all of the unforeseen costs, expenses, problems, and
difficulties to which such ventures are subject. The venture must be considered
highly speculative.
We can make no assurance of success or profitability in the future.
-------------------------------------------------------------------
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits in the future, or that the
market price of our Common Stock will be increased thereby.
We will depend upon Management but we will have limited participation of
--------------------------------------------------------------------------------
management.
-----------
We currently have three individuals who are serving as our officers and
directors for up to 50 hours per week. Our directors are also acting as our
officers. We will be heavily dependent upon their skills, talents, and
abilities, as well as several consultants to us, to implement our business plan,
and may, from time to time, find that the inability of the officers, directors
and consultants to devote their full-time attention to our business results in a
delay in progress toward implementing our business plan. Because investors will
not be able to manage our business, they should critically assess the
information concerning our officers and directors.
7
Our Officers and Directors may have Conflicts of Interests to Corporate
--------------------------------------------------------------------------------
Opportunities which our Company may not be able or allowed to participate in.
-----------------------------------------------------------------------------
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person leans about through his involvement as an officer
and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person. (See "Conflicts of Interest" at page
25)
We have agreed to indemnification of Officers and Directors as is provided by
--------------------------------------------------------------------------------
Colorado Statute.
-----------------
Colorado Revised Statutes provide for the indemnification of our directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities our behalf. We will
also bear the expenses of such litigation for any of our directors, officers,
employees, or agents, upon such person's promise to repay us therefore if it is
ultimately determined that any such person shall not have been entitled to
indemnification. This indemnification policy could result in substantial
expenditures by us that we will be unable to recoup.
Our Director's Liability to us and Shareholders is limited.
-----------------------------------------------------------
Colorado Revised Statutes exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
We may depend upon Outside Advisors, who may not be available on reasonable
--------------------------------------------------------------------------------
terms and as needed.
--------------------
To supplement the business experience of our officers and directors, we may be
required to employ accountants, technical experts, appraisers, attorneys, or
other consultants or advisors. Our Board without any input from stockholders
will make the selection of any such advisors. Furthermore, it is anticipated
that such persons may be engaged on an "as needed" basis without a continuing
fiduciary or other obligation to us. In the event we consider it necessary to
hire outside advisors, we may elect to hire persons who are affiliates, if they
are able to provide the required services.
8
We have substantial competitors who have an advantage over us in resources and
--------------------------------------------------------------------------------
marketing.
----------
We will be in competition with other products developed and marketed by much
larger corporations, which are better capitalized and have far greater marketing
capabilities than us. We expect to be at a disadvantage when competing with many
firms that have substantially greater financial and management resources and
capabilities than we do now.
Risk Factors Related to Our Stock
The regulation of penny stocks by SEC and NASD may discourage the tradability of
--------------------------------------------------------------------------------
our securities.
---------------
We are a "penny stock" company. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
We will pay no foreseeable dividends in the future.
---------------------------------------------------
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future.
9
While our common stock is listed, there is no assurance of a future market.
---------------------------------------------------------------------------
While our common stock and our units are listed on the over the counter bulletin
board market, neither have traded with any regularity. No assurance can be given
that a market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the shares. Due to the low price of our securities, many brokerage firms may
not be willing to effect transactions in our securities. Even if a purchaser
finds a broker willing to effect a transaction in our shares, the combination of
brokerage commissions, state transfer taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of our shares as collateral for any loans.
Rule 144 sales in the future may have a depressive effect on our stock price.
-----------------------------------------------------------------------------
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering all of our outstanding shares so officers,
directors and affiliates will be able to sell their shares if this Registration
Statement becomes effective. Rule 144 provides in essence that a person who has
held restricted securities for six months may, under certain conditions, sell
every three months, in brokerage transactions, a number of shares that does not
exceed the greater of 1.0% of a company's outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
There is no limit on the amount of restricted securities that may be sold by a
non-affiliate after the owner has held the restricted securities for a period of
two years. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
Our investors may suffer future dilution due to issuances of shares for various
--------------------------------------------------------------------------------
considerations in the future.
-----------------------------
There may be substantial dilution to our shareholders as a result of future
decisions of the Board to issue shares without shareholder approval for cash,
services, or acquisitions.
Our stock will in all likelihood be thinly traded and as a result you may be
--------------------------------------------------------------------------------
unable to sell at or near ask prices or at all if you need to liquidate your
--------------------------------------------------------------------------------
shares.
-------
The shares of our common stock, are thinly-traded on the OTC Bulletin Board,
meaning that the number of persons interested in purchasing our common shares at
or near ask prices at any given time may be relatively small or non-existent.
This situation is attributable to a number of factors, including the fact that
we are a small company which is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment community that
generate or influence sales volume, and that even if we came to the attention of
such persons, they tend to be risk-averse and would be reluctant to follow an
unproven, early stage company such as ours or purchase or recommend the purchase
of any of our Securities until such time as we became more seasoned and viable.
As a consequence, there may be periods of several days or more when trading
activity in our Securities is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on Securities
price. We cannot give you any assurance that a broader or more active public
trading market for our common Securities will develop or be sustained, or that
any trading levels will be sustained. Due to these conditions, we can give
10
shareholders no assurance that they will be able to sell their shares at or near
ask prices or at all if you need money or otherwise desire to liquidate their
Securities of our Company.
Our common stock may be volatile, which substantially increases the risk that
you may not be able to sell your Securities at or above the price that you may
pay for the security.
Because of the limited trading market expected to develop for our common stock
and because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. The inability to sell your
Securities in a rapidly declining market may substantially increase your risk of
loss because of such illiquidity and because the price for our Securities may
suffer greater declines because of our price volatility.
The price of our common stock that will prevail in the market may be higher or
lower than the price you may pay. Certain factors, some of which are beyond our
control, that may cause our share price to fluctuate significantly include, but
are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant trans-
actions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
Our business is highly speculative and an investment is therefore risky.
------------------------------------------------------------------------
Due to the speculative nature of our business, it is probable that an investment
in our shares will result in a total loss to the investor. Investors should be
able to financially bear the loss of their entire investment. Investment should,
therefore, be limited to that portion of discretionary funds not needed for
normal living purposes or for reserves for disability and retirement.
No Assurance of Public Market for any our Securities.
-----------------------------------------------------
While our common stock and our units are listed on the over the counter bulletin
board market, neither have traded with any regularity. There can be no assurance
a market will develop or that purchasers will be able to resell their Common
Stock or Warrants at the public offering price or without delay. No one is
obligated to create or make a market in the Common Stock or Warrants. Should a
market for our Securities develop there is no assurance that such a market will
continue. In addition, due to the low price of these Securities many brokerage
firms may not effect transactions in Common Stock or Warrants and banks may not
accept them as collateral for loans.
11
ITEM 2. DESCRIPTION OF PROPERTIES
Corporate Offices
We have limited operations at 2400 Central Avenue, Suite G, Boulder, Colorado
80301. We lease the space at a rate of $930 per month per year. The lease on the
space will expire on July 2008.
ITEM 3. LEGAL PROCEEDINGS
Neither Tombstone nor any of its officers and/or directors is involved in any
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2007, no matters were submitted to the
shareholders for approval, nor did the Company hold a shareholders' meeting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
------------------
PRICE RANGE OF COMMON STOCK
The Common Stock is presently traded on the over-the-counter market on the OTC
Bulletin Board maintained by the Financial Industry Regulatory Authority
("FINRA"). In October 2007, we began trading on the over the counter bulletin
board under the symbol "TMCI." During the period of October 2007 through
December 31, 2007, our shares have not traded.
In addition to our common stock, in October 2007, we began trading our units on
the OTC Bulletin Board. A unit consists of 1 share of our common stock, 1 of our
A Warrants and 1 of our B Warrants. The units trade on the over the counter
bulletin board under the symbol "TMCIU". During the period of October 2007
through December 31, 2007, our units have not traded.
As of December 31, 2007, there were 36 shareholders of record. We estimate that
there are approximately 25 beneficial shareholders. In many instances, a
registered stockholder is a broker or other entity holding shares in street name
for one or more customers who beneficially own the shares.
Our transfer agent is Corporate Stock Transfer, Inc. at 3200 S. Cherry Creek
Dr., Suite 430, Denver, Colorado 80209.
Dividends
---------
As of the filing of this annual report, we have not paid any dividends to
shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Colorado Revised Statutes, however, do prohibit us from declaring dividends
where, after giving effect to the distribution of the dividend; we would not be
able to pay our debts as they become due in the usual course of business; or our
total assets would be less than the sum of the total liabilities plus the amount
that would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
12
Penny Stock
-----------
Penny Stock Regulation Broker-dealer practices in connection with transactions
in "penny stocks" are regulated by certain penny stock rules adopted by the
Securities and Exchange Commission. Penny stocks generally are equity securities
with a price of less than $5.00. Excluded from the penny stock designation are
securities registered on certain national securities exchanges or quoted on
NASDAQ, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange/system or sold to
established customers or accredited investors.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and the
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As our securities have become subject to the penny stock
rules, investors may find it more difficult to sell their securities.
Stock Option Plan
-----------------
We have a Stock Option Plan. As of December 31, 2007, 450,000 options are
outstanding under the 2006 Tombstone Card, Inc. Option Plan. A total of 450,000
options are exercisable at December 31, 2007, under the plan. During the year
ended December 31, 2007, we issued 300,000 options under the 2006 Option Plan to
third parties and one employee. We have reserved 1,000,000 shares of common
stock for issuance under the 2006 Tombstone Card, Inc. Option Plan. During the
years ended December 31, 2007 and 2006, there were no actions taken to re-price
any options held by any officers, directors or employees.
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the other financial information
included elsewhere in this report. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward looking statements as a
result of any number of factors, including those set forth under "Risk Factors"
on page 15 and elsewhere in this report.
PLAN OF OPERATIONS
------------------
We organized in April 2005 and since our organization, we have had limited
operations. Our operational efforts have focused the structure and capital
formation of the Company. During the year ended December 31, 2007, we put into
place a management team and have secured capital to being the launch of the
Company's business plan to manufacture and market customized playing cards.
If business volume supports it, we anticipate adding 5 more employees bringing
our total staffing to 9 employees. These staff additions will necessitate
purchasing additional computers, software, furniture and office materials.
13
In July of 2007, our web site went live with our proprietary design tool and the
e-commerce functionality needed to support sales over the Internet. We
instituted a "soft rollout" in order to test the functionality and performance
of the system. Based on results and feedback, we have made modifications the
site and our processes. We also have taken the results from our sales analysis,
combined with our PR and media research and determine placement of our first
spot buys in poker magazines.
In December of 2007, we created our Tombstone Technologies Division (the
Technology Division). The Technology Division was created in order to handle the
development, marketing and licensing of our proprietary OIEPrint(TM) software, a
web to print template driven application. On December 27, 2007, we filed a
provisional patent application with the United States Patent and Trademark
Office (USPTO) titled Internet Application for the Design of High Resolution
Digital Graphics.
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 31, 2007 Compared to the Year Ended December 31,
2006
During the year ended December 31, 2007, we recognized revenues of $43,759 from
the sale of our custom playing cards. During the year ended December 31, 2006,
we did not recognize any revenues from our operations.
In connection with the $43,759 in revenue during the year ended December 31,
2007, we incurred cost of sales of $22,886 and recognized a gross profit of
$20,873.
During the year ended December 31, 2007, we incurred general and administrative
expenses of $385,244 compared to $181,206 during the year ended December 31,
2006. The increase of $204,038 was due in part to our increased operational
activities compared to the prior period. During December 31, 2007, general and
administrative expenses include stock based compensation expenses of $48,205,
advertising expenses of $32,275, accounting expenses $27,555 and payroll
expenses of $95,000.
During the year ended December 31, 2007, we incurred a net loss of $342,425
compared to a net loss of $173,692 for the year ended December 31, 2006. The
increase of $173,512 was due to the $204,038 increase in general and
administrative expenses which was offset by the gross profit of $20,873 as a
result of sales of our product during the year.
During the year ended December 31, 2007, we recognized a net loss per share of
$0.11 compared to a net loss per share of $0.09 per share during the year ended
December 31, 2006.
LIQUIDITY
---------
At December 31, 2007, we had cash and cash equivalents of $313,498 and total
current assets of $334,305 and current liabilities of $3,018. At December 31,
2007, current assets exceed current liabilities by $331,287.
Net cash used in operating activities during the year ended December 31, 2007
was $293,450, compared to net cash used in operating activities during the year
ended December 31, 2006 of $159,005. During the year ended December 31, 2007,
the net cash used represented a net loss of $342,425, adjusted for certain
non-cash items consisting of stock based compensation of $48,205 and
depreciation expense of $8,168.
During the year ended December 31, 2006, the net cash used represented a net
loss of $168,733, adjusted certain non-cash items consisting of contributed
services of $10,000, stock based compensation of $13,825 and depreciation
expense of $825.
14
During the year ended December 31, 2007, we used cash of $27,453 to purchase
equipment. During the year ended December 31, 2006, we used cash of $17,186 to
purchase equipment.
During the year ended December 31, 2006, we received $865,000 cash through the
sale of shares of our common stock and incurred offering costs of $60,695.
During the year ended December 31, 2006, we received net cash of $804,305 from
financing activities.
Capital Resources
We have no material commitments for capital expenditures within the next year,
however if operations continue to expand, substantial capital will be needed to
pay for participation, investigation, exploration, acquisition and working
capital.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements for the year ended December 31, 2007 are included
herein on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the year ended December 31, 2007, we had no disagreements with our
Independent Registered Public Accounting Firm, Cordovano and Honeck LLP.
ITEM 8A. CONTROLS and PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief
Financial Officer carried out an evaluation under the supervision and with the
participation of our management, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 15d-14 as of the end of the period covered by this report. Based on the
foregoing evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic SEC filings and to ensure that information required to be disclosed in
our periodic SEC filings is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure as a result of the deficiency in
our internal control over financial reporting discussed below.
15
ITEM 8A(T). CONTROLS AND PROCEDURES
Management's Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the year ended December 31,
2007. We believe that internal control over financial reporting is effective. We
have not identified any, current material weaknesses considering the nature and
extent of our current operations and any risks or errors in financial reporting
under current operations.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended December 31, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS: COMPLIANCE WITH
SECTION 16 (a) OF THE EXCHANGE ACT
At December 31, 2007, our officers and directors were the individuals listed
below:
Age Term
--------------------------------------------------------------------------------
John N. Harris 61 President and Director Annual
Neil A. Cox 58 Chief Financial Officer and Annual
Director
William H. Reilly 54 Chief Operations Officer and Annual
Technology Officer and Director
John N. Harris, 61, President and Director
Mr. Harris began his career in the securities industry in 1971 with Newhard Cook
& Co., a St. Louis based NYSE member firm. Licensed both as a broker and
principal, he ultimately managed brokerage offices for several regional NASD
brokerage firms. Since 1985, he has been self-employed as a business consultant
and as a private investor. For the last 5 years Mr. Harris has been an
independent financial consultant. Mr. Harris brings us experience in the public
securities market.
Neil A. Cox, 58, Chairman of the Board and Chief Financial Officer.
Mr. Cox has more than 30 years' experience in the securities and financial
industry. He brings enthusiasm, energy, and a solid base of understanding in
acquisitions, strategic planning, and public and private financing. Mr. Cox is a
former officer and director of a regional broker-dealer and has been involved
with structuring, financing, and investment banking activities for dozens of
companies. In 1999, as chief financial officer of IDMedical.com, Mr. Cox
coordinated the efforts for the company to become a publicly traded software
company that tried to pioneer computerized medical records on the Internet. Mr.
Cox received a Bachelor of Business Administration (BBA) from West Texas A&M
University (formerly known as West Texas State University) in 1971. He served in
the United States Army as an Infantry Lieutenant, and is also a licensed
insurance broker. Mr. Cox had been self-employed with Rocky Mountain Securities
and Investments, Inc. until 2002, a registered broker-dealer; and from
2002-2004, Mr. Cox was self-employed with Moloney Securities Co., Inc., a
registered broker-dealer. Since 2004, Mr. Cox has been an independent insurance
broker (Life, Health, & Accident) who has represented many Life and Health
Insurance Companies and is also an independent business consultant.
William H. Reilly, 54, Chief Operations Officer/Chief Technology Officer and
Director
Mr. Reilly has spent the past 25 years working with technology in support of
communications and business operations. He co-founded the Frontline Group
Technology Center, where he guided day-to-day operations as chief operating
officer. He also served as the parent company's chief technology officer,
overseeing the installation of one of the nation's first VoIP systems, serving
14 offices in 11 states. After three years he started his own consulting
business, offering services to young companies that wanted to establish the
necessary systems to support measured and profitable growth, including strategic
marketing, consultative sales, and customer service support. He earned his
undergraduate degree at Wilkes College in Pennsylvania and completed his
postgraduate work at Montclair State University. Mr. Reilly has headed his own
consulting company, MountainTop Back Office, since 2002 and provides technology
integration and marketing services to established companies.
17
Our officers are spending up to 50+ hours per week on our business at this time.
CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, there exist potential conflicts of
interest including, among other things, time, efforts and corporation
opportunity, involved in participation with such other business entities. While
each officer and director of our business is engaged in business activities
outside of our business, they devote to our business such time as they believe
to be necessary.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person learns about through his involvement as an
officer and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our Officers and
Directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file. Based
solely on our review of copies of such reports received, and representations
from certain reporting persons, we believe that, during the fiscal year ended
December 31, 2007, all Section 16(a) filing requirements applicable to our
officers, directors and greater than 10% beneficial owners were filed in
compliance with all applicable requirements.
18
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation paid
by the Company to the President and the Company's two most highly compensated
executive officers for the fiscal year ended December 31, 2007 and 2006 (the
"Named Executive Officers"):
SUMMARY EXECUTIVES COMPENSATION TABLE
----------------- ------ --------- ------- --------- --------- --------------- -------------- --------------- --------
Non-equity Non-qualified
incentive deferred
Stock Option plan compensation All other
Salary Bonus awards awards compensation earnings compensation Total
Name & Position Year ($) ($) ($) ($) ($) ($) ($) ($)
----------------- ------ --------- ------- --------- --------- --------------- -------------- --------------- --------
John Harris, 2007 36,000 0 0 0 0 0 0 36,000
President(1) 2006 18,000 3,000 0 0 0 0 0 21,000
----------------- ------ --------- ------- --------- --------- --------------- -------------- --------------- --------
Neil Cox, Chief 2007 36,000 0 0 0 0 0 0 36,000
Financial Officer 2006 18,000 3,000 0 0 0 0 0 21,000
----------------- ------ --------- ------- --------- --------- --------------- -------------- --------------- --------
William Reilly, 2007 42,000 0 0 0 0 0 0 42,000
COO/CTO(1) 2006 21,000 3,500 0 2,500(2) 0 0 0 27,000
----------------- ------ --------- ------- --------- --------- --------------- -------------- --------------- --------
(1) Payroll was made for the months of July-December 2006, therefore the actual
salaries paid were: Neil Cox-$18,000, John Harris-$18,000 and William
Reilly-$21,000, and Messrs. Cox and Harris each received a $3,000 bonus, and Mr.
Reilly received a $3,500 bonus. The executives forgave any salary obligation for
January - June of 2006 in consideration of the bonus paid in August of 2006.
Messrs. Harris and Cox each forwent $15,000, and Mr. Reilly forwent $17,500.
The President, CFO and COO/CTO contributed their management services to our
business until June 30, 2006, and were not paid until August 2006. The President
and CFO were paid for July 2006 and August 2006 at the rate of $3,000 per month.
The COO/CTO was paid for July 2006 and August 2006 at the rate of $3,500 per
month. The President and CFO were paid a bonus also of $3,000 for deferring
salaries until August 2006 and the COO/CTO (William Reilly) was paid a bonus of
$3,500 for deferring salaries until August 2006.
(2) Mr. Reilly was issued an option to purchase 100,000 shares of the Company's
common stock. The option has an exercise price of $0.55 per share and a term of
3 years expiring in August 2009. The value of the option was determined using
the exercise price.
19
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the President and our most highly compensated executive officers
for the fiscal year ended December 31, 2007 (the "Named Executive Officers"):
Option Awards Stock awards
------------- ----------- ------------ ----------- ----------- ---------- ---------- ---------- ----------- ----------
Equity
incentive
Equity plan
incentive Equity awards:
plan incentive Market
awards: plan or
Number of Number of Number of Number Market awards: payout
securities securities securities of value of Number of value of
underlying underlying underlying shares shares unearned unearned
unexercised unexercised unexercised Option Option or units of units shares, shares,
options options unearned exercise expiration of stock of stock units or units or
Name (#) (#) options price date that that other others
exercisable unexercisable (#) ($) have not have not rights rights
vested vested that have that
(#) ($) not have not
vested (#) vested
($)
------------- ----------- ------------ ----------- ----------- ---------- ---------- ---------- ----------- ----------
John Harris, 0 0 0 0 0 0 0 0 0
President
------------- ----------- ------------ ----------- ----------- ---------- ---------- ---------- ----------- ----------
Neil Cox, 0 0 0 0 0 0 0 0 0
CFO
------------- ----------- ------------ ----------- ----------- ---------- ---------- ---------- ----------- ----------
William 100,000 0 0 0.55 Aug. 2009 0 0 0 0
Reilly,
COO/CTO
------------- ----------- ------------ ----------- ----------- ---------- ---------- ---------- ----------- ----------
20
DIRECTOR COMPENSATION
The following table sets forth certain information concerning compensation paid
to our directors for services as directors, but not including compensation for
services as officers reported in the "Summary Executives Compensation Table"
during the year ended December 31, 2007:
Non-qualified
Non-equity deferred
Fees earned incentive compensation All other
or paid in Stock Option plan earnings compensation Total
Name cash awards ($) awards ($) compensation ($) ($) ($)
($) ($)
---------------- ------------- ------------- ------------- --------------- -------------- -------------- -------------
John Harris $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
---------------- ------------- ------------- ------------- --------------- -------------- -------------- -------------
Neil Cox $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
---------------- ------------- ------------- ------------- --------------- -------------- -------------- -------------
William Reilly $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
---------------- ------------- ------------- ------------- --------------- -------------- -------------- -------------
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
Directors receive no compensation for serving.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of the Company's common stock as of December 31,
2007 on a fully diluted basis, by (a) each person known by the Company to own
beneficially 5% or more of the outstanding shares of common stock, (b) the
Company's directors, Chief Executive Officer and executive officers whose total
compensation exceeded $100,000 for the last fiscal year, and (c) all directors
and executive officers of the Company as a group.
Title of Class Name and Address of Amount and Nature of Percent of Class(1)
Beneficial Owner Beneficial Owner
------------------------------- ---------------------------- ---------------------------- ----------------------------
John Harris
President & Director
Common shares PO Box 1547
Lyons, CO 80540 500,000 6.36%
Common shares Neil Cox 500,000 6.36%
CFO & Director
5380 Highlands Drive
Longmont, CO 80503
Common shares William H. Reilly(2) 125,000 1.59%
COO/CTO & Director
4859 Dakota Blvd
Boulder, CO 80304
Common shares Capital Merchant Bank(3) 600,000 7.63%
600 N. Bradley Road
Lake Forest, IL 60045
Michael J. Keate(4)
Common shares 7841 Marguette Dr. South
Tinley Park, IL 60477 600,000 7.63%
Common shares Roland Rosenboom(5) 600,000 7.63%
585 S. Main St.
Clifton, IL 60927
21
Common shares James Scanlon(6) 600,000 7.63%
9048 W. 5000 South Rd
Herscher, IL 60941
Common shares Mike Scanlon(7) 600,000 7.63%
2316 Sunset View Rd
Kankakee, IL 60901
---------------------------- ----------------------------
All Directors and Executive
Officers as a Group (3
persons) 1,125,000 14.31%
(1) Based upon 3,230,000 shares of common stock issued and outstanding on
December 31, 2007, warrants exercisable for 4,180,000 shares of common
stock and options exercisable for 450,000 shares of common stock, there
would be 7,860,000 shares of our common stock issued and outstanding,
on a fully diluted basis.
(2) Consists of 25,000 shares of common stock and an option exercisable for
100,000 shares of common stock.
(3) The Capital Merchant Bank holds these 600,000 warrants beneficially for
Joseph Kurczodyna.
(4) Consists of 200,000 shares of common stock and warrants exercisable for
400,000 shares of common stock.
(5) Consists of 200,000 shares of common stock and warrants exercisable for
400,000 shares of common stock.
(6) Consists of 200,000 shares of common stock and warrants exercisable for
400,000 shares of common stock.
(7) Consists of 200,000 shares of common stock and warrants exercisable for
400,000 shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the stock transactions discussed prior, we have not entered into any
transaction nor are there any proposed transactions in which any of our
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
We had engaged as a consultant Capital Merchant Banc under an Agreement which
provides for the vesting of 600,000 Warrants to purchase Shares at $0.55 per
Share based upon performing consulting services for which it is paid $3,000 per
month. When vested Capital Merchant Banc could acquire an amount of Shares equal
to 15.66% of the issued and outstanding Common Stock prior to exercise of any
Warrants. These Warrants expire August 31, 2009, with an Option to acquire a new
two year Warrant at $0.55 for 600,000 if the stock price has not closed at $0.50
for 30 days. Capital Merchant Banc Warrants are vested upon completion of the
consulting services for: 1. Product Public Relations Program; 2. Sales Program
design; 3. Corporate Awareness Program and structure advice which we deem to be
substantially complete.
The President, CFO and COO/CTO contributed their management services to our
business until June 30, 2006. The President and CFO were paid for July 2006 and
August 2006 at the rate of $3,000 per month in August 2006, plus a bonus of
$3,000 for deferring payment until August 2006. The COO/CTO was paid for July
2006 and August 2006 at the rate of $3,500 per month in August 2006, plus a
bonus of $3,000 for deferring payment until August 2006.
22
PART IV
ITEM 13. INDEX TO EXHIBITS
The following is a complete list of exhibits filed as part of this Form 10KSB.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-B.
--------- ------------------------------------------------------------------ ---
Number Description
3.1 Articles of Incorporation. 1
3.2 Articles of Amendment - Name Change 1
3.3 Bylaws of Tombstone Cards, Inc. 1
10.1 "A" Warrant Form 1
10.2 "B" Warrant Form 1
10.3 Capital Merchant Banc Warrant Form 1
10.4 Employee Stock Warrant Form 1
10.5 William H. Reilly Warrant Form 1
10.6 Dale Stonedahl Warrant Form 1
10.7 Revised Garden State Securities Warrant Form 1
10.8 Consulting Agreement with Capital Merchant Banc, LLC 1
10.9 Garden State Securities Finder's Fee Agreement 1
10.10 2006 Tombstone Cards, Inc. Option Plan 1
31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act *
32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act *
--------- ------------------------------------------------------------------ ---
(1) Filed as an exhibit to the Registration Statement No. 333-138184 on Form
SB-2, filed with the SEC on October 23, 2006.
* Filed herewith.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
We incurred $22,016 audit fees with our Independent Registered Public Auditing
Firm, Cordovano and Honeck LLP, during the year ended December 31, 2007
($14,673, during the fiscal year ended 2006) in respect of the audit for the
fiscal years ended December 31, 2007 and 2006.
Tax Fees
We did not incur any tax fees with our current auditor, in the years ended
December 31, 2007 and 2006.
All Other Fees
We incurred no other fees with our auditor.
It is the role of the Audit Committee, or in the absence of an audit committee,
the Board of Directors, to consider whether, and determine that, the auditor's
provision of non-audit services would be compatible with maintaining the
auditor's independence.
23
TOMBSTONE CARDS, INC.
Financial Statements
December 31, 2007
(With Report of Independent Registered Public Accounting Firm Thereon)
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Tombstone Cards, Inc.:
We have audited the accompanying balance sheet of Tombstone Cards, Inc. as of
December 31, 2007, and the related statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tombstone Cards, Inc. as of
December 31, 2007, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
March 17, 2008
F-2
TOMBSTONE CARDS, INC.
Balance Sheet
December 31, 2007
Assets
Current assets
Cash and cash equivalents.......................................................$ 313,498
Accounts receivable, net........................................................ 9,256
Inventory, at cost.............................................................. 10,057
Prepaid expenses................................................................ 1,494
---------------------
Total current assets................................................. 334,305
Equipment, net of accumulated depreciation of $15,481........................... 42,414
---------------------
Total assets.........................................................$ 376,719
=====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities........................................$ 578
Deferred revenue................................................................ 448
Current portion - capital lease obligation...................................... 1,992
---------------------
Total current liabilities............................................ 3,018
Capital lease obligation, less current portion...................................... 4,776
---------------------
Total liabilities.................................................... 7,794
---------------------
Shareholders' equity
Common stock.................................................................... 816,305
Additional paid-in capital...................................................... 82,030
Deficit accumulated during development stage.................................... (529,410)
---------------------
Total shareholders' equity........................................... 368,925
---------------------
Total liabilities and shareholders' equity...........................$ 376,719
=====================
See accompanying notes to financial statements
F-3
TOMBSTONE CARDS, INC.
Statements of Operations
For the Year (Inception)
Ended Through
December 31, September 30,
------------------------------
2007 2006 2007
-------------- ---------------------------------
Sales....................................................................$ 43,759 $ -- 43,759
Cost of sales............................................................ 22,886 -- 22,886
-------------- ---------------------------------
Gross profit......................................................... 20,873 -- 20,873
Expenses
Selling, general and administrative expenses......................... 385,244 181,206 564,702
-------------- -------------------------------
Loss from operations....................................... (364,372) (181,206) (543,830)
Other income
Interest income...................................................... 21,947 12,473 34,420
-------------- ---------------------------------
Loss before income taxes................................... (342,425) (168,733) (509,410)
Income tax provision..................................................... -- -- --
-------------- ---------------------------------
Net loss...................................................$ (342,425) $ (168,733) (509,410)
============== =================================
Basic and diluted loss per share.........................................$ (0.11) $ (0.09)
============== ==============
Basic and diluted weighted average
common shares outstanding............................................ 3,230,000 1,845,111
============== ==============
See accompanying notes to financial statements
F-4
TOMBSTONE CARDS, INC.
Statement of Change in Shareholders' Equity
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
-----------------------------------
Shares Amount Capital Stage Total
---------------- ---------------- ----------------- ----------------- -----------------
Balance at April 29, 2005
(inception)....................... -- $ -- $ -- $ -- $ --
July and August 2005,
sale of common stock
at $0.01 per share,
net of $3,000 in
offering costs.................. 1,500,000 12,000 -- -- 12,000
Contributed services by
founders........................ -- -- 10,000 -- 10,000
Net loss.......................... -- -- -- (18,252) (18,252)
---------------- ---------------- ----------------- ----------------- -----------------
Balance at December 31, 2005........ 1,500,000 12,000 10,000 (18,252) 3,748
April through September
2006, sale of common
stock at $0.50 per
share, net of $60,695
offering costs.................. 1,730,000 804,305 -- -- 804,305
May 2006, stock options
granted......................... -- -- 4,800 -- 4,800
August 2006, stock options
and warrants vested............. -- -- 9,025 -- 9,025
Contributed services by
founders........................ -- -- 10,000 -- 10,000
Net loss.......................... -- -- -- (168,733) (168,733)
---------------- ---------------- ----------------- ----------------- -----------------
Balance at December 31, 2006........ 3,230,000 816,305 33,825 (186,985) 663,145
Stock options and warrants
vested.......................... -- -- 48,205 -- 48,205
Net loss.......................... -- -- -- (342,425) (342,425)
---------------- ---------------- ----------------- ----------------- -----------------
Balance at December 31, 2007........ 3,230,000 $ 816,305 $ 82,030 $ (529,410) $ 368,925
================ ================ ================= ================= =================
See accompanying notes to financial statements
F-5
TOMBSTONE CARDS, INC.
Statements of Cash Flows
For the Year
Ended
December 31,
--------------------------------------
2007 2006
----------------- -------------------
Cash flows from operating activities:
Net loss................................................ $ (342,425) $ (168,733)
Adjustments to reconcile net loss to net cash
used in operating activities:
Contributed services.................................... -- 10,000
Stock-based compensation................................ 48,205 13,825
Depreciation Expense.................................... 8,168 825
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable.......... (9,256) --
Decrease (increase) in prepaid expenses............. 7,918 (9,412)
Decrease (increase) in inventory.................... (4,760) (5,297)
Decrease in accounts payable........................ (1,299) (213)
----------------- -------------------
Net cash flows used in
operating activities....................... (293,450) (159,005)
----------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment...................... (27,453) (17,186)
----------------- -------------------
Net cash flows used in
investing activities....................... (27,453) (17,186)
----------------- -------------------
Cash flows from financing activities:
Proceeds from sale of common stock...................... -- 865,000
Payments for stock offering costs....................... -- (60,695)
----------------- -------------------
Net cash flows provided by
financing activities....................... -- 804,305
----------------- -------------------
cash equivalents........................... (320,902) 628,114
Cash and cash equivalents:
Beginning of period..................................... 634,400 6,286
----------------- -------------------
End of period........................................... $ 313,498 $ 634,400
================= ===================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes.......................................... $ -- $ --
================= ===================
Interest.............................................. $ -- $ --
================= ===================
Noncash investing and financing transactions:
Equipment acquired under capital lease................ $ 6,768 $ --
================= ===================
See accompanying notes to financial statements
F-6
TOMBSTONE CARDS, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Tombstone Cards, Inc. (referenced as "we," "us," "our" in the accompanying
notes) was incorporated in the State of Colorado on April 29, 2005. We were
organized to engage in the business of manufacturing and selling
personalized playing cards.
Development Stage Company
During 2007, we emerged from the development stage.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid securities with original maturities of three
months or less when acquired to be cash equivalents. We had $304,489 cash
equivalents at December 31, 2007.
Accounts Receivable:
The allowance for doubtful accounts, which is $-0- at December 31, 2007, is
based on an assessment of the collectibility of customer accounts. We review the
allowance by considering factors such as historical experience, credit quality,
age of the accounts receivable balances, and current economic conditions that
may affect a customer's ability to pay.
Inventories
Inventories are stated at the lower of cost (determined on an average cost) or
market value.
Equipment
Equipment is recorded at cost. Expenditures that extend the useful lives of
equipment are capitalized. Repairs, maintenance and renewals that do not extend
the useful lives of the equipment are expensed as incurred. Depreciation is
provided on the straight-line method over 3 years.
Long-lived assets
Long-lived assets include property and equipment, equity investments and
intangible assets. Whenever events or changes in circumstances indicate that the
carrying amounts of long-lived assets may not be recoverable, we estimate the
future cash flows, undiscounted and without interest charges, expected to result
from the use of those assets and their eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of those assets, we
recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets.
Financial Instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash and cash
equivalents, and accounts payable approximate fair value due to the short-term
maturity of the instruments.
Income Taxes
We account for income taxes under the provisions of SFAS No. 109, Accounting for
Income Taxes (SFAS 109). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
F-7
TOMBSTONE CARDS, INC.
Notes to Financial Statements
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Advertising
All advertising costs are expensed as incurred. Advertising expenses were
$32,275 and $11,667 respectively, for the years ended December 31, 2007 and
2006, respectively.
Earnings (Loss) per Common Share
Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if potentially dilutive common shares had been issued.
At December 31, 2007, there were no variances between basic and diluted loss per
share as the impact of the 4,570,000 options, warrants and warrant units
outstanding would have been anti-dilutive.
Share-Based Payment
In December 2004, the FASB issued FASB Statement No. 123(R), "Share-Based
Payment", which is a revision to FASB Statement No. 123, "Accounting for
Stock-Based Compensation" (FASB 123). FASB Statement No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. We
adopted the fair value based method of accounting for share-based payments
effective January 1, 2006 using the modified prospective method described in
FASB Statement No. 148, Accounting for Stock-Based Compensation -- Transition
and Disclosure. The modified prospective method requires companies to record
compensation cost beginning with the effective date based on the requirements of
FASB Statement No. 123(R) for all share-based payments granted after the
effective date. There were no share-based payments granted prior to the
effective date.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements , or
SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
statement does not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of this statement are to be applied prospectively
as of the beginning of the fiscal year in which this statement is initially
applied, with any transition adjustment recognized as a cumulative-effect
adjustment to the opening balance of retained earnings. The provisions of SFAS
No. 157 are effective for the fiscal years beginning after November 15, 2007;
therefore, we anticipate adopting this standard as of January 1, 2008. We do not
expect the adoption of SFAS No. 157 to have a material impact on our financial
statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements , or SAB No. 108, to eliminate the diversity
of practice surrounding how public companies quantify financial statement
misstatements. Traditionally, there have been two widely-recognized methods for
quantifying the effects of financial statement misstatements: the "roll-over"
method and the "iron curtain" method. The roll-over method focuses primarily on
F-8
TOMBSTONE CARDS, INC.
Notes to Financial Statements
the impact of a misstatement on the income statement, including the reversing
effect of prior year misstatements, but its use can lead to the accumulation of
misstatements in the balance sheet. The iron-curtain method, on the other hand,
focuses primarily on the effect of correcting the period-end balance sheet with
less emphasis on the reversing effects of prior year errors on the income
statement. In SAB No. 108, the SEC Staff established an approach that requires
quantification of financial statement misstatements based on the effects of the
misstatements on each financial statement and the related financial statement
disclosures. This model is commonly referred to as a "dual approach" because it
requires quantification of errors under both the iron curtain and the roll-over
methods. The adoption of SAB No. 108 did not have an impact on our financial
statements.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 , or
FIN No. 48. FIN No. 48 provides guidance on the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 requires that we recognize in the financial statements the benefit of a
tax position if that position will more likely than not be sustained on audit,
based on the technical merits of the position. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition provisions. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006, and we adopted FIN No. 48 at the
beginning of fiscal 2007. The adoption of FIN No. 48 did not have an impact on
our financial statements.
In July 2006, the FASB issued EITF Issue No. 06-3, How Taxes Collected from
Customers and Remitted to Governmental Authorities Should be Presented in the
Income Statement (that is, Gross versus Net Presentation) . The adoption of EITF
No. 06-3 did not have an impact on our financial statements. Our accounting
policy has been to present above mentioned taxes on a net basis, excluded from
revenues.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, or SFAS No. 159. The fair value
option established by SFAS No. 159 permits, but does not require, all entities
to choose to measure eligible items at fair value at specified election dates.
An entity would report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
SFAS No. 159 is effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2007. We are currently assessing what the impact
of the adoption of this Statement will be on our financial position and results
of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until January 1, 2009. We expect SFAS No. 141R
will have an impact on accounting for business combinations once adopted but the
effect is dependent upon acquisitions at that time.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160.
SFAS No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. We have no noncontrolling interests in subsidiaries at this
time.
F-9
TOMBSTONE CARDS, INC.
Notes to Financial Statements
(2) Related Party Transactions
The President, CFO and COO/CTO contributed their management services to our
business from April 29, 2005 (date on inception) through June 30, 2006. The
services are reported as contributed services with a corresponding credit to
additional paid-in capital totaling $-0- and $10,000, respectively, for the
years ended December 31, 2007 and 2006.
(3) Inventories
At December 31, 2007, supplies inventory consisted of:
Card decks......................................... $ 7,032
Shipping containers................................ 3,025
---------
10,057
=========
(4) Property and equipment
At December 31, 2006, major classes of property and equipments were:
Computer equipment.................................... $ 27,715
Software.............................................. 23,692
-------------------
51,407
Less: accumulated depreciation....................... (8,993)
-------------------
$ 42,414
-------------------
Depreciation expense was $8,168 and $825, respectively, for the years ended
December 31, 2007 and 2006.
(5) Shareholders' Equity
Common Stock
On August 31, 2006, we completed a private offering of our common stock; selling
1,730,000 units for net proceeds of $804,305. Each unit consisted of one share
of common stock, one "A" warrant exercisable at $2.00 for up to three years and
callable for redemption by the Company and one "B" warrant exercisable at $5.00
for up to three years and callable for redemption by the Company.
Common Stock Options and Warrants
On May 8, 2006, we granted to two investors options to purchase an aggregate of
150,000 shares of our common stock at an exercise price of $0.55 per share. The
options vested on August 29, 2006 and expire on August 29, 2009. Our common
stock was valued at $0.50 per share on the grant date; however, our Board of
Directors, utilizing appropriate option pricing software, estimated the fair
value of the options at $.0325 per share, or $4,800. The $4,800 was recorded as
share-based payment in the accompanying financial statements during the year
ended December 31, 2006.
Using the Black-Scholes option-pricing software, our Board of Directors assumed
the following in estimating the fair value of the options at the grant date:
Risk-free interest rate.......................... 4.99%
Dividend yield................................... 0.00%
Volatility factor................................ 5.00%
Weighted average expected life................... 3 years
F-10
TOMBSTONE CARDS, INC.
Notes to Financial Statements
On August 4, 2006, we granted to an outside consultant a warrant to purchase
600,000 shares of our common stock at an exercise price of $0.55 per share. The
warrant vests upon the effective date of our Registration Statement and expires
on August 31, 2009. Our Board of Directors, utilizing appropriate software,
estimated the fair value of the warrant at $.0325 per share, or $19,500, of
which $8,125 in share-based payment in the accompanying financial statements for
the year ended December 31, 2006. Using the Black-Scholes option-pricing
software, the Board of Directors assumed the following in estimating the fair
value of the warrant at the grant date:
Risk-free interest rate.......................... 4.89%
Dividend yield................................... 0.00%
Volatility factor................................ 5.00%
Weighted average expected life................... 3 years
On August 8, 2006, we granted to a placement agent a warrant to purchase 60,000
units at an exercise price of $0.60 per unit, in exchange for broker-dealer
services. Each unit is comprised of one share of our common stock, one A warrant
and one B warrant. The warrant vests upon the effective date of our Registration
Statement and expires on August 31, 2009. Our Board of Directors, utilizing
appropriate software, estimated the fair value of the warrant at $.015 per
share, or $900, which was recorded as offering cost in the accompanying
financial statements at December 31, 2006.
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate.......................... 4.86%
Dividend yield................................... 0.00%
Volatility factor................................ 5.00%
Weighted average expected life................... 3 years
On October 1, 2007, we granted to consultants, options to purchase 280,000
shares of our common stock at an exercise price of $0.75 per share, in exchange
for consulting services. The options vest immediately and expire on August 31,
2009. Our Board of Directors, utilizing appropriate software, estimated the fair
value of the options at $.1256 per share, or $35,168, which was recorded as
stock compensation cost included in general and administrative expenses in the
accompanying financial statements at December 31, 2007.
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate.......................... 4.02%
Dividend yield................................... 0.00%
Volatility factor................................ 50.00%
Weighted average expected life................... 3 years
On December 7, 2007, we granted to an employee, an option to purchase 20,000
shares of our common stock at an exercise price of $1.00 per share, in reward
for employee services. The option vests immediately and expires on August 31,
2009. Our Board of Directors, utilizing appropriate software, estimated the fair
value of the warrant at $0.0831 per share, or $1,662, which was recorded as
stock compensation cost included in general and administrative expenses in the
accompanying financial statements at December 31, 2007.
F-11
TOMBSTONE CARDS, INC.
Notes to Financial Statements
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate.......................... 2.97%
Dividend yield................................... 0.00%
Volatility factor................................ 50.00%
Weighted average expected life................... 3 years
Following is a schedule of changes in our common stock options and warrants for
the period ended December 31, 2007:
Weighted Weighted
Average Average
Exercise Exercise Remaining
Number Price Price Contractual
of Shares Per Share Per Share Life
-------------- --------------- -------------- ---------------
Outstanding at
April 29, 2005 (inception)............... - - $ - N/A
Granted...................................... 4,270,000 $0.55 - $5.00 $ 2.94 2.58 years
Exercised.................................... - - $ - N/A
Cancelled/Expired............................ - - $ - N/A
-------------- --------------- -------------- ---------------
Outstanding at December 31, 2006............. 4,270,000 - $ - N/A
Granted...................................... 300,000 $0.75.-.$1.00 $ 0.77 1.83 years
Exercised.................................... - - $ - N/A
Cancelled/Expired............................ - - $ - N/A
-------------- --------------- -------------- ---------------
Outstanding at December 31, 2007............. 4,570,000 $0.75 - $1.00 $.0.77 1.83 years
============== =============== ============== ===============
Excerisable at December 31, 2007............. 4,570,000 $0.75 - $1.00 $.0.77 1.83 years
============== =============== ============== ===============
Year Ended
December 31,
------------------------
2007 2006
------------------------
Total fair value of options vested during the period....$ 48,205.50 $ 13,825.00
============= =============
Common stock awards consisted of the following options and warrants:
F-12
TOMBSTONE CARDS, INC.
Notes to Financial Statements
Warrant Total
Options Warrants Units Awards
-------------- --------------- -------------- ---------------
Outstanding at January 1, 2006............... - - - -
Granted...................................... 150,000 4,060,000 60,000 4,270,000
Exercised.................................... - - - -
Cancelled/Expired............................ - - - -
-------------- --------------- -------------- ---------------
Outstanding at December 31, 2006............. 150,000 4,060,000 60,000 4,270,000
Granted...................................... 300,000 - - 300,000
Exercised.................................... - - - -
Cancelled/Expired............................ - - - -
-------------- --------------- -------------- ---------------
Outstanding at December 31, 2007............. 450,000 4,060,000 60,000 4,570,000
============== =============== ============== ===============
(6) Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
Year Ended
December 31,
------------------------
2007 2006
----------- ------------
U.S. statutory federal rate.................... 0.00% 27.50%
State income tax rate.......................... 0.00% 3.36%
Permanent differences - Contributed services... 0.00% -1.90%
Net operating loss for which no
benefit is currently available.............. 0.00% -28.96%
------------ -----------
0.00% 0.00%
============ ===========
At December 31, 2007, deferred tax assets consisted of a net tax asset of
$196,177 due to operating loss carryforwards of $529,410 which was fully allowed
for, in the valuation allowance of $196,177. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The change
in the valuation allowance for the year ended December 31, 2007 totaled
$149,078. The net operating loss carryforward expires through the year 2027.
At December 31, 2006, deferred tax assets consisted of a net tax asset of
$47,099 due to operating loss carryforwards of $180,912 which was fully allowed
for, in the valuation allowance of $47,099. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The change
in the valuation allowance for the year ended December 31, 2006 totaled $45,536.
The net operating loss carryforward expires through the year 2026.
The valuation allowance is evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.
(7) Concentration of Credit Risk
We have concentrated our credit risk for cash by maintaining deposits in
financial institutions, which may at times, exceed the amounts covered by
insurance provided by the United States Federal Deposit Insurance Corporation
F-13
TOMBSTONE CARDS, INC.
Notes to Financial Statements
(FDIC). The loss that would have resulted from that risk totaled $304,489 at
December 31, 2007, for the excess of the deposit liabilities reported by the
financial institution over the amount that would have been covered by federal
insurance. We have not experienced any losses in such accounts and believe we
are not exposed to any significant credit risk to cash.
SIGNATURES
In accordance with the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOMBSTONE CARDS, INC.
Date: March 25, 2008 By: /s/ JOHN N. HARRIS
-------------------
John N. Harris,
President
Date: March 25, 2008 By: /s/NEIL A. COX
--------------
Neil A. Cox,
Chief Financial Officer
In accordance with the Securities Exchange Act of 1924, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: April 2, 2008 By: /s/JOHN N. HARRIS
------------------
John N. Harris,
President & Director
Date: April 2, 2008 By: /s/NEIL A. COX
--------------
Neil A. Cox,
Chief Financial Officer &
Chairman of the Board
Date: April 2, 2008 By: /s/WILLIAM R. REILLY
--------------------
William R. Reilly,
Chief Operating Officer, Chief
Technical Officer & Director
24