UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 000-53268
TOMBSTONE TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 51-0541963
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
5380 Highlands Dr., Longmont, CO 80503
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 684-6644
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
registered on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark 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 whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes |_| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
|_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_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 aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $3,628,930 as of March 25, 2010.
There were 4,878,000 shares outstanding of the registrant's Common Stock as of
March 25, 2010.
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TABLE OF CONTENTS
PART I
ITEM 1 Business 4
ITEM 1 A. Risk Factors 7
ITEM 1 B. Unresolved Staff Comments 14
ITEM 2 Properties 14
ITEM 3 Legal Proceedings 14
ITEM 4 Removed and Reserved 14
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities 15
ITEM 6 Selected Financial Data 16
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations 17
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8 Financial Statements and Supplementary Data 21
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial 22
Disclosure
ITEM 9 A. Controls and Procedures 22
ITEM 9 A(T). Controls and Procedures
ITEM 9B Other Information 23
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 23
ITEM 11 Executive Compensation 26
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 29
ITEM 13 Certain Relationships and Related Transactions, and Director Independence 31
ITEM 14 Principal Accounting Fees and Services 32
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 32
3
FORWARD LOOKING STATEMENTS
This document includes forward-looking statements, including, without
limitation, statements relating to Tombstone Technologies, Inc. ("Tombstone")
plans, strategies, objectives, expectations, intentions and adequacy of
resources. These forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause Tombstone's actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. These factors include, among others, the following: ability of
Tombstone's to implement its business strategy; ability to obtain additional
financing; Tombstone's limited operating history; unknown liabilities associated
with future acquisitions; ability to manage growth; significant competition;
ability to attract and retain talented employees; and future government
regulations; and other factors described in this registration statement or in
other of Tombstone's filings with the Securities and Exchange Commission.
Tombstone is under no obligation, to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
PART I
ITEM 1. BUSINESS
Tombstone Technologies, Inc. ("Tombstone" or "the Company")
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On April 29, 2005, Tombstone Cards, Inc. was incorporated in the State of
Colorado. The Company was organized to develop a business around the business of
printing customized playing cards. Management believed that by working with
state-of-the-art printers that fully utilize digital technologies, that they
could reduce cycle times for full-color customized printing from a standard
three to five weeks to just three to five days. In addition, they believed that
digital presses could allow product runs in small quantities and at lower
prices.
On July 31, 2008, Tombstone Cards, Inc. amended its Articles of Incorporation
for the change of its corporate name to Tombstone Technologies, Inc.
("Tombstone" or "the Company") as approved at the Annual Shareholders' Meeting
on July 24, 2008.
Tombstone is located at 5380 Highlands Dr., Longmont, Colorado 80503. The
Company maintains a website at www.tombstonetechnologies.com, which is not
incorporated in and is not a part of this report.
On January 19, 2010, Tombstone entered into an Agreement and Plan of Merger with
Hunt Global Resources, Inc. and Hunt Acquisition Corp. Hunt Global Resources,
Inc. (Hunt) is a Houston-based company focused on the use of new technologies to
maximize the value of its natural resources projects.
The transaction is structured in the form of a reverse merger wherein Hunt
shareholders will receive in excess of 90% of Tombstone Technologies, Inc. when
the transaction is complete. The completion of the transaction is dependent upon
the deliverance of audited financial statements of Hunt.
The transaction contemplates the issuance of shares as follows:
A) 29,000,000 shares of Common Stock of Tombstone;
B) 125,000 Class A Preferred Convertible Shares (having a conversion
ratio of one preferred to 208 common Tombstone shares and subject to
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the common stock of the Tombstone having traded at an average bid
price of $3.00 for ten consecutive trading days); and
C) 125,000 Class B Convertible Preferred Shares (having a conversion
ratio of one preferred for 248 common Tombstone shares and subject to
the common stock of Tombstone having traded at an average bid price of
$7.00 for ten consecutive trading days).
Current Operations
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The Company has had limited operations over the last two years. Those operations
have focused on the structure and capital formation of the Company, as Tombstone
operations have focused on the development of its proprietary OIEPrint(TM)
software, a Web-2-Print (W2P) template driven application. Web-2-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.
The Company discovered difficulties which are inherent in constructing a tool
that requires no downloading, can function on Macs, PCs and even Linux based
machines and that can provide high-resolution graphics that are suitable for
printing. For example, while graphics on the Web can appear clear, they are only
72 dpi (dots per inch) and, therefore, would appear fuzzy when printed. Print
graphics must be 300 dpi for full clarity.
The combination of the Web and the still-unrealized changes that are being
brought by the explosion of professional digital printing is part of what the
print industry calls "Web-2-Print" (W2P). Because digital printing does not
require specialized inks, color separations and individual printing plates,
standard PDF files can move from the desktop to the print head without
intervention. This means that the digital print industry is no longer restricted
by the size of the job. For example, while it may not be profitable (or even
possible) to create small runs on a traditional press, digital printing not only
permits it, it encourages it.
In addition, end-users are now accustomed to being able to handle many of their
business and personal tasks online: from browsing and ordering to getting
customizable quotes, managing their accounts and making payments. However,
because of the complexity of creating print orders online due to the number of
unique options involved, along with the expense involved in creating and/or
maintaining a Web-based system, the print industry has been, for the most part,
unable to fully enter this world.
In connection with the development of the OIEPrint(TM) software, on December 27,
2007, the Company 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.
OIEPrint(TM) 3.0 Software
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OIEPrint software is a W2P 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 Tombstone's website at www.tombstonetechnologies.com.
The Company offers its OIEPrint software product through the Internet. The
software has been developed to be used with several platforms. Tombstone intends
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.
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Tombstone will offer the following products:
o OIEPrint - A platform independent, browser-based RIA that supports
template driven design and provides high-resolution PDF files to the
printer.
o OIEPrint Store - An advanced e-commerce solution that supports
multiple customization options (e.g. paper color, paper weight, paper
finish, collating, binding, shipping, etc.) and dependent variables
(e.g. If you choose "A," you cannot choose "B" but can choose "C")
o OIEPrint VDP (2010) - An easy-to-use tool for linking database mining
with custom printing and 1:1 marketing.
The Company is offering a fully hosted solution for a monthly fee. Tombstone
believes, and research underscores this belief, that printers do not have the
in-house staffing to support the complexity inherent in a Web-based system.
Added to that the database requirements (all products have database back-ends
for data storage) and the ongoing maintenance, and it becomes clear that a
hosted solution, properly priced, becomes quite attractive. Customization and
implementation fees are also anticipated.
Tombstone's technology has been successfully employed since July 2007 on the
prior Tombstone Cards' website, allowing customers to design and order full
color custom playing cards.
During this "proof of concept" period, the Company worked with the actual
printing processes involved in digital printing, as well as verifying order and
inventory systems, the OIEPrint Web design tool, the ecommerce system,
independent credit verification systems and direct links to shipping providers.
Competition
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Tombstone's competition includes:
o Electronics For Imaging, Inc. (EFI)
o Firesprint
o Print Science; and
o Print Via.
All four of these companies offer services for printing similar to the ones
offered by the Company. Tombstone is the only one to offer an integrated design
system and therefore allows the customer to design the document through their
software.
Sales Strategy
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Tombstone's products will be available through the Company, via an outbound
sales staff that utilizes Web-based demos and Web-video in order to engage
customers.
The Company is a member of the Print On Demand Initiative (PODi) and will
attempt to publish articles and deliver keynotes in order to gain "top of mind"
positioning among potential clients.
Tombstone is considering setting up independent, commission only sales
affiliates, based on a regional distribution. Because the OIEPrint Suite has
been developed to handle languages from around the world, overseas partnerships
are also a possibility.
6
The Company has identified three key market segments for its initial product
line:
o Regional chains of print shops that want to offer cutting-edge,
Web-based solutions to their franchises.
o Small and medium sized digital printers who want to offer Web-based
solutions to their clients.
o Medium and large printers who want to offer customized features to
their corporate clients, allowing them to more easily manage their
accounts and purchasing via a Web interface.
Production and Delivery
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Production will be provided through in-house capabilities. Tombstone owns its
own servers and can easily "clone" the software package for new clients.
The Company anticipates hiring and training recent college graduates for the job
of working with clients during the consultation stage, gathering information
about the clients and their product offerings in order to populate the client's
e-commerce store.
At this time, Tombstone expects that it will hold no inventory.
ITEM 1A. RISK FACTORS
TOMBSTONE'S COMPANY RISK FACTORS
Tombstone's securities are highly speculative and should be purchased only by
persons who can afford to lose their entire investment in the Company. Each
prospective investor should carefully consider the following risk factors, as
well as all other information set forth elsewhere in this Annual Report, before
purchasing any of the Shares of Tombstone's Common Stock.
Tombstone was incorporated in 2005 and has had a limited operating history.
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Tombstone has 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 Web 2 Print business,
especially in view of the intense competition from existing businesses in the
industry.
A decline in on-line printing may adversely affect Tombstone's business.
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If on-line printing declines in activity, there is significant risk that the
operations of Tombstone 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 and changes in
printing habits,
Tombstone's Weaknesses may affect Tombstone's ability to sell, compete and
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generate revenues.
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o Because of Tombstone's position as a startup, Tombstone is not a
household name among prospective customers, and the cost to raise the
Company 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 cause delays in
Tombstone's continued operations.
7
Any of these could cause Tombstone's revenue model to be unprofitable and cause
failure of Tombstone's business.
Tombstone has identified potential threats to Tombstone's business model.
o A significant downturn in the American economy would reduce the amount
of disposable income available to Tombstone's target audience.
o Other competitors could move quickly to match Tombstone's performance
by offering similar products and design amenities, forcing the Company
to invest more than expected in product development.
o Too much success too quickly could overwhelm Tombstone's 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 Tombstone's revenue model to be unprofitable and cause
failure of Tombstone's business.
Tombstone may have a shortage of working capital in the future which could
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jeopardize Tombstone's ability to carry out Tombstone's business plan.
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Tombstone's capital needs consist primarily of rent, insurance, utilities,
marketing expenses, wages, taxes, etc. and could exceed $500,000 in the next
twelve months. Such funds are not currently committed, and Tombstone has cash as
of the date of this Annual Report of approximately $5,189.
Tombstone's officers and Directors may have conflicts of interest which may not
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be resolved favorably to the Company.
------------------------------------
Certain conflicts of interest may exist between the Company and Tombstone's
officers and directors. Tombstone's 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 Tombstone's 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 the Company.
Tombstone will need additional financing for which Tombstone has no commitments
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and this may jeopardize execution of Tombstone's business plan.
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Tombstone has limited funds, and such funds may not be adequate to carryout the
business plan. Tombstone's ultimate success depends upon Tombstone's ability to
raise additional capital. Tombstone has 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 it needs
additional capital, Tombstone has no assurance that funds will be available from
any source or, if available, that they can be obtained on terms acceptable to
the Company. If not available, Tombstone's operations will be limited to those
that can be financed with Tombstone's modest capital.
Tombstone can make no assurance of success or profitability in the future.
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There is no assurance that Tombstone will ever operate profitably. There is no
assurance that Tombstone will generate revenues or profits in the future, or
that the market price of Tombstone's Common Stock will be increased thereby.
8
Tombstone will depend upon Management but Tombstone will have limited
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participation of management.
---------------------------
Tombstone currently has three individuals who are serving as Tombstone's
officers and directors for up to 50 hours per week each on a part-time basis.
Tombstone's directors are also acting as Tombstone's officers. Tombstone will be
heavily dependent upon their skills, talents, and abilities, as well as several
consultants to us, to implement its 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 Tombstone's business results in a delay in progress
toward implementing Tombstone's business plan. See "Management." Because
investors will not be able to manage Tombstone's business, they should
critically assess the information concerning Tombstone's officers and directors.
Tombstone's Officers and Directors are not employed full-time by the Company
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which could be detrimental to the business.
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Tombstone's 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 including time and efforts involved in participation with such other
business entities. Each officer and director of Tombstone's business is engaged
in business activities outside of Tombstone's business, and the amount of time
they devote as Officers and Directors to Tombstone's business will be up to 50
hours per week. (See "Executive Team")
Tombstone does not know of any reason other than outside business interests that
would prevent them from devoting full-time to Tombstone, when the business may
demand such full-time.
Tombstone's Officers and Directors may have Conflicts of Interests to Corporate
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Opportunities which Tombstone's Company may not be able or allowed to
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participate in.
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Presently no requirement contained in Tombstone's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of Tombstone's business
to disclose to the Company business opportunities which come to their attention.
Tombstone's officers and directors do, however, have a fiduciary duty of loyalty
to the Company to disclose to the Company 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. Tombstone
has no intention of merging with or acquiring an affiliate, associate person or
business opportunity from any affiliate or any client of any such person.
Tombstone has agreed to indemnification of Officers and Directors as is provided
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by Colorado Statute.
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Colorado Revised Statutes provide for the indemnification of Tombstone's
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
Tombstone's behalf. Tombstone will also bear the expenses of such litigation for
any of Tombstone's directors, officers, employees, or agents, upon such person's
promise to repay the Company 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 the Company
that Tombstone will be unable to recoup.
Tombstone's Director's Liability to the Company and Shareholders is limited.
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Colorado Revised Statutes exclude personal liability of Tombstone's directors
and Tombstone's stockholders for monetary damages for breach of fiduciary duty
except in certain specified circumstances. Accordingly, Tombstone will have a
9
much more limited right of action against Tombstone's directors than otherwise
would be the case. This provision does not affect the liability of any director
under federal or applicable state securities laws.
Tombstone may depend upon Outside Advisors, who may not be available on
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reasonable terms and as needed.
------------------------------
To supplement the business experience of Tombstone's officers and directors, the
Company may be required to employ accountants, technical experts, appraisers,
attorneys, or other consultants or advisors. Tombstone's 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 Tombstone considers it necessary to hire outside advisors, Tombstone may
elect to hire persons who are affiliates, if they are able to provide the
required services.
Tombstone has substantial competitors who have an advantage over the Company in
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resources and marketing.
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Tombstone 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. Tombstone expects to be at a disadvantage when
competing with many firms that have substantially greater financial and
management resources and capabilities than Tombstone does now.
RISK FACTORS RELATED TO TOMBSTONE'S ON-LINE PRINTING OPERATIONS
Actual or perceived security vulnerabilities in Tombstone's product could
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adversely affect its revenues.
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Maintaining the security of Tombstone's software is an issue of critical
importance to customers and for management. There are individuals and groups who
develop and deploy viruses, worms and other malicious software programs that
could attack its products. Although, the Company takes preventative measures to
protect its products, these procedures may not be sufficient to mitigate damage
to products. Actual or perceived security vulnerabilities in software products
could lead some customers to seek to return products, to reduce or delay future
purchases or to purchase competitive products. Customers may also increase their
expenditures on protecting their computer systems from attack, which could delay
or reduce purchases of Tombstone's product. Any of these actions or responses by
customers could adversely affect its revenues.
System failures or system unavailability could harm Tombstone's business.
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Tombstone relies on its network infrastructure, internal technology systems and
external websites for development, marketing, operational, support and sales
activities. Tombstone's hardware and software systems related to such activities
are subject to damage from malicious code released into the public Internet
through recently discovered vulnerabilities in popular software programs. These
systems are also subject to acts of vandalism and to potential disruption by
actions or inactions of third parties. Any event that causes failures or
interruption in hardware or software systems could harm the Company's business,
financial condition and operating results.
Purchasers of products and services, may not choose to shop online, which would
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prevent us from acquiring new customers which are necessary to the success of
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its business.
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The online market for print products and services is less developed than the
online market for other business and consumer products. If this market does not
gain widespread acceptance, Tombstone's business may suffer. The Company's
success will depend in part on Tombstone's ability to attract customers who have
historically purchased printed products and graphic design services through
traditional printing operations and graphic design businesses or who have
10
produced graphic design and printed products using self-service alternatives.
Furthermore, Tombstone may have to incur significantly higher and more sustained
advertising and promotional expenditures or price its services and products more
competitively than we currently anticipate, in order to attract additional
online consumers to the websites and convert them into purchasing customers.
Specific factors that could prevent prospective customers from purchasing from
Tombstone include:
- Concerns about buying graphic design services and printed products
without face-to-face interaction with sales personnel;
- The inability to physically handle and examine product samples;
- Delivery time associated with Internet orders;
- Concerns about security of online transactions and the privacy of
personal information;
- Delayed shipments or shipments or incorrect or damaged products; and
- Inconvenience associated with returning or exchanging purchased items.
Interruptions to website operations, information technology systems, production
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processes or customer service operations as a result of natural disasters,
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errors in technology, capacity constraints, security breaches or other causes
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could damage Tombstone's reputation and brand and substantially harm the
--------------------------------------------------------------------------------
Company's business and results of operations.
--------------------------------------------
The satisfactory performance, reliability and availability of the Company's
websites, transaction processing systems, network infrastructure, printing
production facilities and customer service operations are critical to its
reputation, and the Company's ability to attract and retain customers and to
maintain adequate customer service levels. Any future interruptions that result
in the unavailability of the Company's websites reduced order fulfillment
performance or interfere with customer service operations could result in
negative publicity, damage Tombstone's reputation and brand and cause its
business and results of operations to suffer. Tombstone may experience temporary
interruptions in operations for a variety of reasons in the future, including
human error, software errors, power loss, telecommunication failures, fire,
flood, extreme weather, political instability, acts of terrorism, war, break-ins
and security breaches, and other events beyond its control.
The Company's technology, infrastructure and processes may contain undetected
errors or design faults. These errors or design faults may cause the websites to
fail and result in loss of, or delay in, market acceptance of its products and
services. In the future, the Company may encounter additional issues, such as
scalability limitations, in current or future technology releases. A delay in
the commercial release of any future version of the technology or implementing
improvements in infrastructure and processes could seriously harm its business.
In addition, Tombstone's systems could suffer computer viruses and similar
disruptions, which could lead to loss of critical data or the unauthorized
disclosure of confidential customer data.
Tombstone's business requires that it have adequate capacity in its computer
systems to cope with the high volume of visits to websites, particularly during
promotional campaign periods. As the Company's operations grow in size and
scope, it will need to improve and upgrade its computer systems and network
infrastructure to offer customers enhanced and new products, services, capacity,
features and functionality. The expansion of the Company's systems and
infrastructure may require it to commit substantial financial, operational and
technical resources before the volume of the business increases, with no
assurance that the Company's revenues will increase.
11
If Tombstone is unable to market and sell products and services beyond it's
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existing target markets and develop new products and services to attract new
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customers, its results of operations may suffer.
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Tombstone has developed products and services and implemented marketing
strategies designed to attract small business owners and consumers to the
websites and encourage them to purchase its products and services. Management
believes it will need to address additional markets and attract new customers to
further grow the business. To access new markets and customers management
expects that it will need to develop, market and sell new products and
additional services that address their needs. Tombstone intends to focus on
developing new strategic relationships to expand marketing and sales channels.
Any failure to develop new products and services, expand the Company's business
beyond its existing target markets and customers, and address additional market
opportunities could harm the business, financial condition and results of
operations of the Company.
RISK FACTORS RELATED TO TOMBSTONE'S STOCK
The regulation of penny stocks by SEC and FINRA may discourage the tradability
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of Tombstone's Securities.
-------------------------
Tombstone is a "penny stock" company. Tombstone's securities currently trade on
the Over-the Counter Bulletin Board under the symbol "TMCI." There is a limited
public market for Tombstone's Common Stock. Tombstone's Securities 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 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 Tombstone's securities constitute "penny
stocks" within the meaning of the rules, the rules would apply to the Company
and to Tombstone's securities. The rules will further affect the ability of
owners of Shares to sell Tombstone's 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.
Tombstone's management is aware of the abuses that have occurred historically in
12
the penny stock market. Although Tombstone does 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
Tombstone's securities.
Tombstone will pay no foreseeable dividends in the future.
---------------------------------------------------------
Tombstone has not paid dividends on its Common Stock and does not ever
anticipate paying such dividends in the foreseeable future.
Loss of control by Tombstone's present management and stockholders may occur
--------------------------------------------------------------------------------
upon issuance of additional Shares.
----------------------------------
Tombstone may issue further Shares as consideration for the cash or assets or
services out of its authorized but unissued Common Stock that would, upon
issuance, represent a majority of Tombstone's voting power and equity. The
result of such an issuance would be those new stockholders and management would
control us, and persons unknown could replace Tombstone's management at this
time. Such an occurrence would result in a greatly reduced percentage of
ownership of the Company by Tombstone's current Shareholders.
A limited public market exists for Tombstone's Common Stock.
-----------------------------------------------------------
Tombstone's Common Stock trades on the Over-the Counter Bulletin Board under the
symbol "TMCI." There is a limited public market for Tombstone's Common Stock and
no assurance can be given that this market will continue to develop or that a
Shareholder ever will be able to liquidate their investment without considerable
delay, if at all. If the market continues to 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 securities. Due to the low
price of Tombstone's securities, many brokerage firms may not be willing to
effect transactions in Tombstone's securities. Even if a purchaser finds a
broker willing to effect a transaction in Tombstone's securities, 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 such securities as collateral for any
loans.
Rule 144 sales in the future may have a depressive effect on Tombstone's stock
--------------------------------------------------------------------------------
price.
-----
All of the outstanding Shares of Common Stock held by Tombstone's 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. 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. 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.
Future dilution may occur due to issuances of Shares for various considerations
--------------------------------------------------------------------------------
in the future.
-------------
There may be substantial dilution to Tombstone's Shareholders as a result of
future decisions of the Board to issue Shares without Shareholder approval for
cash, services, acquisitions, or pursuant to Tombstone's Employee/Consultant
Stock Option Plan for which 1,500,000 shares have been reserved.
Award/Earnings/Vesting criteria under the Plan have not been set. Currently,
there are 1,029,999 Options outstanding under the Plan.
13
In addition, the Company has warrants exercisable for 660,000 shares of its
common stock at $0.55 to $0.60 per share. If all of the outstanding options and
warrants were exercised, the Company would have issued 1,689,999 shares of its
common stock to the holders of its options and warrants.
No Assurance of Public Market for any of Tombstone's Securities.
---------------------------------------------------------------
There is presently a limited market for any of Tombstone's securities and there
can be no assurance a larger market will develop or that holders will be able to
resell their Common Stock at the public offering price or without delay. Should
a larger market for Tombstone's 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 the Common Stock
and banks may not accept them as collateral for loans.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
Tombstone does not own any property, real or otherwise. For the first year and
currently, the Company conducted administrative affairs from the office located
in the home of the Company's Chairman and CFO, Neil A. Cox, at no cost.
Tombstone's current office address is 5380 Highlands Dr., Longmont, Colorado
80503. During the year ended December 31, 2009, the Company moved from its
offices located at 2400 Central Ave., Suite G, Boulder, CO 80301 to its current
location. Prior to the move, the Company rented its office space for
approximately $965 per month, on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
Tombstone anticipates that it (including any future subsidiaries) will from time
to time become subject to claims and legal proceedings arising in the ordinary
course of business. It is not feasible to predict the outcome of any such
proceedings and Tombstone cannot assure that their ultimate disposition will not
have a materially adverse effect on Tombstone's business, financial condition,
cash flows or results of operations. There are no such claims or legal
proceedings as of December 31, 2009.
ITEM 4. REMOVED AND RESERVED
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Tombstone's Common Stock is presently traded on the over-the-counter market on
the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority
("FINRA"). The Company's stock currently trades on the OTC Bulletin Board under
the symbol "TMCI." During the years ended December 31, 2009 and 2008,
Tombstone's common stock had limited trading as shown in the table below.
HIGH LOW
For the quarter ended December 31, 2009 $0.90 $0.30
For the quarter ended September 30, 2009 $0.30 $0.06
For the quarter ended June 30, 2009 $0.30 $0.20
For the quarter ended March 31, 2009 $0.65 $0.27
For the quarter ended December 31, 2008 $0.65 $0.65
For the quarter ended September 30, 2008 $0.55 $0.55
For the quarter ended June 30, 2008 $1.05 $1.05
For the quarter ended March 31, 2008 $0.90 $0.85
In addition to Tombstone's common stock, in October 2007, the Company began
trading its Units on the OTC Bulletin Board. A Unit consists of 1 share of
Tombstone common stock, 1 of the Company's "A" Warrants and 1 of the Company's
"B" Warrants. The Units trade on the OTC Bulletin Board under the symbol
"TMCIU." During the years ended December 31, 2009 and 2008, the Company's Units
did not trade. During the year ended December 31, 2009, the Company's "A"
Warrants and "B" Warrants expired.
Holders
There are approximately 60 holders of record of Tombstone common stock as of
December 31, 2009.
Dividend Policy
As of the filing of this Annual Report, Tombstone has not paid any dividends to
Shareholders. There are no restrictions which would limit the Company's ability
to pay dividends on common equity or that are likely to do so in the future. The
Colorado Revised Statutes, however, do prohibit Tombstone from declaring
dividends where, after giving effect to the distribution of the dividend; the
Company would not be able to pay its debts as they become due in the usual
course of business; or its 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.
15
Recent Sales of Unregistered Securities
Tombstone made the following unregistered issuances of its securities from
January 1, 2009 through December 31, 2009.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
---------------------- --------------------- ----------------- ---------------------- ---------------------
3/3/2009 Common Stock 140,000 Software Development Business Associate
6/30/2009 Common Stock 180,000 $18,000 in Neil Cox
6/30/2009 Common Stock 180,000 $18,000 in John Harris
6/30/2009 Common Stock 116,170 $11,617 in Michael Willis
6/30/09 Option 55,000 Services Michael Willis
6/30/09 Option 16,666 Services Business Associate
6/30/09 Option 58,333 Services Business Associate
9/30/09 Common Stock 25,000 Payment on Software Business Associates
9/30/090 Common Stock 6,830 Services Michael Willis
Exemption From Registration Claimed
-----------------------------------
All of the sales by Tombstone of its unregistered securities were made in
reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). The entity listed above that purchased the unregistered securities was an
existing shareholder, known to the Company and its management, through
pre-existing business relationships, as a long standing business associate. The
entity was provided access to all material information, which it requested, and
all information necessary to verify such information and was afforded access to
Tombstone's management in connection with the purchases. The purchaser of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to provide an analysis of Tombstone's
financial condition and should be read in conjunction with Tombstone's financial
statements and the notes thereto set forth herein. The matters discussed in
these sections that are not historical or current facts deal with potential
future circumstances and developments. Tombstone's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed
below.
Plan of Operations
At December 31, 2009, Tombstone had cash on hand of $7,439. The Company intends
to use its cash funds to continue operations. Those operations have focused on
the structure and capital formation of the Company, as Tombstone operations have
focused on the development of its proprietary OIEPrint(TM) software, a
Web-2-Print (W2P) template driven application. Web-2-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. The development of the business
opportunities includes continued marketing efforts and product testing over the
next twelve months.
We are currently offering the following products to local printers:
o OIEPrint - a platform independent, browser-based RIA that supports
template driven design and provides high-resolution PDF files to the
printer.
o OIEPrint Store - an advanced e-commerce solution that supports
multiple customization options (e.g. paper color, paper weight, paper
finish, collating, binding, shipping, etc.) and dependent variables
(e.g. If you choose "A," you cannot choose "B" but can choose "C")
o OIEPrint VDP - an easy-to-use tool for linking database mining with
custom printing and 1:1 marketing.
Over the next twelve months the Company intends to develop a third software
product, OIEPrint VDP, a tool for linking database mining with custom printing
and 1:1 marketing and release it for sales.
During the year ended December 31, 2009, we raised $100,000 in Convertible Notes
that will mature after one year. Payments of interest at the rate of 8.0% per
annum will be accrued and paid each quarter to each investor beginning June 30,
2009. During the year ended December 31, 2009, we paid interest of $4,744. The
investor also has the option, based on their conversion terms, to convert to
restricted shares of common stock at $0.10 per share with immediate
convertibility (i.e. $2,500 = 25,000 shares.) In February 2010, all of the
investors of the $100,000 Convertible Promissory Notes elected to convert their
promissory notes into shares of the Company's common stock. The Company issued
1,000,000 shares of its restricted common stock upon the conversion of $100,000
in principal.
On January 19, 2010, Tombstone entered into an Agreement and Plan of Merger with
Hunt Global Resources, Inc. and Hunt Acquisition Corp. Hunt Global Resources,
Inc. (Hunt) is a Houston-based company focused on the use of new technologies to
maximize the value of its natural resources projects.
The transaction is structured in the form of a reverse merger wherein Hunt
shareholders will receive in excess of 90% of Tombstone Technologies, Inc. when
the transaction is complete. The completion of the transaction is dependent upon
17
the deliverance of audited financial statements of Hunt. At the time of this
filing, the transaction has not closed nor have audited financial statements
been received.
The transaction contemplates the issuance of shares as follows:
A) 29,000,000 shares of Common Stock of Tombstone;
B) 125,000 Class A Preferred Convertible Shares (having a conversion
ratio of one preferred to 208 common Tombstone shares and subject to
the common stock of the Tombstone having traded at an average bid
price of $3.00 for ten consecutive trading days); and
C) 125,000 Class B Convertible Preferred Shares (having a conversion
ratio of one preferred for 248 common Tombstone shares and subject to
the common stock of Tombstone having traded at an average bid price of
$7.00 for ten consecutive trading days).
In the continuance of Tombstone's business operations it does not intend to
purchase or sell any significant assets and the Company does not expect a
significant change in the number of its employees.
The Company is dependent on raising additional equity and/or, debt to fund any
negotiated settlements with its outstanding creditors and meet the Company's
ongoing operating expenses. There is no assurance that Tombstone will be able to
raise the necessary equity and/or debt that it will need to be able to negotiate
acceptable settlements with its outstanding creditors or fund its ongoing
operating expenses. Tombstone cannot make any assurances that it will be able to
raise funds through such activities.
RESULTS OF OPERATIONS
For The Year Ended December 31, 2009 Compared to the Year Ended December 31,
2008
During the year ended December 31, 2008, Tombstone did not recognize any
revenues from its continuing operations. During the year ended December 31,
2009, Tombstone recognized revenues of $1,508 from its operations. In connection
with the $1,508 revenues, Tombstone recognized cost of sales of $1,120 with a
gross profit of $388 for the year ended December 31, 2009.
During the year ended December 31, 2009, Tombstone incurred selling and general
and administrative expenses of $197,654 compared to $323,760 during the year
ended December 31, 2008. The decrease of $126,106 was due in part to the
Company's decreased operational activities compared to the prior period. During
the year ended December 31, 2009, the selling and general and administrative
expenses consisted of $78,983 in stock compensation expenses, $11,912 in
depreciation expenses and $18,530 in amortization expenses. During the year
ended December 31, 2008, selling and general and administrative expenses
included $52,862 in stock compensation expenses, $23,441 accounting and $144,037
payroll expense.
During year ended December 31, 2009, Tombstone recognized a total interest
expense of $103,533, which consists of $98,333 in expense recognized as a result
of the beneficial conversion feature (the difference between the conversion
price and the quoted stock price on the date of commitment) in connection with
the $100,000 in convertible promissory notes issued during the year ended
December 31, 2009.
The Company recognized an impairment loss on assets of $484 during the year
ended December 31, 2009. The impairment loss was recognized in connection with
the write-off of abandoned provisional patents.
18
For the year ended December 31, 2009, the Company incurred a net loss of
$301,278 compared to a net loss of $380,089 for the year ended December 31,
2008. The decrease of $78,811 in net loss was due to the $126,494 decrease in
operational loss offset by the $107,417 increase of other expenses, resulting
mainly from the $103,045 increase of interest expense, as discussed above, as
well as the $59,734 decrease of loss from discontinued operations."
For the year ended December 31, 2009, Tombstone recognized a net loss per share
of $0.09 compared to a net loss per share of $0.12 per share during the year
ended December 31, 2008.
Liquidity and Capital Resources For the Year Ended December 31, 2009
At December 31, 2009, Tombstone had total current assets of $7,439 consisting
solely of cash and cash equivalents, and current liabilities of $107,492. At
December 31, 2009, current liabilities exceed current assets by $100,053.
Net cash used in operating activities during the year ended December 31, 2009
was $87,272, compared to net cash used in operating activities during the year
ended December 31, 2008 of $252,007. During the year ended December 31, 2009,
the net cash used represented a net loss of $301,278, was adjusted for certain
non-cash items consisting of stock based compensation of $78,983, interest
expense of $98,333 as a result of the beneficial conversion feature of the
$100,000 in convertible promissory notes, $11,912 in depreciation expense,
$18,530 in amortization expense and a $484 loss on the write off of certain
assets. During the year ended December 31, 2009, there was a $383 decrease in
accounts receivable, a $1,854 decrease in prepaid expenses and a $3,527 increase
in accounts payable.
During the year ended December 31, 2008, the net cash used represented a net
loss of $380,089, was adjusted for certain non-cash items consisting of stock
based compensation of $52,862 and depreciation expense of $10,237. During the
year ended December 31, 2008, there was an $8,837 decrease in accounts
receivable, a $360 increase in prepaid expenses and a $38,681 increase in
accounts payable.
During the year ended December 31, 2009, the Company used $14,857 in the
completion of the purchase of its software.
During the year ended December 31, 2008, the Company used $47,080 in its
investing activities. Investing activities during the year ended December 31,
2008, included $6,750 for property and equipment, $484 of patent application
costs and $39,846 in the purchase of software.
During the year ended December 31, 2009, the Company was provided $97,686 from
its financing activities. During the year ended December 31, 2009, the Company
made payments of the $2,314 on its capital lease. During the year ended December
31, 2008, the Company used $2,529 in its financing activities consisting solely
of payments on its capital lease.
During the year ended December 31, 2009, the Company issued Convertible
Promissory Notes payable to unrelated third parties totaling $100,000 with
interest accruing at 8% per annum (paid quarterly) maturing twelve months from
date of issuance. The notes were immediately convertible to restricted shares of
common stock at $0.10 per share.
A beneficial conversion feature (difference between conversion price and the
quoted stock price on the date of commitment) embedded in the convertible
promissory notes was measured at $100,000 and recorded as a debt discount on the
transaction date. As of December 31, 2009, $98,333 of the discount was amortized
to interest expense, leaving an unamortized discount of $1,667 at December 31,
2009.
19
In January 2010, all of the holders of the outstanding Convertible Promissory
Notes gave conversion notice to the Company that they would convert their notes
into shares of the Company's common stock. The conversion of the Convertible
Promissory Notes resulted in the issuance of 1,000,000 shares of Company's
common stock to the convertible promissory note holders of such notes as of
January 15, 2010. After the conversion of such Convertible Promissory Notes the
Company does not have any Convertible Promissory Notes outstanding.
The Company was indebted to two officers for accrued but unpaid compensation
totaling $36,000 at December 31, 2008. During the year ended December 31, 2009,
the Company issued to two officers a total of 360,000 shares of common stock in
lieu of the accrued salaries. The fair value of the common stock on the
transaction date was $0.10 per share. As a result, the Company recorded $36,000
against the accrued salaries and $36,000 as stock based compensation.
During the year ended December 31, 2009, the Company issued a former officer a
total of 123,000 shares of common stock in lieu of salaries valued at $12,300
($0.20 per share), based on the fair value of the common stock on the
transaction date.
On March 3, 2009, Tombstone issued 140,000 shares of restricted common stock of
Tombstone to InDis Baltic in accordance with an agreement to develop the
OIEPrint software and recorded it as a deferred charge. On June 30, 2009,
Tombstone recorded half of the final payment $5,000 for OIEPrint, which is a
deferred charge in the accompanying financial statements. On July 6, 2009,
Tombstone issued 25,000 shares of common stocks to InDis Baltic as the other
half of the final payment in an agreement signed on July 6, 2009.
During the second quarter of 2009, we granted to two consultants and one
officer, options to purchase 129,999 shares of our common stock at an exercise
price of $0.10 to $0.20 per share, in exchange for services. The option to
purchase 129,999 shares of our common stock vested immediately on the grant date
in April and their terms have been extended until August, 2012. Our Board of
Directors valued our common stock at $0.20 and $0.26 per share on the grant
date. We, utilizing appropriate option pricing software, estimated the fair
value of the options at $0.05 to $0.26 per share for an aggregate grant-date
fair value of $8,009. We recorded stock-based compensation in the accompanying
financial statements for the year ended December 31, 2009.
The Company is dependent on raising additional equity and/or, debt to fund any
negotiated settlements with its outstanding creditors and meet the Company's
ongoing operating expenses. There is no assurance that Tombstone will be able to
raise the necessary equity and/or debt that it will need to be able to negotiate
acceptable settlements with its outstanding creditors or fund its ongoing
operating expenses. Tombstone cannot make any assurances that it will be able to
raise funds through such activities.
Going Concern
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2009 and 2008 includes a "going concern"
explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern.
Tombstone is dependent on raising additional equity and/or, debt to fund any
negotiated settlements with its outstanding creditors and meet its ongoing
operating expenses. There is no assurance that the Company will be able to raise
the necessary equity and/or debt that Tombstone will need to be able to
negotiate acceptable settlements with its outstanding creditors or fund its
ongoing operating expenses. Tombstone cannot make any assurances that the
Company will be able to raise funds through such activities.
20
Critical Accounting Policies
Tombstone has identified the policies below as critical to its business
operations and the understanding of Tombstone's results from operations. The
impact and any associated risks related to these policies on the Company's
business operations is discussed throughout Management's Discussion and Analysis
of Financial Conditions and Results of Operations where such policies affect
Tombstone's reported and expected financial results. For a detailed discussion
on the application of these and other accounting policies, see Note 1 in the
Notes to the Consolidated Financial Statements beginning on page F-7 for the
years ended December 31, 2009 and 2008. Note that Tombstone's preparation of
this document requires Tombstone to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of Tombstone's financial statements, and the
reported amounts of expenses during the reporting periods. There can be no
assurance that actual results will not differ from those estimates.
Revenue Recognition
Tombstone follows very specific and detailed guidelines in measuring revenue;
however, certain judgments may affect the application of Tombstone revenue
policy. Revenue results are difficult to predict, and any shortfall in revenue
or delay in recognizing revenue could cause Tombstone's operating results to
vary significantly from quarter to quarter and could result in future operating
losses.
Revenue is recognized on the accrual basis in the month services are performed.
Total revenues for the years ended December 31, 2009 and 2008 were $1,508 and
$-0-, respectively.
Stock-based Compensation
Share based compensation awards are recognized using an estimate of value in
accordance with the fair value method. Under the fair value recognition
provisions of this statement, stock-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense on
a straight-line basis over the requisite service period, which generally is the
vesting period. The Company elected the modified-prospective method, under which
prior periods are not revised for comparative purposes. The valuation method
applies to new grants and to grants that were outstanding as of the effective
date and are subsequently modified.
Impairment of Other Long-Lived Assets
Long-lived assets that do not have indefinite lives, such as property and
equipment and acquired customer relationships, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting from the use of the
assets and their eventual disposition. Measurement of an impairment loss for
such long-lived assets is based on the fair value of the assets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tombstone's operations do not employ financial instruments or derivatives which
are market sensitive. Short term funds are held in non-interest bearing accounts
and funds held for longer periods are placed in interest bearing accounts. Large
amounts of funds, if available, will be distributed among multiple financial
institutions to reduce risk of loss. Tombstone's cash holdings do not generate
interest income.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of Tombstone Technologies, Inc. for the years
ended December 31, 2009 and 2008 appear as pages F-3 through F-6.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures as defined in Exchange Act Rules 13a-14(c) as of December 31, 2009
(the "Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were effective to ensure that material
information relating to the Company would be made known to them by individuals
within those entities, particularly during the period in which this annual
report was being prepared and that information required to be disclosed in the
Company's SEC reports is recorded, processed, summarized, and reported within
the time periods specified in the SEC's rules and forms.
ITEM 9A(T). CONTROLS AND PROCEDURES
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Tombstone's 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. Tombstone's
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. The Company's internal control over financial
reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
Company's assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that Tombstone's
receipts and expenditures are being made only in accordance with
authorizations of the Company's management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on Tombstone's financial
statements.
22
Management's assessment of the effectiveness of the registrant's internal
control over financial reporting is as of the year ended December 31, 2009.
Tombstone believes that internal control over financial reporting is effective.
The Company has not identified any, current material weaknesses considering the
nature and extent of the Company's current operations and any risks or errors in
financial reporting under current operations.
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.
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 Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
There was no change in the Company's internal control over financial reporting
that occurred during the fiscal quarter ended December 31, 2009, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information as to persons who currently serve as
Tombstone's directors, executives or officers, including their ages as of
December 31, 2009.
Name Age Position Term
------------------ ---------- --------------------------------------- ----------
John N. Harris 63 President, Chief Executive Officer Annual
and Director
Neil A. Cox 60 Chairman of the Board and Chief Annual
Financial Officer
William H. Reilly 56 Chief Operations Officer/Chief Tech- Annual
nology Officer and Director
Tombstone's officers are elected by the board of directors at the first meeting
after each annual meeting of Tombstone's shareholders and hold office until
their successors are duly elected and qualified under Tombstone's bylaws, or as
defined by the terms of employment agreements.
The directors named above will serve until the next annual meeting of
Tombstone's stockholders. Thereafter, directors will be elected for one-, two-,
or three-year terms at the annual stockholders' meeting. Officers will hold
their positions at the pleasure of the board of directors absent any employment
agreement. There is no arrangement or understanding between the directors and
officers of Tombstone and any other person pursuant to which any director or
officer was or is to be selected as a director or officer.
23
Tombstone's Officers devote substantially all their time to the affairs of the
Company.
President, Chief Executive Officer and Director
John N. Harris, 63
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 Tombstone experience in the
public securities market.
Chairman of the Board and Chief Financial Officer
Neil A. Cox, 60
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.
Chief Operations Officer/Chief Technology Officer and Director
William H. Reilly, 56
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.
FORMER CHIEF EXECUTIVE OFFICER - MICHAEL WILLIS
Mr. Willis was appointed the Chief Executive Officer of the Company on April 6,
2009 and resigned the position on September 1, 2009. Mr. Willis has served in
leadership positions in Internet technology companies for the past fifteen
years. He was one of the founders of Digital Directions International, Inc.
worked with them from March 2000 through June 2008 and served as president and
COO of Paragon Solutions, a Chicago-based technology services company
specializing in Web-based software solutions. Mr. Willis has served on the
Information Systems faculties at the University of Southern California, the
University of Denver and the University of Colorado. Mr. Willis received his
24
Bachelor Science from Bradley University and his Masters from Johns Hopkins
University. He has completed graduate programs in Applied Mathematics at George
Washington University and in Statistical Research, The American University.
Annual Meeting
The annual meeting of Tombstone's stockholders is expected to be held as soon as
practicable. This will be a meeting of stockholders for the election of
directors. The annual meeting will be held at Tombstone's principal office or at
such other place as permitted by the laws of the State of Colorado and on such
date as may be fixed from time to time by resolution of Tombstone's Board of
Directors.
Committees of the Board of Directors
Tombstone is managed by its officers under the oversight of its Board of
Directors. Tombstone's Board of Directors plans to establish an Audit Committee
as soon as practicable. Tombstone is currently attempting to recruit one or more
independent directors to serve on the Board of Directors and the audit
committee, at least one of whom will qualify as an "Audit Committee Financial
Expert" as defined in SEC regulations. Tombstone is also establishing a
Compensation Committee. There are currently no other committees under
consideration.
Executive Committee
Tombstone currently does not have an Executive Committee.
Audit Committee
Tombstone currently does not have an Audit Committee. When formed, the Audit
Committee will be comprised solely of directors who are independent and
financially competent, as required by the Securities Exchange Act of 1934,
which, as amended, Tombstone refers to as the Securities Exchange Act. At least
one member of the committee will have accounting or related financial management
expertise.
Previous "Blank Check" or "Shell" Company Involvement
Management of the Company has not been involved in prior private "blank-check"
or "shell" companies.
Conflicts of Interest - Directors
The directors of Tombstone, who are not employed full-time, may not devote more
than a portion of their time to the affairs of the Company. There may be
occasions when the time requirements of Tombstone's business conflict with the
demands of their other business and investment activities. Experienced directors
of public companies are difficult to engage due to expertise/experience issues
and liability, and may not be readily available to be engaged, leaving the
Company lacking in experienced directors.
Conflicts of Interest - Other
Certain officers and directors of Tombstone may be directors and/or principal
shareholders of other companies and, therefore, could face conflicts of interest
with respect to potential acquisitions. Additionally, officers and directors of
the Company may in the future participate in business ventures which could be
deemed to compete directly with the Company. Additional conflicts of interest
and non-arms length transactions may also arise in the future in the event the
Company's officers or directors are involved in the management of any firm with
which the Company transacts business. At the date of this Annual Report on Form
25
10-K, there are no current conflicts of interests involving any of the Company's
directors or executive officers as to any known business conflicts of the
Company's business. No member of management is currently an officer/director or
affiliate with any other public or private company that is currently, or is
planning to be in a competitive business.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers during the
fiscal years ended December 31, 2009, 2008 and 2007. The table sets forth this
information for Tombstone, including salary, bonus, and certain other
compensation to the named executive officers for the past three fiscal years and
includes all Officers as of December 31, 2009.
SUMMARY EXECUTIVES COMPENSATION TABLE
Non-equity Non-qualified
incentive deferred
Stock Option plan compensation All other
Name & Position Salary Bonus awards awards compen- earnings compensation Total
Year ($) ($) ($) ($) sation ($) ($) ($)
($)
John N. 2009 0 0 0 0 0 0 0 0
Harris, 2008 36,000 0 0 0 0 0 0 36,000
President and 2007 36,000 0 0 0 0 0 0 36,000
CEO(1)
Neil A. Cox, 2009 0 0 0 0 0 0 0 0
CFO(1) 2008 36,000 0 0 0 0 0 0 36,000
2007 36,000 0 0 0 0 0 0 36,000
William H. 2009 0 0 0 0 0 0 0 0
Reilly, 2008 42,000 0 0 150 0 0 0 42,150
COO/CTO(1) 2007 42,000 0 0 0 0 0 0 42,000
Michael Willis 2009 0 0 0 1,105 0 0 0 1,105
(3)
(1) During the year ended December 31, 2008, Messrs. Harris and Cox's both were
paid $18,000 of their $36,000 salaries. The remaining $18,000 was accrued at
December 31, 2008 and paid during the year ended December 31, 2009.
(2) During the year ended December 31, 2008, Mr. Reilly was issued an option to
purchase 150,000 shares of the Company's common stock. The option has an
exercise price of $0.65 per share. The option was valued using the Black-Scholes
method.
(3)Mr. Willis served the Chief Executive Officer of the Company from April 6,
2009 through September 1, 2009. Mr. Willis was issued an option exercisable for
55,000 shares of the Company's stock. The option has an exercise price of $0.20
per share and expires in August 2012. The option has a value of $1,105 using the
Black-Scholes Model.
Up until June 30, 2006, Tombstone's officers had served without salary and
contributed their services, and thereafter the Company has paid the President
and CFO at a rate of $3,000 per month on a month- to month basis without
contract. The COO/CTO is paid at a rate of $3,500 per month on a month to month
basis without contract.
26
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the President and the Company's two most highly compensated
executive officers for the fiscal year ended December 31, 2009 the "Named
Executive Officers"):
Option Awards Stock awards
Equity
incentive
Equity plan
incentive Equity awards:
plan incentive Market
awards: plan or
Number Number of Number of Number Market awards: payout
of securities securities of value Number value
securities underlying underlying shares of of of
underlying unexercised unexercised Option Option or shares unearned unearned
unexercisedoptions (#) unearned exercise expiration units of shares, shares,
Name options unexercisable options price date of units units or units
(#) (#) ($) stock of other or
exercisable that stock rights others
have that that rights
not have have not that
vested not vested have
(#) vested (#) not
($) vested
($)
------------ ---------- ------------- ------------ --------- ---------- -------- ------- ---------- ---------
Neil Cox -0- -0- -0- $ -0- - -0- $ -0- -0- -0-
John Harris -0- -0- -0- $ -0- - -0- $ -0- -0- -0-
William 150,000 -0- -0- $0.65 08/2012 -0- $ -0- -0- -0-
Reilly 100,000 -0- -0- $0.55 08/2012 -0- $ -0- -0- -0-
DIRECTOR COMPENSATION
The following table sets forth certain information concerning compensation paid
to the Company's 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, 2009:
Non-qualified
Non-equity deferred
Fees incentive compensation All other
earned Stock Option plan earnings compensation Total
Name or paid awards ($) awards ($) compensation ($) ($) (1) ($)
in cash ($)
($)
-------------- ---------- ----------- ------------ --------------- --------------- ---------------- ---------
Neil Cox $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
John Harris $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
William $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
Reilly(2)
(1) Messrs. Cox, Harris and Reilly serve as officers of the Company for
which they receive compensation, as set forth in the Executive
Compensation Table.
27
All of Tombstone's 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 Tombstone's interests.
Such conflicts could include determining what portion of their working time will
be spent on Tombstone's business and what portion on other business interest. To
the best ability and in the best judgment of the Company's officers and
directors, any conflicts of interest between Tombstone and the personal
interests of Tombstone's officers and directors will be resolved in a fair
manner which will protect the Company's interests. Any transactions between
Tombstone and entities affiliated with the Company's officers and directors will
be on terms which are fair and equitable to the Company. Tombstone's Board of
Directors intends to continually review all corporate opportunities to further
attempt to safeguard against conflicts of interest between their business
interests and Tombstone's interests.
Tombstone has no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
Stock Option Plan
Tombstone has an Option Plan. As of December 31, 2009, 1,029,999 options are
outstanding under the 2006 Option Plan of which 1,029,999 are exercisable.
During the year ended December 31, 2009, the Company issued 129,999 shares under
the option plan, of which 55,000 shares were issued to a former officer of the
Company. Tombstone has reserved 1,500,000 shares of common stock for issuance
under the 2006 Option Plan.
Employment Agreements and Termination of Employment and Change-In-Control
Arrangements
None of the Company's officers, directors, advisors, or key employees is
currently party to employment agreements with the Company. The Company has no
pension, health, annuity, bonus, insurance, stock options, profit sharing or
similar benefit plans; however, the Company may adopt such plans in the future.
There are presently no personal benefits available for directors, officers, or
employees of the Company.
Compensation Committee Interlocks and Insider Participation
The Tombstone Board of directors in its entirety acts as the compensation
committee for Tombstone. Mr. Cox is the Chief Financial Officer and Chairman of
the Company.
Director Compensation
The Company does not pay any Directors fees for meeting attendance. An Audit
Committee has yet to be established therefore no compensation has been paid for
this function.
Limitation on Liability and Indemnification
The Colorado Business Corporation Act requires Tombstone to indemnify officers
and directors for any expenses incurred by any officer or director in connection
with any actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Colorado Business Corporation Act permits a corporation to
indemnify an officer or director, even in the absence of an agreement to do so,
28
for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of the Company
and such indemnification is authorized by the stockholders, by a quorum of
disinterested directors, by independent legal counsel in a written opinion
authorized by a majority vote of a quorum of directors consisting of
disinterested directors, or by independent legal counsel in a written opinion if
a quorum of disinterested directors cannot be obtained.
The Colorado Business Corporation Act prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Colorado Business Corporation Act may permit
an officer or director to apply to the court for approval of indemnification
even if the officer or director is adjudged to have committed intentional
misconduct, fraud, or a knowing violation of the law.
The Colorado Business Corporation Act also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to Tombstone's bylaws, the Company is authorized to indemnify the
Company's directors to the fullest extent authorized under Colorado Law subject
to certain specified limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
Tombstone pursuant to the foregoing provisions or otherwise, Tombstone is
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
EQUITY COMPENSATION PLAN INFORMATION
Stock Option Plan
Tombstone has an Option Plan. As of December 31, 2009, 1,029,999 options are
outstanding under the 2006 Option Plan of which 1,029,999 are exercisable.
During the year ended December 31, 2009, the Company issued 129,999 shares under
the option plan, of which 55,000 shares were issued to a former officer of the
Company. Tombstone has reserved 1,500,000 shares of common stock for issuance
under the 2006 Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial
ownership of Tombstone's outstanding common stock by:
o each person who is known by Tombstone to be the beneficial owner of
five percent (5%) or more of Tombstone's common stock;
o Tombstone's President, its other executive officers, and each director
as identified in the "Management -- Executive Compensation" section;
and
o all of the Company's directors and executive officers as a group.
29
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
sixty days of the date of this document into shares of Tombstone's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants, or convertible securities for the purpose of computing
the percentage ownership of the person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Tombstone's common
stock that Tombstone believes was beneficially owned by each person or entity as
of December 31, 2009. The total shares outstanding as of December 31, 2009 was
3,878,000.
Title of Class Name and Address of Amount and Nature of Percent of Class(1)
Beneficial Owner Beneficial Owner
---------------------------- ------------------------------- ------------------------- ----------------------
John N. Harris
President, CEO & Director
Common shares PO Box 1547
Lyons, CO 80540 680,000 12%
Common shares Neil A. Cox 580,000 10%
CFO & Director
5380 Highlands Drive
Longmont, CO 80503
Common shares William H. Reilly(2) 275,000 4.9%
COO/CTO & Director
4859 Dakota Blvd
Boulder, CO 80304
Common shares Capital Merchant Bank(3) 300,000 5%
600 N. Bradley Road
Lake Forest, IL 60045
All Directors and
Executive Officers as a
Group (3 persons) 1,535,000 28%
(1) Based upon 3,878,000 shares of common stock issued and outstanding on
December 31, 2009, warrants exercisable for 660,000 shares of common
stock and options exercisable for 1,029,999 shares of common stock,
there would be 5,567,999 shares of Tombstone common stock issued and
outstanding, on a fully diluted basis.
(2) Consists of 25,000 shares of common stock and an option exercisable
for 250,000 shares of common stock.
(3) The Capital Merchant Bank holds these 300,000 warrants beneficially
for Joseph Kurczodyna.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants, or conversion privileges are deemed to be outstanding for the purpose
30
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person. Included in
this table are only those derivative securities with exercise prices that
Tombstone believes have a reasonable likelihood of being "in the money" within
the next sixty days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the stock transactions discussed below, Tombstone has not entered
into any transaction nor are there any proposed transactions in which any of
Tombstone's 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.
The Company, in August 2006, 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 Tombstone deems to be substantially complete. In May
2009, the term of these warrants was extended to August 31, 2012. In May 2009,
Capital Merchant Banc assigned 300,000 to unrelated party individuals..
The Company was indebted to two officers (Messers. Cox and Harris) for accrued
but unpaid compensation totaling $36,000 at December 31, 2008. During the year
ended December 31, 2009, the Company issued to two officers a total of 360,000
shares of common stock in lieu of the accrued salaries. The fair value of the
common stock on the transaction date was $.20 per share. As a result, the
Company recorded $36,000 against the accrued salaries and $36,000 as stock based
compensation.
During the year ended December 31, 2009, the Company issued a former officer
(Michael Willis) a total of 123,000 shares of common stock in lieu of salaries
valued at $24,600 ($0.20 per share), based on the fair value of the common stock
on the transaction date.
During the second quarter of 2009, we granted Mr. Michael Willis, a former
officer of the Company, an option to purchase 55,000 shares of our common stock
at an exercise price of $0.20 per share, in exchange for services. The option to
purchase 55,000 shares of our common stock vested immediately on the grant date
in April and expires on August 31, 2012. Our Board of Directors valued our
common stock at $0.20 and $0.26 per share on the grant date. We, utilizing
appropriate option pricing software, estimated the fair value of the options at
$0.05 to $0.26 per share for an aggregate grant-date fair value of $1,105.
31
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
GENERAL. Cordovano and Honeck, LLP ("C&H") is the Company's principal auditing
accountant firm. The Company's Board of Directors has considered whether the
provisions of audit services is compatible with maintaining C&H's independence.
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2009 and December 31, 2008 by Cordovano and Honeck,
LLP.
Year Ended December 31,
2009 2008
--------------------- ---------------------
Audit Fees $ 15,124 $ 15,329
Audit-related Fees $ 0 $ 0
Tax Fees $ 615 $ 625
All Other Fees $ 0 $ 0
--------------------- ---------------------
Total Fees $ 15,739 $ 15,954
All audit work was performed by the auditors' full time employees.
Tombstone's corporate tax returns are prepared by J.L Griffin & Company, P.C.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
(a) Audited financial statements for December 31, 2009
(b) Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (1)
3.2 Articles of Amendment - Name Change to Tombstone Cards, Inc. (1)
3.3 Articles of Amendment - Name Change to Tombstone Technologies, Inc.
3.5 Bylaws (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 (2)
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)
21 List of Subsidiaries
32
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the
32.2 Certification of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
----------------------
(1) Incorporated by reference to the Form S-1 Registration Statement
(#333-138184) filed with the Securities and Exchange Commission on October 24,
2006.
(2) Incorporated by reference to the Form S-1 Registration Statement
(#333-138184) filed with the Securities and Exchange Commission on January 8,
2007.
A copy of documents can be provided by mail, free of charge, by sending a
written request to Tombstone Technologies, Inc., 5380 Highlands Dr., Longmont,
CO 80503.
33
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Page
--------------
Report of Independent Registered Public Accounting Firm F-2
Balance Sheets at December 31, 2009 and December 31, 2008 F-3
Statements of Operations for the Years Ended December 31, 2009
and 2008 F-4
Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended
December 31, 2009 and 2008 F-5
Statements of Cash Flows for the Years Ended December 31, 2009
and 2008 F-6
Notes to Financial Statements F-7
F-1
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Tombstone Technologies, Inc.:
We have audited the accompanying balance sheets of Tombstone Technologies, Inc.
as of December 31, 2009 and 2008, and the related statements of operations,
changes in shareholders' equity/(deficit), and cash flows for each of the years
in the two-year period ended December 31, 2009. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, 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 Technologies, Inc. as
of December 31, 2009 and 2008, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
As shown in the financial statements, the Company incurred net losses of
$301,278 and $380,089 for the years ended December 31, 2009 and 2008,
respectively. At December 31, 2009, current liabilities exceed current assets by
$100,053. These factors, and the others discussed in Note 1, raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the company cannot continue in
existence.
/s/ Cordovano and Honeck LLP
Cordovano and Honeck LLP
Englewood, Colorado
March 26, 2010
F-2
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheets
As of December 31,
2009 2008
------------------- --------------------
Assets
Current Assets
Cash and cash equivalents $ 7,439 $ 11,882
Accounts receivable -- 383
Prepaid expenses -- 1,854
------------------- --------------------
Total Current Assets 7,439 14,119
Property and equipment, net (Note 3) 5,679 17,591
Deferred charges -- 53,450
Intangible assets, net (Note 3) 92,647 484
------------------- --------------------
Total Assets $ 105,765 $ 85,644
=================== ====================
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 7,234 $ 953
Accrued payroll -- 36,000
Other current liabilities -- 2,754
Convertible promissory notes, net of unamortized
discount of $1,667 (Note 4) 98,333 --
Current portion - capital lease obligation 1,925 2,697
------------------- --------------------
Total Current Liabilities 107,492 42,404
Capital lease obligation, less current portion -- 1,542
------------------- --------------------
Total Liabilities 107,492 43,946
------------------- --------------------
Shareholders' Equity (Deficit) (Note 6):
Preferred stock, no par value; 1,000,000 shares authorized,
-0- and -0- shares issued and outstanding, respectively -- --
Common stock, no par value; 100,000,000 shares authorized,
3,878,000 and 3,230,000 shares issued and outstanding, respectively 955,775 816,305
Additional paid-in capital 253,275 134,892
Accumulated deficit (909,499) (909,499)
Deficit accumulated during development stage (301,278) --
------------------- --------------------
Total Shareholders' Equity (Deficit) (1,727) 41,698
------------------- --------------------
Total Liabilities and Shareholders' Equity (Deficit) $ 105,765 $ 85,644
=================== ====================
See accompanying notes to financial statements
F-3
TOMBSTONE TECHNOLOGIES INC.
(A Development Stage Company)
Statements of Operations
For the Year Ended
December 31,
-------------------------------------------
2009 2008
-------------------- --------------------
Sales $ 1,508 $ --
Cost of sales 1,120 --
-------------------- --------------------
Gross profit 388 --
Selling, general and administrative expenses 197,654 323,760
-------------------- --------------------
Loss from continuing operations (197,266) (323,760)
Other income and (expense):
Interest income 5 3,893
Interest expense:
Beneficial conversion feature (Note 4) (98,333) --
Other (5,200) (488)
Operating loss due to impairment of assets (484)
-------------------- --------------------
(104,012) 3,405
Loss before income taxes and discontinued operations (301,278) (320,355)
Income tax provision (Note 7) -- --
-------------------- --------------------
Loss from continuing operations (301,278) (320,355)
-------------------- --------------------
Discontinued operations (Note 5):
Loss from operations of playing card
component, net of taxes -- (46,976)
Loss from abandonment of playing card
component, net of taxes -- (12,758)
-------------------- --------------------
Net loss $ (301,278)$ (380,089)
==================== ====================
Basic and diluted loss per share:
Loss from continuing operations $ (0.09)$ (0.10)
==================== ====================
Loss from discontinued operations, net of tax $ 0.00 $ (0.02)
==================== ====================
Net loss $ (0.09)$ (0.12)
==================== ====================
Basic and diluted weighted average
common shares outstanding 3,508,220 3,230,000
==================== ====================
See accompanying notes to financial statements
F-4
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity (Deficit)
Deficit
Accumulated
Additional During
Common Stock Paid-in Accumulated Development
---------------------------------
Shares Amount Capital Deficit Stage Total
---------------- -------------- -------------- --------------- ------------- ---------------
Balance at December 31, 2007 3,230,000 $ 816,305 $ 82,030 $ (529,410)$ -- $ 368,925
Stock options issued to
consultants -- -- 52,862 -- -- 52,862
Net loss -- -- -- (380,089) -- (380,089)
---------------- -------------- -------------- --------------- ------------- ---------------
Balance at December 31, 2008 3,230,000 816,305 134,892 (909,499) -- 41,698
March 2009, shares
issued for software
development (Note 6) 140,000 37,870 -- -- -- 37,870
June 2009, shares issued
for accrued payroll
and services by an
officer (Note 2) 476,170 95,234 -- -- -- 95,234
July 2009, shares issued
for services by an
officer (Note 2) 6,830 1,366 -- -- -- 1,366
July 2009, shares issued
for software develop-
ment (Note 6) 25,000 5,000 -- -- -- 5,000
Stock options issued and
extended (Note 6) -- -- 18,383 -- -- 18,383
Discount on convertible
promissory notes (Note 4) -- -- 100,000 -- -- 100,000
Net loss -- -- -- -- (301,278) (301,278)
---------------- -------------- -------------- -------------- ------------- ---------------
Balance at December 31, 2009 3,878,000 $ 955,775 $ 253,275 $ (909,499) $ (301,278) $ (1,727)
================ ============== ============== ============== ============= ===============
See accompanying notes to financial statements
F-5
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows
For the Year Ended
December 31,
----------------------------------------
2009 2008
------------------- ------------------
Cash flows from operating activities:
Net loss $ (301,278) $ (380,089)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation 78,983 52,862
Interest expense - beneficial conversion feature
of promissory notes 98,333 --
Depreciation Expense 11,912 10,237
Amortization Expense 18,530 --
Loss on write off of assets 484 --
Loss on write off of assets of discontinued
playing card component -- 17,789
Change in operating assets and liabilities:
Decrease in accounts receivable 383 8,873
Decrease (increase) in prepaid expenses 1,854 (360)
Increase in accounts payable 3,527 38,681
------------------- ------------------
Net cash used in operating activities (87,272) (252,007)
------------------- ------------------
Cash flows from investing activities:
Purchase of property and equipment -- (6,750)
Patent application costs -- (484)
Purchase of software (14,857) (39,846)
------------------- ------------------
Net cash used in investing activities (14,857) (47,080)
------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of convertible promissory notes 100,000 --
Payments on capital lease obligation (2,314) (2,529)
------------------- ------------------
Net cash provided by (used in) financing
activities 97,686 (2,529)
------------------- ------------------
Net change in cash and cash equivalents (4,443) (301,616)
Cash and cash equivalents:
Beginning of year 11,882 313,498
------------------- ------------------
End of year $ 7,439 $ 11,882
=================== ==================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ -- $ --
=================== ==================
Interest $ 5,200 $ 488
=================== ==================
Noncash investing and financing transactions:
Common stock issued as payment for software development
costs $ 42,870 $ --
=================== ==================
Common stock issued as payment for accrued payroll $ 36,000 $ --
=================== ==================
See accompanying notes to financial statements
F-6
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
(1) Presentation and Significant Accounting Policies
Organization
Tombstone Technologies, 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. We changed our name in 2008 from Tombstone Cards,
Inc. to Tombstone Technologies, Inc. to reflect our current operations (See also
Note 5).
We have had limited operations since inception. Those operations originally
focused on the structure and capital formation of the Company and on the
manufacturing and marketing of customized playing cards, however, during the
third quarter of 2008, our board of directors made the decision to revise our
business plan to direct the Company's efforts and resources toward the
development, marketing and licensing of software targeting the local printers
industry. We are no longer promoting our customized playing cards and we have
abandoned, for all intents and purposes, the customized playing card business.
We are currently offering the following products to local printers:
o OIEPrint - a platform independent, browser-based RIA that supports
template driven design and provides high-resolution PDF files to the
printer.
o OIEPrint Store - an advanced e-commerce solution that supports
multiple customization options (e.g. paper color, paper weight, paper
finish, collating, binding, shipping, etc.) and dependent variables
(e.g. If you choose "A," you cannot choose "B" but can choose "C")
o OIEPrint VDP - an easy-to-use tool for linking database mining with
custom printing and 1:1 marketing.
There is no assurance of market acceptance, or that, if accepted, the new
products will be profitable.
Basis of Presentation
Development Stage Company
The Company emerged from the development stage in 2007 while conducting its
customized playing cards operations. During 2008, our board of directors made
the decision to revise our business plan to direct the Company's efforts and
resources toward the development, marketing and licensing of software targeting
the local printers industry. As a result, effective January 1, 2009, the Company
re-entered the development stage. Accordingly, the Company's activities have
been accounted for as those of a development stage company as of and for the
year ended December 31, 2009.
Going Concern and Management's Plan
The Company's audited financial statements for the year ended December 31, 2009
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company has retained deficits totaling $1,210,777, has incurred
losses from operations since inception, and has a deficit in working capital
totaling $100,053 at December 31, 2009. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
F-7
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
We have plans in place for dealing with the effects of the above adverse
conditions and events. We launched our first two products during the 3rd quarter
of 2009. In addition to the proceeds from the sale of our products, we raised
$100,000 through the sale of convertible promissory notes payable.
During the first quarter of 2009, we commenced the offering of convertible
promissory notes convertible into shares of our common stock. Such notes had a
term of one year, an interest rate of 8% per annum (to be paid on a quarterly
basis) and were convertible into shares of the Company's common stock at a rate
of $0.10 per share. As of July 24, 2009, we raised $100,000 in proceeds from the
offering. During the year ended December 31, 2009, we paid $4,744 in interest to
the holders of the Convertible Promissory Notes.
In January 2010, all of the holders of the outstanding Convertible Promissory
Notes gave conversion notice to the Company that they would convert their notes
into shares of the Company's common stock. The conversion of the Convertible
Promissory Notes resulted in the issuance of 1,000,000 shares of Company's
common stock to the convertible promissory note holders of such notes as of
January 15, 2010. After the conversion of such Convertible Promissory Notes the
Company does not have any Convertible Promissory Notes outstanding.
Proposed Acquisition
On January 19, 2010, the Company announced that it has entered into an agreement
to acquire the assets of Hunt Global Resources, Inc., a Houston based company
focused on the use of new technologies to maximize the value of its natural
resources projects. The transaction is in the form of a reverse acquisition
wherein Hunt Global Resources will be the surviving company when the transaction
is complete. The closing of the acquisition is subject to the completion of
audited financial statements of Hunt Global Resources, Inc. At the time of this
filing, such audited financial statements have not been produced.
Significant Accounting Policies
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 no cash equivalents
at December 31, 2009 and 2008.
Accounts Receivable:
The allowance for doubtful accounts, which is $1,508 and $-0- at December 31,
2009 and 2008, respectively, is based on an assessment of the collectability of
customer accounts. We review the allowance by considering factors such as
historical experience, credit quality, and age of the accounts receivable
balances, and current economic conditions that may affect a customer's ability
to pay.
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.
F-8
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
Capitalized Software Development Costs
Software development costs include payments made to independent software
developers under agreement.
Software development costs are capitalized once the technological feasibility of
a software program is established and such costs are determined to be
recoverable. Technological feasibility is evaluated on a program-by-program
basis. We evaluate the future recoverability of capitalized amounts on a
quarterly basis. The recoverability of capitalized software development costs is
evaluated based on the expected performance of the specific program for which
the costs relate.
Significant management judgments and estimates are utilized in the assessment of
when technological feasibility is established, as well as in the ongoing
assessment of the recoverability of capitalized costs.
Capitalized software development costs are amortized over their useful lives (3
years) commencing when the software was placed into service.
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. No impairments have been recognized for the years
ended December 31, 2009 and 2008.
Revenue Recognition
Revenue is recognized on the accrual basis in the month services are performed.
Total revenues for the years ended December 31, 2009 and 2008 were $1,508 and
$-0-, respectively.
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 Accounting Standards
Codification ("ASC") ASC-740 "Accounting for Income Taxes". ASC-740 requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that 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.
In addition ASC-740 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes and has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all
open tax years in these jurisdictions. We have identified our federal tax return
and our state tax return in Colorado as "major" tax jurisdictions, as defined.
We believe that our income tax filing positions and deductions will be sustained
on audit and do not anticipate any adjustments that will result in a material
F-9
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
adverse effect on our financial condition, results of operations, or cash flow.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to ASC-740. We did not record a cumulative effect adjustment related to
the adoption of ASC-740.
Advertising Costs
All advertising costs are expensed as incurred. Advertising expenses were $1,875
and $9,574, respectively, for the years ended December 31, 2009 and 2008,
respectively.
Earnings (Loss) per Common Share
Basic earnings per share are 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, 2009 and 2008, there were no variances between basic and diluted
loss per share as the impact of options and warrants outstanding to purchase a
total of shares of our common stock (1,689,999 shares of our common stock at
December 31, 2009 and 5,020,000 shares of our common stock at December 31, 2008)
would have been anti-dilutive.
Share-Based Awards
Share based compensation awards are recognized using an estimate of value in
accordance with the fair value method. Under the fair value recognition
provisions of this statement, stock-based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense on
a straight-line basis over the requisite service period, which generally is the
vesting period. The Company elected the modified-prospective method, under which
prior periods are not revised for comparative purposes. The valuation method
applies to new grants and to grants that were outstanding as of the effective
date and are subsequently modified.
New Accounting Standards
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") 105, "Generally Accepted Accounting
Principles" (formerly Statement of Financial Accounting Standards ("SFAS") No.
168, "The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles"). ASC 105 establishes the FASB ASC as the single
source of authoritative nongovernmental U.S. GAAP. The standard is effective for
interim and annual periods ending after September 15, 2009. We adopted the
provisions of the standard on September 30, 2009, which did not have a material
impact on our financial statements.
There were various other accounting standards and interpretations issued in
2009, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
(2) Related Party Transactions
The Company was indebted to two officers for accrued but unpaid compensation
totalling $36,000 at December 31, 2008. During the year ended December 31, 2009,
F-10
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
the Company issued to two officers a total of 360,000 shares of common stock in
lieu of the accrued salaries. The fair value of the common stock on the
transaction date was $.20 per share. As a result, the Company recorded $36,000
against the accrued salaries and $36,000 as stock based compensation.
During the year ended December 31, 2009, the Company issued a former officer a
total of 123,000 shares of common stock in lieu of salaries valued at $12,300.
In addition, $12,300 was charged to stock based compensation to reflect the fair
value of the common stock on the transaction date ($0.20 per share).
(3) Balance Sheet Components
Property and equipment
At December 31, 2009 and 2008, major classes of property and equipments were:
December 31,
----------------------------------
2009 2008
Furniture and fixtures..................... $ 1,421 $ 1,421
Office equipment........................... 24,612 24,612
Leased equipment........................... 6,768 6,768
Less: accumulated depreciation............. (27,122) (15,210)
---------------- ----------------
$ 5,679 $ 17,591
================ ================
Depreciation expense (including depreciation on leased equipment of $2,256 and
$2,256) was $11,912 and $10,237, respectively, for the years ended December 31,
2009 and 2008.
Future minimum lease payments on the leased equipment total $1,925 (all due in
2010).
Intangible Assets
At December 31, 2009 and 2008, amortized software development costs were:
December 31,
----------------------------------
2009 2008
---------------- ----------------
Deferred Charges:
OEI Print..................................$ - $ 26,725
OEI Storefront............................. - 26,725
Software Development Costs:
OEI Print.................................. 55,589 --
OEI Storefront............................. 55,588 --
Accumulated Amortization (18,530) --
---------------- ----------------
$ 92,647 $ 53,450
================ ================
Future amortization of software development costs follows:
F-11
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
December 31,
2010.............................................. $ 37,059
2011.............................................. 37,059
2012.............................................. 18,529
----------------
$ 92,647
================
On May 15, 2008, Tombstone entered into an Intellectual Property Transfer
Agreement with InDis Baltic, a Lithuania company, to purchase all of the rights,
title and interest in and to the technology, intellectual property and the
proprietary technology contained in the computer software known as OIEPrint.
OIEPrint was developed as part of a development agreement between Tombstone and
InDis Baltic. As part of the Intellectual Property Transfer Agreement, Tombstone
agreed to pay the following:
1. $7,500 immediately upon mutual acceptance of Transfer Agreement,
2. $7,500 upon final acceptance of the Technology,
3. 140,000 shares of restricted common stock of Tombstone upon final
acceptance of the Technology, and
4. $10,000 in 90 days from the final acceptance of the Technology.
On March 3, 2009, Tombstone issued 140,000 shares of restricted common stock of
Tombstone to InDis Baltic as indicated in the above agreement and recorded it as
a deferred charge. On June 30, 2009, Tombstone recorded half of the final
payment $5,000 for OIEPrint, which is a deferred charge in the accompanying
financial statements. On July 6, 2009, Tombstone issued 25,000 shares of common
stocks to InDis Baltic as the other half of the final payment in an agreement
signed on July 6, 2009.
As a result of the final payment being made the intellectual property has been
transferred to Tombstone. At that time, the Company capitalized the
deferred charges in connection with OIEPrint as intangible assets and began to
amortize them accordingly. At December 31, 2009, intangible assets had a net
value of $92,647.
We are amortizing the software development costs over their useful lives (3
years) based on when the software was placed into service.
The provisional patent was written off during the quarter ended March 31, 2009.
(4) Convertible Promissory Notes
During the year ended December 31, 2009, the Company issued Convertible
Promissory Notes payable to unrelated third parties totaling $100,000 with
interest accruing at 8% per annum (paid quarterly) maturing twelve months from
date of issuance. The notes were immediately convertible to restricted shares of
common stock at $0.10 per share.
A beneficial conversion feature (difference between conversion price and the
quoted stock price on the date of commitment) embedded in the convertible
promissory notes was measured at $100,000 and recorded as a debt discount on the
transaction date. As of December 31, 2009, $98,333 of the discount was amortized
to interest expense, leaving an unamortized discount of $1,667 in the
accompanying financial statements for the year ended December 31, 2009.
F-12
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
If the convertible notes would have been converted on December 31, 2009, the
intrinsic value of the stock would have exceeded the principle value of the
notes by $350,000.
The following is a summary of convertible promissory notes at December 31, 2009
and December 31, 2008:
December 31, December 31,
2009 2008
---- ----
Notes issued in March 2009 $ 7,500 $ -
Notes issued in April 2009 25,000 -
Notes issued in May 2009 27,500 -
Notes issued in July 2009 40,000 -
--------------------- -------------------
Total convertible promissory notes $ 100,000 $ -
===================== ===================
In January 2010, all of the holders of the outstanding Convertible Promissory
Notes gave conversion notice to the Company that they would convert their notes
into shares of the Company's common stock. The conversion of the Convertible
Promissory Notes resulted in the issuance of 1,000,000 shares of Company's
common stock to the convertible promissory note holders of such notes as of
January 15, 2010. After the conversion of such Convertible Promissory Notes the
Company does not have any Convertible Promissory Notes outstanding.
(5) Discontinued Operations- Playing Card Component
Our playing card component lost $46,976 during the first two quarters of 2008.
During the third quarter of 2008, the Board of Directors resolved to abandon the
manufacture and marketing of customized playing cards and to concentrate on the
development, marketing and licensing of software for the local printers
industry. All inventory and unamortized web site costs were written off as of
the year ended December 31, 2008.
(6) Shareholders' Equity
Preferred Stock
The Company has authorized 1,000,000 shares of preferred stock. To date there
have been no issuance of preferred stock. Upon issuance the Board of Directors
will determine the terms and conditions.
Common Stock
The Company is authorized to issue 100,000,000 shares of no par value common
stock.
Common Stock Options and Warrants
Pursuant to our Employee/Consultant Stock Option Plan, stock options generally
are granted with an exercise price equal to the market price of our common stock
at the date of grant. Substantially all of the options granted to employees and
consultants are exercisable pursuant to an immediate vesting schedule with a
maximum contractual term of 5 years. The fair value of these options is
estimated using the Black-Scholes option pricing model which incorporates the
assumptions noted in the table below. The risk-free interest rate for periods
F-13
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
within the expected life of the option is based on the U.S. Treasury bond rate
in effect at the time of grant. We do not pay dividends and do not expect to do
so in the future. Expected volatilities are based on historical volatilities of
appropriate industry sector index. The expected term of the options granted
during 2009 is approximately 3 years calculated using the simplified method. The
simplified method is utilized due to our limited operating history.
We use historical volatility of appropriate industry sector index as we believe
it is more reflective of market conditions and a better indicator of volatility.
We use the simplified calculation of expected life. If we determine that another
method used to estimate expected volatility was more reasonable than our current
methods, or if another method for calculating these input assumptions was
prescribed by authoritative guidance, the fair value calculated for share-based
awards could change significantly. Higher volatility and longer expected lives
result in an increase to share-based compensation determined at the date of
grant. A summary of changes in the number of stock options and warrants
outstanding for the year ended December 31, 2009 is as shown in the table below.
Number of Price Per Price Per Contractual Aggregate
Shares Share Share Life Intrinsic
Value
Outstanding at January 1, 2008 4,570,000 $0.75 - $1.00 $0.77 1.83 years $0
Granted..................................... 600,000 - - N/A --
Expired..................................... -- -- N/A -- --
Cancelled/Expired........................... (150,000) -- -- -- --
---------------- --------------- ---------------- -------------- -------------
Outstanding at January 1, 2009.............. 5,020,000 $0.65 - $1.50 $2.56 .75 years $78,000
Granted..................................... 129,999 $0.10 - $0.20 $0.15 3.40 years --
Expired..................................... -- -- -- N/A --
Cancelled/Expired........................... (3,460,000) $2.00 - $5.00 $3.50 0 --
---------------- --------------- ---------------- -------------- -------------
Outstanding at December 31, 2009............ 1,689,999 $0.10 - $1.50 $0.65 2.67 years $38,500
================ =============== ================ ============== =============
Exercisable at December 31, 2009 1,689,999 $0.10 - $1.50 $0.65 2.67 years $38,500
================ =============== ================ ============== =============
New Stock Options Granted
During 2008, we granted to consultants, options to purchase 600,000 shares of
our common stock at an exercise prices ranging from $0.65 per share to $1.50 per
share, in exchange for consulting services. The options vested immediately and
expired from 2009 to 2013. Our Board of Directors, utilizing appropriate
software, estimated the fair value of the options at values ranging from $0.001
per share to $0.2981 per share, or $52,863, which was recorded as stock
compensation cost included in general and administrative expenses in the
accompanying financial statements at December 31, 2008.
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:
From To
Risk-free interest rate........................0.70% 2.37%
Dividend yield.................................0.00% 0.00%
Volatility factor.............................22.00% 50.00%
Weighted average expected life..................0.07 5.00%
F-14
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
During the second quarter of 2009, we granted to two consultants and one
officer, options to purchase 129,999 shares of our common stock at an exercise
price of $0.10 to $0.20 per share, in exchange for services. The option to
purchase 129,999 shares of our common stock vested immediately on the grant date
in April and their terms have been extended until August, 2012. Our Board of
Directors valued our common stock at $0.20 and $0.26 per share on the grant
date. We, utilizing appropriate option pricing software, estimated the fair
value of the options at $0.05 to $0.26 per share for an aggregate grant-date
fair value of $8,009. We recorded stock-based compensation in the accompanying
financial statements for the year ended December 31, 2009. The fair values of
grants made in the year ended December 31, 2009 were computed using the
following assumptions for our stock option plans:
From To
Risk-free interest rate 0.16% 0.41%
Dividend Yield 0.00% 0.00%
Volatility Factor 25.00% 25.00%
Weighted Average Expected Life 0.07 2.67 yrs
Options and Warrants Expired
During the year ended December 31, 2009, options and warrants exercisable for
3,460,000 shares of the Company's common stock cancelled/expired.
Amendment to Stock Option Plan
On May 27, 2009, our Board of Directors approved an amendment to the Company's
Employee/Consultant Stock option plan to increase the number of shares
authorized from 1,000,000 to 1,500,000.
Modification to Existing Options
The Board also modified 1,029,999 outstanding stock options under the Company's
Employee/Consultant Stock Option Plan and 660,000 placement agent warrants,
common stock only, by extending their terms until August 31, 2012. Based on the
grant-date fair value estimated in accordance with the provisions of FASB ASC
718-20, the fair value of the incremental cost increase for the modified options
totaled $10,374, which has been recognized as stock-based compensation expense
in the accompanying financial statements for the year ended December 31, 2009.
The fair values of modifications made during the year ended December 31, 2009
were computed using the following assumptions for our stock option plans:
Risk-Free interest rate 1.50%
Dividend yield 0.00%
Volatility Factor 25.00%
Weighted average expected life 2.29 years
(7) Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
F-15
TOMBSTONE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2009
Year Ended
December 31,
2009 2008
----------------- -----------------
U.S. statutory federal rate 32.98% 25.00%
State income tax rate 3.10% 5.00%
Permanent difference - Contributed Services 0.00% -1.90%
Net operating loss for which no tax
benefit is currently available -36.08% -28.10%
----------------- -----------------
0.00% 0.00%
================= =================
At December 31, 2009, deferred tax assets consisted of a net tax asset of
$442,296 due to operating loss carryforwards of $1,210,777 which was fully
allowed for, in the valuation allowance of $442,296. 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 years ended December 31, 2009 and
2008 totaled $105,274 and $140,845, respectively. The net operating loss
carryforward expires through the year 2029.
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.
(8) Subsequent Events
The Company has evaluated its activities through March 26, 2010, the date the
financial statements were issued, and found no reportable subsequent events,
other than those mentioned below.
Conversion of Convertible Promissory Notes
In January 2010, all of the holders of the outstanding Convertible Promissory
Notes gave conversion notice to the Company that they would convert their notes
into shares of the Company's common stock. The conversion of the Convertible
Promissory Notes resulted in the issuance of 1,000,000 shares of Company's
common stock to the convertible promissory note holders of such notes as of
January 15, 2010. After the conversion of such Convertible Promissory Notes the
Company does not have any Convertible Promissory Notes outstanding.
Proposed Acquisition
On January 19, 2010, the Company announced that it has entered into an agreement
to acquire the assets of Hunt Global Resources, Inc., a Houston based company
focused on the use of new technologies to maximize the value of its natural
resources projects. The transaction is in the form of a reverse acquisition
wherein Hunt Global Resources will be the surviving company when the transaction
is complete. The closing of the acquisition is subject to the completion of
audited financial statements of Hunt Global Resources, Inc. At the time of this
filing, such audited financial statements have not been produced.
On February 10, 2010, the Company received $5,000 from Hunt Global Resources,
Inc. to be used toward the payment of certain professional fees.
F-16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Tombstone Technologies, Inc.
Dated: March 26, 2010
By: /s/ John N. Harris
--------------------------------------
John N. Harris,
President, Chief Executive Officer
and Director
By: /s/ Neil A. Cox
--------------------------------------
Neil A. Cox,
Chief Financial Officer and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: March 26, 2010 /s/ John N. Harris
-------------------------------------------
John N. Harris, President, Chief Executive
Officer and Director
/s/ Neil A. Cox
-------------------------------------------
Neil A. Cox, Chief Financial Officer and
Chairman of the Board
/s/ William H. Reilly
-------------------------------------------
William H. Reilly, Chief Operating Officer,
Chief Technology Officer and Director
34
EXHIBIT 21
LIST OF SUBSIDIARIES
LIST OF TOMBSTONE TECHNOLOGIES, INC. SUBSIDIARIES
None.
35