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, 2008
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.
(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.
2400 Central Avenue, Suite G, Boulder, CO 80301
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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:
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Common Stock
(Title of Class)
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 |_| No |X|
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_]
(Do not check if a smaller
reporting company)
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 $478,950 as of March 24, 2009.
There were 3,370,000 shares outstanding of the registrant's Common Stock as of
March 24, 2009.
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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 15
ITEM 2 Properties 15
ITEM 3 Legal Proceedings 15
ITEM 4 Submission of Matters to a Vote of Security Holders 15
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 16
ITEM 6 Selected Financial Data 18
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 23
ITEM 8 Financial Statements and Supplementary Data 23
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 24
ITEM 9 A. Controls and Procedures 24
ITEM 9 A(T). Controls and Procedures 24
ITEM 9B Other Information 25
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 25
ITEM 11 Executive Compensation 28
ITEM 12 Security Ownership of Certain Beneficial Owners and Manage-
ment and Related Stockholder Matters 32
ITEM 13 Certain Relationships and Related Transactions, and Director
Independence 34
ITEM 14 Principal Accounting Fees and Services 34
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 36
SIGNATURES 37
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
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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 2400 Central Avenue, Suite G, Boulder, Colorado 80301.
The Company maintains a website at www.tombstonetechnologies.com, which is not
incorporated in and is not a part of this report.
Change of Operational Focus
---------------------------
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 manufacturing and marketing of customized playing
cards.
During the year ended December 31, 2007, Tombstone, as part of the manufacturing
and printing of customized playing cards, created a technology division in order
to handle the development, marketing and licensing 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.
While developing customization playing cards operations, the Company discovered
that the software tools needed to support its operations did not exist at that
time.
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
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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.
During the second and third quarters of 2008, Tombstone's management made the
decision to focus a majority of the Company's efforts and resources on the
development and marketing of the OIEPrint(TM) software. While Tombstone will
continue to offer customized playing cards, it has determined that this will be
a smaller part of its operations.
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.
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
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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
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.
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.
6
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
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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
generate revenues.
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.
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.
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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.
7
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.
Tombstone's officers and Directors may have conflicts of interest which may not
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be resolved favorably to the Company.
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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's Warrantholders and Optionholders may not exercise their purchase
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rights.
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It is very unlikely that any security holder would exercise either Tombstone's
Warrants or the Options.
Tombstone has a minimal operating history, so investors have no way to gauge
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Tombstone's long term performance.
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Tombstone was incorporated on April 29, 2005 based on a concept to sell
customized, professional-quality playing cards via the Internet. During the year
ended December 31, 2008, the Company changed its business focus to the
development of its OIEPrint software. As evidenced by the financial reports
Tombstone has had minimal revenue. It must be regarded as a new or development
venture with all of the unforeseen costs, expenses, problems, and difficulties
to which such ventures are subject. The venture must be considered highly
speculative.
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.
Tombstone will depend upon Management but Tombstone will have limited
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participation of management.
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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
8
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.
---------------
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
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.
9
Tombstone may depend upon Outside Advisors, who may not be available on
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reasonable terms and as needed.
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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.
------------------------------
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
produced graphic design and printed products using self-service alternatives.
Furthermore, Tombstone may have to incur significantly higher and more sustained
10
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
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Company's business and results of operations.
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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.
If Tombstone is unable to market and sell products and services beyond its
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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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11
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." Tombstone's Units
trade on the Over-the Counter Bulletin Board under symbol "TMCIU." There is a
limited public market for Tombstone's Common Stock. Tombstone's Units have had
no trading activity during the year ended December 31, 2008. 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
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
12
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 Tombstone's 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, Units or Warrants
--------------------------------------------------------------------------------
at this time.
-------------
Tombstone's Common Stock trades on the Over-the Counter Bulletin Board under the
symbol "TMCI." Tombstone's Units trade on the Over-the Counter Bulletin Board
under symbol "TMCIU." There is a limited public market for Tombstone's Common
Stock and Units 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 consideration
--------------------------------------------------------------------------------
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 one million shares have been reserved.
Award/Earnings/Vesting criteria under the Plan have not been set, however the
price per share for exercise will be no less than $0.55 per Share. 900,000
Options are currently outstanding under the Plan.
13
Tombstone's Stock, Units or Warrants will in all likelihood be thinly traded and
--------------------------------------------------------------------------------
as a result you may be unable to sell at or near ask prices or at all if you
--------------------------------------------------------------------------------
need to liquidate your Shares.
------------------------------
The Shares of Tombstone's Common Stock and Units are thinly-traded on the OTC
Bulletin Board, meaning that the number of persons interested in purchasing
Tombstone's common Shares at or near ask prices at any given time may be
relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that Tombstone is a small company which is
relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and
that even if Tombstone came to the attention of such persons, they tend to be
risk-averse and would be reluctant to follow an unproven, early stage company
such as ours Tombstone or purchase or recommend the purchase of any of
Tombstone's Securities until such time as Tombstone the Company became more
seasoned and viable. As a consequence, there may be periods of several days or
more when trading activity in Tombstone's Securities is minimal or non-existent,
as compared to a seasoned issuer which has a large and steady volume of trading
activity that will generally support continuous sales without an adverse effect
on Securities price. Tombstone cannot give you any assurance that a broader or
more active public trading market for Tombstone's common Securities will develop
or be sustained, or that any trading levels will be sustained. Due to these
conditions, Tombstone can give investors no assurance that they will be able to
sell their Shares or Units at or near ask prices or at all if you need money or
otherwise desire to liquidate their Securities of Tombstone's.
Tombstone's business is highly speculative and the investment is therefore
--------------------------------------------------------------------------------
risky.
------
Due to the speculative nature of Tombstone's business, it is possible that an
investment will result in a total loss to the investor. Investors should be able
to financially bear the loss of their entire investment. Investment should,
therefore, be limited to that portion of discretionary funds not needed for
normal living purposes or for reserves for disability and retirement.
Future Dilution.
----------------
The Units of Tombstone contain Warrants to purchase shares of Common Stock. Upon
exercise of any of the Warrants, holders of Common Stock will suffer dilution of
their interest in the Company unless they in turn exercise Warrants which they
hold, if any. In addition, Warrants will be exercisable.
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 Units, Common Stock or Warrants 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 Units, Common Stock or Warrants and banks may not accept them as collateral
for loans.
14
Investors may be unable to exercise Warrants.
---------------------------------------------
For the life of the Warrants, Tombstone will attempt to maintain a current
registration statement on file with the Securities and Exchange Commission
relating to the Shares of Common Stock issuable upon exercise of the Warrants.
If Tombstone is unable to maintain a current registration statement on file, the
Warrantholders will be unable to exercise the Warrants and the Warrants may
become valueless. Although the Units will not knowingly be sold in any
jurisdiction in which they are not registered or otherwise qualified, purchasers
of the Units may relocate into a jurisdiction in which the securities underlying
the Warrants are not so registered or qualified. In addition, purchasers of the
Warrants in the open market may reside in a jurisdiction in which the Securities
underlying the Warrants are not the qualification of the Securities underlying
the Warrants for sale in all of the states in which the Warrantholders reside,
the Warrantholders in those states may have no choice but to either sell their
Warrants or permit them to expire. Prospective investors and other interested
persons who wish to know whether or not Tombstone's Common Stock may be issued
upon the exercise of Warrants by Warrantholders in a particular state should
consult the securities commission of the state in question. (See "Description of
Securities")
Multiple types of Securities trading may cause confusion to Investors.
----------------------------------------------------------------------
Tombstone has four increments of Securities trading which may cause confusion to
investors resulting in volatile or inconsistent prices in the market, if any
develops, for each of the types of Securities. The increments are Units, Shares,
"A" Warrants and "B" Warrants.
ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
Not Applicable.
ITEM 2. PROPERTIES
-------------------
Tombstone does not own any property, real or otherwise. For the first year, 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 2400 Central Avenue, Suite G, Boulder, Colorado 80301. The
monthly rental approximates $965 per month. The lease is 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, 2008.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
An annual Meeting of Shareholders of the Company was held on July 24, 2008 for
the purposes of:
1. To elect three persons to the Board of Directors for the ensuing year;
2. To authorize a change in the name of this corporation to Tombstone
Technologies, Inc. (requires an amendment to the Articles of
Incorporation);
3. To authorize the creation of Preferred Stock (requires an amendment to
the Articles of Incorporation); and
4. To ratify the appointment of the Company's auditors, Cordovano and
Honeck LLP.
15
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"). In October 2007, Tombstone began trading on the over the counter
bulletin board under the symbol "TMCI." During the period of October 2007
through December 31, 2007, Tombstone's shares did not trade.
During the period January 1, 2008 through December 31, 2008 Tombstone's common
stock had limited trading as shown in the table below.
HIGH LOW
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 period of October 2007 through December 31, 2008, the Company's Units
did not trade.
Holders
There are approximately 47 holders of record of Tombstone common stock as of
December 31, 2008.
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.
16
Shares Eligible for Future Sale
As of December 31, 2008, Tombstone currently has 3,230,000 shares of common
stock outstanding. A current shareholder who is an "affiliate" of Tombstone,
defined in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
Tombstone will be required to comply with the resale limitations of Rule 144. Of
these shares a total of 1,684,000 shares have been held for six months or more
and are eligible for resale under Rule 144 assuming the Company has been a
reporting company for 90 days. Sales by affiliates will be subject to the volume
and other limitations of Rule 144, including certain restrictions regarding the
manner of sale, notice requirements, and the availability of current public
information about Tombstone. The volume limitations generally permit an
affiliate to sell, within any three month period, a number of shares that does
not exceed the greater of one percent of the outstanding shares of common stock
or the average weekly trading volume during the four calendar weeks preceding
his sale. A person who ceases to be an affiliate at least three months before
the sale of restricted securities beneficially owned for at least two years may
sell the restricted securities under Rule 144 without regard to any of the Rule
144 limitations.
Recent Sales of Unregistered Securities
Tombstone made the following unregistered sales of its securities from January
1, 2008 through December 31, 2008.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------ -------------------- -------------- --------------------- ---------------------
3/15/08 Options 125,000 Consulting Services Business Associate
3/15/08 Options 50,000 Consulting Services Business Associate
4/15/08 Options 100,000 Consulting Services Business Associate
6/30/08 Options 50,000 Consulting Services Business Associate
8/8/08 Options 150,000 Services Director
8/8/08 Options 50,000 Consulting Services Business Associate
9/4/08 Options 50,000 Consulting Services Business Associate
12/3/08 Options 25,000 Consulting Services Business Associate
17
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.
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, 2008, Tombstone had cash on hand of $11,882. The Company intends
to use its cash funds to continue operations. Tombstone intends to continue to
develop the business opportunities presented by Tombstone's OIEPrint(TM)
software and its business in the printing of custom playing cards. The
development of the business opportunities includes continued marketing efforts
and product testing over the next twelve months.
During the year ended December 31, 2008, the Company has focused on the
continued development of the Company's OIEPrint software and conducted the beta
testing of such software. With the completion of the testing of the software,
the Company began to offer the software for sale starting in October 2008. The
Company offers two products:
o OIEPrint - is a platform, independent browser-based R (RIA) that
supports template driven design and provides high-resolution PDF files
to the printer; and
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").
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.
18
While each product will be available as a stand-alone license, the Company is
offering a fully hosted solution for a monthly fee. Customization and
implementation fees are also anticipated. Tombstone will offer the products
through its Company, via an outbound sales staff that utilizes Web-based demos
and Web-video in order to engage customers.
During the third quarter of the year ended December 31, 2008, the Company's
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. As a result, the Company
has impaired the value of the of its playing card property to zero and has
accounted for such properties and operations as discontinued operations.
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.
In addition, the United States and the global business community is experiencing
severe instability in the commercial and investment banking systems which is
likely to continue to have far-reaching effects on the economic activity in the
country for an indeterminable period. The long-term impact on the United States
economy and the Company's operating activities and ability to raise capital
cannot be predicted at this time, but may be substantial.
RESULTS OF OPERATIONS
---------------------
For The Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007
During the year ended December 31, 2008 and 2007, Tombstone did not recognize
any revenues from its continuing operations.
During the year ended December 31, 2008, Tombstone incurred general and
administrative expenses of $323,760 compared to $318,994 during the year ended
December 31, 2007. The increase of $4,766 was due in part to the Company's
increased operational activities compared to the prior period. During the year
ended December 31, 2008, general and administrative expenses included $52,862 in
stock compensation expenses, $23,441 accounting and $144,037 payroll expense.
During the year ended December 31, 2008, the Company recognized a loss before
discontinued operations of $320,355 compared to $297,048 during the year ended
December 31, 2007. The increase of $23,307 is a result of decrease of $18,054 in
interest income combine with the $4,766 increase in general and administrative
expenses discussed above.
During the year ended December 31, 2008, the Company incurred a net loss of
$380,089 compared to a net loss of $342,425 for the year ended December 31,
2007. The decrease of $37,664 was due to the $18,054 decrease in operational
losses from continuing operations combined with the $12,758 in losses from the
abandonment of the playing card component.
19
During the year ended December 31, 2008, Tombstone recognized a net loss per
share of $0.12 compared to a net loss per share of $0.11 per share during the
year ended December 31, 2007.
Liquidity and Capital Resources for the Year Ended December 31, 2008 and the
--------------------------------------------------------------------------------
Period From April 29, 2005(Inception) Through December 31, 2008
---------------------------------------------------------------
At December 31, 2008, Tombstone had cash and cash equivalents of $11,882 and
total current assets of $14,119 and current liabilities of $42,404. At December
31, 2008, current liabilities exceed current assets by $28,205.
Net cash used in operating activities during the year ended December 31, 2008
was $252,007, compared to net cash used in operating activities during the year
ended December 31, 2007 of $293,449. 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, 2007, the net cash used represented a net
loss of $342,425, adjusted certain non-cash items consisting of stock based
compensation of $48,205 and depreciation expense of $8,168.
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, 2007, the Company used cash of $27,453 in its investing activities to
purchase equipment.
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, 2007, the Company neither received nor used in its
financing activities.
During the year ended December 31, 2008, the Company granted vested options
exercisable for 600,000 shares of the Company's common stock in exchange for
consulting services. The Company recognized compensation expenses of $52,862 in
connection with the grant.
Going Concern
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2008 and 2007 includes a "going concern"
uncertainty 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.
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
20
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, 2008 and 2007. 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.
The Company recognizes revenue pursuant to Securities and Exchange Commission,
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, as amended by SAB No. 104 Revenue Recognition. Consistent with the
requirements of these SABs, revenue is recognized only when: a) persuasive
evidence of arrangement exists, b) delivery has occurred, c) the seller's price
to the buyer is fixed, and d) collection is reasonably assured.
Stock-based Compensation
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R, which addresses
the accounting for share-based payment transactions. SFAS No. 123R eliminates
the ability to account for share-based compensation transactions using APB No.
25 and generally requires instead that such transactions be accounted and
recognized in the statement of operations based on their fair value. Application
of SFAS 123R requires the use of significant estimates, including expected
volatility, expected term, risk-free interest rate and forfeiture rate. SFAS
123R was effective for Tombstone beginning July, 2006.
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.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141 (R), Business Combinations ("SFAS 141 (R)"), which becomes effective for
fiscal periods beginning after December 15, 2008. SFAS No. 141 (R) requires all
business combinations completed after the effective date to be accounted for by
21
applying the acquisition method (previously referred to as the purchase method).
Companies applying this method will have to identify the acquirer, determine the
acquisition date and purchase price, and recognize at their acquisition date
fair values of the identifiable assets acquired, liabilities assumed, and any
non-controlling interests in the acquiree. In the case of a bargain purchase,
the acquirer is required to reevaluate the measurements of the recognized assets
and liabilities at the acquisition date and recognize a gain on that date if an
excess remains. The Company does not expect the adoption of this statement to
have a material impact on its financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an Amendment of ARB 51 ("SFAS 160") which
becomes effective for fiscal periods beginning after December 15, 2008. This
statement amends ARB 51 to establish accounting and reporting standards for
non-controlling interests in a subsidiary and for the deconsolidation of a
subsidiary. The statement requires ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity, but separate
from the parent's equity. The statement also requires consolidated net income to
be reported at amounts that include the amounts attributable to both the parent
and the non-controlling interest, with disclosure on the face of the
consolidated statement of income of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest. In addition,
this statement establishes a single method of accounting for changes in a
parent's ownership interest in a subsidiary that do not result in
deconsolidation and requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. The Company does not expect the
adoption of this statement to have a material impact on its financial
statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment to FASB
Statement No. 115. This statement permits companies to choose to measure many
financial instruments and other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurement of accounting for financial instruments, and the fair value option
established by this statement permits all entities to measure eligible items at
fair value at specified election dates. This statement was effective for the
Company on January 1, 2008. The Company did not apply the fair value option to
any of its outstanding instruments and therefore SFAS No. 159 did not have an
impact on the Company's financial statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires additional disclosure
related to derivatives instruments and hedging activities. The provisions of
SFAS No. 161 are effective for fiscal years and interim periods beginning after
November, 15, 2008, and the Company is currently evaluating the impact of
adoption.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3,
Determination of the Useful Life of Intangible Assets. This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, "Goodwill and Other Intangible Assets." The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under Statement 142 and the period of expected cash flows used
to measure the fair value of the asset under FASB Statement No. 141 (Revised
2007), "Business Combinations," and other U.S. generally accepted accounting
principles (GAAP). This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company does not expect the
adoption of FSP 142-3 to have a material effect on its results of operations and
financial condition.
22
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles." The Company does not expect the adoption of SFAS 162 to have a
material effect on its results of operations and financial condition.
In May 2008, the FASB issued FASB Staff Position (FSP) No. APB 14-1 Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis and will be adopted by the Company in the first quarter of fiscal 2009.
The Company does not expect the adoption of FSP APB 14-1 to have a material
effect on its results of operations and financial condition.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The audited financial statements of Tombstone Technologies, Inc. for the year
ended December 31, 2008, period from April 29, 2005 (inception) through December
31, 2007, and period from April 29, 2005 through December 31, 2008, appear as
pages F-3 through F-6.
23
Tombstone Technologies, Inc.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2008, PERIOD FROM
APRIL 29, 2005 (INCEPTION) THROUGH DECEMBER 31, 2007, AND
PERIOD FROM APRIL 29, 2005 THROUGH DECEMBER 31, 2008
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Index to Financial Statements
Page
------
Independent Auditors' Report..............................................F-2
Balance Sheets at December 31, 2008 and 2007..............................F-3
Statements of Operations for the Years Ended December 31, 2008
and 2007..............................................................F-4
Statement of Changes in Shareholders' Equity for the
period from January 1, 2007 through December 31, 2008.................F-5
Statements of Cash Flows for the Years Ended December 31, 2008
and 2007..............................................................F-6
Notes to Financial Statements.............................................F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Tombstone Technologies, Inc.:
We have audited the accompanying balance sheet of Tombstone Technologies, Inc.
as of December 31, 2008 and 2007, and the related statements of operations,
changes in shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 2008. 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, 2008 and 2007, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
As shown in the financial statements, the Company incurred a net loss of
$380,089 for 2008 and has incurred substantial net losses for each of the past
three years. At December 31, 2008, current liabilities exceed current assets by
$28,285. 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 13, 2009
F-2
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Balance Sheets
December 31,
--------------------------------------
2008 2007
------------------ ------------------
Assets
Current assets
Cash and cash equivalents.................................................... $ 11,882 $ 313,498
Accounts receivable, net..................................................... 383 9,256
Prepaid expenses............................................................. 1,854 1,494
------------------ ------------------
Total current assets............................................... 14,119 324,248
Property and equipment, net of accumulated depreciation (Note 3)............. 17,591 21,078
Net assets of discontinued operations (Note 4)............................... -- 17,789
Deferred software development costs (Note 3)................................. 53,450 13,604
Intangible assets, net of accumulated amortization........................... 484 --
------------------ ------------------
Total assets....................................................... $ 85,644 $ 376,719
================== ==================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities..................................... $ 39,707 $ 578
Unearned revenue............................................................. -- 448
Current portion - capital lease obligation................................... 2,697 1,992
------------------ ------------------
Total current liabilities.......................................... 42,404 3,018
Capital lease obligation, less current portion (Note 1 and Note 3).............. 1,542 4,776
------------------ ------------------
Total liabilities.................................................. 43,946 7,794
------------------ ------------------
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized,
-0- and -0- shares issued and outstanding.................................. -- --
Common stock, no par value; 100,000,000 shares authorized,
3,230,000 and 3,230-,000 shares issued and outstanding..................... 816,305 816,305
Additional paid-in capital................................................... 134,892 82,030
Deficit accumulated during development stage................................. (909,499) (529,410)
------------------ ------------------
Total shareholders' equity......................................... 41,698 368,925
------------------ ------------------
Total liabilities and shareholders' equity......................... $ 85,644 $ 376,719
================== ==================
See accompanying notes to financial statements
F-3
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Statements of Operations
For the Years
Ended
December 31,
----------------------------------
2008 2007
---------------- ----------------
Continuing operations:
Selling, general and administrative expenses..............$ 323,760 $ 318,994
---------------- ----------------
Loss from continuing operations................ (323,760) (318,994)
Other income and (expense):
Interest income........................................... 3,893 21,947
Interest expense.......................................... (488) --
---------------- ----------------
3,405 21,947
Loss before income taxes and
discontinued operations................................. (320,355) (297,048)
Income tax provision.......................................... -- --
---------------- ----------------
Loss before discontinued operations..................... (320,355) (297,048)
Discontinued operations:
Loss from operations of playing card
component, net of taxes................................. (46,976) (45,377)
Loss from abandonment of playing card
component, net of taxes................................. (12,758) --
---------------- ----------------
Net loss.......................................$ (380,089) $ (342,425)
================ ================
Basic and diluted loss per share..............................$ (0.12) $ (0.11)
================ ================
Basic and diluted weighted average
common shares outstanding................................. 3,230,000 3,230,000
================ ================
See accompanying notes to financial statements
F-4
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Statement of Changes in Shareholders' Equity
Additional
Common Stock Paid-in Accumulated
-----------------------------------
Shares Amount Capital Deficit Total
---------------- ---------------- ----------------- ----------------- -------------
Balance at December 31, 2006............... 3,230,000 $ 816,305 $ 33,825 $ (186,985) $ 663,145
Stock options and warrants vested...... -- -- 48,205 -- 48,205
Net loss............................... -- -- -- (342,42 342,425)
---------------- ---------------- ----------------- ----------------- -------------
Balance at December 31, 2007............... 3,230,000 816,305 82,030 (529,410) 368,925
---------------- ---------------- ----------------- ----------------- -------------
Stock options and warrants vested...... -- -- 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
================ ================ ================= ================= =============
See accompanying notes to financial statements
F-5
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Statements of Cash Flows
For the Years
Ended
December 31,
------------------------------------
2008 2007
----------------- -----------------
Cash flows from operating activities:
Net loss......................................................$ (380,089) $ (342,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock-based compensation...................................... 52,862 48,205
Depreciation Expense.......................................... 10,237 8,168
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable................ 8,873 (9,256)
Decrease (increase) in prepaid expenses................... (360) 7,918
Decrease (increase) in inventories........................ -- (4,760)
Loss on write off of assets of discontinued
playing card component (Note 4)......................... 17,789 --
(Decrease) increase in accounts payable................... 38,681 (1,299)
----------------- -----------------
Net cash flows used in
operating activities............................. (252,007) (293,449)
----------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment............................ (6,750) (27,453)
Patent application costs...................................... (484) --
Purchase of software.......................................... (39,846) --
----------------- -----------------
Net cash flows used in
investing activities............................. (47,080) (27,453)
----------------- -----------------
Cash flows from financing activities:
Cash payments on capital lease................................ (2,529) --
----------------- -----------------
Net cash flows used in
financing activities............................. (2,529) --
----------------- -----------------
cash equivalents................................. (301,616) (320,902)
Cash and cash equivalents:
Beginning of year............................................. 313,498 634,400
----------------- -----------------
End of year...................................................$ 11,882 $ 313,498
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes................................................$ -- $ --
================= =================
Interest....................................................$ -- $ --
================= =================
See accompanying notes to financial statements
F-6
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
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 4).
We have had limited operations since inception. Those operations have focused on
the structure and capital formation of the Company and on the manufacturing and
marketing of customized playing cards.
In 2007, as part of our manufacturing and printing of customized playing cards
business, we researched the technology to handle the development, marketing and
licensing of software targeting the local printers industry.
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 and marketing of the local printer's industry software. We are
no longer promoting our customized playing cards and we have abandoned, for all
intents and purposes, the customized playing card business.
We plan to offer 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.
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.
There is no assurance, of course, of market acceptance, or that, if accepted,
the new products will be profitable.
Development Stage Company
During 2007, we emerged from the development stage.
Uncertainties:
We have suffered losses from operations since inception and at December 31,
2008, we have a deficit in working capital such that we are unable to meet our
obligations as they come due without raising additional debt or equity capital.
Currently, we have negative trends.
We have plans in place for dealing with the effects of the above adverse
conditions and events. We plan to launch our first two products during the 2nd
quarter of 2009. In addition to the proceeds from the sale of our products, we
F-7
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
plan to raise $150,000 through the sale of convertible promissory notes payable.
We commenced the offering of such notes in the first quarter of 2009. As of
March 25, 2009, we have raised $5,000 in proceeds from the offering. The
proceeds from this offering, assuming we sell out, should alleviate substantial
doubt about of ability to continue as a going concern through July 2009. We plan
to raise additional funds before August 2009, if necessary. We plan to
periodically raise capital until we cash flow from operations.
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 $-0- and $304,489
cash equivalents at December 31, 2008 and 2007, respectively.
Accounts Receivable:
The allowance for doubtful accounts, which is $-0- and $-0- at December 31, 2008
and 2007, respectively, is based on an assessment of the collectibility 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.
Inventories
Inventories are stated at the lower of cost (determined on an average cost) or
market value. (See discontinued operations).
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.
Unamortized Software Development Costs
Software development costs include payments made to independent software
developers under agreement. We account for software development costs in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." 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. We evaluate the future
recoverability of capitalized software development costs on a quarterly basis.
F-8
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
Long-lived assets
Long-lived assets include property and equipment, equity investments and
intangible assets. Whenever events or changes in circumstances indicate that the
carrying amounts of long-lived assets may not be recoverable, we estimate the
future cash flows, undiscounted and without interest charges, expected to result
from the use of those assets and their eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of those assets, we
recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets.
Financial Instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash and cash
equivalents, and accounts payable approximate fair value due to the short-term
maturity of the instruments.
Income Taxes
We account for income taxes under the provisions of SFAS No. 109, Accounting for
Income Taxes (SFAS 109). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Advertising Costs
All advertising costs are expensed as incurred. Advertising expenses were $9,574
and $32,275, respectively, for the years ended December 31, 2008 and 2007,
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, 2008 and 2007, there were no variances between basic and diluted
loss per share as the impact of options and warrants outstanding to purchase a
total of 5,020,000 shares of our common stock at December 31, 2008 and 4,570,000
shares of our common stock at December 31, 2007 would have been anti-dilutive.
Share-Based Awards
Share-based compensation awards are recognized at fair value in accordance with
SFAS 123(R), "Accounting for Share-Based Payment."
New Accounting Standards
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (SFAS 162). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with U.S. generally
F-9
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
accepted accounting principles (GAAP). SFAS 162 directs the GAAP hierarchy to
the entity, not the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements (2) Related Party
Transactions.
The Company is indebted to two officers for accrued but unpaid compensation
totalling $36,000 at December 31, 2008.
(3) Balance Sheet Components
Property and equipment
At December 31, 2008 and 2007, major classes of property and equipments were:
December 31,
-----------------------------------
2008 2007
-----------------------------------
Furniture and fixtures.......................$ 1,421 $ 1,421
Office equipment............................. 24,612 21,526
Leased equipment............................. 6,768 6,768
Less: accumulated depreciation............... (15,210) (8,637)
$ 17,591 $ 21,078
Depreciation expense was $10,237 and $8,168, respectively, for the years ended
December 31, 2008 and 2007.
Unamortized Software Development Costs
At December 31, 2008 and 2007, unamortized software development costs were:
December 31,
--------------------------------
2008 2007
---- ----
OEI Print.................................... $ 26,725 $ 13,604
OEI Storefront............................... 26,725 --
We plan to amortize the software development costs over their useful lives once
the software is placed into service.
(4) Discontinued Operations- Playing Card Component
Our playing card component lost $46,976 and $45,377 in 2008 and 2007,
respectively.
During the third quarter of 2008, the Board of Directors resolved to abandon the
manufacture and marketing of customized playing cards and to concentrate on the
development, marketing and licensing of software for the local printers
industry.
In the fourth quarter 2008, we wrote-off the value of our playing card property
as follows:
F-10
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
Unamortized website costs......................$ 6,014
Packaging supplies inventory................... 6,744
--------------
$ 12,758
==============
Results for the discontinued operations were as follows:
Year Ended
December 31,
----------------
2008 2007
--------- --------
Net sales.................................... $ 55,438 $ 43,759
Cost of sales................................ (36,414) (22,886)
Allocated overhead expense................... (66,000) (66,250)
----------- -----------
$ (46,979) $ (45,377)
=========== ===========
The net liabilities of discontinued operations that are included on the Balance
Sheet consisted of the following:
Year Ended
December 31,
----------------
2008 2007
--------- --------
Unamortized website costs.................... $ -- $ 7,732
Shipping containers.......................... -- 3,025
Card decks................................... -- 7,032
----------- -----------
$ -- $ 17,789
=========== ===========
(5) 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
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:
F-11
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
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%
On October 1, 2007, we granted to consultants, options to purchase 280,000
shares of our common stock at an exercise price of $0.75 per share, in exchange
for consulting services. The options vest immediately and expire on August 31,
2009. Our Board of Directors, utilizing appropriate software, estimated the fair
value of the options at $.1256 per share, or $35,168, which was recorded as
stock compensation cost included in general and administrative expenses in the
accompanying financial statements at December 31, 2007.
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate............................ 4.02%
Dividend yield..................................... 0.00%
Volatility factor.................................. 50.00%
Weighted average expected life..................... 3 years
On December 7, 2007, we granted to an employee, an option to purchase 20,000
shares of our common stock at an exercise price of $1.00 per share, in reward
for employee services. The option vests immediately and expires on August 31,
2009. Our Board of Directors, utilizing appropriate software, estimated the fair
value of the warrant at $0.0831 per share, or $1,662, which was recorded as
stock compensation cost included in general and administrative expenses in the
accompanying financial statements at December 31, 2007.
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:
F-12
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
Weighted Weighted
Average Average
Exercise Exercise Remaining
Number Price Price Contractual
of Shares Per Share Per Share Life
-------------- --------------- -------------- ---------------
Outstanding at January 1, 2007................................ 4,270,000 - $ - N/A
Granted....................................................... 300,000 $0.75 - $1.00 $ 0.77 1.83 years
Exercised..................................................... -- -- -- N/A
Cancelled/Expired............................................. -- -- -- N/A
-------------- ------------------------------ ---------------
Outstanding at December 31, 2007.............................. 4,570,000 $0.75 - $1.00 $ 0.77 1.83 years
Granted....................................................... 600,000
Exercised..................................................... -- -- -- N/A
Cancelled/Expired............................................. (150,000) -- -- N/A
-------------- ------------------------------ ---------------
Outstanding at December 31, 2008.............................. 5,020,000 $0.65 - $1.50 $ 0.95 1.35 years
============== ==============
Excerisable at December 31, 2008.............................. 5,020,000 $0.65 - $1.50 $ 0.89 1.35 years
============== ============================== ===============
Year Ended
December 31,
-----------------------
2008 2007
---- ----
Total fair value of options vested during the period $ 52,863 $ 48,205
(6) Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
Year Ended
December 31,
--------------------------------
2008 2007
-------- --------
U.S. statutory federal rate...................... 25% 27.50%
State income tax rate............................ 5% 3.36%
Permanent difference - Contributed services...... -1.90% -1.90%
Net operating loss for which no tax
benefit is currently available................. -28.10% -28.96%
-------- --------
0.00% 0.00%
-------- --------
F-13
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
Notes to Financial Statements
At December 31, 2008, deferred tax assets consisted of a net tax asset of
$148,149 due to operating loss carryforwards of $909,499 which was fully allowed
for, in the valuation allowance of $148,149. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The change
in the valuation allowance for the year ended December 31, 2008 totaled
$380,089. The net operating loss carryforward expires through the year 2028.
At December 31, 2007, deferred tax assets consisted of a net tax asset of
$196,177 due to operating loss carryforwards of $529,410 which was fully allowed
for, in the valuation allowance of $196,177. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The change
in the valuation allowance for the year ended December 31, 2007 totaled
$149,078. The net operating loss carryforward expires through the year 2027.
The valuation allowance is evaluated at the end of each year, considering
positive and negative evidence about whether the deferred tax asset will be
realized. At that time, the allowance will either be increased or reduced;
reduction could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.
(7) Subsequent Event
Through March 25, 2009, we have raised $5,000 in connection with a convertible
promissory note at 8%.
F-14
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, 2008
(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.
Management's assessment of the effectiveness of the registrant's internal
control over financial reporting is as of the year ended December 31, 2008.
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.
24
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, 2008, 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, 2008.
Name Age Position Term
-------------------- ---------- --------------------------------------------- ----------------
John N. Harris 62 President, Chief Executive Officer and Annual
Neil A. Cox 59 Chairman of the Board and Chief Financial Annual
William H. Reilly 55 Chief Operations Officer/Chief Technology Annual
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.
Tombstone's Officers devote substantially all their time to the affairs of the
Company.
President, Chief Executive Officer and Director
John N. Harris, 62
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.
25
Chairman of the Board and Chief Financial Officer
Neil A. Cox, 59
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, 55
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.
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.
26
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.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(s)
forms they file.
The following persons failed to file forms on a timely basis, as required under
Section 16(a) as follows:
John N. Harris - Form 3 and Schedule 13d
William H. Reilly - Form 3
Capital Merchant Banc - Schedule 13d
Michael J. Keate - Schedule 13d
Roland Rosenboom - Schedule 13d
James Scanlon - Schedule 13d
Mike Scanlon - Schedule 13d
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
27
which the Company transacts business. At the date of this Annual Report on Form
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, 2008, 2007 and 2006. 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, 2008.
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. Harris 2008 36,000 0 0 0 0 0 0 36,000
President & 2007 36,000 0 0 0 0 0 0 36,000
CEO (1) 2006 18,000 3,000 0 0 0 0 0 21,000
Neil A. Cox, 2008 36,000 0 0 0 0 0 0 36,000
CFO (1) 2007 36,000 0 0 0 0 0 0 36,000
2006 18,000 3,000 0 0 0 0 0 21,000
William H. 2008 42,000 0 0 150 150
Reilly, 2007 42,000 0 0 0 0 0 0 42,000
COO/CTO (1) 2006 21,000 3,500 0 2,500(2) 0 0 0 27,000
(1) Payroll was made for the months of July-December 2006, therefore the actual
salaries paid were: Neil Cox-$18,000, John Harris-$18,000 and William
Reilly-$21,000, and Messrs. Cox and Harris each received a $3,000 bonus, and Mr.
Reilly received a $3,500 bonus. The executives forgave any salary obligation for
January - June of 2006 in consideration of the bonus paid in August of 2006.
Messrs. Harris and Cox each forwent $15,000, and Mr. Reilly forwent $17,500.
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.
The President, CFO and COO/CTO contributed their management services to
Tombstone's business until June 30, 2006, and were not paid until August 2006.
The President and CFO were paid for July 2006 and August 2006 at the rate of
$3,000 per month. The COO/CTO was paid for July 2006 and August 2006 at the rate
of $3,500 per month. The President and CFO were paid a bonus also of $3,000 for
deferring salaries until August 2006 and the COO/CTO (William Reilly) was paid a
bonus of $3,500 for deferring salaries until August 2006.
(2) 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. During the year ended December 31, 2006, Mr. Reilly was issued an option
28
to purchase 100,000 shares of the Company's common stock. The option has an
exercise price of $0.55 per share and a term of 3 years expiring in August 2009.
The value of the option was determined using the exercise price.
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 $3,500 per month on a month to month
basis without contract.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
-------------------------------------------
The following table sets forth certain information concerning outstanding equity
awards held by the President and the Company's two most highly compensated
executive officers for the fiscal year ended December 31, 2008 the "Named
Executive Officers"):
Option Awards Stock awards
Equity
incentive
Equity plan
incentive Equity awards:
plan incentive Market
awards: plan or
Number of Number of Number of Number Market awards: payout
securities securities securities of value Number value
underlying underlying underlying shares of of of
unexercised unexercised unexercised Option Option or shares unearned unearned
options options (#) unearned exercise expiration units of shares, shares,
Name (#) unexercisable options price date of units units or units
exercisable (#) ($) stock of other or
that stock rights others
have that that rights
not have have not that
vested not vested have
(#) vested (#) not
($) vested
($)
---------- ------------ ------------- ------------ --------- ---------- -------- ------- ---------- ---------
Neil A. -0- -0- -0- $ -0- - -0- $ -0- -0- -0-
Cox
John N. -0- -0- -0- $ -0- - -0- $ -0- -0- -0-
Harris
William 150,000 -0- -0- $0.65 08/2009 -0- $ -0- -0- -0-
H. Reilly 100,000 -0- -0- $0.55 08/2009 -0- $ -0- -0- -0-
29
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, 2008:
Non-qualified
Non-equity deferred
Fees incentive plan compensation All other
earned Stock Option compensation ($) earnings compensation Total
Name or paid awards awards ($) ($) ($) (1) ($)
in cash ($)
($)
------------- ---------- ---------- ----------- ----------------- ---------------- ----------------- --------
Neil A. Cox $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
John N. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Harris
William H. $ -0- $ -0- $150 $ -0- $-0- $ -0- $ 150
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.
(2) Mr. Reilly was granted an option exercisable for 150,000 shares in
August 2008. The Option has an exercise price of $0.65 per share. The
Option was valued using the Black-Scholes Method at $0.001 per share
for $150.
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, 2008, 900,000 options are
outstanding under the 2006 Option Plan of which 900,000 are exercisable. During
the year ended December 31, 2008, the Company issued 600,000 shares under the
option plan, of which 150,000 shares were issued to an officer of the Company.
Tombstone has reserved 1,000,000 shares of common stock for issuance under the
2006 Option Plan.
30
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,
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.
31
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, 2008, 900,000 options are
outstanding under the 2006 Option Plan of which 900,000 are exercisable. During
the year ended December 31, 2008, the Company issued 600,000 shares under the
option plan, of which 150,000 shares were issued to an officer of the Company.
The Company has reserved 1,000,000 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.
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
32
of December 31, 2008. The total shares outstanding as of December 31, 2008 was
3,230,000.
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 500,000 6%
Common shares Neil A. Cox 500,000 6%
CFO & Director
5380 Highlands Drive
Longmont, CO 80503
Common shares William H. Reilly(2) 125,000 2%
COO/CTO & Director
4859 Dakota Blvd.
Boulder, CO 80304
Common shares Capital Merchant Banc(3) 600,000 7%
600 N. Bradley Road
Lake Forest, IL 60045
Common shares Michael J. Keate(4) 600,000 7%
7841 Marguette Dr. South
Tinley Park, IL 60477
Common shares Roland Rosenboom(5) 600,000 7%
585 S. Main St.
Clifton, IL 60927
Common shares James Scanlon(6) 600,000 7%
9048 W. 5000 South Rd.
Herscher, IL 60941
Common shares Mike Scanlon(7) 600,000 7%
2316 Sunset View Rd.
Kankakee, IL 60901
All Directors and
Executive Officers as a
Group (3 persons) 1,125,000 14%
(1) Based upon 3,230,000 shares of common stock issued and outstanding on
December 31, 2008, warrants exercisable for 3,460,000 shares of common
stock and options exercisable for 1,500,000 shares of common stock,
there would be 8,190,000 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 100,000 shares of common stock.
(3) The Capital Merchant Bank holds these 600,000 warrants beneficially
for Joseph Kurczodyna.
(4) Consists of 200,000 shares of common stock and warrants exercisable
for 400,000 shares of common stock.
33
(5) Consists of 200,000 shares of common stock and warrants exercisable
for 400,000 shares of common stock.
(6) Consists of 200,000 shares of common stock and warrants exercisable
for 400,000 shares of common stock.
(7) Consists of 200,000 shares of common stock and warrants exercisable
for 400,000 shares of common stock.
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
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.
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.
34
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2008 and December 31, 2007 by Cordovano and Honeck,
LLP.
Year Ended December 31,
2008 2007
------------------- -----------------
Audit Fees $ 15,329 $ 13,870
Audit-related Fees $ 0 $8,246
Tax Fees $ 625 $525
All Other Fees $ 0 $ 0
------------------- -----------------
Total Fees $ 15,954 $ 22,641
All audit work was performed by the auditors' full time employees.
Audited related fees during the year ended December 31, 2007, were $8,246 and
consisted of the following activities, reviewing Form SB-2/A (various amendment
thereof), and draft consent; review of registration statements and prospectus
and comparing disclosures with financial statements and working papers
Tombstone's corporate tax returns are prepared by J.L Griffin & Company, P.C.
35
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, 2008
(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 - N/A
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act
32.1 Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act
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., 2400 Central Avenue, Suite G,
Boulder, CO 80301.
36
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 30, 2009
By: /s/ John N. Harris
----------------------------------
John N. Harris
President, Chief Executive Officer
and Director
Dated: March 30, 2009
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 30, 2009 /s/ John N. Harris
---------------------------------------
John N. Harris, President, Chief
Executive Officer and Director
Dated: March 30, 2009 /s/ Neil A. Cox
---------------------------------------
Neil A. Cox, Chief Financial Officer
and Chairman of the Board
Dated: March 30, 2009 /s/ William H. Reilly
---------------------------------------
William H. Reilly, Chief Operating
Officer, Chief Technology Officer and
Director
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