UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007
OR
[ ] TRANSITION REPORT PURUSANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number : 333-138184
TOMBSTONE CARDS, INC.
---------------------
(Exact name of small business issuer as specified in its charter)
Colorado 51-0541963
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2400 Central Avenue, Suite # G
Boulder, CO 80301
--------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (303) 684-6644
Check whether the issuer (1) has filed all reports required to be filed by
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No __
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes__ No X
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 13, 2007 there were 3,230,000 shares of the registrant's sole
class of common shares outstanding.
Transitional Small Business Disclosure Format Yes __ No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Condensed Balance Sheet at September 30, 2007 F-1
CondensedStatements of Operations for the nine months ended September
30, 2007 and 2006, for the three moths ended September 30,
2007 and 2006, and for the period from
April 29, 2005 (Inception) through September 30, 2007 F-2
CondensedStatement of Changes in Stockholders' Equity for the period
from April 29, 2005 (Inception) through
September 30, 2007 F-3
CondensedStatements of Cash Flows for the nine months ended September
30, 2007 and 2006 and for the period from
April 29, 2005 (Inception) through September 30, 2007 F-4
Notes to the Condensed Financial Statements F-5
Item 2. Management's Discussion and Analysis 1
Item 3. Controls and Procedures 3
Item 3(A)T. Controls and Procedures 3
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -Not Applicable 4
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 4
- Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable 4
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 4
Item 5. Other Information - Not Applicable 4
Item 6. Exhibits 5
SIGNATURES 6
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Forward-Looking Statements
We make forward-looking statements in this report that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives. In some cases, you may
identify forward-looking statements by words such as "may," "should," "plan,"
"intend," "potential," "continue," "believe," "expect," "predict," "anticipate"
and "estimate," the negative of these words or other comparable words. These
statements are only predictions. You should not place undue reliance on these
forward-looking statements. The forward-looking statements are qualified by
their terms and/or important factors, many of which are outside our control,
involve a number of risks, uncertainties and other factors, that could cause
actual results and events to differ materially from the statements made. Such
factors include, among other things, those described elsewhere in this report
and the following:
Criminal procedure court rulings regarding right to privacy;
General economic and business conditions in the United States;
Defects in products could result in litigation and other significant
costs; and
Other factors detailed in our filings with the Securities and Exchange
Commission.
The forward-looking statements are based on our beliefs, assumptions and
expectations of our future performance, taking into account information
currently available to us. These beliefs, assumptions and expectations can
change as a result of many possible events or factors, including those events
and factors detailed in our filings with the Securities and Exchange Commission,
not all of which are known to us. Neither we nor any other person assumes
responsibility for the accuracy or completeness of these statements. We will
update this report only to the extent required under applicable securities laws.
If a change occurs, our business, financial condition, liquidity and results of
operations may vary materially from those expressed in our forward-looking
statements.
TOMBSTONE CARDS, INC.
(A Development Stage Company)
Balance Sheet
September 30, 2007
(Unaudited)
Assets
Current assets
Cash and cash equivalents.................................................$ 408,209
Accounts receivable, net.................................................. 5,974
Inventory, at cost........................................................ 10,164
Prepaid expenses.......................................................... 1,066
---------------------
Total current assets............................................ 425,413
Equipment, net of accumulated depreciation of $2,963....................... 44,236
---------------------
Total assets....................................................$ 469,649
=====================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities...................................$ 3,615
Current portion - capital lease obligation................................. 1,992
---------------------
Total current liabilities....................................... 5,607
Capital lease obligation, less current portion................................. 4,776
---------------------
Total liabilities............................................... 10,383
---------------------
Shareholders' equity
Common stock............................................................... 816,305
Additional paid-in capital................................................. 48,450
Deficit accumulated during development stage............................... (405,489)
---------------------
Total shareholders' equity...................................... 459,266
---------------------
Total liabilities and shareholders' equity......................$ 469,649
=====================
See accompanying notes to financial statements
F-1
TOMBSTONE CARDS, INC.
(A Development Stage Company)
Statement of Operations
(Unaudited)
il 29, 2005
For the Nine For the Three (Inception)
Months Ended Months Ended Through
September 30, September 30, September 30,
------------------------------ -----------------------------
2007 2006 2007 2006 2007
-------------- -------------- -------------- ------------- -------------
Sales...........................................$ 16,510 $ -- $ 11,461 $ -- $ 16,510
Cost of sales.................................... 9,397 -- 5,809 -- 9,397
-------------- -------------- -------------- ------------- -------------
Gross profit................................. 7,113 -- 5,652 -- 7,113
Expenses
Contributed services by founders............. -- 10,000 -- -- 20,000
Selling, general and administrative expenses. 243,613 85,964 100,427 66,809 423,071
-------------- -------------- -------------- ------------- -------------
Loss from operations.............. (236,500) (95,964) (94,775) (66,809) (435,958)
Other income
Interest income.............................. 17,996 5,318 5,173 4,868 30,469
-------------- -------------- -------------- ------------- -------------
Loss before income taxes.......... (218,504) (90,646) (89,602) (61,941) (405,489)
Income tax provision............................. -- -- -- -- --
-------------- -------------- -------------- ------------- -------------
Net loss.........................$ (218,504) $ (90,646) $ (89,602) $ (61,941) $ (405,489)
============== ============== ============== ============= =============
Basic and diluted loss per share................$ (0.07) $ (0.05) $ (0.03) $ (0.02)
============== ============== ============== =============
Basic and diluted weighted average
common shares outstanding................... 3,230,000 1,845,111 3,230,000 3,155,000
============== ============== ============== =============
See accompanying notes to financial statements
F-2
TOMBSTONE CARDS, INC.
(A Development Stage Company)
Statement of Changes in Shareholders' Equity
(Unaudited)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
-----------------------------------
Shares Amount Capital Stage Total
---------------- ---------------- ----------- ------------ ----------------
Balance at April 29, 2005 (inception)............ -- $ -- $ -- $ -- $ --
July and August 2005, sale of common
stock at $0.01 per share, net of $3,000
in offering costs............................ 1,500,000 12,000 -- -- 12,000
Contributed services by founders............... -- -- 10,000 -- 10,000
Net loss....................................... -- -- -- (18,252) (18,252)
---------------- ---------------- ----------- ------------ ----------------
Balance at December 31, 2005....................... 1,500,000 12,000 10,000 (18,252) 3,748
April through September 2006, sale of common
stock at $0.50 per share, net of $60,695
offering costs............................... 1,730,000 804,305 -- -- 804,305
May 2006, stock options granted................ -- -- 4,800 -- 4,800
August 2006, stock options and warrants vested. -- -- 9,025 -- 9,025
Contributed services by founders............... -- -- 10,000 -- 10,000
Net loss....................................... -- -- -- (168,733) (168,733)
---------------- ---------------- ----------- ------------ ----------------
Balance at December 31, 2006....................... 3,230,000 816,305 33,825 (186,985) 663,145
Stock options and warrants vested.............. -- -- 14,625 -- 14,625
Net loss....................................... -- -- -- (218,504) (218,504)
---------------- ---------------- ----------- ------------ ----------------
Balance at September 30, 2007...................... 3,230,000 $ 816,305 $ 48,450 $ (405,489) $ 459,266
================ ================ =========== ============ ================
See accompanying notes to financial statements
F-3
TOMBSTONE CARDS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
April 29, 2005
For the Nine (Inception)
Months Ended Through
September 30, September 30,
---------------------------------------
2007 2006 2007
----------------- ------------------- --------------------
Cash flows from operating activities:
Net cash flows used in
operating activities $ (202,946) $ (81,488) $ (367,665)
----------------- ------------------- --------------------
Cash flows from investing activities:
Purchase of property and equipment (23,245) (1,580) (40,431)
----------------- ------------------- --------------------
Net cash flows used in
investing activities (23,245) (1,580) (40,431)
----------------- ------------------- --------------------
Cash flows from financing activities:
Proceeds from sale of common stock -- 865,000 880,000
Payments for stock offering costs -- (60,695) (63,695)
----------------- ------------------- --------------------
Net cash flows provided by
financing activities -- 804,305 816,305
----------------- ------------------- --------------------
cash equivalents (226,191) 721,237 408,209
Cash and cash equivalents:
Beginning of period 634,400 6,286 --
----------------- ------------------- --------------------
End of period $ 408,209 $ 727,523 $ 408,209
================= =================== ====================
Supplemental disclosure of cash flow information:
Cash paid during the period
for:
Income taxes $ -- $ -- $ --
================= =================== ====================
Interest $ -- $ -- $ --
================= =================== ====================
Noncash investing and financing transactions:
Equipment acquired under capital lease $ 6,768 $ -- $ 6,768
================= =================== ====================
See accompanying notes to finanical statements.
F-4
TOMBSTONE CARDS, INC.
(A Development Stage Company)
Note to Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
-----------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2007, the results of operations for the nine and three months ended September
30, 2007 and 2006 and for the period from April 29, 2005 (Inception) to
September 30, 2007, and cash flows for the nine months ended September 30, 2007
and for the period from April 29, 2005 (Inception) to September 30, 2007. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto contained in the Company's annual report on Form
SB-2 for the year ended December 31, 2006. There have been no updates or changes
to our audited financial statements for the year ended December 31, 2006.
There is no provision for dividends for the quarter to which this quarterly
report relates.
The results of operations for the nine and three month ended September 30, 2007
are not necessarily indicative of the results to be expected for the full year.
Note 2: Inventories
-------------------
At September 30, 2007 inventory consisted of:
Raw Materials $ 10,164
=================
Note 3: Shareholders' Equity
----------------------------
The Company has granted to a contractor options to purchase shares of the
Company's common stock which vested on August 2007. Compensation expense related
to these unvested awards of $14,625 has been recorded in the nine-month period
ended September 30, 2007.
Note 4: Capital Lease Obligation
--------------------------------
In September 2007, the Company entered into a capital lease agreement to acquire
certain office equipment. The net book value of the leased property at September
30, 2007 was $6,768, net accumulated depreciation of $-0-.
Future aggregate minimum lease payments under the capital leases as of September
30, 2007 are as follows:
F-5
2007..............................$ 678
2008.............................. 2,697
2009.............................. 2,697
2010.............................. 2,023
-----------------
8,095
Less: Interest portion........... (1,327)
-----------------
$ 6,768
=================
Note 5: Income Taxes
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." The Company incurred
net operating losses during the periods shown on the condensed financial
statements resulting in a deferred tax asset, which was reserved; therefore the
net benefit and expense resulted in $-0- income taxes.
F-6
Item 2. Management's Discussion and Analysis
Certain statements contained in this Form 10-QSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties that could
cause actual results to differ materially from the results, financial or
otherwise, or other expectations described in such forward-looking statements.
Any forward-looking statement or statements speak only as of the date on which
such statements were made, and the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statements are made or reflect the occurrence of unanticipated
events. Therefore, forward-looking statements should not be relied upon as
prediction of actual future results.
Plan of Operation
-----------------
Tombstone Cards, Inc. sells and markets personalized decks of playing cards
using an online graphic tool that allows the purchaser to design the cards and
then the Company handles the printing, production and shipping of the cards. We
are currently offering a single product, but with a number of customization
options for the consumer and business markets. Our products provides customers
the ability to make personal statements about themselves, design unique gifts,
and advertise their business with an item that is both "cool" and "fun" in
addition to the cards being an ancillary product that can generate revenues for
them.
At September 30, 2007, we had cash on hand, of $408,209, which we believe will
be adequate for it to be competitive in the areas in which it intends to operate
although we will need to raise additional funds in order to fully implement our
business plan. We intend to use our cash funds to continue to support
operations. During the next six months, we will continually analyze customer
purchases, focusing on the use of our pre-designed templates that allow a high
level of customization. Based on these observations we will add to our library
of templates, adding more choices to the most popular areas, making alterations
in or eliminating templates for low sellers.
In the continuance of our business operations we do not intend to purchase or
sale any significant assets and we do not expect a significant change in the
number of employees.
We will attempt to raise additional funds over the next 12 months through
exercise of existing warrants and options or through private placements;
however, there can be no assurance that we will be successful in raising such
additional funds. Regardless of whether our cash assets prove to be inadequate
to meet our operational needs, we might seek to compensate providers of services
by issuance of stock in lieu of cash.
Our continued operations therefore will depend upon our ability to increase
revenues and/or raise additional funds through exercise of warrants/options,
bank borrowings, equity or debt financing. While we have been successful in
raising funds to date, there is no assurance that we will be able to obtain
additional funding when needed, or that such funding, if available, can be
obtained on terms acceptable to us. If we cannot obtain needed funds, we may be
forced to curtail or cease its activities.
1
Results of Operations
---------------------
The Nine Months Ended September 30, 2007 Compared to the Nine Months Ended
--------------------------------------------------------------------------------
September 30, 2006
------------------
During the nine months ended September 30, 2007, we recognized revenues of
$16,510 from the sale of our customized playing cards. We did not recognize any
sales during the nine months ended September 30, 2006.
During the nine months ended September 30, 2007, we recognized a cost of sales
of $9,397 compared to $0 in the nine months ended September 30, 2006. Cost of
sales includes printing costs of $8,228 and shipping costs of $1,169. During the
nine months ended September 30, 2007, we recognized a gross profit of $7,113.
During the nine months ended September 30, 2007, we had general and
administrative expenses of $243,613 compared to $85,964 for the nine months
ended September 30, 2006. The increase of $157,649 was due primarily to the
increase in professional fees, wages and salaries, consulting fees and other
expenses incurred with the opening of new offices and our registering to become
a publicly traded company.
During the nine months ending September 30, 2007, we recognized a net loss of
$218,504 compared to a net loss for the nine months ending September 30, 2006 of
$90,646. The increase of $127,858 was due to the $157,649 increase in general
and administrative expenses and offset by the $16,510 in revenue discussed
above.
The Three Months Ended September 30, 2007 Compared to the Three Months Ended
--------------------------------------------------------------------------------
September 30, 2006
------------------
During the three months ending September 30, 2007, we have recognized revenues
in the amount of $11,461. During the three months ended September 30, 2006, we
did not recognize any revenues.
During the three months ended September 30, 2007, we recognized a cost of sales
of $5,809 compared to $0 in the three months ended September 30, 2006. Cost of
sales during the three months ended September 30, 2007 consisted solely of
printing costs of $5,809. During the three months ended September 30, 2007, we
recognized a gross profit of $5,652.
During the three months ended September 30, 2007, general and administrative
expenses totaled $100,427 compared to $66,809 for the three months ending
September 30, 2006. The increase of $33,618 was due to the increase in
operational and administrative activities discussed above.
During the three months ended September 30, 2007, we recognized a net loss of
$89,602 compared to net loss of $61,941 for the three months ending September
30th, 2006.
Liquidity and Capital Resources
-------------------------------
At September 30, 2007, we had total assets of $469,649. As of September 30,
2007, we had current assets in the amount of $425,413, consisting of cash of
$408,209, inventory of 10,164 accounts receivable of $5,974 and prepaid expenses
of $1,066. At September 30, 2007, we had total liabilities of $10,383,
consisting of accounts payable of $3,615 and a capital lease obligation $6,768
($1,992 is current).
On October 9, 2007, we granted options to purchase 380,000 shares of common
stock to individuals/entities engaged to provide consulting services to the
2
Company. Subsequently, on November 1, 2007, we have cancelled 100,000 of these
options. The options have an exercise price of $0.75 per share and the terms are
subject to the 2006 Tombstone Cards, Inc. Stock Option Plan. The options are
fully vested. We intend to expense these options using the Black-Scholes Method
during the quarter ended December 31, 2007.
ITEM 3. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures
The management of the Company has evaluated the effectiveness of the Issuer's
disclosure controls and procedures as of the end of the period of the report
dated September 30, 2007 and have concluded that the disclosure controls,
internal controls, and procedures are adequate and effective based upon their
evaluation as of the evaluation date.
b. Changes in Internal Control over Financial Reporting
There were no changes in the small business issuer's internal control over
financial reporting identified in connection with the Company evaluation
required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act
that occurred during the small business issuer's last fiscal quarter that has
materially affected or is reasonably likely to materially affect the small
business issuer's internal control over financial reporting.
ITEM 3(A)T. CONTROLS AND PROCEDURES
There have been no changes in the small business issuer's internal control over
financial reporting identified in connection with the evaluation required by
paragraph (d) of Rule 240.15d-15 that occurred during the small business
issuer's last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
3
Item 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of
this Form 10-QSB. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-B.
Exhibit 31.1 Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act
Exhibit 32.2 Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act
4
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 CARDS, INC.
Date: November 13, 2007 By: /s/ John N. Harris
------------------------------
John N. Harris
Principal Executive Officer,
President, and Chief Executive
Officer
5