UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the quarterly period ended September 30, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 333-138184
TOMBSTONE TECHNOLOGIES, INC.
(Formerly Tombstone Cards, Inc.)
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(Exact name of registrant as specified in its charter)
Colorado 51-0431963
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(State of Incorporation) (IRS Employer ID Number)
2400 Central Avenue, Suite G, Boulder, CO 80301
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(Address of principal executive offices)
303-684-6644
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(Registrant's Telephone number)
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 past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 12, 2008, there were 3,230,000 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Page
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Item 1. Financial Statements (Unaudited) F-1
Condensed Balance Sheets - September 30, 2008 and
December 31, 2007 F-2
Condensed Statements of Operations -
Nine and Three months ended September 30, 2008 and 2007 F-3
Condensed Statement of Changes in Shareholders' Equity -
July 1, 2008 through September 30, 2008 F-4
Condensed Statements of Cash Flows -
Nine months ended September 30, 2008 and 2007 F-5
Notes to the Condensed Financial Statements F-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable 2
Item 4. Controls and Procedures 2
Item 4T. Controls and Procedures 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities - Not Applicable 5
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 5
Item 5. Other Information - Not Applicable 5
Item 6. Exhibits 6
SIGNATURES 7
PART I
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.
F-1
TOMBSTONE TECHNOLOGIES, INC.
Condensed Balance Sheets
September 30, December 31,
2008 2007
-------------------- -------------------
Unaudited Derived from
Audited
Statements
Assets
Current assets
Cash..................................................................$ 48,308 313,498
Accounts receivable................................................... 2,508 9,256
Inventory - raw materials............................................. 6,944 10,057
Prepaid expenses...................................................... 6,866 1,494
-------------------- -------------------
Total current assets........................................ 64,627 334,305
Equipment............................................................. 24,063 42,414
Deferred patent costs................................................. 484 --
Software development costs............................................ 37,395 --
-------------------- -------------------
Total assets................................................$ 126,568 376,719
==================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities..............................$ 19,458 578
Deferred revenue...................................................... -- 448
Current portion - capital lease obligation............................ 1,992 1,992
-------------------- -------------------
Total current liabilities................................... 21,450 3,018
Capital lease obligation, less current portion............................ 2,784 4,776
-------------------- -------------------
Total liabilities........................................... 24,235 7,794
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Shareholders' equity
Common stock.......................................................... 816,305 816,305
Additional paid-in capital............................................ 134,643 82,030
Deficit accumulated during development stage.......................... (848,615) (529,410)
-------------------- -------------------
Total shareholders' equity.................................. 102,333 368,925
-------------------- -------------------
Total liabilities and shareholders' equity..................$ 126,568 376,719
==================== ===================
See accompanying notes to financial statements
F-2
TOMBSTONE TECHNOLOGIES, INC.
Statements of Operations
(Unaudited)
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
2008 2007 2008 2007
--------------- -------------- -------------- ---------------
Sales.....................................................$ 53,397 $ 16,510 $ 5,246 $ 11,461
Cost of sales.............................................. 34,958 9,397 2,302 5,809
--------------- -------------- -------------- ---------------
Gross profit........................................... 18,439 7,113 2,944 5,652
Expenses
Selling, general and administrative expenses........... 341,015 243,613 61,267 100,427
--------------- -------------- -------------- ---------------
Loss from operations......................... (322,576) (236,500) (58,323) (94,775)
Other income and (expense)
Interest income........................................ 3,723 17,996 391 5,173
Interest expense....................................... (352) -- -- --
--------------- -------------- -------------- ---------------
Loss before income taxes..................... (319,205) (218,504) (57,932) (89,602)
Income tax provision....................................... -- -- -- --
--------------- -------------- -------------- ---------------
Net loss....................................$ (319,205) $ (218,504) $ (57,932) $ (89,602)
=============== ============== ============== ===============
Basic and diluted loss per share..........................$ (0.10) $ (0.07) $ (0.02) $ (0.03)
=============== ============== ============== ===============
Basic and diluted weighted average
common shares outstanding.............................. 3,230,000 3,230,000 3,230,000 3,230,000
=============== ============== ============== ===============
See accompanying notes to financial statements
F-3
TOMBSTONE TECHNOLOGIES, INC.
Statement of Changes in Shareholders' Equity
(Unaudited)
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
----------------------------------
Shares Amount Capital Stage Total
---------------- ---------------- ---------------- ---------------- ----------------
Balance at December 31, 2007........... 3,230,000 $ 816,305 $ 82,030 $ (529,410) $ 368,925
Stock options granted and vested... -- -- 52,613 -- 52,613
Net loss........................... -- -- -- (319,205) (319,205)
---------------- ---------------- ---------------- ---------------- ----------------
Balance at September 30, 2008.......... 3,230,000 $ 816,305 $ 134,643 $ (848,615) $ 102,333
================ ================ ================ ================ ================
See accompanying notes to financial statements
F-4
TOMBSTONE TECHNOLOGIES, INC.
Statements of Cash Flows
(Unaudited)
For the
Nine Months Ended
September 30,
---------------------------------------
2008 2007
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Net cash flows used in
operating activities.............................$ (260,232) $ (136,076)
----------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment................. (3,086) (519)
Purchase of intangible assets...................... (400) --
----------------- -------------------
Net cash flows used in
investing activities.................. (3,486) (519)
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Cash flows from financing activities:
Payments on long term debt......................... (1,472) --
----------------- -------------------
Net cash flows used in
financing activities.................. (1,472) --
----------------- -------------------
Net change in cash and
cash equivalents......................$ (265,190) $ (136,595)
Cash and cash equivalents:
Beginning of period................................$ 313,498 $ 634,400
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End of period......................................$ 48,308 $ 497,806
================= ===================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes.....................................$ -- $ --
================= ===================
Interest.........................................$ -- $ --
================= ===================
See accompanying notes to financial statements
F-5
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-Q
and Regulation S-X. 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, 2008, the results of
operations for the nine months ended September 30, 2008 and 2007, and cash flows
for the nine months ended September 30, 2008. 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 10-KSB for the year ended
December 31, 2007. There have been no updates or changes to our audited
financial statements for the year ended December 31, 2007.
There is no provision for dividends for the quarter to which this quarterly
report relates. The results of operations for the nine months ended September
30, 2008 are not necessarily indicative of the results to be expected for the
full year.
Reclassification
Certain 2007 amounts have been reclassified to conform with the 2008
presentation. These reclassifications have no effect on net income.
Note 2: Software Development Costs
On May 15, 2008, Tombstone Cards, Inc. (Tombstone) entered into an Intellectual
Property Transfer Agreement with InDis Baltic, a Lithuania company, to purchase
all of the rights, title and interest in and to the technology, intellectual
property and the proprietary technology contained in the computer software known
as OIEPrint. OIEPrint was developed as part of a development agreement between
Tombstone and InDis Baltic. As part of the Intellectual Property Transfer
Agreement, Tombstone agreed to pay the following:
1. $7,500 immediately upon mutual acceptance of Transfer Agreement,
2. $7,500 upon final acceptance of the Technology,
3. 140,000 shares of restricted common stock of Tombstone upon final
acceptance of the Technology, and
4. $10,000 in 90 days from the final acceptance of the Technology.
During nine months ended September 30, 2008, Tombstone made the first payment of
$7,500 for OIEPrint, which is a deferred charge in the accompanying financial
statements. In addition, Tombstone has agreed to provide InDis Baltic with an
exclusive license to use the OIE technology for the consideration of $1.00.
Further, InDis Baltic has agreed to continue work as the programmer of the
software over the next two phases of development.
During the nine months ended September 30, 2008, we have capitalized costs of
$37,795 as software development costs in connection with the development of the
OIEPrint software. Upon completion of the software, these costs will be
amortized over their useful life.
F-6
Costs associated with software purchased for internal use are accounted for in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for the treatment of costs associated with computer software
development and defines those costs to be capitalized and those to be expensed.
Note 3: Shareholders' Equity
----------------------------
A summary of changes in the number of stock options outstanding for the nine
months ended September 30, 2008 is as follows:
Weighted Average Weighted Average Aggregate
Number of Exercise Price Exercise Price Remaining Intrinsic
Shares Per Share Per Share Contractual Life Value
Outstanding at December 31, 2007......... 1,100,000 - $ 1.83 years
Granted.................................. 525,000 $0.65 -$1.50 $ 1.02 2.35 years
Exercised................................ - - $ N/A
Cancelled/Expired........................ (150,000) $0.75 $ 0.75 N/A
------------- ----------------- ------------------ ------------------
Outstanding at September 30, 2007........ 1,485,000 $0.65 - $1.50 $ 0.77 1.83 years $ -
============= ================= ================== ================== ===========
Exercisable at September 30, 2007........ 4,570,000 $0.65 - $1.50 $ 0.77 1.83 years $ -
============= ================= ================== ================== ===========
On March 15, 2008, we granted to two consultants, options to purchase 125,000
and 50,000, respectively, shares of our common stock at an exercise price of
$0.65 and $1.00 per share, in exchange for consulting services. The option to
purchase 50,000 shares of our common stock vests on March 15, 2008 and expires
on August 27, 2009, and the option to purchase 125,000 shares of common stock
vests 50 percent on March 15, 2008 and 50 percent on June 16, 2008, and expires
on March 13, 2013. Our Board of Directors valued our common stock at $0.50 per
share on the grant date. We, utilizing appropriate option pricing software,
estimated the fair value of the options at $.2981 and $.0687 per share, for an
aggregate grant-date fair value of $40,697. We recorded $40,698 for the nine
month period ended September 30, 2008.
Using the Black-Scholes option-pricing software, we assumed the following in
estimating the fair value of the options at the grant date:
Risk-free interest rate..................... 1.37% to 2.37%
Dividend yield.............................. 0.00% to 0.00%
Volatility factor........................... 50.00%
Weighted average expected life.............. 1.45 years to 5 years
On April 15, 2008, we granted to one consultant, options to purchase 100,000
shares of our common stock at an exercise price of $1.25, in exchange for
consulting services. The option to purchase 100,000 shares of our common stock
vests immediately on April 15, 2008 and expires on August 28, 2009. Our Board of
Directors valued our common stock at $0.85 per share on the grant date. We,
utilizing appropriate option pricing software, estimated the fair value of the
options at $.1049 per share, for an aggregate grant-date fair value of $10,490.
We recorded $10,490 in share-based payment in the accompanying financial
statements for the nine month period ended September 30, 2008.
Using the Black-Scholes option-pricing software, we assumed the following in
estimating the fair value of the options at the grant date:
F-7
Risk-free interest rate..................... 1.82% to 2.82%
Dividend yield.............................. 0.00% to 0.00%
Volatility factor........................... 50.00%
Weighted average expected life.............. 1.5 years to 5 years
On June 30, 2008, we granted to one consultant, options to purchase 50,000
shares of our common stock at an exercise price of $1.50, in exchange for
consulting services. The option to purchase 50,000 shares of our common stock
vests immediately on June 30, 2008 and expires on August 29, 2009. Our Board of
Directors valued our common stock at $0.75 per share on the grant date. We,
utilizing appropriate option pricing software, estimated the fair value of the
options at $.0215 per share, for an aggregate grant-date fair value of $1,075.
We recorded $1,075 in share-based payment in the accompanying financial
statements for the nine month period ended September 30, 2008.
Using the Black-Scholes option-pricing software, we assumed the following in
estimating the fair value of the options at the grant date:
Risk-free interest rate..................... 2.36% to 3.36%
Dividend yield.............................. 0.00% to 0.00%
Volatility factor........................... 50.00%
Weighted average expected life.............. 1 year to 5 years
On August 8, 2008, we granted to one consultant, options to purchase 50,000
shares of our common stock at an exercise price of $0.65, in exchange for
consulting services. The option to purchase 50,000 shares of our common stock
vests immediately on August 8, 2008 and expires on August 31 2009. Our Board of
Directors valued our common stock at $0.40 per share on the grant date. We,
utilizing appropriate option pricing software, estimated the fair value of the
options at $0.001 per share, for an aggregate grant-date fair value of $50. We
recorded $50 in share-based payment in the accompanying financial statements for
the nine month period ended September 30, 2008.
On August 8, 2008, we granted to an officer and director, options to purchase
150,000 shares of common stock exercise price of $0.65, in exchange for
performance services. The option to purchase 150,000 shares of our common stock
vests immediately on August 8, 2008 and expires on August 31, 2009. Our Board of
Directors valued our common stock at $0.40 per share on the grant date. We,
utilizing the appropriate option pricing software, estimated the fair value of
the options at $0.001 per share, for an aggregate grant-date fair value of $150.
We recorded $150 in share-based payment in the accompanying financial statements
for the nine month period ended September 30, 2008.
Using the Black-Scholes option-pricing software, we assumed the following in
estimating the fair value of the options at the grant date:
Risk-free interest rate..................... 3.05%
Dividend yield.............................. 0.00%
Volatility factor........................... 22.00%
Weighted average expected life.............. 1 year
On September 4, 2008, we also issued to a consultant, options to purchase 50,000
shares of common stock exercise price of $0.65, in exchange for performance
services. The option to purchase 50,000 shares of common stock vests immediately
on September 4, 2008 and expires on August 31, 2009. Our Board of Directors
valued our common stock at $0.45 per share on the grant date. We, utilizing the
F-8
appropriate option pricing software, estimated the fair value of the options at
$0.003 for an aggregate grant-date fair value of $150. We recorded $150 in
share-based payment in the accompanying financial statements for the nine month
period ended September 30, 2008.
Using the Black-Scholes option-pricing software, we assumed the following in
estimating the fair value of the options at the grant date:
Risk-free interest rate..................... 3.10%
Dividend yield.............................. 0.00%
Volatility factor........................... 22.00%
Weighted average expected life.............. 1 year
During the nine months ended September 30, 2008, the Company and one consultant
agreed to cancel the options issued in year 2007. Since the share-based payment
expense was fully recognized in the prior year, this event does not affect the
accompanying financial statements.
Note 4: 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-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2007, and for each of the years in the
two-year period then ended, includes a "going concern" explanatory paragraph,
that describes substantial doubt about the Company's ability to continue as a
going concern.
PLAN OF OPERATIONS
At September 30, 2008, we had cash on hand of $48,309. We intend to use our cash
funds to continue operations. We intend to continue to develop the business
opportunities presented by our OIEPrint(TM) software and our 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 nine months ended September 30, 2008, we have focused on the
continued development of our OIEPrint software and conducted the beta testing of
such software. With the completion of the testing of the software, we began to
offer the software for sale starting in October 2008. We offer two products:
- OIEPrint - is a platform, independent browser-based R (RIA) that
supports template driven design and provides high-resolution PDF
files to the printer; and
- 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 we intend 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.
While each product will be available as a stand-alone license, we are offering a
fully hosted solution for a monthly fee. Customization and implementation fees
are also anticipated. We will offer the products through the Company, via a
outbound sales staff that utilizes Web-based demos and Web-video in order to
engage customers.
In the continuance of our business operations we do not intend to purchase or
sell any significant assets and we do not expect a significant change in the
number of employees of the Company.
1
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 2008 Compared to the Three Months Ended
September 30, 2007
During the three months ended September 30, 2008, we recognized sales of $5,246
compared to sales of $11,461 during the three months ended September 30, 2007
from the sale of our customized playing cards. The decrease of $6,215 was a
result of our focus on the completion of the beta testing of our software
products.
During the three months ended September 30, 2008, we incurred cost of sales of
$2,302 compared to cost of sales of $5,809 during the three months ended
September 30, 2007. The decrease of $3,507 was a result of the move to sales of
our software product, which is less inventory driven. We recognized a gross
profit of $2,944 during the three months ended September 30, 2008 compared to
$5,652 during the three months ended September 30, 2007.
During the three months ended September 30, 2008, we incurred operational losses
of $58,323 compared to $94,775 during the three months ended September 30, 2007.
The decrease of $36,452 is a result of the $39,160 decrease in general and
selling expenses This decrease is a result of decreased operational activities
over the prior period combined with management's focus on the completion of its
beta testing of the software products.
During the three months ended September 30, 2008, we recognized a net loss of
$57,932 compared to a net loss of $89,602 during the three months ended
September 30, 2007. The decrease of $31,670 is a result of the decreased
operational activities discussed above.
For the Nine Months Ended September 30, 2008 Compared to the Nine Months Ended
September 30, 2007
During the nine months ended September 30, 2008, we recognized sales of $53,397
compared to sales of $16,510 during the nine months ended September 30, 2007
from the sale of our customized playing cards and our software products. The
increase of $36,887 was a result of increased marketing and sales activities.
During the nine months ended September 30, 2008, we incurred cost of sales of
$34,958 compared to cost of sales of $9,397 during the nine months ended
September 30, 2007. The increase of $25,561 was a result of the increase in
sales of our products. We recognized a gross profit of $18,439 during the nine
months ended September 30, 2008 compared to $7,113 during the nine months ended
September 30, 2007.
During the nine months ended September 30, 2008, we incurred operational losses
of $322,576 compared to $236,500 during the nine months ended September 30,
2007. The increase of $86,076 is a result of the $97,402 increase in general and
selling expenses combined with the $52,613 increase expenses incurred as a
result of issue equity to pay for services. These increases are a result of
increased operational activities over the prior period combined with increase
general and administrative expenses as a result of the Company's Annual
Shareholder Meeting.
During the nine months ended September 30, 2008, we recognized a net loss of
$319,205 compared to a net loss of $218,504 during the nine months ended
September 30, 2007. The increase of $100,701 is a result of the increased
operational activity discussed above offset by the increase in sales.
LIQUIDITY AND FINANCIAL CONDITION
Net cash used in operating activities during the nine months ended September 30,
2008 and September 30, 2007 were $260,232 and $136,076, respectively. Net cash
used in investing activities during the nine months ended September 30, 2008 and
2
September 30, 2007 were $3,486 and $519, respectively. During the nine months
ended September 30, 2008, we invested funds of $3,086 in the purchase of
property and equipment. Net cash used in financing activities during the nine
months ended September 30, 2008 and September 30, 2007 were $1,472 and $0,
respectively.
At September 30, 2008, we had total current assets of $64,627, consisting of
cash on hand of $48,308, $2,508 in accounts receivable, $6,944 in inventory and
$6,866 in prepaid expenses. At September 30, 2008, we had total current
liabilities of $21,450, consisting of accounts payable and accrued liabilities
of $19,458 and the current portion of lease obligations of $1,992.
During the nine months ended September 30, 2008, we granted to six consultants,
options to purchase 425,000 shares of our common stock at an exercise price of
$0.65 to $1.50 per share, in exchange for consulting services. During the nine
months ended September 30, 2008, we granted an officer and director of the
Company, options to purchase 150,000 shares of our common stock at an exercise
price o f$0.65 per share, in exchange for his services. Our Board of Directors
valued our common stock at $0.40 to $0.85 per share on the grant date. We,
utilizing appropriate option pricing software, estimated the fair value of the
options at shown in the below table, for an aggregate grant-date fair value of
$52,613. We recorded $ 52,613 in share-based payment in the accompanying
financial statements for the nine-month period ended September 30, 2008.
Total exp recognized
Number of Fair value of Total as of September 30,
Optionee shares options Expenses 2008
-------- ------ ------- -------- ----
Consultant 125,000 $.2981 $37,263 $37,263
Consultant 50,000 $.0687 $3,435 $3,435
Consultant 100,000 $.1049 $10,490 $10,490
Consultant 50,000 $.0215 $1,075 $1,075
Consultant 50,000 $.001 $50 $50
Consultant 50,000 $.003 $150 $150
Officer and Director 150,000 $.001 $150 $150
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), Messrs. Harris and Cox our Chief Executive
Officer and Chief Financial Officer carried out an evaluation under the
supervision and with the participation of our management, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant
to Exchange Act Rule 15d-14 as of the end of the period covered by this report.
Based on the foregoing evaluation, Messrs. Harris and Cox have concluded that
our disclosure controls and procedures are effective in timely alerting them to
3
material information required to be included in our periodic SEC filings and to
ensure that information required to be disclosed in our periodic SEC filings is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure as a result of the deficiency in our internal control over
financial reporting discussed below.
ITEM 4T. CONTROLS AND PROCEDURES
Management's Quarterly Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the quarter ended September
30, 2008. We believe that internal control over financial reporting is
effective. We have not identified any, current material weaknesses considering
the nature and extent of our current operations and any risks or errors in
financial reporting under current operations.
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 quarterly 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 our internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2008, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
4
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
The Company made the following unregistered sales of its securities from July 1,
2008 through September 30, 2008.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
----------------- ------------------------- -------------- ------------------------------- ---------------------------------
8/8/2008 Options 150,000 Services Officer & Director
----------------- ------------------------- -------------- ------------------------------- ---------------------------------
8/8/2008 Options 50,000 Consulting Services Business Associate
----------------- ------------------------- -------------- ------------------------------- ---------------------------------
9/4/2008 Options 50,000 Consulting Services Business Associate
Exemption From Registration Claimed
All of the sales by the Company of its unregistered securities were made by the
Company in reliance upon Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act"). All of the individuals and/or entities listed above that
purchased the unregistered securities were almost all existing shareholders, all
known to the Company and its management, through pre-existing business
relationships, as long standing business associates, and employees. All
purchasers were provided access to all material information, which they
requested, and all information necessary to verify such information and were
afforded access to management of the Company in connection with their purchases.
All purchasers 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 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
5
ITEM 6. EXHIBITS
Exhibits. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Executive 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 Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and 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.
(Registrant)
Dated: November 13, 2008 By: /s/ John Harris
---------------------------------------
John Harris, President &
Chief Executive Officer
Dated: November 13, 2008 By: /s/ Neil Cox
---------------------------------------
Neil Cox Chief Financial Officer &
Chief Accounting Officer
7