MICHAEL A. LITTMAN
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
(303) 422-8127
Fax (303) 431-1567
January 8, 2007
Securities and Exchange Commission
Attn: Hanna Teshone
Special Counsel
100 F Street NE
Washington, DC 20549
Re: Tombstone Cards, Inc.
Registration Statement - Form SB-2
File No. 333-138184
Dear Madame,
In response to your comment letter dated November 17, 2006, the Company
has substantially amended its filing and attached hereto is a marked copy
showing all changes, and in parenthesis, the comment number to which the change
is responsive as applicable. Set forth below are the comments and below each
comment is the Company response.
1) The document you have filed will need substantial revision prior to
effectiveness. The disclosure you have provided is confusing and difficult to
follow. Please refer to the requirements of Form SB-2 and Regulation S-B for
guidance as you revise this document. The comments below are intended to provide
further guidance in the process.
Response: Your comment has been taken into consideration in the response.
2) The title of each class of securities to be registered indicates that
only the common shares/stock are being registered. As such, while the options
and/or warrants may have different exercise prices, it is unclear why the common
shares underlying these instruments have different prices. Please revise the fee
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table to clarify the securities being registered pursuant to this document
clearly indicating whether it is warrants, options or the common stock to be
issued pursuant to their exercise that is being registered. In addition, clarify
the offering price per unit of such security. Please see related comment that
follows.
Response: The section calculation of Registration fee has been revised on
page ii of the Registration Statement to conform to your comment.
3) We note there is currently no public market for your shares.
Accordingly, you must set a fixed price at which the selling shareholders may
sell their shares until a market for your stock develops. Please make revisions
throughout your prospectus to reflect sales by selling shareholders at a fixed
price including the fee table, cover page, and plan of distributions. Also,
furnish the information required by Item 505 of Regulation S-B.
Response: We have added a full paragraph on page 2, in which disclosure of
a price is made for selling shareholders, and thereafter the language is
responsive to Item 505 of Regulation S-B.
4) To avoid confusion, please use the same descriptive terms throughout the
prospectus to identify the various warrants and options being registered. For
example, in the chart under The Offering on page 5 you describe 750,000 as the
"Maximum Shares Underlying Consultant/Employee Warrants @ $0.55." However, on
the cover page you break this number into two parts, with 600,000 representing
"Common Shares Underlying Consultant Warrants" and 150,000 representing
"Employee/Consultant Option Shares." In addition, in the chart at the bottom of
page 11 you refer to "Other' warrants," which you have not defined. And under
Use of Proceeds on page 12 you state that you intend to raise "#36,000 from the
sale of 60,000 Shares of Common Stock at $0.60 per share," but do not indicate
that these are the shares underlying the placement agent warrants, as you do on
the cover page.
Response: In response to your comment we no longer have aggregated all of
the $0.55 warrants and have broken them out on page 1 and page 5. On page
13, however, since this chart deals with total dilution, rather than other
issues, and since the warrants for consultants and employee/consultants
were exercisable at $0.55, we felt it appropriate to aggregate them, but
footnoted to explain the aggregation, which we believe is appropriate
disclosure. On page 14 we have added disclosure of "Placement Agent
Warrants" and added full description of Warrants on page 15.
5) To provide a plain English prospectus to investors, please avoid empty
phrases such as "in order to support the development of an organization that
would create the processes and tools necessary" on page 5, and "in order to
support the development of an organization that would be fully able to
capitalize on a specific set of products" on page 7.
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Response: In response to comment number 5 we have deleted "empty phrases"
on page 4 and page 7.
6) Throughout the filing, please use either "our" or "its" to refer to
matters pertaining to your company.
Response: We have word searched the document and made changes throughout,
but not marked as number 6 because they were numerous small corrections. We
hope this is acceptable.
7) You indicate on page 5 that the securities you are registering will
raise a total of $12,530,000. However, the figures you provide in the first
paragraph under Use of Proceeds on page 12 add up to $12,978,500. And on page 15
you indicate that if all warrants are fully exercised, you will raise
$13,780,000. Please revise your disclosure to eliminate these discrepancies.
Response: On page 5, we have revised the number to $12,978,500 which
includes exercise of all of the Warrants of whatever nature. This number
matches the Use of Proceeds on page 15. And on page 25 we have explained
the $13,794,805 as to what it consists of.
8) In addition, please indicate that these funds will be raised by the
company if all warrants and options described above are exercised, except that
you will not receive any proceeds from sales of shares by selling shareholders.
Furthermore, state that, given that you have no operating history and no
revenues, it is highly unlikely that the warrants will be exercised at $2.00 or
$5.00 in the foreseeable future.
Response: On page 1 we have inserted the language suggested shown in the
first paragraph.
9) Please revise the summary to provide a brief overview of key aspects of
the offering and your business. Refer to Item 503(a) of Regulation S-B. For
example, this should include: a) that you are in the developmental stage of your
business and the date you anticipate that sales operations will begin, b)
disclosure that your auditors have issued a going concern opinion and the
reasons noted for issuing that opinion, and c) disclosure of any factors that
make the offering speculative or risky.
Response: On page 4 we have inserted language shown in the third, fourth
and fifth paragraphs on the page.
10) Please reconcile the net loss of $28,705 from April 29, 2005 to June
30, 2006 to your income statement of page F-4 and revise as necessary.
Response: On page 4 we have revised the number of deficit to reconcile with
income statement on page F-4, last paragraph on page.
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11) Please revise your disclosure to indicate that, although you have no
employees at the present time, you do currently employ executive officers, as
described on page 40, although two have, until June 30, 2006, contributed their
service to the company, as disclosed on page F-8.
Response: On page 4 we have added language as shown on comment number 11 in
second paragraph.
12) Please add a risk factor to address that you do not have any escrow
provisions and that you do not have any intention of returning any sale proceeds
to investors if the maximum amount is not raised.
Response: We have added this Risk Factor on page 7.
13) Please add a risk factor to address that it is very unlikely that any
security holder would exercise either the warrants or the options.
Response: We have added this Risk Factor on page 7.
14) Please consider risk factors that describe the impact on your business
should poker decline in popularity, rather than grow in popularity as you
anticipate, either due to changes in people's gaming habits, an enforcement
crackdown on illegal gambling, or a recession that will reduce disposable
income. In addition, consider adding risk factors that address other
"Weaknesses" and "Threats to Our Business Plan" that you identify on page 27.
Response: On pages 11 and 12 we have added three risk factors responsive to
this comment.
15) Please consider a risk factor about the impact on your business should
supplies of playing card paper from France, which you reference on page 30, be
cut off or reduced or supply routes be disrupted. Also, in an appropriate place
in the prospectus, describe why all such paper comes from France.
Response: We have added a risk factor responsive on page 12.
16) Please revise to include the fact that, given that you have no
operating history and no revenues, it is highly unlikely that the warrants will
be exercised at $2.00 and $5.00 in the foreseeable future, which makes it highly
unlikely that the company will raise that additional working capital from this
registration.
Response: We have added to the Risk Factor on page 6.
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17) The other sections that you cross-reference, "Management" and
"Conflicts of Interest," do not appear else where in the prospectus. Please
revise to provide the indicated information.
Response: We have amended to add "conflicts" on page 23, and the words
"executive team" on page 8 referencing page 23.
18) Please revise this risk factor to disclose the amount of time it is
expected that the officers and directors will spend on this business. Similarly
revise your disclosure in the section titled "Directors, Executive Officers..."
Response: We have added Risk Factor on pages 8, 22 and 23.
19) Clarify whether "part time basis" mentioned in the first sentence
refers to the directorship responsibilities of the three individuals, to their
responsibilities as officers, or both.
Response: In response to number 19, we have made revisions on page 7.
20) In addition, please tell us what else, other than "other business
interests" that you reference in a risk factor appearing on page 6, would
prevent your officers from devoting their "full time attention" to your
business.
Response: Please see added language on page 8.
21) You indicate that your officers and directors have a total of 1,500,000
shares. However, on page 19 you indicate that the total is 1,025,000 shares.
Please revise to eliminate this discrepancy.
Response: Corrected and amended number on page 10.
22) Please explain what you mean when you say that your company is
promotional. If you mean that the company is a developmental-stage company, then
please say this instead.
Response: Amended language on page 11.
23) The common shares you registering pursuant to this document are being
offered by the selling shareholders and by those persons who will receive the
common shares upon the exercise of warrants or options. through the company may
receive the exercise price of the warrants and options, it is unclear to how the
company would receive the proceeds from the sale of the common shares. Please
clarify your disclosure.
Response: Please see language added on page 14.
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24) Please substantially revise this section to provide disclosure
consistent with Item 504 of Regulation SB. In that regard, indicate the amount
to be used for each purpose and the priority of each purpose, if all of the
securities are not sold.
Response: Please see the amended tables on pages 15 and 16 and text where
revisions are contained and certain language is deleted on that page. We
believe this complies with Item 504 of Regulation SB.
25) The explanation you provide on page 13 indicates that, should you not
raise the full amount of the offering, website development will be given
priority while marketing and equipment, such as office furniture and computer
hardware, will be given less priority. However, these priorities are not
reflected in the second chart on page 12, which merely provides for pro rata
expenditure reductions in each expenditure category should you not raise the
full amount of the offering. Please revise so that your priorities are reflected
in the chart, as well.
Response: Please see the revised Tables I and II and the text on page 15
amended in response to your comment.
26) You indicate that 1,500,000 shares have been sold for $0.01 per share
and 1,730,000 shares have been sold for $0.50 per share. However, the Recent
Sales of Unregistered Securities chart on pages 42 and 43 indicates that
1,610,000 shares have been sold for $0.01 per share and $1,620,000 shares have
been sold for $0.50 per share. Please revise to eliminate this inconsistency.
Response: Please see the revised language on page 17 and on pages 48 and 49
revised "Recent Sales of Unregistered Securities.
27) Please explain to us what the percent column under "Shares Purchased"
and "Total Consideration" is supposed to represent and why each column does not
add up to 100%.
Response: Please see table revisions on page 17 and added footnotes (2) and
(3) on page 18.
28) Disclose here or in another appropriate place in the prospectus, the
transactions pursuant to which the selling shareholders received their shares
and the transactions pursuant to which the warrants and options were issued.
Response: Please see added language on page 19 responsive to your comment.
29) Please provide all of the information required under Item 507 of
Regulation S-B.
Response: Please see revisions to table on pages 20 and 21 made in response
to Item 507/SB.
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30) If all of the securities listed here are being registered in this
registration statement, please state this fact and give the percentage of each
class owned by each selling shareholder holding one percent or more of that
class.
Response: We have added language on page 19 as marked with "Comment #30"
and all percentages are shown in the table on pages 20 and 21.
31) Please tell us why you have included Capital Merchant Banc, Garden
State Securities, and Employee stock options in the list of selling
shareholders.
Response: The three entities have been deleted from the table on page 21 in
response to your comment.
32) It does not appear that any of the selling stockholders are registered
broker-dealers. Please confirm. Finally, please tell us whether any of the
selling stockholders are affiliates of broker-dealers.
Response: Additional language has been added on page 21 marked with
"Comment #32".
33) Please revise your disclosure to state that the selling shareholders
"may be deemed" underwriters in this offering.
Response: Additional text has been added on page 22 marked with "Comment
#33".
34) Please provide the age of each executive officer and indicate here and
in the chart on page 19 that, in addition to being executive officers, John
Harris and William.
Response: In this section on pages 22 and 23, revisions are made in
response to the comment.
35) Please indicate where Mr. Cox received his degree in business.
Response: In response, see page 22 marked "comment #35".
36) Please revise this chart to take into consideration all outstanding
securities, including options and warrants. Note that a person is deemed a
beneficial owner if that person has the right to acquire beneficial ownership of
a security within sixty days. Please refer to the Instructions to Item 403 of
Regulation SB and to Exchange Act Rule 13d-3(d)(1).
Response: In chart on page 24, revisions are shown in response to comment.
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37) The first sentence, which says that all shares when issued will be
fully paid and non-assessable, is a legal conclusion which you are not qualified
to make. Either delete the sentence or attribute it to a law firm and file a
consent in the next amendment.
Response: Phrase deleted in Common Stock on page 25, marked "Comment #37".
38) A plain English prospectus requires that you say something once and say
it well, rather than mention it multiple times in passing. For example,
significantly revise and reduce the size of this section to consolidate multiple
references to likely marketing efforts, marketing alliances and partnerships,
advertising strategies, sales strategies, target market segment information,
descriptions of your competitors, your vision and goals, your website, and your
intended online card design and ordering capabilities. Once you have done this,
briefly highlight key matters in the summary section of the prospectus.
Response: We have substantially revised and deleted material in this
section as shown starting on page 27 and with deletions throughout section,
in response to your comment.
39) You state a number of things about your competitors, including:
o Page 21: They "appear content to use older technology than ours to
produce their product offerings, thereby maintaining their relatively
long time-to-market requirements. This means they focus on either
high-cost, low-volume runs or low-cost, high-volume runs."
o Page 22: They "are, for the most part, printing companies, not
marketing/development companies, and we believe that they do not
appreciate the full upside potential of what they apparently consider
a submarket niche."
o Page 24: "[M]any online custom cards fall into the `artisan' or craft
category because there is too much variation in the printing process."
o Page 24: "Instead of providing customers with something unique and
truly exciting, many companies in the market space instead focus,
somewhat understandably, on maximizing the run times of their presses,
which are a considerable capital investment."\
o Page 25: "For those companies willing to do small runs, sometimes as
low as a single deck, the price rises to almost $30 per unit. Still,
the printing variations in these cards, often utilizing `hot stamping'
or silk screening,' (sic) make them a novelty rather than a true
playing card."
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o Page 32: "Although some printers offer customization, these are
extremely limited offerings (one or two colors on a standard
background), have poor production values (look and feel of the
finished product), and up-charge for full color and customization"
Please provide a basis for these statements. Alternatively, delete.
Response: In response to comment we have deleted the referenced text from
pages 27, 28, 29 and 36 and marked as "Comment #39".
40) Where you have already identified the sources of statistics you cite,
such as your references to Chris Poundstone of the Amateur Poker League,
UberTrend, Nielsen Media Research, ESPN, Bluff Magazine, Michael Tchong, Card
Player Magazine, Motley Fool, and Ubertrends.com, please either provide a
consent for the use of such information from each of these sources or confirm
that the cited information is publicly available for free or for a nominal cost,
quantifying any such nominal cost. Refer to Rule 436 of Regulation C.
Alternatively, you may remove your references to the third parties and attribute
the information to the company, based on its own research.
Response: We have deleted all references to any publication or quote
whatsoever on page 28. We believe, however, the staff position on this
deprives potential investors of information.
41) Please provide us with the basis for your statement that you will offer
playing cards "at a price that is significantly lower than the competitions."
Response: Please see revised text on page 27, "Comment #41".
42) Please delete the reference to the Private Placement Memorandum on page
22.
Response: Paragraph deleted on page 28, "Comment #42".
43) Please provide us with the basis for your statement that the
poker-playing and gaming market "have grown exponentially" since 2003.
Response: Please see deletion and revision on page 28, "Comment #43".
44) Please describe what "Flashtm-based" means.
Response: Please see deletion on page 28, "Comment #44".
45) Please revise your disclosure to describe what you mean by "television
gaming," as referenced on page 23.
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Response: We have deleted the section involving "television gaming"
language on page 28.
46) Please revise this section header to more closely align with the
contents of the section.
Response: We have renamed this section and reworded it on page 28.
47) In addition, if you intend to advertise in the magazines you mention,
then please state this fact.
Response: Responsive text added on page 28, "Comment #47".
48) Please provide the basis for your claim that your design and ordering
system will "exceed the capabilities of anything on the market today."
Response: In response we have reworded the phrase on page 28, "Comment
#48".
49) Please include a crackdown on illegal gambling as one of the risks you
discuss here.
Response: Text added on page 29, "Comment #49".
50) Please disclose the "new product lines completely outside this market"
that you reference here.
Response: Text deleted on page 29, "Comment #50".
51) You mention responses from customers but you have no sales operations
yet. Please revise to potential customers, and disclose whether or not you are
referring to informal encounters with potential customers or some kind of more
formal market survey of such individuals.
Response: We have revised the text on page 30, "Comment #51", in response
to your comment.
52) In addition, please disclose the basis for your claim that "inquiries
from prospective customers suggest that there is considerable demand that we
will be prepared to meet."
Response: Text deleted on page 30, "Comment #52".
53) You indicate that "management has been extensively involved in the core
business (print and print design)." However, the background descriptions you
provide of management on pages 17-18 contain no apparent references to such
experience. Please revise your disclosure or advise.
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Response: We have revised the text on page 31, "Comment #53", in response
to your comment.
54) Please rewrite the last paragraph in plain English or delete.
Response: Text deleted on page 32, "Comment #54".
55) Please describe what a "pip" design is.
Response: We have added text on page 33, "Comment #55".
56) You discuss "inventory levels" here and "inventory costs" on page 30
but stated on page 26 that you do not intend to maintain an inventory. Please
revise your disclosure to eliminate this inconsistency.
Response: We have revised the text on page 34, "Comment #56", in response
to your comment.
57) Please advise why, if you project unit costs of less than $3 a deck, do
your competitors charge almost $30 a deck, as referenced on page 25?
Response: In response we have deleted language on page 29 where marked
"Comment #57 " and amended the "Unit Cost" language on page 35, "Comment
#57".
58) Please explain what you mean by "street prices."
Response: In response we have deleted language and substituted new language
as shown on page 41, "Comment #58", under pricing.
59) In addition, we note your disclosure about how pricing "will vary based
on the size and/or frequency of the order." However, your website as of November
15, 2006 indicates that the price will be "just $8.00 per deck with a minimum
order of only 24 decks." If this represents your pricing structure, then please
revise your disclosure to include it, or advise.
Response: In response we have deleted language and substituted new language
as shown on page 41, "Comment #59", under pricing.
60) Please revise this section to discuss in greater detail your plan of
operation for the next twelve months. Provide disclosure of each of your planned
activities, each material event or step required to pursue of your planned
activities including any contingencies such as raising insufficient funds in
this offering and, the manner in which you intend on conducting your business
thereafter. Disclose the estimated costs and the approximate timetable for
beginning and completing each step. Please refer to Item 303(a) of Regulation
S-B.
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Response: On pages 42 we have added language and have made revisions in
tables on page 43.
61) You state on page 32 that your projected initial capital requirement is
$1 million. Please revise your disclosure to discuss how long you expect to be
able to satisfy your cash requirements, given your current amount of working
capital.
Response: We have amended language on page 37, "Comment #61" and on page
42, "Comment #61" to be consistent.
62) You indicate here that you intend to spend funds raised in this
offering "to pay listed categories pro rata." However, the explanation you
provide on page 13 indicates that, should you not raise the full amount of the
offering, web site development will be given priority while marketing and
equipment, such as office furniture and computer hardware, will be given less
priority. Please revise to eliminate this inconsistency.
Response: We have amended language on page 15, "Comment #62" and on page
42, "Comment #62".
63) We note that your company was organized within the past five years.
Please include the information required by Item 404(c) of Regulation S-B, as
necessary.
Response: We have added language shown on page 43 in response to your
comment, "Comment #63".
64) Please revise your disclosure to identify how both the 500,000 shares
sold to various investors during July and August 2005 and the agreement with the
consultant providing for vesting of 600,000 warrants are related transactions as
defined by Item 404 of Regulation S-B.
Response: We have deleted the paragraph on page 44 marked "Comment #64" as
it is not a related party transaction. The Capital Merchant Banc is
"Related Party" because the 600,000 warrants could be exercised in 60 days
for more than 10% ownership in the company thus making it potentially a
related party. See added language where marked "Comment #64".
65) Also, please include the fact that the president and CFO contributed
their management services to the company until June 30, 2006.
Response: See language on page 44 added and marked "Comment #65".
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66) You indicate that the President and CFO were paid salaries in fiscal
year 2006. However, in note 2 to the financial statements on page F-S you
indicate that the President and CFO "contributed management services to the
Company for the period presented." Please revise to eliminate this
inconsistency.
Response: We have revised language on page 46 where marked "Comment #66" in
response to comment.
67) Please provide the dates for all the transactions listed, as well as
the section of the Securities Act or the rule of the Commission under which you
claimed exemption from registration and the facts relied upon to make the
exemption available. Refer to Item 701(a) and (d) of Regulation S-B.
Response: In response we have revised the table on pages 48 and 49, and
have added language, "Comment #67" on page 49.
68) In addition, for any securities sold for other than cash, such as those
provided to Capital Merchant Bank and Garden State Securities, describe the
transaction and the type and amount of consideration received by the small
business issuer. Refer to item 701(c) of Regulation S-B.
Response: In response we have added disclosure on page 49 where marked with
"Comment #68".
69) Please explain to us how Dale Stonedahl and George W. Wanberg/Cynthia
B. Wanberg received A and B warrants having paid only $0.01 a share, given that
your financial statements on page F-8 only disclose that such warrants were sold
as part of units for $0.50 a share.
Response: In response we have added explanation language on page 49,
"Comment #69", just below the table.
70) Please provide documents related to the related party transactions you
describe on.
Response: In response we represent that the only documents relating to the
certificates, other than stock for its related party transaction, is the
"Capital Merchant Banc Warrant Form" as filed (Exhibit 10.3).
71) Either delete last paragraph or re-file the opinion dated the date of
effectiveness.
Response: Legal Opinion will be re-filed with effectiveness.
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72) Please indicate that Mr. Reilly is Chief Operating Officer as well as
Director and that Mr. Cox is Chief Financial Officer as well as Director in
second signature space for each, respectively. Please see Instructions for
signatures to Form SB-2.
Response: We have amended signature page (page 52), "Comment #72".
73) In accordance with paragraph 40(c) of SFAS 128, please disclose the
amount of any securities that could potentially dilute basic EPS in the future
that were not included in the computation of diluted EPS, as it is anti-dilutive
to the period(s) presented.
Response: We have disclosed the amount of any securities that could
potentially dilute basic EPS that were not included in the computation of
diluted EPS.
74) It appears that you have 1,580,000 A and B warrants outstanding
(430,000 units sold as of June 30, 2006 and 1,150,000 additional units sold
during July 2006). Please reconcile to the 1,790,000 common shares underlying
the A warrants and 1,790,000 common shares underlying the B warrants discussed
on page 3 and revise as necessary. In addition, reconcile the 3,080,000 common
stock outstanding (1,930,000 outstanding at June 30, 2006 and 1,150,000
additional units sold during July 2006) to the 3,230,000 shares of common stock
discussed on page 3 and revise as necessary.
Response: We show 2,010,000 A and B warrants outstanding (860,000 A and B
warrants granted as of June 30, 2006 and 1,150,000 additional A and B
warrants granted during July 2006). We have reconciled the 1,790,000 shares
of common stock underlying the A warrants and 1,790,000 shares of common
stock underlying the B warrants (this includes 1,730,000 shares of common
stock underlying the A and B warrants and 60,000 shares of common stock
underlying the A and B Placement Agent warrants) as discussed on page 3.
In addition, we have reconciled the 3,080,000 shares of common stock
outstanding (1,930,000 shares of common stock outstanding at June 30, 2006
and 1,150,000 additional shares of common stock sold during July 2006) to
the 3,230,000 shares of common stock (this includes the addition of 150,000
shares of common stock sold during August 2006) discussed on page 3.
75) The independent public accountants in each amendment should furnish
manually signed and currently dated consents to the Form SB-2.
Response: Please see Exhibit 23.2.
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76) Please update the financial statements in accordance with Item 310(g)
of Regulation S-B.
Response: Please see attached financial statements for the period ended
September 30, 2006.
Sincerely,
/s/Michael A. Littman
Michael A. Littman
MAL:cc
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As filed with the Securities and Exchange Commission on
January 8, 2007 Registration No. 333-138184
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TOMBSTONE CARDS, INC.
(Name of small business issuer in its charter)
COLORADO 2759 51-0541963
-------- ---- ----------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5380 Highlands Drive, Longmont, Colorado 80503
Phone (303) 684-6644 (Address and telephone
number of principal executive offices)
Neil A. Cox
5380 Highlands Drive, Longmont, Colorado 80503
Phone (303) 684-6644 (Name, address and
telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Michael A. Littman, Attorney at Law
7609 Ralston Road, Arvada, CO, 80002 phone 303-422-8127 / fax 303-431-1567
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE (COMMENT #2)
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Title of Each Class of Amount To Be Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered Registered Offering Price Per Unit Aggregate Offering Registration
Price(1) Fee
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Units by Selling 1,790,000 $0.75 $1,342,500 $143.65
Shareholders
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Stock by Selling 3,230,000 $0.55 $1,776,500 $190.09(2)
Shareholders
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Shares Underlying 600,000 $0.55 $ 330,000 $ 35.31(2)
Warrants to Consultants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Shares Underlying 60,000 $0.60 $ 36,000 $ 3.85(2)
Common Stock Purchase
Warrants to Placement Agent
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Selling Shareholders "A" 1,790,000 $0.10 $ 179,000 $ 19.15
Warrants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Selling Shareholders "B" 1,790,000 $0.05 $ 89,500 $ 9.58
Warrants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Shares Underlying 1,790,000 $2.00 $3,580,000 $383.06(2)
"A" Warrants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Shares Underlying 1,790,000 $5.00 $8,950,000 $957.65(2)
"B" Warrants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Shares Underlying 150,000 $0.55 $ 82,500 $ 8.83(2)
Employee Options
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) Amount previously paid with the original SB-2 filing.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
SUBJECT TO COMPLETION
PROSPECTUS
TOMBSTONE CARDS, INC.
1,790,000 UNITS CONSISTING OF ONE COMMON SHARE AND ONE "A" WARRANT
AND ONE "B" WARRANT
1,500,000 COMMON SHARES OF COMMON STOCK
1,790,000 SHARES COMPRISING PART OF THE UNITS BEING REGISTERED
1,790,000 "A" WARRANTS
1,790,000 "B" WARRANTS
1,790,000 COMMON SHARES UNDERLYING "A" WARRANTS
1,790,000 COMMON SHARES UNDERLYING "B" WARRANTS
60,000 COMMON SHARES UNDERLYING PLACEMENT AGENT WARRANTS
600,000 COMMON SHARES UNDERLYING CONSULTANT WARRANTS (COMMENT #4)
150,000 EMPLOYEE/CONSULTANT OPTION SHARES (COMMENT #4)
We are registering 1,790,000 Units consisting of one common share and one "A"
Warrant and one "B" Warrant, 1,500,000 Shares of Common Stock of Selling
Shareholders, 1,790,000 shares comprising part of the Units being Registered,
1,790,000 "A" Warrants, 1,790,000 "B" Warrants, 1,790,000 common Shares
underlying "A" Warrants at $2.00 per Share, 1,790,000 common Shares underlying
"B" Warrants at $5.00 per Share, 600,000 common Shares underlying Consultant
Warrants at $0.55 per Share, 60,000 common Shares underlying Placement Agent
Warrants at $0.60 per Share and 150,000 Employee/Consultant Option Shares at
$0.55 per Share (the "Offering") of our Company, Tombstone Cards, Inc.
("Tombstone") a Colorado corporation, at a price of $5.00 per Share for a total
amount of $12,566,000. (Comment #8) These funds will be raised by us if all
Warrants and Options described above are exercised, except that we will NOT
receive any proceeds from sales of shares by Selling Shareholders. Furthermore,
given that we have no operating history and no revenues, it is highly unlikely
that the Warrants will be exercised at $2.00 or $5.00 in the foreseeable future.
Each Unit (the "Units") consists of one share of our no par value common stock
(the "Common Stock"), and two common stock purchase Warrants (the "Warrants"),
an "A" Warrant and a "B" Warrant. Each "A" Warrant entitles the holder to
purchase one share of Common Stock at $2.00 during the two-year period
commencing August 31, 2006 and each "B" Warrant entitles the holder to purchase
one share at $5.00 during the three year period commencing August 31, 2006. We
have the right to call and redeem the Warrants upon 30 days written notice, at
$0.001 per Warrant. Our Common Stock and Warrants will be separately
transferable immediately after the closing of this offering. We have undertaken
to keep the registration statement, of which this Prospectus is a part, current
during the term of the Warrants. (See "Description of Securities")
These funds will be raised by us if all Warrants and Options described above are
exercised, except that we will not receive any proceeds from sales of shares by
Selling Shareholders. Furthermore, given that we have no operating history and
no revenues, it is highly unlikely that the Warrants will be exercised at $2.00
or $5.00 in the foreseeable future.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK; SEE "RISK FACTORS" BEGINNING ON
PAGE 6 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
We intend to have an application filed on our behalf by a market maker for
approval of Units, Warrants and Common Stock for quotation on the Over-the
Counter/Bulletin Board quotation system tradable separately, subject to
effectiveness of the Registration Statement. It has not yet been filed, nor is
there any selected broker/dealer as yet. Our Common Stock is presently not
listed on any national securities exchange or the NASDAQ Stock Market or any
other venue.
(Comment #3) Our Selling Security Holders plan to sell Units at $0.75, common
Shares at $0.55, "A" Warrants at $0.10 and "B" Warrants at $0.05, until such
time as a market develops for any of the securities and thereafter at such
prices as the market may dictate from time to time. There is no market price for
the stock and our pricing is arbitrary with no relation to market value,
liquidation value, earnings or dividends. The price was arbitrarily set at a
slight premium to the previous private placement price of $0.50 per Unit. The
Warrant exercise price was arbitrarily determined based on wishful thinking.
We are conducting this offering as a "self-underwriting" through our officers
and directors, and therefore, we will pay no underwriting fees or commissions
1. We are not using an underwriter for this offering of Shares or Shares
underlying Warrants.
2. We have no arrangement to place the proceeds from this offering in an
escrow, trust or similar account. Any funds raised from exercise of
Warrants pursuant to this offering will be immediately available to us
for its use and retained by Tombstone regardless of whether or not
there are any additional sales under this offering.
This offering will be on a delayed or continuous basis for sales of selling
Shareholders Units, Shares, or Warrants and for exercise of Warrants for the
period of the Warrants until expiry or call and exercise.
The price at which the Warrants may be sold cannot be determined. The Selling
Warrantholders are not paying any of the offering expenses and we will not
receive any of the proceeds from the sale of the Warrants by the Selling
Warrantholders (See "Description of Securities - Warrants").
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the date that the registration statement
relating to these securities, which has been filed with the Securities and
Exchange Commission, becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is January 8, 2007.
2
TABLE OF CONTENTS
=========================================================================================== ==============
Item in Form SB-2 Prospectus Caption Page No.
- ------------------------------------------------------------------------------------------- --------------
Front of Registration Statement and Outside Front Cover Page of Prospectus
- ------------------------------------------------------------------------------------------- --------------
Prospectus Cover Page 1
- ------------------------------------------------------------------------------------------- --------------
Prospectus Summary and Risk Factors 4
- ------------------------------------------------------------------------------------------- --------------
Use of Proceeds 14
- ------------------------------------------------------------------------------------------- --------------
Determination of Offering Price 17
- ------------------------------------------------------------------------------------------- --------------
Dilution 17
- ------------------------------------------------------------------------------------------- --------------
Selling Security Holders 19
- ------------------------------------------------------------------------------------------- --------------
Plan of Distribution 21
- ------------------------------------------------------------------------------------------- --------------
Legal Proceedings 22
- ------------------------------------------------------------------------------------------- --------------
Directors, Executive Officers, Promoters and Control Persons 22
- ------------------------------------------------------------------------------------------- --------------
Security Ownership of Certain Beneficial Owners and Management 24
- ------------------------------------------------------------------------------------------- --------------
Description of Securities 25
- ------------------------------------------------------------------------------------------- --------------
Interest of Named Experts and Counsel 26
- ------------------------------------------------------------------------------------------- --------------
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 26
- ------------------------------------------------------------------------------------------- --------------
Organization within Last Five Years 27
- ------------------------------------------------------------------------------------------- --------------
Description of Business 29
- ------------------------------------------------------------------------------------------- --------------
Plan of Operation 42
- ------------------------------------------------------------------------------------------- --------------
Description of Property 43
- ------------------------------------------------------------------------------------------- --------------
Certain Relationships and Related Transactions 44
- ------------------------------------------------------------------------------------------- --------------
Market for Common Equity and Related Stockholder Matters 44
- ------------------------------------------------------------------------------------------- --------------
Executive Compensation 46
- ------------------------------------------------------------------------------------------- --------------
Financial Statements 46
- ------------------------------------------------------------------------------------------- --------------
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 46
- ------------------------------------------------------------------------------------------- --------------
Securities offered through this prospectus will not be sold through dealers, but
will be sold on a direct participation basis only.
3
PROSPECTUS SUMMARY AND RISK FACTORS
OUR COMPANY
Tombstone Cards, Inc. ("We", "Us", "Our") was organized under the laws of the
State of Colorado on April 29, 2005 (Comment #5) because our management decided
to attempt to build a business to sell customized, professional-quality playing
cards via the Internet.
We have begun initial minimal operations and are currently without revenue.
(Comment #11) We have no employees at the present time, however we do currently
employ executive officers, as described on page 46. Until June 30, 2006, the
executive officers contributed their service as disclosed on page F-8. (We do
have employees at the present time, as the three executive officers are salaried
employees.)
(Comment #9) We are in the developmental stage of our business and we anticipate
that sales operations will begin in 2007.
Our Auditors have issued a going concern opinion and the reasons noted for
issuing the opinion are our lack of revenues and modest capital.
(Comment #9) Factors that make this offering highly speculative or risky are:
o There is no market for any securities;
o We have no revenues or sales;
o We are start up company;
o We have minimal experience in the printing business;
o We may be undercapitalized.
Our executive offices are located at 5380 Highlands Drive, Longmont, Colorado
80503; the telephone number is (303) 684-6644; and the facsimile number is (303)
684-0673.
SUMMARY OF FINANCIAL INFORMATION
--------------------------------------------------------- ----------------------------------------------------
As at September 30, 2006
--------------------------------------------------------- ----------------------------------------------------
Current Assets $727,523
--------------------------------------------------------- ----------------------------------------------------
Current Liabilities $2,856
--------------------------------------------------------- ----------------------------------------------------
Shareholders' Equity $735,159
--------------------------------------------------------- ----------------------------------------------------
From April 29, 2005 to September 30, 2006
--------------------------------------------------------- ----------------------------------------------------
Revenues $0
--------------------------------------------------------- ----------------------------------------------------
Net Loss ($108,898)
--------------------------------------------------------- ----------------------------------------------------
(Comment #10) As at September 30, 2006, accumulated deficit for our business was
($108,898). We anticipate that we will operate in a deficit position and
continue to sustain net losses for the foreseeable future.
4
THE OFFERING
We are registering 1,790,000 Units consisting of one common share and one "A"
Warrant and one "B" Warrant, 1,500,000 Shares of Common Stock of Selling
Shareholders, 1,790,000 shares comprising part of the Units being Registered,
1,790,000 "A" Warrants, 1,790,000 "B" Warrants and we are offering 1,790,000
common Shares underlying "A" Warrants at $2.00 per Share, 1,790,000 common
Shares underlying "B" Warrants at $5.00 per Share, 600,000 common Shares
underlying Consultant Warrants at $0.55 per Share, 60,000 common Shares
underlying Placement Agent Warrants at $0.60 per Share and 150,000
Employee/Consultant Option Shares (Comment #4) at $0.55 per Share (the
"Offering") of our Company, Tombstone Cards, Inc. ("Tombstone") a Colorado
corporation, at a price of $5.00 per Share for a total amount of $12,978,500.
(Comment #7) These funds will be raised by us if all Warrants and Options
described above are exercised, except that we will not receive any proceeds from
sales of shares by Selling Shareholders. Furthermore, given that we have no
operating history and no revenues, it is highly unlikely that the Warrants will
be exercised at $2.00 or $5.00 in the foreseeable future. Each Unit (the
"Units") consists of one share of our no par value common stock (the "Common
Stock"), and two common stock purchase Warrants (the "Warrants"), an "A" Warrant
and a "B" Warrant. Each "A" Warrant entitles the holder to purchase one share of
Common Stock at $2.00 during the two-year period commencing August 31, 2006 and
each "B" Warrant entitles the holder to purchase one share at $5.00 during the
three year period commencing August 31, 2006. We have the right to redeem the
Warrants upon 30 days written notice, at $0.001 per Warrant, beginning three
months from the date of this Prospectus. Our Common Stock and Warrants will be
separately transferable immediately after the closing of this offering. We have
undertaken to keep the registration statement, of which this Prospectus is a
part, current during the term of the Warrants. (See "Description of Securities")
====================================================================== ======================
Common Shares Outstanding Before This Offering 3,230,000
---------------------------------------------------------------------- ----------------------
Maximum Common Shares Being Offered by Selling Shareholders 3,230,000
---------------------------------------------------------------------- ----------------------
Maximum Units offered by Selling Shareholders 1,790,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Underlying "A" Warrants Being Offered 1,790,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Underlying "B" Warrants Being Offered 1,790,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Underlying Placement Agent Warrants @ $0.60 60,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Underlying Consultant Warrants @ $0.55 (Comment #4) 600,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Underlying Employee/Consultant Warrants (Comment #4) 150,000
---------------------------------------------------------------------- ----------------------
Maximum Common Shares Outstanding After This Offering (1) 7,620,000
---------------------------------------------------------------------- ----------------------
Maximum Shares Outstanding if "A" Warrants are Exercised in this 5,830,000
Offering
---------------------------------------------------------------------- ----------------------
Maximum Shares Outstanding if "B" Warrants are Exercised in this 7,620,000
Offering
====================================================================== ======================
(1) Assuming exercise of all 810,000 Share purchase Warrants
5
We are authorized to issue 100,000,000 Shares of Common Stock. Our current
Shareholders, officers and directors collectively own 3,230,000 Shares of
restricted Common Stock. These Shares were issued at a price of $.01 per Share
for 1,650,000 Shares and $0.50 per Share for 1,730,000 Shares.
There is currently no public market for our Units, Common Stock or Warrants, as
it is presently not traded on any market or securities exchange.
OUR COMPANY RISK FACTORS
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in us.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this prospectus, before
purchasing any of the Shares of our Common Stock.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD JEOPARDIZE
OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of rent, insurance, utilities, marketing
expenses, wages, taxes, etc. and could exceed $1,000,000 in the next twelve
months. Such funds are not currently committed and we have cash as of the date
of this Registration Statement of approximately $725,000.
(Comment #16) Given that we have no operating history and no revenues, it is
highly unlikely that the Warrants will be exercised at $2.00 and $5.00 in the
foreseeable future, which makes it highly unlikely that we will raise that
additional working capital from this Registration.
Our officers are spending full time in this business - 40 hours per week or
more.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE
RESOLVED FAVORABLY TO US.
Certain conflicts of interest may exist between us and our officers and
directors. Our Officers and Directors have other business interests to which
they devote their attention, and may be expected to continue to do so although
management time should be devoted to our business. As a result, conflicts of
interest may arise that can be resolved only through exercise of such judgment
as is consistent with fiduciary duties to us. See "Directors, Officers and
Contracted Persons," and "Conflicts of Interest."
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY
JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carryout the
business plan. Our ultimate success depends upon its ability to raise additional
capital. We have not investigated the availability, source, or terms that might
govern the acquisition of additional capital and will not do so until it
determines a need for additional financing. If we need additional capital, we
have no assurance that funds will be available from any source or, if available,
that they can be obtained on terms acceptable to us. If not available, our
operations will be limited to those that can be financed with our modest
capital.
THE REGULATION OF PENNY STOCKS BY SEC AND NASD WILL HAVE A CHILLING EFFECT ON
THE TRADABILITY OF OUR SECURITIES.
None of our securities trade in any market and, if ever available for trading,
will be subject to a Securities and Exchange Commission rule that imposes
special sales practice requirements upon broker-dealers who sell such securities
to persons other than established customers or accredited investors. For
purposes of the rule, the phrase "accredited investors" means, in general terms,
institutions with assets in excess of $5,000,000, or individuals having a net
worth in excess of $1,000,000 or having an annual income that exceeds $200,000
(or that, when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
6
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell our securities and also may affect
the ability of purchasers in this offering to sell their securities in any
market that might develop therefore.
(Comment #13) OUR WARRANT HOLDERS AND OPTION HOLDERS MAY NOT EXERCISE THEIR
PURCHASE RIGHTS.
It is very unlikely that any security holder would exercise either our Warrants
or the Options.
(Comment #12) WE HAVE NOT SET UP AN ESCROW TO RECEIVE PROCEEDS OF WARRANT OR
OPTION EXERCISE.
We do not have any escrow provisions and we do not have any intention of
returning any sale proceeds to investors if the maximum amount is not raised
from sale of any of our shares.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules may further affect the ability of owners of Shares to sell our securities
in any market that might develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
WE HAVE A MINIMAL OPERATING HISTORY, SO INVESTORS HAVE NO WAY TO GAUGE OUR LONG
TERM PERFORMANCE.
We were formed on April 29, 2005 based on a concept to (Comment #5) sell
customized, professional-quality playing cards via the Internet. As evidenced by
the financial reports we have had no revenue. It must be regarded as a new or
development venture with all of the unforeseen costs, expenses, problems, and
difficulties to which such ventures are subject. The venture must be considered
highly speculative.
WE CAN MAKE NO ASSURANCE OF SUCCESS OR PROFITABILITY IN THE FUTURE.
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits in the future, or that the
market price of our Common Stock will be increased thereby.
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS.
Because of the limited financial resources that we have, it is unlikely that we
will be able to diversify our operations. Our probable inability to diversify
our activities into more that one area will subject us to economic fluctuations
within a particular business or industry and therefore increase the risks
associated with our operations.
WE WILL DEPEND UPON MANAGEMENT BUT WE WILL HAVE LIMITED PARTICIPATION OF
MANAGEMENT.
We currently have three individuals who are serving as its officers for 30 hours
per week each and as directors on a part-time basis. (Comment #19) Our directors
will only put in part-time as necessary to carry out directors duties - usually
in a director capacity less than 5 hours per week. We will be heavily dependent
upon their skills, talents, and abilities, as well as several consultants to us,
7
to implement our business plan, and may, from time to time, find that the
inability of the officers, directors and consultants to devote their full-time
attention to our business results in a delay in progress toward implementing our
business plan. Once we receive the proceeds from this offering, several other
consultants may be employed on a full-time basis under a contract to be
determined. See "Management." Because investors will not be able to manage our
business, they should critically assess the information concerning our officers
and directors.
(COMMENT #18) OUR OFFICERS AND DIRECTORS ARE NOT EMPLOYED FULL-TIME BY US WHICH
COULD BE DETRIMENTAL TO THE BUSINESS.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, there exist potential conflicts
including time and efforts involved in participation with such other business
entities. Each officer and director of our business is engaged in business
activities outside of our business, and the amount of time they devote as
Officers or Directors to our business will will be about 30 hours per week. (See
"Executive Team")
(Comment #20) We do not know of any reason other than outside business interests
that would prevent them from devoting full-time to our Company.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS TO CORPORATE
OPPORTUNITIES WHICH OUR COMPANY MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person leans about through his involvement as an officer
and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person. (See "Conflicts of Interest" at page
23)
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY
COLORADO STATUTE.
Colorado Revised Statutes provide for the indemnification of our directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities our behalf. We will
also bear the expenses of such litigation for any of our directors, officers,
employees, or agents, upon such person's promise to repay us therefore if it is
ultimately determined that any such person shall not have been entitled to
indemnification. This indemnification policy could result in substantial
expenditures by us that we will be unable to recoup.
OUR DIRECTOR'S LIABILITY TO US AND SHAREHOLDERS IS LIMITED
Colorado Revised Statutes exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
WE MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON REASONABLE
TERMS AND AS NEEDED.
To supplement the business experience of its officers and directors, we may be
required to employ accountants, technical experts, appraisers, attorneys, or
other consultants or advisors. Our Board without any input from stockholders
will make the selection of any such advisors. Furthermore, it is anticipated
that such persons may be engaged on an "as needed" basis without a continuing
fiduciary or other obligation to us. In the event we consider it necessary to
hire outside advisors, we may elect to hire persons who are affiliates, if they
are able to provide the required services.
WE HAVE SUBSTANTIAL COMPETITORS WHO HAVE AN ADVANTAGE OVER US IN RESOURCES AND
MARKETING.
We will be in competition with other products developed and marketed by much
larger corporations, which are better capitalized and have far greater marketing
capabilities than us. We expect to be at a disadvantage when competing with many
firms that have substantially greater financial and management resources and
capabilities than we do now.
8
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have not paid dividends on its Common Stock and do not ever anticipate paying
such dividends in the foreseeable future.
LOSS OF CONTROL BY OUR PRESENT MANAGEMENT AND STOCKHOLDERS MAY OCCUR UPON
ISSUANCE OF ADDITIONAL SHARES.
We may issue further Shares as consideration for the cash or assets or services
out of our authorized but unissued Common Stock that would, upon issuance,
represent a majority of our 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 our management at this time. Such an occurrence
would result in a greatly reduced percentage of ownership of us by our current
Shareholders.
NO PUBLIC MARKET EXISTS FOR OUR COMMON STOCK, UNITS OR WARRANTS AT THIS TIME.
There is no public market for our Common Stock, and no assurance can be given
that a market will develop or that a Shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the securities offered hereby. Due to the low price of our securities, many
brokerage firms may not be willing to effect transactions in our securities.
Even if a purchaser finds a broker willing to effect a transaction in our
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 OUR STOCK PRICE.
All of the outstanding Shares of Common Stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these Shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering all of our outstanding Shares so officers,
directors and affiliates will be able to sell their Shares if this Registration
Statement becomes effective. Rule 144 provides in essence that a person who has
held restricted securities for one year may, under certain conditions, sell
every three months, in brokerage transactions, a number of Shares that does not
exceed the greater of 1.0% of a company's outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to the sale.
There is no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the owner has held the restricted securities for a period of
two years. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of Shares of Common Stock of
present stockholders, may have a depressive effect upon the price of the Common
Stock in any market that may develop.
FUTURE DILUTION MAY OCCUR DUE TO ISSUANCES OF SHARES FOR VARIOUS CONSIDERATION
IN THE FUTURE.
There may be substantial dilution to our Shareholders purchasing in this
Offering as a result of future decisions of the Board to issue Shares without
Shareholder approval for cash, services, acquisitions, or pursuant to our
Employee/Consultant Stock Option Plan for which one million Shares have been
reserved but are not issued. 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. 150,000 Options are currently outstanding under the Plan.
9
OUR 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 our Common Stock, Units, or Warrants, if listed, may be
thinly-traded on the OTC Bulletin Board, meaning that the number of persons
interested in purchasing our common Shares at or near ask prices at any given
time may be relatively small or non-existent. This situation is attributable to
a number of factors, including the fact that we are a small company which is
relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and
that even if we came to the attention of such persons, they tend to be
risk-averse and would be reluctant to follow an unproven, early stage company
such as ours or purchase or recommend the purchase of any of our Securities
until such time as we became more seasoned and viable. As a consequence, there
may be periods of several days or more when trading activity in our Securities
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on Securities price. We cannot give you any
assurance that a broader or more active public trading market for our common
Securities will develop or be sustained, or that any trading levels will be
sustained. Due to these conditions, we can give investors no assurance that they
will be able to sell their Shares, Units or Warrants at or near ask prices or at
all if you need money or otherwise desire to liquidate their Securities of our
Company.
OUR COMMON STOCK, UNITS AND WARRANTS MAY BE VOLATILE, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE
THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the limited trading market expected to develop for our Common Stock,
Units and Warrants, and because of the possible price volatility, you may not be
able to sell your Units or Warrants or Shares of Common Stock when you desire to
do so. The inability to sell your Securities in a rapidly declining market may
substantially increase your risk of loss because of such illiquidity and because
the price for our Securities may suffer greater declines because of its price
volatility.
The price of our Common Stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our Share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies Common Stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
MANY OF OUR SHARES OF COMMON STOCK WILL IN THE FUTURE BE AVAILABLE FOR RESALE.
ANY SALES OF OUR COMMON STOCK, IF IN SIGNIFICANT AMOUNTS, ARE LIKELY TO DEPRESS
THE MARKET PRICE OF OUR SECURITIES.
Assuming all of the Shares of common stock we are offering under this
Registration Statement including Shares underlying Warrants are sold and all of
the Shares of common stock issued and issuable to the selling security holders
are sold, we would have 7,620,000 Shares that are freely tradable without the
requirement of registration under the Securities Act of 1933. Even our officers
and directors are registering their Shares totaling 1,025,000. (Comment #21)
10
Unrestricted sales of 3,230,000 Shares of stock by our selling stockholders
could have a huge negative impact on our Share price, and the market for our
Securities including Units, Shares and Warrants.
OUR NEW INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL BE
IMMEDIATE DILUTION OF PURCHASERS' INVESTMENTS.
Our present Shareholders have acquired their Securities at a cost significantly
less than that which the investors purchasing pursuant to Warrants will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, new investors will bear most of the risk of loss. Further, assuming
all of the Shares offered hereby are sold, of which there can be no assurance,
an investment in our Common Stock by the purchaser will result in an immediate
dilution (in excess of 90%) of the net tangible book value of the Common Stock
from the offering price which the purchasers will have paid for their Shares.
OUR BUSINESS IS HIGHLY SPECULATIVE AND THE INVESTMENT IS THEREFORE RISKY.
Due to the speculative nature of our business, it is possible that the
investment in the Units, Warrants and Shares offered hereby 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.
OUR BUSINESS IS A DEVELOPMENT STAGE COMPANY AND UNPROVEN AND THEREFORE RISKY.
(COMMENT #22)
We have only very recently been organized to perform the operations described
above. Potential investors should be made aware of the risk and difficulties
encountered by a new enterprise in the card business, especially in view of the
intense competition from existing businesses in the industry.
(COMMENT #14) A DECLINE IN POKER POPULARITY OR ACTIVITY MAY ADVERSELY AFFECT OUR
BUSINESS.
If poker declines in popularity or activity, there is significant risk that the
demand for playing cards, our sole proposed product, will be negatively impacted
resulting in lack of sales revenues, if any are ever developed. This decline
could result from adverse economic conditions, which negatively affect
disposable income, changes in gaming habits, and enforcement activities related
to illegal gambling.
OUR WEAKNESSES MAY AFFECT OUR ABILITY TO SELL, COMPETE AND GENERATE REVENUES.
o Because of our position as a startup, we are not a household name
among prospective customers, and the cost to raise us to "top-of-mind"
awareness will be higher than for an established company.
o The order/production process will need to be tested during a phased
rollout, which will delay our full production capabilities by 30 to 90
days.
o Documented processes and procedures, along with the integrated
technology deployment, are still in the development stage and an
unforeseen delay or loss of key personnel could hold up the product
launch.
Any of these could cause our revenue model to be unprofitable and cause failure
of our business.
WE HAVE IDENTIFIED POTENTIAL THREATS TO OUR BUSINESS MODEL.
o The fast-growing interest in poker could be a fad that burns out
quickly, leaving a smaller core than expected.
o A significant downturn in the American economy would reduce the amount
of disposable income available to our target audience.
o Other competitors could move quickly to match our performance by
offering similar products and design amenities, forcing us to invest
more than expected in product development.
11
o Too much success too quickly could overwhelm our systems, creating
order and fulfillment problems including the increased possibility of
poor work slipping through to the marketplace, resulting in high
levels of customer dissatisfaction.
Any of these could cause our revenue model to be unprofitable and cause failure
of our business.
(COMMENT #15)
OUR PUBLIC INVESTORS MAY BEAR MOST OF THE BURDEN IF THE WARRANTS ARE EXERCISED.
The financial risk of our proposed activities will be borne primarily by the
public investors, who, upon purchase of the Warrant Shares in this offering,
will have contributed the largest portion of our capital.
WE ARE NOT A REPORTING COMPANY AT THIS TIME, BUT WILL BECOME ONE DUE TO THIS
REGISTRATION.
There is no trading market for our Common Stock. We will be subject to the
reporting requirements under the Securities and Exchange Act of 1934, Section
13a, after the effectiveness of this offering, pursuant to Section 15d of the
Securities Act and we intend to be registered under Section 12(g). As a result,
Shareholders will have access to the information required to be reported by
publicly held companies under the Exchange Act and the regulations thereunder.
We intend to provide our Shareholders with quarterly unaudited reports and
annual reports containing financial information prepared in accordance with
generally accepted accounting principles audited by independent certified public
accountants and intend to register under the Securities Exchange Act, Section
12(g).
OUR PRESENT AND FUTURE SHAREHOLDERS WILL SUFFER DILUTION BY SALE OF THIS
OFFERING AND BY NEW ISSUANCES IN THE FUTURE WHICH MAY OCCUR.
Upon the sales of Shares, there may be substantial dilution to our Security
holders. The exercise price of our Warrants $0.55, $2.00 and $5.00 is
substantially higher than the pro forma current net tangible book value per
Share of our outstanding Common Stock. The net tangible book value attributable
to our Shares as of September 30, 2006 was $0.228 per Share. Net tangible book
value per Share of Common Stock is determined by dividing the number of
outstanding Shares of Common Stock into the net tangible book value attributable
to our Common Stock, which is our total tangible assets less our total
liabilities. After giving effect to possible sale of all of our Shares
registered herein, and after deducting the offering expenses payable, the
adjusted net tangible book value attributable to our Common Stock will increase.
This represents an immediate increase in net tangible book value per Share to
the holders of our existing Common Stock and an immediate dilution per Share to
Shareholders purchasing Shares of stock at the Warrant exercise price of $0.55
per Share for certain Warrants and an even greater dilution for Warrant holders
who might purchase @ $2.00 or $5.00 per Share. See "Dilution" hereinafter on
page 17.
12
(Comment #4)
- ------------------------------------------ ----------------------------------- ----------------------------------
Book Value per Share post Dilution
offering*
- ------------------------------------------ ----------------------------------- ----------------------------------
Exercise of "Consultant/Employee" $.268 51%
Warrants @ $0.55/Share (1)
- ------------------------------------------ ----------------------------------- ----------------------------------
Exercise of "Placement Agent" Warrants @ $.268 51%
$0.60/Unit
- ------------------------------------------ ----------------------------------- ----------------------------------
Exercise of "A" Warrants @ $2.00/Share $.800 60%
- ------------------------------------------ ----------------------------------- ----------------------------------
Exercise of "B" Warrants @ $5.00/Share $1.787 64%
- ------------------------------------------ ----------------------------------- ----------------------------------
* Assumes 100% exercise and cumulative aggregation of proceeds.
(1) Includes 600,000 Warrants owned by consultants and 150,000 Warrants owned by
employees.
POSSIBLE DEPRESSIVE EFFECT OF FUTURE SALES OF SHARES ISSUED PURSUANT TO WARRANT
EXERCISE.
The Shares and Warrants included in the Units are being registered in this
Offering. These Warrants cannot be exercised and the underlying shares of Common
Stock issued unless a current registration statement is in effect. (See
"Description of Securities - Selling Warrantholders"). In the event all of the
Warrants are eventually exercised, the resulting 3,580,000 shares would be free
trading and could be sold into the secondary market. Such sales would most
likely have a depressive effect on the price of the Common Stock in any
over-the-counter market that may develop, since the large supply of shares
available in the market would most likely reduce the price purchasers need to
pay for the stock. The exercise of the Warrants would also reduce the percentage
of our Common Stock owned by the investors in this offering.
ARBITRARY OFFERING PRICE.
The offering price of the Units and the exercise price of the Warrants have been
determined arbitrarily by us with no established criteria of value. There is no
direct relationship between these prices and our assets, book value, lack of
earnings, shareholder's equity, or any other recognized standard of value of our
business.
FUTURE DILUTION.
The Units offered hereby contain Warrants to purchase shares of Common Stock.
Upon exercise of any of the Warrants, holder of Common Stock will suffer
dilution of their interest in us unless they in turn exercise Warrants which
they hold, if any. In addition, Warrants will be exercisable. (See "Description
of Securities").
NO ASSURANCE OF PUBLIC MARKET FOR ANY OUR SECURITIES.
There is presently no market for any of our securities and there can be no
assurance a market will develop or that purchasers will be able to resell their
Units, Common Stock or Warrants a the public offering price or without delay. No
one is obligated to create or make a market in the Units, Common Stock or
Warrants upon completion of this offering. Should a market for our Securities
develop there is no assurance that such a market will continue. In addition, due
to the low price of these Securities many brokerage firms may not effect
transactions in the Units, Common Stock or Warrants and banks may not accept
them as collateral for loans.
13
SALE OF WARRANTS.
There is no commitment by anyone to purchase or to sell our Warrants. The
holders of the Warrants intend to sell such Warrants. When and if the holders of
such Warrants, elect to sell the Warrants or, after the underlying shares are
registered, to exercise the Warrants, the sale of the Underlying Shares in
market transactions could be expected to have a depressive effect on the market
for any of our Securities and therefore likely would have a disruptive effect on
any orderly market, if any develops, for our Securities.
Such disruption, were it to occur, would harm our then existing shareholders and
Warrantholders since it would predictably result in a decline in the market
value of all outstanding Securities. Further, sales of Securities by our
insiders is often perceived in a negative light by prospective purchasers of a
company's securities since it connotes a lack of confidence in the company's
prospects and a desire of insiders to personally profit.
INVESTORS MAY BE UNABLE TO EXERCISE WARRANTS.
For the life of the Warrants, we 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 we are 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 offered hereby 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 fot eh 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 t heir Warrants or permit
them to expire. We intend to maintain our registration statement in the states
where the securities were initially qualified for sale. Prospective investors
and other interested persons who wish to know whether or not our 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.
We will have four increments of Securities trading under this Registration
Statement 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.
USE OF PROCEEDS
(Comment #23) In the event purchasers in this offering elect to exercise any of
the Warrants at the exercise prices set forth in this Prospectus, we will
realize net proceeds. The proceeds from the exercise of Warrants will be
contributed to our working capital and used to build our business. (See
"Proposed Business - Plan of Operation")
If Warrants are exercised we will receive proceeds upon exercise, from exercise
price of the Shares underlying Warrants $36,000 from the sale of 60,000 Shares
of Common Stock underlying Placement Agent Warrants (Comment #4)at $0.60 per
Share, $82,500 from sale of Shares underlying Warrants @ $0.55 per Share to
Employee/Consultants, $330,000 from sale of Shares to a Consultant underlying
Warrants at $0.55 per Share, $3,580,000 from the sale of 1,790,000 Shares
underlying "A" Warrants at $2.00 per Share, and $8,950,000 from the sale of
1,790,000 Shares underlying "B" Warrants at $5.00 per Share. We have no
intention of returning any stock sale proceeds to investors if the maximum
amount is not raised, and we will use the proceeds as soon as we receive them.
14
Although we reserve the right to reallocate the funds according to changing
events, we believe the net proceeds from this Offering and projected cash flow
from operations will be sufficient to fund our initial capital requirements for
a period of twelve months. The foregoing assumes the Offering will be fully
subscribed, but there can be no assurance we will not require additional funds
for operations. The availability and terms of any future financing will depend
on market and other conditions out of our control. The amount of proceeds and
uses are based upon our projections, which may also change according to
unforeseen future events and market changes.
(Comment #24) TABLE I
- -------------------------------- ----------------------------- --------------------------
"A" WARRANTS PROCEEDS "B" WARRANTS PROCEEDS
(INCLUDING PLACEMENT AGENT
WARRANTS, CONSULTANT
WARRANTS AND EMPLOYEE
CONSULTANT WARRANTS)
(COMMENT #4)
- -------------------------------- ----------------------------- --------------------------
Salaries $ 1,309,059 $2,600,000
- -------------------------------- ----------------------------- --------------------------
Equipment $ 168,750 $ 458,000
- -------------------------------- ----------------------------- --------------------------
Marketing $ 646,875 $2,417,000
- -------------------------------- ----------------------------- --------------------------
General and Administrative $812,242.50 $1,690,000
- -------------------------------- ----------------------------- --------------------------
Working Capital $949,218.75 $1,550,000
- -------------------------------- ----------------------------- --------------------------
Website Development $126,354.75 $ 235,000
- -------------------------------- ============================= ==========================
TOTAL $ 4,028,500 $8,950,000
- -------------------------------- ----------------------------- --------------------------
(Comment #24) We anticipate using the funds raised by this Offering to pay
listed categories as shown in Table below (Comment #29). Although we have
identified specific applications for the funds anticipated to be generated by
this Offering and we will apply the net proceeds of this Offering to general
corporate funds. Management will have complete discretionary control over the
actual utilization of said funds and there can be no assurance as to the manner
or time in which said funds will be utilized. We have not set any priorities of
one budget category over any other. If less than all Securities offered by us
are sold, we will reduce the categories pro rata, NOT according to any priority.
(Comment #62)
We make no assurance that we will raise the full $12,978,500 (Comment #7) as
anticipated. The following is the break down of how management intends to use
the proceeds if only 25 percent, 50 percent, or 75 percent of the total offering
amount is raised:
(COMMENTS #24 AND #25)TABLE II
BUDGET ASSUMING "A" AND "OTHER" WARRANT EXERCISE
======================= ==========================================================================================
EXPENDITURE ITEM 25% 50% 75% 100%
- ----------------------- ------------------------------------------------------------------------------------------
Salaries $ 291,059 $ 581,804 $ 872,706 $ 1,309,059
- ----------------------- ------------------------------------------------------------------------------------------
Equipment $ 35,000 $ 90,000 $ 135,000 $ 168,750
- ----------------------- ------------------------------------------------------------------------------------------
Marketing $ 157,343 $ 345,000 $ 517,500 $ 646,875
- ----------------------- ------------------------------------------------------------------------------------------
General & $ 216,598 $ 433,196 $ 649,794 $ 812,242.50
Administrative
- ----------------------- ------------------------------------------------------------------------------------------
Working Capital $ 253,125 $ 506,250 $ 759,375 $ 949,218.75
- ----------------------- ------------------------------------------------------------------------------------------
Website Development $ 50,000 $ 50,000 $ 75,000 $ 126,354.75
- ----------------------- ------------------------------------------------------------------------------------------
TOTAL $1,007,125 $2,014,250 $3,021,375 $ 4,028,500
---------- ---------- ---------- --------------
======================= ==========================================================================================
15
IF ONLY 25% OF THE MAXIMUM SHARES UNDERLYING "A" AND "OTHER" WARRANTS ARE SOLD,
we will continue with development plans, including implementing a marketing
plan, continuing web site improvements and hiring additional staff. The website
will be fully functional and will have been tested during our initial "soft
rollout" in January of 2007. A "soft roll out" is a product launch to a limited
market, in this case to fully test the systems and processes necessary for
product delivery and payment processing. However, funding for marketing and
promotions will be restricted to public relations, spot buys in magazines and
selected web sites, and promotions designed to produce "word-of-mouth"
referrals. The goal of this limited marketing mix is to drive traffic to the web
site in order to generate sales. We will purchase limited inventory, which
consists solely of preprinted "tuck" boxes used for packaging individual decks
of cards. Our directors and officers will participate in all functions to
generate sales and revenue from the business. Office space will be leased and
furniture will be purchased or leased in the substantial resale or "second-hand"
market. We anticipate hiring 6 additional employees in 2007, including a Sales
Manager, an In-house Sales Person, 2 Graphic Design Coordinators and 2 Customer
Service Representatives. Management will take responsibility for monthly
bookkeeping and quarterly in-house interim financial statements for the
accountant's review. We anticipate that approximately $1,000,000 along with the
expectation of limited revenue from modest sales will be sufficient to sustain
operations during the short-term. However, there would be insufficient funds
available for furtherance of the plan of operations as detailed later in this
prospectus under the heading "PLAN OF OPERATION."
If less than $1,000,000 were made available, we will restrict
expenditures to a minimum budget based on priorities determined by the officers
and directors. The renting of office space, additional hiring and certain
equipment purchases will be deferred. We will cover ongoing legal and accounting
costs. Public relations, marketing and web site maintenance will use the
remainder of the funds. The minimal amount of inventory will be maintained.
IN THE EVENT THAT ONLY 50% OF THE MAXIMUM SHARES UNDERLYING "A" AND "OTHER"
WARRANTS ARE RAISED (APPROXIMATELY $2,000,000), we will be able to further the
plan of operation; however, our activities will continue to be restricted. In
order to increase brand awareness and promote a corresponding increase in sales,
we will continue to place importance on marketing and driving potential
customers to the web site. The web site itself will be modified in response to a
review of hits, retention and conversion rate of visitors to customers. The
marketing mix will continue to be expanded, incorporating more spot buys in
special interest magazines and internet banner marketing on carefully targeted
associated sites. An increased level of inventory would be anticipated based on
response to initial sales, lead times for printing and bulk discounts.
IF 75% OF THE MAXIMUM SHARES UNDERLYING "A" AND "OTHER" WARRANTS ARE RAISED
(APPROXIMATELY $3,000,000), there will be sufficient funds to pay a significant
portion of all budgeted expenditure items with a continuing increase in
marketing and web site development.
The monies we have raised thus far from selling stock to our current
Shareholders is anticipated to be sufficient to pay all expenses of this
offering, which is estimated to be $100,000. The total amount of the money
raised from the sale of the Shares underlying Warrants we are offering will be
used for the purpose of furthering our plan of operation, as detailed under the
heading "PLAN OF OPERATION" below.
The registration of our Warrants is intended to and will permit our
Warrantholders to potentially capitalize, at a profit, on any rise in the market
price of our Warrants and the Common Shares. In the event that the Warrants are
sold by the Selling Warrantholders, we will receive none of the proceeds
therefrom. In addition, we are paying all the costs in connection with the
registration of such Warrants. The Selling Shareholders will be selling Warrants
and no commission will be paid by us in connection with such sales.
The monies we have raised thus far from selling stock to our current
Shareholders is anticipated to be sufficient to pay all expenses of this
offering, which is estimated to be $100,000. The total amount of the money
raised from the sale of the Shares underlying Warrants we are offering will be
used for the purpose of furthering our plan of operation, as detailed under the
heading "PLAN OF OPERATION" below.
16
DETERMINATION OF OFFERING PRICE
We have no established market for our Common Stock, Units or Warrants. We have
arbitrarily determined our offering price for Units and Warrants and for the
Shares underlying Warrants to be sold pursuant to this offering at $0.55 and
$0.60 for some Warrants and at $2.00 per Share for "A" Warrants and $5.00 per
Share for "B" Warrants. The 1,500,000 Shares of stock already purchased by
officers and directors and other founding Shareholders were sold for $.01 per
Share. We sold 1,730,000 Units to investors at $0.50 per Unit, each Unit
consisting of one Share and one "A" Warrant and one "B" Warrant in 2006. The
additional major factors that were included in determining the initial sales
price to our founders and private investors were the lack of liquidity since
there is no present market for our stock and the high level of risk considering
our lack of operating history.
The Warrant exercise prices bear no relationship to any criteria of goodwill
value, lock value, market price or any other measure of value and were
arbitrarily determined in the judgment of the Board of Directors.
DILUTION
We are registering Shares of existing Shareholders and Units purchased by
investors, "A" Warrants and "B" Warrants and Shares of Common Stock comprising
part of Units and Common Stock underlying Warrants for sale through this
offering. Since our inception on April 29, 2005, our officers, directors
purchased 1,000,000 shares @ $0.01 per share and other Shareholders have
purchased Shares of its Common Stock for $.05 per Share for 500,000 Shares and
1,730,000 Shares for $0.50 per Share. (Comment #26)
COMPARATIVE DATA
The following table sets forth with respect to existing Shareholders and new
investors, a comparison of the number of our Shares of Common Stock purchased
the percentage ownership of such Shares, the total consideration paid, the
percentage of total consideration paid and the average price per Share. All
percentages are computed based upon cumulative Shares and consideration assuming
sale of all Shares in the line items as compared to maximum in each previous
subsection.
(Comment #27)
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE/SHARE
(2) (3)
============================================================
1) EXISTING SHAREHOLDERS 3,230,000 81% $811,556 66% $0.25
"Other" Warrant Exercise @ $0.55 600,000 15% $330,000 27% $0.31
(assuming 100% sold)
"Other" Warrant Exercise @ $0.60 60,000 1.0% $36,000 2% $0.31
(assuming 100% sold)
Employee Options 150,000 @ $0.55 150,000 3.0% $82,500 5% $0.34
------------- ------------
Pre Warrant Exercise Capital 100% 100%
2) "A" WARRANT EXERCISE
If 50% sold 895,000 23% $1,790,000 60% $0.64
If 75% sold 1,342,500 26% $2,685,000 69% $0.75
If 100% sold (max) 1,790,000 32% $3,580,000 75% $0.86
3) "B" WARRANT EXERCISE
If 50% sold 895,000 14% $4,475,000 48% $1.40
If 75% sold 1,342,500 19% $6,712,500 58% $1.67
If 100% sold (max) 1,790,000 24% $8,950,000 60% $1.87
17
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an entity. Dilution
occurs because we determined the offering price based on factors other than
those used in computing book value of our stock. Dilution exists because the
book value of Shares held by existing stockholders is lower than the offering
price offered to new investors.
(Comment #27)
(1) 1,790,000 Shares were purchased as part of Units.
(2) Percentage relates to total percentage of shares sold up to such
increment.
(3) Percentage relates to total percentage of capital raised up to such
increment.
Following is a table detailing dilution to investors if 25%, 50%, 75%, or 100%
of the Shares underlying Warrants in the offering are sold.
25% 50% 75% 100%
============================================ =============== =============== ============== ===============
Net Tangible Book Value Per Share Prior to $0.24 $0.24 $0.24 $0.24
Stock Sale(1)
-------------------------------------------- --------------- --------------- -------------- ---------------
Net Tangible Book Value Per Share Prior to $0.23 $0.23 $0.23 $0.23
Stock Sale, assuming the Inclusion of
Certain Warrants (2)
-------------------------------------------- --------------- --------------- -------------- ---------------
Net Tangible Book Value Per Share After
Stock Sale
-------------------------------------------- --------------- --------------- -------------- ---------------
"A" Warrant Only $.044 $0.58 $0.70 $0.80
-------------------------------------------- --------------- --------------- -------------- ---------------
"A" Warrant and "B" Warrant $1.10 $1.36 $1.59 $1.79
-------------------------------------------- --------------- --------------- -------------- ---------------
Average Cost of Shares owned by existing $0.25 $0.25 $0.25 $0.25
stockholders per Share
-------------------------------------------- --------------- --------------- -------------- ---------------
"A" Warrant $0.53 $0.64 $0.75 $0.86
-------------------------------------------- --------------- --------------- -------------- ---------------
"B" Warrant $1.18 $1.40 $1.67 $1.87
-------------------------------------------- --------------- --------------- -------------- ---------------
(1) Computation of Net Tangible Book Value per Share prior to stock sale
includes the deduction of offering costs of $100,000 and proceeds of
private placement in July/August 2006
(2) Computation of Net Tangible Book Value per Share prior to stock sale
assumes proceeds from the exercise of the following warrants: 600,000
@ $0.55; 150,000 @ $0.55; 60,000 @ $0.60 (shares underlying the
"Other" Warrants)
As at September 30, 2006, the net tangible book value of our stock was $0.228
per Share. If we are successful in achieving exercise of the Shares underlying
Warrants at the exercise price, the pro forma net tangible book value of our
stock after deducting the offering costs of $100,000 would be as shown in chart
above. That would represent an immediate increase in net tangible book value per
Share and per Share dilution to new investors as shown in chart above, assuming
the Shares are sold at the exercise price of $0.55 for 750,000 Shares and $0.60
for 60,000 Shares and $2.00 per Share for 1,790,000 Shares and $5.00 per Share
for 1,790,000 Shares. Our existing stockholders have purchased a total of
3,230,000 Shares for an aggregate amount of $811,556 or an average cost of $0.25
per Share. The book value of the stock held by our existing stockholders will
increase per Share, while new purchaser's book value will decrease from purchase
price, as shown in chart above.
If all Warrants are fully exercised, the new total capital contributed will be
$13,794,805 consisting of $12,978,500 from Warrant exercises + $816,305 from
earlier investors (Comment #2). The percentage of our capital contribution will
then be 6% for the existing stockholders and 94% for the new purchasers. The
existing stockholders will then hold, as a percentage, 41% of our issued and
outstanding Shares, while the new purchasers will hold, as a percentage, 59%.
18
For the life of the Warrants, the holders thereof are given, at a nominal cost,
the opportunity to profit from a rise in the market price of our Common Stock.
The exercise of the Warrants by the holders thereof could result in a further
dilution of the book value of our Common Stock. Furthermore, the holders of the
Warrants might be expected to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital by a new offering of Securities
on terms more favorable than those provided for by the Warrants.
SELLING SECURITY HOLDERS
(Comment #28) The selling Shareholders, excluding officers and directors,
obtained their Shares of our Stock in either of two private placements of
a)1,730,000 Units occurring in June, July, August 2006, which consisted of one
Share, one "A" Warrant and one "B" Warrant at $0.50 per share, or b) in the
initial private placement in late 2005 of 500,000shares (excluding founders,
John Harris and Neil Cox) at $0.05 per share.
Other than the two stock transactions discussed below, we have not entered into
any transaction nor are there any proposed transactions in which any founder,
director, executive officer, Shareholder of our company or any member of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
On July 6, 2005, we sold 500,000 Shares of our Common Stock to our
CFO/Secretary/Treasurer (Neil A. Cox) for $5,000, or $.01 per Share. Our Common
Stock had no quoted market value on the date of the transaction. Mr. Cox would
be considered a promoter.
On July 14, 2005, we sold 500,000 Shares of our Common Stock to our President
(John N. Harris) for $5,000, or $.01 per Share. Our Common Stock had no quoted
market value on the date of the transaction. Mr. Harris would be considered a
promoter.
We have 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.
The President and CFO contributed their management services to our business
until June 30, 2006.
There are no promoters being used in relation to this offering. No person who
may, in the future, be considered a promoter of this offering, will receive or
expect to receive assets, services or other considerations from us. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the Shareholders.
1) Placement Agent Warrants to Garden State Securities - 60,000 @ $0.60
2) Employee Stock Options - 150,000 @ $0.55
3) Capital Merchant Banc Options - 600,000 @ $0.55
All of the Securities listed below are being registered in this Registration
Statement. (Comment #30)
19
(Comment #29 and 30)
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
NAME UNITS COMMON SHARES % OWNED % OWNED "A" "B" "OTHER" % OWNED
OFFERED OFFERED BY BEFORE BEFORE WARRANTS WARRANTS WARRANTS AFTER
BY SHAREHOLDERS OFFERING WARRANT OFFERED BY OFFERED OFFERING OF
SHAREHOLDER EXERCISE SHAREHOLDERS BY CLASS OF
SHAREHOLDERS SECURITIES
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Neil A. 500,000 14% 14% 0 0 0%
Cox (1)
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
John N. 500,000 14% 14% 0 0 0%
Harris (2)
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
James C. 25,000 0 0 0%
McLennan
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Dale 60,000 110,000 3% 3% 60,000 60,000 0%
Stonedahl(3)
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
George W. 75,000 2% 2% 50,000 50,000 0%
Wanberg and
Cynthia B.
Wanberg
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Jolaine 25,000 * * 0 0 0%
Roth
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Mark S. 25,000 * * 0 0 0%
Kachun
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
James B. 25,000 * * 0 0 0%
Sebastian
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
William H. 25,000 * * 0 0 0%
Reilly
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Douglas F. 200,000 6% 6% 0 0 0%
Fleet
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Barbara C. 50,000 1% 1% 0 0 0%
Kurczodyna
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
J. Randall 50,000 1% 1% 0 0 0%
Thrall
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Gary 20,000 20,000 * * 20,000 20,000 0%
Stonedahl
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Lee A. Milo 100,000 100,000 3% 3% 100,000 100,000 0%
TR UA
12052002,
George
Wanberg TTEE
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Matthew Ray 20,000 20,000 * * 20,000 20,000 0%
Frigm
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
William J. 30,000 30,000 * * 30,000 30,000 0%
Clayton
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Richard C. 50,000 50,000 1% 1% 50,000 50,000 0%
Erickson
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Carmine 30,000 30,000 * * 30,000 30,000 0%
Tirone
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Willie Gibson 10,000 10,000 * * 10,000 10,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Leroy Padilla 10,000 10,000 * * 10,000 10,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Nagle Family 50,000 50,000 1% 1% 50,000 50,000 0%
Trust
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
David W. Lane 100,000 100,000 3% 3% 100,000 100,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
* Less than 1%
20
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Robert E. 100,000 100,000 3% 3% 100,000 100,000 0%
Maciorowski
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
James Scanlon 200,000 200,000 6% 6% 200,000 200,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Mike Scanlon 200,000 200,000 6% 6% 200,000 200,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Michael J. 200,000 200,000 6% 6% 200,000 200,000 0%
Keate
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Roland 200,000 200,000 6% 6% 200,000 200,000 0%
Rosenboom
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
James V. 100,000 100,000 3% 3% 100,000 100,000 0%
Bickford
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Lawrence M. 50,000 50,000 1% 1% 50,000 50,000 0%
Elman
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Richard 10,000 10,000 10,000 10,000 0%
Gardner
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Robert E. 50,000 50,000 1% 1% 50,000 50,000 0%
Dettle,
Trustee
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
William H. & 10,000 10,000 * * 10,000 10,000 0%
Gale S.
Kendall
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
William R. 10,000 10,000 * * 10,000 10,000 0%
Talbert
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
John Gersman 10,000 10,000 * * 10,000 10,000 0%
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Dulcinea A. 10,000 10,000 * * 10,000 10,000 0%
Hansard
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
Steve E. 50,000 50,000 1% 1% 50,000 50,000 0%
Hatch
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
(Comment #31)
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
- -------------- ----------- --------------- ------------ ------------- ------------- ----------- ------------- -------------
*Less than 1%
MATERIAL RELATIONS
(1) CFO and Director Since inception in 2005
(2) President and Director
(3) Consultant
(Comment #32)
None of the selling Shareholders are registered broker-dealers and none of the
selling Shareholders are affiliate of board of directors.
PLAN OF DISTRIBUTION
Upon effectiveness of the registration statement, of which this prospectus is a
part, we will conduct the sale of Shares pursuant to exercise of Warrants on a
self-underwritten basis. Our selling Shareholders, Unitholders and
Warrantholders are free to sell their Securities in private at $0.75 per Unit,
$0.55 per Share, $0.10 per "A" Warrant, $0.05 per "B" Warrant or market sales at
prices they negotiate if a market ever develops hereafter. There will be no
underwriters used, no dealers' commissions paid on Warrant exercise, and no
passive market making. Our officers and directors, John N. Harris, Neil A. Cox
and William H. Reilly, will sell securities on our behalf in this offering. John
N. Harris, Neil A. Cox and William H. Reilly are not subject to a statutory
disqualification as such term is defined in Section (a)(39) of the Securities
Exchange Act of 1934. They will rely on Rule 3a4-1 to sell our securities
without registering as broker-dealers. They are serving as our officers and
directors otherwise than in connection with transactions in securities and will
continue to do so at the conclusion of this offering. They have not been a
broker or dealer, or an associated person of a broker or dealer, within the
preceding 12 months, and have not nor will not participate in the sale of
securities for any issuer more than once every twelve months. Our officers and
21
directors will not receive commissions or other remuneration in connection with
their participation in this offering based either directly or indirectly on
transactions in securities. We will only use this prospectus in connection with
this offering and no other sales materials.
There is no market price for the stock and our pricing is arbitrary with no
relation to market value, liquidation value, earnings or dividends. The price
was arbitrarily set at a slight premium to the previous private placement price
of $0.50 per Unit. The Warrant exercise price was arbitrarily determined based
on wishful thinking.
There can be no assurance that we will achieve any Warrant exercise from our
Shareholders. We have no arrangement or guarantee that we will achieve any
Warrant exercise from anyone. All subscription checks will be made payable to
us. We will receive no proceeds from sales of Shares by our selling
Shareholders.
(Comment #33) Our selling Shareholders may be deemed underwriters in this
offering.
Any funds received from the Warrant exercise will immediately be made available
for our use and retained by us regardless of whether or not we sell any
additional Shares under this offering. Any funds not immediately used for
corporate purposes will be deposited into an interest bearing account in our
name, and interest accrued on such funds will be retained by us.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings, nor are we aware of any
civil proceeding or government authority contemplating any legal proceeding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS EXECUTIVE TEAM
(Comment #18) Our officers are spending approximately 30 hours per week on our
business.
(COMMENT #34)CHAIRMAN AND CHIEF FINANCIAL OFFICER
Neil A. Cox, 57
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.
(Comment #35) Mr. Cox received a Bachelor of Business Administration (BBA) from
West Texas A&M University (formerly know 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 has been self-employed with Rocky Mountain
Securities and Investments, Inc. until 2002, a registered broker-dealer; 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) and has represented many Life and Health
Insurance Companies.
PRESIDENT AND DIRECTOR
John N. Harris, 60
Mr. Harris began his career in the securities industry in 1971 with Newhard Cook
& Co., a St. Louis based NYSE member firm. Licensed both as a broker and
principal, he ultimately managed brokerage offices for several regional NASD
brokerage firms. Since 1985, he has been self-employed as a business consultant
and as a private investor. For the last 5 years Mr. Harris has been an
independent financial consultant. Mr. Harris brings us experience in the public
securities market.
22
CHIEF OPERATIONS OFFICER/CHIEF TECHNOLOGY OFFICER AND DIRECTOR
William H. Reilly, 53
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.
(COMMENT #18) CONFLICTS OF INTEREST - GENERAL.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, there exist potential conflicts of
interest including, among other things, time, efforts and corporation
opportunity, involved in participation with such other business entities. While
each officer and director of our business is engaged in business activities
outside of our business, the amount of time they devote to our business will be
approximately 30 hours per week.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in our Articles of Incorporation, Bylaws, or
minutes which requires officers and directors of our business to disclose to us
business opportunities which come to their attention. Our officers and directors
do, however, have a fiduciary duty of loyalty to us to disclose to us any
business opportunities which come to their attention, in their capacity as an
officer and/or director or otherwise. Excluded from this duty would be
opportunities which the person learns about through his involvement as an
officer and director of another company. We have no intention of merging with or
acquiring an affiliate, associate person or business opportunity from any
affiliate or any client of any such person.
PROJECTED STAFF
STAFFING
Our development team recognizes that additional staff is required to properly
support marketing, sales, research, and support functions.
Currently, we have no employees aside from the executive staff. This lean
staffing is possible in this phase because of our determination to outsource
noncore functions. However, we believe an additional 9 employees may be required
to meet projected market demand over the next 12 months. Our staff positions
will be filled as business demands require, and the positions may be altered in
response to business needs.
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF SEPTEMBER
30, 2006
(a) Beneficial owners of five percent (5%) or greater, of our Common Stock.
(No Preferred Stock is outstanding at the date of this Offering.)
There are currently 100,000,000 common Shares authorized of which 3,230,000 are
outstanding.
The following sets forth information with respect to ownership by holders of
more than five percent (5%) of our Common Stock (Comment #36) currently and if
all Options exercisable within 60 days pursuant to Section 13(d)(2) are
exercised known by us:
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF PERCENT OF CLASS
OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS ASSUMING
EXERCISE OF
ALL WARRANTS
AND OPTIONS
- -----------------------------------------------------------------------------------------------------------------------
Common Shares Neil A. Cox 500,000 14% 8.4%
Chairman and CFO
5380 Highlands Drive
Longmont, CO 80503
Common Shares John N. Harris 500,000 14% 8.4%
President
P.O. Box 1547
Lyons, CO 80540
Common Shares Capital Merchant Banc 600,000 0% 10.1%
Warrants
(b) The following sets forth information with respect to our Common Stock
beneficially owned by each Officer and Director, and by all Directors and
Officers as a group as of November 30, 2006 and assuming exercise of all Options
and Warrants.
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF PERCENT OF CLASS
OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS ASSUMING
CURRENTLY EXERCISE OF
ALL WARRANTS
AND OPTIONS
- -----------------------------------------------------------------------------------------------------------------------
Common Shares Neil A. Cox 500,000 14% 8.4%
Chairman and CFO
5380 Highlands Drive
Longmont, CO 80503
Common Shares John N. Harris 500,000 14% 8.4%
President
P.O. Box 1547
Lyons, CO 80540
24
Common Shares William H. Reilly 25,000 less than 1% less than 1%
COO/CTO
4859 Dakota Blvd.
Boulder, CO 80304
All Directors and Executive 1,025,000 28% 16.8%
Officers as a Group (3 persons)
DESCRIPTION OF SECURITIES
The Securities being registered and/or offered by this Prospectus are Units,
Shares, "A" Warrants and "B" Warrants.
UNITS
Each Unit consists of one share of Common Stock and two Common Stock purchase
Warrants for an "A" Warrant ($2.00) and "B" Warrant ($5.00). Units are evidenced
by separate certificates separable into Common Stock certificates and Warrant
certificates. Following is a description of our Common Stock, the Warrants and
other Securities of which together comprise Units.
COMMON STOCK
We are presently authorized to issue one hundred million (100,000,000) Shares of
its Common Stock. A total of three million two hundred thirty thousand
(3,230,000) common Shares are issued and outstanding.
COMMON SHARES
(Comment #37) All Shares are equal to each other with respect to voting,
liquidation, and dividend rights. Special Shareholders' meetings may be called
by the officers or director, or upon the request of holders of at least
one-tenth (1/10th) of the outstanding Shares. Holders of Shares are entitled to
one vote at any Shareholders' meeting for each Share they own as of the record
date fixed by the board of directors. There is no quorum requirement for
Shareholders' meetings. Therefore, a vote of the majority of the Shares
represented at a meeting will govern even if this is substantially less than a
majority of the Shares outstanding. Holders of Shares are entitled to receive
such dividends as may be declared by the board of directors out of funds legally
available therefore, and upon liquidation are entitled to participate pro rata
in a distribution of assets available for such a distribution to Shareholders.
There are no conversion, pre-emptive or other subscription rights or privileges
with respect to any Shares. Reference is made to our Articles of Incorporation
and our By-Laws as well as to the applicable statutes of the State of Colorado
for a more complete description of the rights and liabilities of holders of
Shares. It should be noted that the board of directors without notice to the
Shareholders may amend the By-Laws. Our Shares do not have cumulative voting
rights, which means that the holders of more than fifty percent (50%) of the
Shares voting for election of directors may elect all the directors if they
choose to do so. In such event, the holders of the remaining Shares aggregating
less than fifty percent (50%) of the Shares voting for election of directors may
not be able to elect any director.
WARRANTS
CONSULTANT AND EMPLOYEE WARRANTS
The Warrants offered by this Prospectus are issued pursuant to a Warrant
Agreement between us and Corporate Stock Transfer, Inc. (the "Warrant Agent").
We have authorized and reserved for issuance the underlying Shares of Common
Stock issuable upon exercise of the Warrants.
25
We have 600,000 outstanding common stock purchase Warrants exercisable at $0.55
per Share expiring August 31, 2009, 60,000 Warrants exercisable at $0.60 per
Share expiring August 31, 2009, and 150,000 Employee/Consultant Options
exercisable at $0.55/per Share.
CLASS "A" WARRANTS FOR COMMON STOCK - $2.00
Each Common Stock purchase Warrant entitles the holder to purchase one Share of
Common Stock at $2.00 per Share for up to three years with a maximum expiry date
of August 31, 2009. 1,790,000 "A" Warrants are outstanding at the commencement
of this offering. Our Warrants are callable for redemption at $.001 per Warrant
upon thirty days written notice, if not exercised.
CLASS "B" WARRANTS FOR COMMON STOCK - $5.00
Each Common Stock purchase Warrant entitles the holder to purchase one Share of
Common Stock at $5.00 per Share for up to three years with a maximum expiry date
of August 31, 2009. 1,790,000 "B" Warrants are outstanding at the commencement
of this offering. Our Warrants are callable for redemption at $.001 per Warrant
upon thirty days written notice, if not exercised.
PREFERRED SHARES
We have no preferred Shares authorized.
Transfer and Warrant Agent
Effective upon the completion of this offering, the transfer agent and the
Warrant agent for our securities is Corporate Stock Transfer, Inc., 3200 Cherry
Creek Drive South, Suite 430, Denver, Colorado 80209.
INTEREST OF NAMED EXPERTS AND COUNSEL
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in us, or who is, or was, our
promoter, underwriter, voting trustee, director, officer or employee.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES LIABILITIES
The Colorado Business Corporation Act requires us 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 us 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.
26
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 our bylaws, we are authorized to indemnify its directors to the
fullest extent authorized under Colorado Law subject to certain specified
limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
us pursuant to the foregoing provisions or otherwise, we are 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.
ORGANIZATION WITHIN LAST FIVE YEARS
We were newly formed on April 29, 2005 and have had only limited operations to
date relating to structure and capital formation. Also see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" at page 44.
DESCRIPTION OF BUSINESS (COMMENT #38)
CONCEPT AND FORMATION
In early 2005, our founders Neil A. Cox and John Harris explored a business
opportunity: customized playing cards. By working with state-of-the-art printers
that fully utilize digital technologies, they believed that they can 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.
Playing cards, however, are not simply printed on card stock, cut, and packaged.
The best playing cards use laminated paper called "black liner board." In
addition, playing cards must be finished with a plastic coating to protect the
cards and prolong their useful life, the corners cut in a special round format,
and then the decks collated, packaged, and readied for shipment.
In view of the continued growth surrounding poker in particular in 2005, we were
formed by Mr. Cox and Mr. Harris as Stack the Deck, Inc. a Colorado corporation
in 2005, and we changed the name to Tombstone Cards, Inc., With the initial team
in place and capital secured, we are now preparing to finalize production
processes, develop Internet presence, secure necessary design elements, and
arrange for the launch for business.
There are a number of competitors in the marketplace (Comment #39) that focus on
either high-cost, low-volume runs or low-cost, high-volume runs. By utilizing
digital technology for printing, ordering, custom development, and customer
relationship management, we intend to offer high-end, full-color customizable
playing cards at a competitive price (Comment #41). Moreover, the experience of
designing cards on the Web with our proprietary tools will actually be fun,
easy, and intuitive, which we believe will allow us to capitalize on the
powerful influence of the Internet to provide an additional level of
"attractiveness" to the product.
We are temporarily located at 5380 Highlands Drive, Longmont, Colorado.
Implementation of our plan will require the rental of office space in the
Longmont Colorado area in order to accommodate our expected growth over the next
two years.
We are a product development and marketing company specializing in the
development of print-based products which appeal to both the consumer and
business markets. As of the date hereof we have not offered any products and
have no functioning website upon which to order any products.
27
(Comment #42) BACKGROUND
For many years, people have enjoyed competitive card games, especially poker.
Recently, however, there has been an explosion of interest around, and
participation in, these games. The question that we must answer in order to plan
for profitability and success is, "What are the numbers?"
(Comment #40) Based upon our research, since 2003, the poker-playing and gaming
markets have grown as evidenced by the various televised poker tournaments. This
has (Comment #43) created what we believe will be a demand for superior quality
customized playing cards Although there is no shortage of putative competitors,
we believe that our real strength may be in the development and sale of a new,
extremely focused product line using the proprietary Web-based design system
that we are developing to support the interactivity and functionality required
for our customers to personally create their orders.
We believe no one else is offering the capabilities of the interactive system we
are developing. Our (Comment #44) design tool is intended to encourage customers
to fully personalize their cards over the Internet (Comment #39) using
interactive design components and guides built into the tool.
We are creating an operating infrastructure with strategic partners for
outsourced production and well-designed affiliate programs to support key
distribution channels. We are now in the initial stages of testing products and
web services, as well as developing the fundamental underlying business model,
to take full advantage of this fast-growing interest in all things having to do
with poker and competitive card playing.
(Comment #40) (Comment #40)
(Comment #38) (Comment #40) (Comment #38) (Comment #45)
MARKETING LAUNCH PLAN (COMMENT #40)
Many potential customers are accessible through niche media (Comment #47) and we
plan to advertise in publications such as CARD PLAYER MAGAZINE, THE POKER
GAZETTE, POKER PLAYER, ALL IN MAGAZINE, and BLUFF MAGAZINE. Each of these
provides ready access to the card-playing demographic. In addition, we intend to
rent appropriate mailing lists for a targeted direct mail, partner with large
organizations involved in the poker arena, and utilize industry publications for
public relations purposes by providing focused press releases and interviews.
Our initial sales push, however, will be through our internal sales team
developing accounts with large clients, tournaments, and special events, and
through direct contact with poker clubs and businesses. We expect that 95% of
our business dealings will be handled online. The computerized design system
that is being developed is intended to be state of the art (Comment #48). It
will be the ability to add text, graphics, and borders to photos--in addition to
customizing professionally designed templates with text and a selection of
complementary colors available in preset palates--that will set us apart from
the competition.
Our goal is to quickly establish a position in the marketplace in order to
exploit this growth phase and try to achieve a sustainable lead on any future
competition.
CUSTOMERS
Our target market includes:
o Individuals who host their own games and want a unique identifier
o Poker clubs that want to brand their identities
o Poker tournaments that want to move beyond nondescript branding and
attract more competitors
o Businesses that want a more useful advertising "giveaway"
o Individuals and groups not directly associated with poker that would
like to create customized gifts for special occasions (weddings,
reunions, bar/bat mitzvahs, birthdays, etc.)
o Businesses wanting additional revenue-producing products
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PRODUCT STRATEGY
We intend to offer a single product but with an almost infinite number of
customization options for the consumer and business markets. Our
product--customized, personalized decks of high quality playing cards--gives
customers the ability to make personal statements about themselves, provide
unique gifts, and advertise their business with an item that is both "cool" and
"fun" or an ancillary product that can generate revenues for them.
Our products are designed to meet customer requirements for quality and value
because of the raw materials, the high-end finishing, and the purchasing
"experience" that allows for a high degree of customization using an innovative
yet easy-to-use online process. The cards' quality and printing uniformity will
make them suitable for competitive play. (Comment #39).
BUSINESS MODEL
Our business model is focused on extensively using the Internet for all
commercial functions, from providing customers with design tools to order
tracking, affiliate management, and customer relationship management. We believe
that this will reduce the cycle time, increase our ability to retain customers,
and keep our administrative costs low.
COMPETITION
Our competitors in this market are Gemaco, Newt's Playing Cards, House of Cards
India, and virtually any other company with a printer. It is even possible to
purchase "playing card paper stock" and print personal cards from a home printer
attached to ones computer.
However, we believe no competitor currently offers the combination of high
quality/high value with low order size/low per-unit cost. (Comment #39) In doing
this, competitors provide, among other options:
o Single-color printing on a pre-selected background (e.g., marble or
patterned)
o Photographic printing with little or no customization options
In addition, the minimum order may be as high as 50 decks.
(Comment #39 and Comment #57)Our strategy for meeting the competition is to add
to and improve the online design/purchasing experience; secure partnerships,
licensing arrangements, and advertising co-op arrangements with high-visibility
brand owners that Share our customer base (e.g., motorcycle manufacturers and
dealers, military organizations, beer companies, etc.); and make sure that it
stays "easy" to do business with us.
POTENTIAL RISKS TO OUR BUSINESS PLAN
Our top business risks include an unexpected drop in poker popularity, a severe
economic slowing or recession, new laws regulating nongambling (for money or
prizes) poker clubs, competition, and even growth that exceeds our ability to
respond.
We face a possibility that the poker market will not be as strong or as
sustainable as we expect (Comment #50). (Comment #49) A crackdown by regulatory
authorities or law enforcement on illegal gambling could have an adverse affect
on our sales and revenues.
Though we do not expect local, state, or even federal laws regarding poker to
change, it is possible that new regulations could impair our business.
By outsourcing production, we intend to maintain the ability to find new or
additional suppliers to fill in during times of peak demand (seasonally),
thereby mitigating the potential of being overwhelmed by orders.
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MARKETING PLAN POTENTIAL
(Comment #51) Responses from potential customers indicate that the intended
product is attractive due to its custom features and speed, and we fully intend
to capitalize on this trend. We are referring to informal encounters with
potential customers but not a more formal market survey of such individuals.
(Comment #52) Our marketing strategy is to aggressively promote and support the
significant features unique to the product and to use public relations media and
web presence to clearly demonstrate the advantages of the product offerings.
These features include:
o Triple-laminated paper stock with a plastic finish
o A high degree of available customization requiring little skill or
computer knowledge
o A cycle time that is dramatically shorter than the competitive
printers
o Aggressive pricing
The proposed marketing mix includes advertising, affiliate support, banner ads,
direct mail, a public relations campaign, and sponsorship of local and regional
poker tournaments.
SALES STRATEGY
Our products will be available over the Web. Customers will be attracted to the
Web site through our direct marketing to high-yield organizations (poker clubs,
etc.) and businesses, and web advertising through numerous avenues.
DISTRIBUTION CHANNELS
Our marketing strategy includes selling the product through several channels,
including direct to business for retail sales and promotions and direct to
consumers. In all cases, we will be driving our products through our online
website and catalog and design tool.
We will actively create and maintain house accounts for businesses and larger
organizations.
ADVERTISING, PROMOTIONS, AND PUBLIC RELATIONS
Our advertising, promotions, and public relations strategy is to profile us as
the premier distributor of this type of product in the market, based on finished
quality and the design options available within the proprietary design Web tool,
with a significant reduction in cycle time. One of the keys of the strategy is
not to compete on price alone, thus avoiding any comparison in which it would be
forced to deal with the product as a commodity.
We intend to utilize the following media and methods to carry its message to
potential customers:
o Internet promotions using Web search engines and, where appropriate,
banner ads on complementary sites
o Direct mail using the most suitable lists from industry magazines,
poker clubs, and associated organizations
o Sponsorships of local and regional poker tournaments
o Public relations campaigns to targeted publications stressing the
unique attributes of the product and the process
o Print advertising in selected industry publications
On an ongoing basis, we intend to budget our advertising and marketing
investment as a percentage of total sales. By consistently tracking the results
of its campaigns, we intend to be able to determine the effectiveness of various
initiatives. This will allow us to adjust the budget allocation appropriately to
improve marketing efforts.
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While some organizations break out public relations costs and strategies under
separate categories, we believe that the interrelationship of the two
disciplines demands that they be linked in budget and in strategic
implementation.
PRODUCTION AND DELIVERY
Production will be provided by strategic partners and full-service printing and
fulfillment companies with significant experience in producing playing cards and
they will maintain any necessary inventory as part of their ongoing business
operations. Key considerations in terms of production and delivery include the
rising costs of fuel and electricity, transportation costs, availability of raw
materials, adequate personnel to meet demand, and technology integration. At
this time, we expect that we will hold no inventory of finished card decks, but
will maintain limited inventory of pre-printed "tuck" boxes.
Delivery options for the finished product are available to and paid for by the
customer and processed through our Web site.
MARKET ANALYSIS
INDUSTRY ANALYSIS
The market for high-end personalized playing cards is a subset of the
poker/gaming market and, as such, there are no reliable figures at this time to
predict growth or even estimate the total size of the market. Motley Fool noted
that growth at the World Series of Poker (WSOP) for in-person competition has
grown more than 1,000% since 2000 and predicts 100% year-over-year growth for
2005 to 2006.
In 2003, according to most gaming industry sources, there was an explosion of
interest in poker; the awareness was especially intense around the game called
"Texas Holdem". The point of crystallization for all this attention was the
debut of the World Poker Tour on the Travel Channel.
Trend information from Ubertrends.com (quoted in the Executive Summary of this
plan) indicates that more than 50 million Americans play poker on a regular
basis.
STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS (SWOT ANALYSIS)
STRENGTHS
o (Comment #53) Our management is involved in our core business on a
day-to-day basis.
o By outsourcing printing and production to strategic partners, we will
not incur significant startup costs associated with the purchase of
high-end digital printing equipment.
o Outsourcing allows us to obtain other suppliers as needed without
investing significant amounts of time or capital.
o The product line will start small and well focused, allowing us to
easily adapt to market changes.
o The management team has extensive experience in Internet marketing and
e-commerce, allowing us to fully capitalize on our customer base while
reducing administrative costs.
WEAKNESSES
o Because of our position as a startup, we are not a household name
among prospective customers, and the cost to raise us to "top-of-mind"
awareness will be higher than for an established company.
o The order/production process will need to be tested during a phased
rollout, which will delay our full production capabilities by 30 to 90
days.
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o Documented processes and procedures, along with the integrated
technology deployment, are still in the development stage, and an
unforeseen delay or loss of key personnel could hold up the product
launch.
THREATS TO OUR BUSINESS PLAN
o The fast-growing interest in poker could be a fad that burns out
quickly, leaving a smaller core than expected.
o A significant downturn in the American economy would reduce the amount
of disposable income available to our target audience.
o Other competitors could move quickly to match our performance by
offering similar products and design amenities, forcing us to invest
more than expected in product development.
o Too much success too quickly could overwhelm our systems, creating
order and fulfillment problems including the increased possibility of
poor work slipping through to the marketplace, resulting in high
levels of customer dissatisfaction.
CUSTOMER PROFILES
o We believe that there are three common customer types that make up our
target market:
o The most typical customer for our product is a male, 25 to 65
years old, with an outgoing personality and an interest in poker.
The customer will believe that he has certain flair and will
compete with his peers to demonstrate this as an actuality.
o Poker clubs and regional tournaments that want something special
to brand their events.
o Businesses that purchase the product for special celebrations and
to promote their organizations.
It is likely that potential customers are going to be familiar with similar and
existing products and that they will accept Tombstones new offering provided
that it can clearly and succinctly demonstrate the product advantages.
(Comment #54) PRODUCT STRATEGY
CURRENT PRODUCT
We initially plan on offering a single product with multiple variations and
extensions for the poker and gaming market, including:
o Customizable photo playing cards
o Customizable templated playing cards
o Business services that support logos and integrated customization
Our playing cards, the principal proposed product, consist of a standard deck of
poker-sized cards, printed in full color and packaged in pre-printed
Tombstone-branded tuck box that allows the custom design of the cards to be seen
and displayed. Development of new products and existing product upgrades for the
normal course of business is planned for 2007.
PROPRIETARY TECHNOLOGY/INTELLECTUAL PROPERTY
Our products will be protected under the following:
o TOMBSTONE Cards is the trademark of Tombstone Cards, Inc. Registration
of the service mark is in process.
o We own the domain names "tombstonecards.com" and
"tombstone-cards.com."
o We are developing a proprietary design tool which will allow print
design over the Internet and support high-resolution (300dpi) output.
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WE ARE IN THE PROCESS OF DEVELOPING PROPRIETARY TEMPLATES, A CUSTOM "PIP" DESIGN
FOR THE FACES OF THE CARDS, AND AN ASSOCIATED CUSTOMIZATION PROCESS FOR THE WEB.
(COMMENT #55) (A "PIP" IS THE TERM USED TO DESCRIBE THE FACES OF THE CARDS
INCLUDING THE SUIT DESIGNS {HEARTS, CLUBS, SPADES AND DIAMONDS}, THE FONT
SELECTION AND THE PROPRIETARY DESIGN OF THE "COURT CARDS" {JACKS, QUEENS, KINGS,
ACES})
PRODUCT LIFE CYCLES
The life cycle for the customized playing cards depends on how and when they are
used. Cards used by individuals can last for weeks or months, depending on
frequency of use; those used in tournament play will be suitable for only one
usage.
However, the actual life cycle of the product is not what drives repeat
business; instead, it is the perceived value of the product and how it supports
the branding or personal identification of the customer.
Because playing cards have been around for so long, usage or adoption will not
be a limiting factor. Instead, our ability to continue to produce more options
for the repeat buyer while increasing the size of the market will be critical.
PRODUCT SELECTION/DEVELOPMENT CRITERIA
Because marketing is, or can be, a very large expense, it is where a great deal
of our effort is applied. To this end, customer focus is a very important
criterion. The idea is to retain customers by continually offering them a
valuable product or service, thereby diminishing costs of reaching and appealing
to them.
We realize that development projects are steadily growing more expensive. To
ensure the best possible product decisions, it has implemented the following
criteria for evaluating and selecting projects:
o Does the product fit in with our core business?
o Does the product increase the customer base or merely cannibalize it?
o Do clients want or need this product?
We will use outside material providers when they have a body of knowledge useful
to expedite the development of our product. Providers are selected based on
their expertise, active participation, reputation, and success in their field,
plus the overall quality of their workmanship. When beneficial, we will seek to
blend the ideas of several suppliers to create an optimal hybrid product
delivering the greatest benefits to customers. These third-party developments
are created as "works for hire," and the intellectual property becomes the sole
property of us.
It is our philosophy that a product line must be improved, changed, or expanded
every three months in order to be in a competitive position offer, market value,
and offer competitive price point. We must maintain the ability to adapt as the
environment, market demand, customers' needs, and Tombstones capabilities
change.
TESTING
Our web technology is being developed to allow products customized via the Web,
along with the integration of an existing product that supports an e-commerce
solution. We expect this to be ready for market testing in January 2007.
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We intend to test the following tasks and operations in the pilot production
process:
TASK/OPERATION
o Product technology and methods
o Key parts and vendors
o Processing sequence and repeatability
o Capital equipment and vendors
o Specifications and control measures
o Production lead time and volume standards
Processes are being validated to ensure optimal cost-effective, quality output.
Testing has been conducted since August 2006 and will continue through January
2007 at various facilities and those of our strategic partners/providers of
services.
Volume testing will be accomplished by printing customized cards as demos for
salespeople, early adapters, selected test outlets, and our corporate use.
During this test phase, we will be working with the actual printing process as
well as the order and inventory system, Web tools shopping cart, and credit
verification systems.
INVENTORY, PRODUCTION COSTS, AND CAPITAL INVESTMENT
Key factors in the manufacturing and distribution processes include:
o Cost, availability, and lead time required for delivery of specialized
paper
o Press availability
o Cost of template and graphic development
o Shipping costs
o Internet availability and security
(Comment #56) Raw materials, components, and subassemblies required for
production are handled directly by sub-contractors. The only inventory
requirement will be for pre-printed tuck boxes which are available with a three
week lead at a cost of $.10 per box, based on an order of 50,000 units.. We will
not maintain preprinted finished inventory.
KEY SUPPLIERS
Key suppliers may include:
StoreFront Software (under contract)
Viatek - Web hosting/application servers (under contract)
OtherSide Creative, Inc. - Graphic Design (not under contract)
We intend to order or engage these suppliers on an as needed, project by project
basis.
UNIT PRICE
We are targeting a first-year run of 200,000 units (decks). The full price for
each unit is between $5 and $8, and the expected average unit sales price, based
on the projected customer mix, will be $5.86 per unit.
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In comparison to other companies, we believe our products can be produced
quickly and economically by utilizing digital technologies in order processing,
payments, scheduling, and the printing itself. Because we do not invest in
equipment we will not be tied to obsolete processes and technologies and, if
need be, can move from one supplier to another.
UNIT COST
We project that unit cost will be approximately $2.80 (Comment #57) per unit at
startup. We believe that we can reduce this cost as it ramps up and gain
economies of scale in purchasing and production.
INVENTORY COSTS
We intend to produce customizable decks of cards, using specialized paper
purchased and inventoried by subcontractors. The only inventory costs we will
have will consist of the pre-printed tuck boxes discussed earlier.
LABOR COSTS
We have no current employees, excluding our officers and contracted consultants.
The designers and consultants that we will retain and will be hired and paid on
a per-project basis. When we obtain the necessary financing and is ready to
launch the product, additional staff will be hired to serve in customer service
and in-house sales.
CAPITAL EQUIPMENT PURCHASES AND MAINTENANCE COSTS
We do not anticipate making significant investments into equipment, instead
relying on suppliers, affiliates, and strategic partners to use their equipment
as part of their contractual obligations.
Where we will make capital purchases is for general office support and may
include:
o Office computers, servers, routers, and connectivity hardware
o Office software (Microsoft Office, financial software, etc.)
o A multi-line telephone system
o Office furniture
We will make every effort to obtain the best possible deal and will look into
the "used" market where possible.
ADDITIONAL SPACE REQUIREMENTS
We will need office space and intend to look in the Boulder/Longmont Colorado
Corridor. We anticipate renting approximately 3,000 square feet at $15 per
square foot. One of the keys to office selection will be the availability of
high-speed Internet access to support a Virtual Private Network (VPN) connection
by our computer services provider.
PACKAGING AND TRANSPORTATION
These last steps in the manufacturing process are important in establishing the
desired image for the consumer. Of the standard packaging treatments available,
the best choice for our needs is a combination of generic boxes branded with
pre-printed custom mailing labels. Because customer orders can vary in size
significantly, it does not seem cost efficient to use pre-printed shipping
boxes. In addition, smaller orders may be shrink-wrapped and packed in poly-bags
or mailers. Because this is a readily available form of packaging and a simple
packaging process, considerable savings can be realized.
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FULFILLMENT
Fulfillment is an important part of customer satisfaction, and we will utilize a
third party in order to ship the product as it comes off the production line. We
will use computer tracking to monitor and manage the delivery of products and,
where possible, offer customers the opportunity to track their shipments over
the Web. We believe that this will help to ensure customer satisfaction and
repeat sales.
SHIPPING
Our product transportation will be via the U.S. Postal Service, UPS, or an
overnight delivery supplier. The method of delivery will depend on the size of
the order along with any shipping options chosen by the customer.
COMPETITIVE ANALYSIS
Currently, our marketplace is shared by numerous competitors, including:
o Newts Playing Cards
o Gemaco
o House of Cards
o Kardwell
o Playing Cards India
A quick Internet search under "playing cards, personalized" yields 2.5 million
results. Certainly not all of these are actual manufacturers but, because all it
really takes to enter the business is a printing press and a few sheets of
paper, it can safely be said that the market is not empty.
Even with this apparent abundance of competition our management believes there
is an opportunity for our business model because turnaround times for
traditional printing companies tend to be measured in weeks and the minimum run
generally begins at 50 units. If, on the other hand, the competition is focused
on the individual sale and single unit, the prices are relatively high, with a
price point close to $30 per deck.
(Comment #39) Based on our management analysis, though the competitive field is,
at first glance, relatively crowded, we believe that other companies' products
are not sufficiently developed as to move them beyond the commodity level. Our
intent is to provide customers an opportunity to design cards that are uniquely
their own and yet stay within a certain structure by providing five development
areas:
o The ability to upload photos and customize them through cropping,
re-centering, and adding graphics, borders, and curvilinear/linear
text
o The ability to upload print-ready designs for businesses and
organizations
o The ability to customize an expanding selection of professionally
designed templates, including color palates and text
o The ability to come to us for design work (photo enhancement and
tinting), graphics design, and integration for high-end custom work
o Selling and integrating our "storefront" technology for affiliates in
order to expand our market penetration
Our Internet software is designed to allow structured pricing for each
demographic segment based on customer value, expected lifetime value, order
size, and complexity.
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Though there is a relatively low barrier to entry into the customized
playing-card market, this apparent opportunity exists mostly because the product
is so ill-defined and there is a wide variation regarding what is acceptable.
"Artisan" cards may be suitable for gifts and special occasions, but wide
variations inherent in the printing processes used render these cards unsuitable
for competitive play. Part of our branding and positioning will stress the high
quality of the finished product which, when combined with rigorous testing and
quality control procedures that we will put in place, make the cards suitable
for "tournament and casino play."
SALES OBJECTIVES
Our sales objective is $1 million in the first year.
To achieve this objective, we plan to actively promote our product through a
carefully designed marketing mix of advertising, public relations, event
sponsorships, and direct mail while solidifying and expanding our distribution
channels, establishing strategic partnerships, and introducing new products.
CAPITAL REQUIREMENTS
Our initial total capital requirements are projected at (Comment #61) $800,000,
which we have on hand, which we believe is sufficient for operations for the
next twelve months under our initial budget. These funds will be used to:
o Finalize the proprietary Web customization program
o Implement our marketing plan
o Hire staff
o Build out our infrastructure
o Augment our staff to support and sustain prolonged growth under the
new marketing plan
o Maintain working capital
WEB SALES AT TOMBSTONECARDS.COM
The primary sales goal of our marketing effort will be to reach out to
businesses and organizations along with affinity group customers and drive them
to visit WWW.TOMBSTONECARDS.COM. Once there, they can create and order products
through a Web application that is easy to use, intuitive, powerful, and fun.
For online sales, we are in the process of establishing required relationships
with an outside vendor to process orders and provide credit card verification.
The vendor will also provide a system and services for enhanced fraud detection
and scoring as well as additional services for fulfillment messaging, tax
calculation, territory management, export control, and digital certificate
distribution and management.
Currently, our Web site is a demo version only. It is in the process of
finalization and will be completed by the beginning of the third quarter 2006.
We will track online sales revenue based on reference codes (Sales Key Codes) to
measure the effectiveness of our various marketing efforts. All of our
literature and promotional materials promote the Web site. Online tracking
features also help us track where customers have clicked through from another
site and the areas they actually visit on our site.
OUR INTERNET FUTURE
The Internet will continue to be a critical part of our future, and it is
imperative that we continue to invest in refining our product offerings, our
online design systems, and the integration of its back-office infrastructure in
order to maintain a competitive advantage. Funds for this ongoing work have been
allocated under the marketing and sales budget.
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INTERNET MARKETING STRATEGY
The Internet will serve as a primary interface with the customer. It will
provide opportunities to promote us to potential customers, provide user design
functions and a secure ordering portal (through Secure Socket Layer or SSL),
process payments, allow tracking of shipments, and provide a simple point of
contact with our customer base.
MARKETING APPROACH
We will promote our Web site as if it were a product because we believe the
experience of design is an important part of the package that we are providing.
All of our marketing materials will promote the Web site instead of office
locations; we will be, for all intents and purposes, a Web-based company.
KEY-WORD SEARCH BANNERS
The Web site will be built incorporating critical key words and meta tags.
Though this will help the Web site show up in searches from the major search
engines, it does not guarantee a high placement (page 1) in results. This will
only come by securing an agreement with the search engines and becoming a
sponsor; this cost is associated with marketing.
HOT LINKS AND REFERRAL INCENTIVES
As we grow, we plan to use strategically placed hot links from other online
locations, including links through paid banner ads.
We will offer an affiliate program enabling selected clients to set up access to
our sales portal on their sites. Payment to the referring client will be the
difference between their established wholesale cost and their retail pricing.
We will be able to positively track affiliate numbers of the referring Web site
all the way through to order placement. We believe this is crucial for
convincing referring sites to point to our site.
ONLINE CATALOG AND SHOWROOM
Our site, TombstoneCards.com will serve as an online store with a catalog and an
advanced design function giving our customers a way to see everything they might
need in order to make a buying decision.
These pages will include:
o Answers to Frequently Asked Questions
o Samples of completed work (used with permission)
o Product benefits
o Customer quotes, success stories, and case studies
o Product specifications
o Shipping options
o Access to clients' order history secured by password and SSL
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In addition, the Web site will provide:
o Product details and competitive advantages
o Management information
o Press information and PR archives
o Affiliate tracking options
o Investor information
CONTENT--BUSINESS RESOURCES
On the Internet, content is king. However, this content should not get in the
way of our primary goal: letting potential customers experience the design
functionality of the site and, ultimately, place their orders. Keeping that in
mind, the Web site will offer links to sites of interest to our customers,
including:
o Links to popular publications
o Card-playing rules and professional advice
o Tournament information
STRATEGIC MARKETING ALLIANCES
In order to build on our online offerings, we intend to develop strategic
alliances that add value and revenue streams. This may include licensing
arrangements with well-known brands that appeal to our core customers and
exploring advertising co-op arrangements. Our management will try to establish
relationships with five to 10 key partners/licensors that will be included on
www.tombstonecards.com and define how the model will work for each agreement,
depending on the expected exposure and revenue stream.
PRICING
(Comment #58 and #59) We will be offering our product to individuals, groups,
and businesses on a sliding scale, starting at $8.00 per unit based on a minimum
order of 24 decks. This price structure will vary based on the size and/or
frequency of the order. Discounts for businesses and commercial accounts are
available and begin at an order size of 1/2 gross. This policy may be adjusted
as sales and conditions warrant.
INTERNATIONAL
At this time, we do not intend to offer international sales (with the exception
of Canada) in the first year of operation. Any orders coming in over the
Internet from outside these areas will be treated on an individual basis.
REPORTS
Because of the integrated software architecture (Web and back-office functions),
we will be able to have comprehensive data available in real time. This
information includes how many visitors go to the site, where they came from
(links from search engines or alliance partners' sites or straight to
tombstonecards.com), which Web pages were hit most often (stack-ranked highest
to lowest), total sales, and the sales conversion rate.
COSTS/BUDGET
Our development of the Web site, along with development of the .Net
customization framework, has begun. We expect that development costs for the Web
site will run at $75,000. Integration of the various software packages is not
included in that price, and is projected at $100,000.
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PRIVACY AND SECURITY
Data security and privacy are key elements in achieving market acceptance of our
online services. Our Privacy/Security strategy includes:
o Firewall protection with password-protected access to partitioned
sections of each subscriber's files, with 100% subscriber control of
subscriber-designated access by authorized viewers/collaborators
o Use of the Verisign Pay Pro system to verify credit card information
Publication and promotion of our Privacy and Security Policies, including our
positions on information collection and sharing, information security and
protection, e-mail privacy and online surveys, the use of cookies, anonymous
browsing, children's online privacy protection, Web site links, future changes
to privacy policies, etc., will all be available on the site.
INTERNET AND INTEGRATED TECHNOLOGY STRATEGY
The Internet is critical to the business of our plan and, as such, will play two
roles in its success.
We will be using the Web for multiple reasons that include Business-to-Consumer
(B2C) and Business-to-Business (B2B)direct sales, and data sharing/order
management/finance within our business.
The system will provide the framework in which we operate, from taking orders to
computing taxes and shipping rates and providing the ability for customers to
track their own orders.
The Internet will provide the architecture that will allow us to provide an
interactive, highly visual experience to its customers by allowing extensive
amounts of real-time customization, including the ability to print a
low-resolution sample of how their finished product will look.
These two functions actually require two different architectures that, in order
to operate most effectively, are linked. The architecture (servers, routers,
firewall, applications, etc.) will be hosted at a Tier 1 data center that will
provide backup power and 24x7 monitoring, instant scalability to handle growth,
and biometric physical security--all of which we believe will result in a
reduction in Total Cost of Ownership (TCO) versus local hosting, along with
better overall performance.
The primary public interface will be through our Web site
(www.tombstonecards.com). This site will be part of a secure portal through
which customers can interact with us by customizing their orders, uploading
photos, placing their orders, and paying for them by credit card or PayPal. The
back-end of this system will support tracking the production and delivery of the
order and will be the primary method for customer service. Secondary customer
service will be provided by representatives at our Colorado offices.
Customer Relationship Management (CRM) functionality will be provided through
the shopping interface and will allow for customer support, sales information,
and e-mail push sales. Our financial management software will be directly linked
to the sales database, allowing real-time data mining.
By automating these processes and making them available online, we effectively
reduce administrative costs along with the possibility of errors associated with
re-keying data.
At the same time, this approach positions us to most effectively track and
manage our activities relative to the market opportunity, enabling a swift
response to sudden shifts in demand, new market trends, and changes in customer
requirements.
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Though these servers and programs will interact with our Web site, processing
orders and maintaining customer data, they will, for security reasons, sit
behind the data center firewall accessible only through the Virtual Private
Network (VPN) connections from the our offices and be further restricted by
password-protected access for our staff, based on database permissions. Offsite
backup of data will be completed on a regular basis.
GOALS
OUR GOALS
In order for us to attain the results as described in its vision and mission
statements, we must achieve the following primary strategic goals: (Note: these
are "goals" only and there is no assurance whatsoever that we can successfully
achieve all or any of these goals.)
Operations: By 4Q 2006, we plan to design and develop the infrastructure
necessary to support the sales goals. Our Internet site is planned to be fully
operational, and the first orders able to be processed. We are designing the
ability to quickly scale operations and this will be embedded in the technology
and operational architecture.
Products: In order to encourage repeat business, we intend to continue to expand
and refine our initial product line by offering new templates, services, and
options on an ongoing and regular basis.
Market: By January 2008, our target is to reach 2,000 customers, including at
least 450 repeat customers, and we will attempt to achieve a base of 500
customers per month. To serve these customers and bind them to us, we plan to
add even more functionality to our Web system, and continue to add new design
options and templates.
Sales: By December 2008, our monthly sales goal is $1 million. We hope to
establish our products in the gaming industry as being known for high quality
and that they are suitable for casual play, tournaments, and even casino
competition.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as: anticipate, believe, plan, expect, future,
intend and similar expressions, to identify such forward-looking statements.
Actual results are most likely to differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced as
described in this Risk Factors section and elsewhere in this prospectus. Factors
which may cause the actual results or the actual plan of operations to vary
include, among other things, decisions of the board of directors not to pursue a
specific course of action based on its re-assessment of the facts or new facts,
or changes in general economic conditions and those other factors set out in
this prospectus.
REPORTS TO SECURITY HOLDERS
We will voluntarily make available to securities holders an annual report,
including audited financials on Form 10-K or Form 10-KSB. We are not currently a
fully reporting company, but upon effectiveness of this registration statement,
will be required to file reports with the SEC pursuant to the Securities
exchange Act of 1934.
The public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E. Room 1580, Washington, DC 20549. The
public may obtain information about the operation of the Public Reference Room
by calling the Sec at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at http://www.sec.gov.
41
PLAN OF OPERATION
(Comment #60) The following table presents the projected Budget for the next
twelve months, to be funded through this offering. We anticipate using any funds
raised by the exercise of Warrants for which Shares are registered in this
registration statement to pay listed categories pro rata. Management will have
complete discretionary control over the actual utilization of said funds and
there can be no assurance as to the manner or time in which said funds will be
utilized.
The following represents our projected operations time line:
In January of 2007, our web site will go live with our proprietary design tool
and the e-commerce functionality needed to support sales over the Internet. We
intend to have a "soft rollout" in order to test the functionality and
performance of the system. Based on results and feedback we will modify the site
and our processes. We also take the results from our sales analysis, combined
with our PR and media research and determine placement of our first spot buys in
poker magazines. With a minimum of a three month lead time, these first spot ads
will not appear before May of 2007. Banner ad purchases will also be determined
and made at this time. Lead times for these ads are uncertain at this time, but
we expect to have ads running and testing by April, 2007
In January, we will also begin our hiring process, bringing on board a Sales
Manager, a Corporate Sales person and a Graphic Design Coordinator. All other
positions will remain as contractors.
Based on sales, trend analysis and the sales pipeline, we will be in rented
office space by end of March, 2007. Computer systems and equipment for
back-office operations are already in place and being hosted in a secure data
center in Westminster, Colorado. While the Internet servers will remain there,
the third server will be placed in our office and support the network and
computer infrastructure including VPN (Virtual Private Network) links to the
data center and our ecommerce software. At the time of occupancy we will also
install a VoIP (Voice over Internet Protocol) phone system for office
communications, "800" number customer support and outbound sales.
We will continue to make adjustments to the advertising buys and ad placements
based on continuing analysis. We will test our marketing strategy of segmenting
celebrations such as weddings and college graduations in time for May, 2007.
If business supports it, we anticipate adding 3 more employees (1 Customer
Service Representative, 1 Administrative Assistant/Receptionist, 1 Bookkeeper)
between June and August of 2007 bringing our total staffing to 9 employees.
These staff additions will necessitate purchasing additional computers,
software, furniture and office materials.
During the first six months we will continue analyze customer purchases,
especially focusing on the use of our pre-designed templates that allow a high
level of customization. Based on these results we will add to our library of
templates, adding more choices to the most popular areas, making alterations in
or eliminating low sellers. We anticipate adding additional functionality to our
proprietary tool by September, 2007 in time for the holiday season. All changes
will be tested in an off-line environment before integration into the live site.
We plan an advertising campaign to be made in time for the holiday season in
2007.
The following table presents the projected Budget for the next twelve months,
(Comment #61) of which we have $800,000 on hand at November 30, 2006, and budget
for expanded operations funded through our offering of Shares underlying
Warrants. We anticipate using the funds raised by our Offering of Shares
underlying Warrants to pay listed categories pro rata under "Expanded
Operations." (Comment #62) Management will have complete discretionary control
over the actual utilization of said funds and there can be no assurance as to
the manner or time in which said funds will be utilized.
42
LIMITED OPERATIONS BUDGET
(Comment #61) Expanded Operations
- ----------------------------------------------- ------------------------------------ ---------------------------------
Categories CASH ON HAND OFFERING PROCEEDS (1)
- ----------------------------------------------- ----------------------------------------------------------------------
Salaries $150,000 $ 500,000
- ----------------------------------------------- ----------------------------------------------------------------------
Equipment $ 50,000 $ 300,000
- ----------------------------------------------- ----------------------------------------------------------------------
Marketing $200,000 $1,000,000
- ----------------------------------------------- ----------------------------------------------------------------------
General and Administrative $100,000 $ 500,000
- ----------------------------------------------- ----------------------------------------------------------------------
Working Capital $200,000 $1,080,000
- ----------------------------------------------- ----------------------------------------------------------------------
Website Development $100,000 $ 500,000
- ----------------------------------------------- ==================================== =================================
TOTAL $800,000 $3,580,000
- ----------------------------------------------- ------------------------------------ ---------------------------------
(1)Assuming "A" Warrants are excerised.
Although we reserve the right to reallocate the funds according to changing
events, we believe the cash on hand is sufficient to fund our initial capital
requirements on a limited budget for a period of twelve months. There can be no
assurance we will not require additional funds. The availability and terms of
any future financing will depend on market and other conditions. The amount of
proceeds and uses are based upon the projections by our Management, which may
also change according to unforeseen future events and market changes.
IN THE EVENT WE ARE UNABLE TO ACHIEVE ADDITIONAL CAPITAL RAISING, WE WILL LIMIT
OPERATIONS TO FIT WITHIN OUR CAPITAL AVAILABILITY. IN SUCH EVENT, WE WILL
PROBABLY SEEK LOANS FOR OPERATING CAPITAL. WE HAVE NOT ACHIEVED ANY COMMITMENTS
FOR LOANS FROM ANY SOURCE. IN ANY EVENT THE BUSINESS WILL BE OPERATED WITH A
SKELETON STAFF AND HAVE LIMITED ADVERTISING/MARKETING BUDGET, WHICH COULD CAUSE
US TO REMAIN UNPROFITABLE AND EVENTUALLY FAIL.
BUDGET ASSUMING "A" AND "OTHER" WARRANT EXERCISE
==================================================== ============= =============== ============= =================
EXPENDITURE ITEM 25% 50% 75% 100%
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Salaries $ 291,059 $ 581,804 $ 872,706 $ 1,309,059
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Equipment $ 35,000 $ 90,000 $ 135,000 $ 168,750
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Marketing $ 157,343 $ 345,000 $ 517,500 $ 646,875
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
General & Administrative $ 216,598 $ 433,196 $ 649,794 $ 812,242.50
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Working Capital $ 253,125 $ 506,250 $ 759,375 $ 949,218.75
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Website Development $ 50,000 $ 50,000 $ 75,000 $ 126,354.75
==================================================== ============= =============== ============= =================
TOTAL $1,003,125 $2,006,250 $3,009,375 $ 4,012,500
---------- ---------- ---------- --------------
==================================================== ============= =============== ============= =================
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
DESCRIPTION OF PROPERTY
We do not own any property, real or otherwise. For the first year, we have
conducted administrative affairs from the office located in the home of our
Chairman and CFO, Neil A. Cox, at no cost to us and will continue to do so until
the need for permanent office space is established..
We do not have any investments or interests in any real estate. We do not invest
in real estate mortgages, nor do we invest in securities of, or interests in,
persons primarily engaged in real estate activities.
43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the stock transactions discussed below, we have not entered into any
transaction nor are there any proposed transactions in which any of our
founders, directors, executive officers, Shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
On July 6, 2005, we sold 500,000 Shares of our Common Stock to our
CFO/Secretary/Treasurer (Neil A. Cox) for $5,000, or $.01 per Share. Our Common
Stock had no quoted market value on the date of the transaction. Mr. Cox would
be considered a promoter. (Comment #63)
On July 14, 2005, we sold 500,000 Shares of our Common Stock to our President
(John N. Harris) for $5,000, or $.01 per Share. Our Common Stock had no quoted
market value on the date of the transaction. Mr. Harris would be considered a
promoter. (Comment #63)
(Comment #64)We have 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. (Comment #64) 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. (Comment #63 and #64)
The President and CFO contributed their management services to our business
until June 30, 2006.
(Comment #65)
There are no promoters being used in relation to this offering. No person who
may, in the future, be considered a promoter of this offering, will receive or
expect to receive assets, services or other considerations from us. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the Shareholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Currently there is no public trading market for our stock, and we have not
applied to have the Common Stock listed. We intend to apply to have the Common
Stock quoted on the OTC Bulletin Board immediately after filing this
registration statement. No trading symbol has yet been assigned.
The offering of the Shares registered hereby could have a material negative
effect on the market price for the stock if it is approved for quotation on the
OTC / BB.
RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT OUR SHAREHOLDERS' ABILITY TO
RESELL SHARES OF OUR COMMON STOCK
Our stock currently is not traded on any stock exchange or quoted on any stock
quotation system. After filing the registration statement in which this
prospectus is included, we intend to solicit a broker to apply for quotation of
Common Stock on the NASD's OTC/BB.
Quotations on the OTC/BB reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Our Common Stock
will be subject to certain rules adopted by the SEC that regulate broker-dealer
practices in connection with transactions in "penny stocks". Penny stocks
generally are securities with a price of less than $5.00, other than securities
registered on certain national exchanges or quoted on the Nasdaq system,
provided that the exchange or system provides current price and volume
information with respect to transaction in such securities. The additional sales
practice and disclosure requirements imposed upon broker-dealers are and may
44
discourage broker-dealers from effecting transactions in our Shares which could
severely limit the market liquidity of the Shares and impede the sale of Shares
in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
HOLDERS
As of the filing of this prospectus, we have 36 Shareholders of record of our
Common Stock. Sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the Shares proposed to be sold for at least 2 years, is entitled to sell Shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
As of the date of this prospectus, persons who are our affiliates hold 1,025,000
Shares, which may be sold pursuant to this Registration Statement
DIVIDENDS
As of the filing of this prospectus, we have not paid any dividends to
Shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Colorado Revised Statutes, however, do prohibit us from declaring dividends
where, after giving effect to the distribution of the dividend; we would not be
able to pay 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.
45
EXECUTIVE AND DIRECTORS COMPENSATION
COMPENSATION
SUMMARY OF SCHEDULED EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
- ------------------------------------- --------- ------------ ------------ ------------------- ------------- --------------
Name & Principal Position Fiscal Salary ($) Bonus ($) Other Annual Restricted Securities
Year Compensation ($) Stock Underlying
2006 Award(s) ($) Options/
SARS (#)
- ------------------------------------- --------- ------------ ------------ ------------------- ------------- --------------
Neil A. Cox, Chairman & CFO & $36,000 $0 $0 $0 0
Director
- ------------------------------------- --------- ------------ ------------ ------------------- ------------- --------------
John N. Harris, President & Director $36,000 $0 $0 $0 0
- ------------------------------------- --------- ------------ ------------ ------------------- ------------- --------------
William H. Reilly, COO & CTO & $42,000 $0 $0 $0 0
Director
- ------------------------------------- --------- ------------ ------------ ------------------- ------------- --------------
Up until June 30, 2006 our officers had served without salary and contributed
their services, and thereafter we have paid them at a rate of $6,000 per month
on a month to month basis without contract. (Comment #66)
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts cold include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
We have no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
Directors receive no compensation for serving.
FINANCIAL STATEMENTS
The financial statements of Tombstone Cards, Inc. appear on pages F-1 through
F-12.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
46
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
September 30, 2006
(with Report of Independent Registered Public Accounting Firm Thereon)
TOMBSTONE CARDS, INC.
(formerly Stack the Deck, Inc.)
(A Development Stage Company)
Index to Financial Statements
Page
-------------
Report of Independent Registered Public Accounting Firm.....................................................F-2
Balance Sheets at September 30, 2006 and December 31, 2005..................................................F-3
Statements of Operations for the nine months ended September 30, 2006, from April 29,
2005 (Inception) through December 31, 2005 and
from April 29, 2005 (Inception) through September 30, 2006.............................................F-4
Statement of Changes in Shareholders' Equity for the period from
April 29, 2005 (Inception) through September 30, 2006..................................................F-5
Statements of Cash Flows for the nine months ended September 30, 2006, from April 29,
2005 (Inception) through December 31, 2005 and
from April 29, 2005 (Inception) through September 30, 2006.............................................F-6
Notes to Financial Statements...............................................................................F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Tombstone Cards, Inc.:
We have audited the accompanying balance sheets of Tombstone Cards, Inc.
(Formerly Stack the Deck, Inc.) (A Development Stage Company) as of September
30, 2006 and December 31, 2005, and the related statement of operations, changes
in shareholders' equity, and cash flows for the nine months ended September 30,
2006, the period from April 29, 2005 (inception) through December 31, 2005, and
the period from April 29, 2005 (inception) through September 30, 2006. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tombstone Cards, Inc. as of
September 30, 2006 and December 31, 2005, and the results of its operations and
its cash flows for the nine months ended September 30, 2006, the period from
April 29, 2005 (inception) through December 31, 2005, and the period from April
29, 2005 (inception) through September 30, 2006, in conformity with accounting
principles generally accepted in the United States of America.
/s/Cordovano and Honeck, LLP
Cordovano and Honeck LLP
Englewood, Colorado
December 22, 2006
F-2
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2006 2005
---------------- ----------------
ASSETS
Assets:
Cash........................................................................$ 727,523 $ 6,286
Equipment, net of accumulated depreciation of $88........................... 1,492 -
Prepaid expenses............................................................ 9,000 -
---------------- ----------------
Total assets.....................................................$ 738,015 $ 6,286
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities....................................$ 2,856 $ 2,538
---------------- ----------------
Total liabilities................................................ 2,856 2,538
---------------- ----------------
Shareholders' equity (Note 3):
Common stock, no par value; 100,000,000 shares authorized,
3,230,000 and 1,500,000 shares issued and outstanding, respectively....... 816,305 12,000
Additional paid-in capital.................................................. 27,752 10,000
Deficit accumulated during development stage................................ (108,898) (18,252)
---------------- ----------------
Total shareholders' equity....................................... 735,159 3,748
---------------- ----------------
Total liabilities and shareholders' equity.......................$ 738,015 $ 6,286
================ ================
See accompanying notes to financial statements.
F-3
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE APRIL 29, 2005 APRIL 29, 2005
NINE MONTHS (INCEPTION) (INCEPTION)
ENDED THROUGH THROUGH
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2006 2005 2006
----------------- ----------------- -----------------
Expenses:
Contributed services by founders (Note 2)....................... $ 10,000 $ 10,000 $ 20,000
Stock-based compensation (Note 3):
Common stock options......................................... 7,752 -- 7,752
Selling, general and administrative expenses..................... 78,212 8,252 86,464
----------------- ----------------- -----------------
Loss from operations................................ (95,964) (18,252) (114,216)
Other income:
Interest income.................................................. 5,318 -- 5,318
----------------- ----------------- -----------------
Loss before income taxes............................ (90,646) (18,252) (108,898)
Income tax provision (Note 4) -- -- --
----------------- ----------------- -----------------
Net loss........................................... $ (90,646) $ (18,252) $ (108,898)
================= ================= =================
Basic and diluted loss per share $ (0.05) $ (0.01)
================= =================
Basic and diluted weighted average
common shares outstanding....................................... $ 1,845,111 $ 1,500,000
================= =================
See accompanying notes to financial statements.
F-4
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
-------------------------------
Shares Amount Capital Stage Total
------------- --------------- ---------------- ---------------- -------------
Balance at
April 29, 2005 (inception)................. -- $ -- $ -- $ -- $ --
July and August 2005, sale of common
stock at $0.01 per share, net of $3,000
in offering costs (Note 3).................. 1,500,000 12,000 -- -- 12,000
Contributed services by founders (Note 2)....... -- -- 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 $63,695
in offering costs (Note 3).................. 1,730,000 804,305 -- -- 804,305
May 2006, granted stock options (Note 3)........ -- -- 2,251 -- 2,251
August 2006, stock options and warrants vested
(Note 3).................................... -- -- 5,501 -- 5,501
Contributed services by founders (Note 2)....... -- -- 10,000 -- 10,000
Net loss........................................ -- -- -- (90,646) (90,646)
------------- ---------------- ---------------- ---------------- -------------
Balance at
September 30, 2006.......................... 3,230,000 $ 816,305 $ 27,752 $ (108,898) $ 735,159
============= ================ ================ ================ =============
See accompanying notes to financial statements.
F-5
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE APRIL 29, 2005 APRIL 29, 2005
NINE MONTHS (INCEPTION) (INCEPTION)
ENDED THROUGH THROUGH
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2006 2005 2006
----------------- ---------------- ----------------
Cash flows from operating activities:
Net loss......................................... $ (90,646) $ (18,252) $ (108,898)
Adjustments to reconcile net loss to net cash
used in operating activities:
Contributed services (Note 2)................ 10,000 10,000 20,000
Stock-based compensation (Note 3)............ 7,752 -- 7,752
Depreciation expense......................... 88 -- 88
Changes in operating assets and liabilities:
Increase in prepaid expenses............ (9,000) -- (9,000)
Increase in accounts payable............ 318 2,538 2,856
----------------- ---------------- ----------------
Net cash used in
operating activities.............. (81,488) (5,714) (87,202)
----------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment............... (1,580) -- (1,580)
----------------- ---------------- ----------------
Net cash used in
investing activities.............. (1,580) -- (1,580)
----------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from sale of common stock............... 865,000 15,000 880,000
Payments for stock offering costs................ (60,695) (3,000) (63,695)
----------------- ---------------- ----------------
Net cash provided by
financing activities.............. 804,305 12,000 816,305
----------------- ---------------- ----------------
Net change in cash and
cash equivalents.................. 721,237 6,286 727,523
Cash and cash equivalents:
Beginning of period.............................. 6,286 -- --
----------------- ---------------- ----------------
End of period.................................... $ 727,523 $ 6,286 $ 727,523
================= ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes................................... $ -- $ -- $ --
================= ================ ================
Interest....................................... $ -- $ -- $ --
================= ================ ================
See accompanying notes to financial statements.
F-6
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Tombstone Cards, Inc. (referenced as "we", "us", "our" in the accompanying
notes) was incorporated in the State of Colorado on April 29, 2005. We were
organized to engage in the business of manufacturing and selling personalized
playing cards.
DEVELOPMENT STAGE COMPANY
We are in the development stage in accordance with the Financial Accounting
Standards Board's Statements of Financial Accounting Standards ("SFAS") No. 7
ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
We consider all highly liquid securities with original maturities of three
months or less when acquired to be cash equivalents. We had no cash equivalents
at September 30, 2006 or December 31, 2005.
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.
Depreciation expense was $88, $-0- and $88, respectively, for the nine months
ended September 30, 2006, the period from April 29, 2005 (inception) through
December 31, 2005, and the period from April 29, 2005 (inception) through
September 30, 2006.
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.
F-7
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if potentially dilutive common shares had been issued.
At September 30, 2006 and December 31, 2005, respectively, there were no
variances between basic and diluted loss per share as the impact of the
4,270,000 and -0- options, warrants and warrant units outstanding respectively
would have been anti-dilutive.
STOCK-BASED COMPENSATION
In December 2004, the FASB issued FASB Statement No. 123(R), Share-Based
Payment, which is a revision to FASB Statement No. 123, Accounting for
Stock-Based Compensation (FASB 123). FASB Statement No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. We
adopted the fair value based method of accounting for share-based payments
effective January 1, 2006 using the modified prospective method described in
FASB Statement No. 148, Accounting for Stock-Based Compensation -- Transition
and Disclosure. The modified prospective method requires companies to record
compensation cost beginning with the effective date based on the requirements of
FASB Statement No. 123(R) for all share-based payments granted after the
effective date. There were no share-based payments granted prior to the
effective date.
YEAR-END
Our year-end is December 31.
(2) RELATED PARTY TRANSACTIONS
On July 6, 2005, we sold 500,000 shares of our common stock to our
CFO/Secretary/Treasurer (Neil A. Cox) for $5,000, or $.01 per share. Our common
stock had no quoted market value on the date of the transaction.
On July 14, 2005, we sold 500,000 shares of our common stock to our President
(John N. Harris) for $5,000, or $.01 per share. Our common stock had no quoted
market value on the date of the transaction.
From April 29, 2005 (date on inception) through the period ended September 30,
2006, the President and CFO, contributed management services to the Company for
the periods presented. The time and effort was recorded in the accompanying
financial statements based on the prevailing rates for such services, which
equaled $25 per hour based on the level of service performed. The services are
reported as contributed services with a corresponding credit to additional
paid-in capital totaling $10,000 for the nine months ended September 30, 2006,
$10,000 for the period from April 29, 2005 (inception) through December 31,
2005, and $20,000 for the period from April 29, 2005 (inception) through
September 30, 2006.
F-8
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(3) SHAREHOLDERS' EQUITY
COMMON STOCK
We have closed on August 31, 2006, a private offering of our common stock after
selling 1,730,000 units for net proceeds of $804,305. We had offered for sale to
residents of such States and Countries as the offering qualified under, two
million units at $0.50 per unit. Each unit consisted of one share of common
stock, one "A" warrant exercisable at $2.00 for up to three years and callable
for redemption by the Company and one "B" warrant exercisable at $5.00 for up to
three years and callable for redemption by the Company. The offering was made in
reliance upon an exemption from registration under the federal and state
securities laws provided by Regulation D, Rule 506 of the Securities and
Exchange Commission and such other applicable registrations, or exemptions from
registration, for which the Units may have qualified.
During July and August 2005, we sold 500,000 shares of our common stock to
various investors for $5,000, or $.01 per share. Our common stock had no quoted
market value on the date of the transaction. Proceeds from the sale of common
stock, including sales to related parties, less offering costs of $3,000 were
$12,000.
COMMON STOCK OPTIONS AND WARRANTS
On May 8, 2006, we granted to two investors options to purchase an aggregate of
150,000 shares of our common stock at an exercise price of $0.55 per share. The
options vested on August 29, 2006 and expire on August 29, 2009. Our common
stock had no quoted market value on the grant date; however, our Board of
Directors, utilizing appropriate option pricing software, estimated the fair
value of the options at $.0325 per share, or $4,800. The $4,800 was recorded as
stock-based compensation in the accompanying financial statements during the
nine months ended September 30, 2006.
Using the Black-Scholes option-pricing software, our Board of Directors assumed
the following in estimating the fair value of the options at the grant date:
Risk-free interest rate..................................................4.99%
Dividend yield...........................................................0.00%
Volatility factor........................................................5.00%
Weighted average expected life...........................................3 years
On August 4, 2006, we granted to an outside consultant a warrant to purchase
600,000 shares of our common stock at an exercise price of $0.55 per share. The
warrant vests upon the effective date of our Registration Statement and expires
on August 31, 2009. Our Board of Directors, utilizing appropriate software,
estimated the fair value of the warrant at $.0325 per share, or $19,500. We
recorded $2,952 in stock-based compensation in the accompanying financial
statements for the nine months ended September 30, 2006.
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate..................................................4.86%
Dividend yield...........................................................0.00%
Volatility factor........................................................5.00%
Weighted average expected life...........................................3 years
F-9
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On August 8, 2006, we granted to a placement agent a warrant to purchase 60,000
units at an exercise price of $0.60 per unit, in exchange for broker-dealer
services. Each unit is comprised of one share of our common stock, one A warrant
and one B warrant. The warrant vests upon the effective date of our Registration
Statement and expires on August 31, 2009. Our Board of Directors, utilizing
appropriate software, estimated the fair value of the warrant at $.015 per
share, or $900, which was recorded as offering cost in the accompanying
financial statements at September 30, 2006.
Using the Black-Scholes option-pricing software, the Board of Directors assumed
the following in estimating the fair value of the warrant at the grant date:
Risk-free interest rate..................................................4.86%
Dividend yield...........................................................0.00%
Volatility factor........................................................5.00%
Weighted average expected life...........................................3 years
Following is a schedule of changes in our common stock options and warrants for
the period ended September 30, 2006:
WEIGHTED WEIGHTED
AVERAGEE AVERAGE
AWARDS OUTSTANDING EXERCISE EXERCISE REMAINING
------------------------------- PRICE PRICE CONTRACTUAL
TOTAL EXERCISABLE PER SHARE PER SHARE LIFE
--------------- --------------- ----------------- ------------ ----------------
Outstanding at
April 29, 2005 (inception)............. - - - $ - N/A
Granted.................................... - - - $ - N/A
Exercised.................................. - - - $ - N/A
Cancelled/Expired.......................... - - - $ - N/A
--------------- --------------- ----------------- ------------ ----------------
Outstanding at December 31, 2005........... - - - $ - N/A
Granted.................................... 4,270,000 4,270,000 $0.55 - $5.00 $ 2.94 3 years
Exercised.................................. - - - $ - N/A
Cancelled/Expired.......................... - - - $ - N/A
--------------- --------------- ----------------- ------------ ----------------
Outstanding at September 30, 2006.......... 4,270,000 4,270,000 $0.55 - $5.00 $ 2.94 3 years
=============== =============== ================= ============ ================
F-10
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Common stock awards consisted of the following options and warrants:
WARRANT TOTAL
DESCRIPTION OPTIONS WARRANTS UNITS AWARDS
- --------------------------------------------------------------------- -------------- --------------- --------------
Outstanding at April 29, 2005 (inception)........... - - - -
Granted............................................. - - - -
Exercised........................................... - - - -
Cancelled/Expired................................... - - - -
-------------- -------------- --------------- --------------
Outstanding at December 31, 2005.................... - - - -
Granted............................................. 150,000 4,060,000 120,000 4,270,000
Exercised........................................... - - - -
Cancelled/Expired................................... - - - -
-------------- -------------- --------------- --------------
Outstanding at September 30, 2006................... 150,000 4,060,000 120,000 4,270,000
============== ============== =============== ==============
(4) INCOME TAXES
A reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
APRIL 29, 2005
NINE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, DECEMBER 31,
2006 2005
------------------- -------------------
U.S. statutory federal rate......................... 15.00% 15.00%
State income tax rate............................... 3.94% 3.94%
Permanent difference - Contributed services......... -10.37% -10.38%
Net operating loss for which no tax
benefit is currently available................... -8.57% -8.56%
------------------- -------------------
0.00% 0.00%
=================== ===================
At September 30, 2006, deferred tax assets consisted of a net tax asset of
$15,271 due to operating loss carryforwards of $108,898 which was fully allowed
for, in the valuation allowance of $15,271. 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 period from January 1, 2006 through September
30, 2006 totaled $13,708.
At December 31, 2005, deferred tax assets consisted of a net tax asset of $1,563
due to operating loss carryforwards of $8,252, which was fully allowed for, in
the valuation allowance of $1,563. 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 period from April 29, 2005 (inception) through
December 31, 2005 totaled $1,563. The net operating loss carryforward expires
through the year 2026.
F-11
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
(5) CONCENTRATION OF CREDIT RISK
We have concentrated our credit risk for cash by maintaining deposits in
financial institutions, which may at times, exceed the amounts covered by
insurance provided by the United States Federal Deposit Insurance Corporation
(FDIC). The loss that would have resulted from that risk totaled $627,523 at
September 30, 2006, for the excess of the deposit liabilities reported by the
financial institution over the amount that would have been covered by federal
insurance. We have not experienced any losses in such accounts and believe we
are not exposed to any significant credit risk to cash.
F-12
[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
DEALER PROSPECTUS DELIVERY REQUIREMENTS
Until ninety (90) days from the effective date of this registration statement,
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Tombstone Cards, Inc. officers and directors are indemnified as provided by the
Colorado Revised Statutes and the bylaws.
Under the Colorado Revised Statutes, director immunity from liability to a
company or its Shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. Our
Articles of Incorporation do not specifically limit the directors' immunity.
Excepted from that immunity are: (a) a willful failure to deal fairly with the
company or its Shareholders in connection with a matter in which the director
has a material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Colorado law; provided, however, that the company may modify
the extent of such indemnification by individual contracts with the directors
and officers; and, provided, further, that we shall not be required to indemnify
any director or officer in connection with any proceeding, or part thereof,
initiated by such person unless such indemnification: (a) is expressly required
to be made by law, (b) the proceeding was authorized by the board of directors,
(c) is provided by us, in sole discretion, pursuant to the powers vested under
Colorado law or (d) is required to be made pursuant to the bylaws.
Our bylaws provide that it will advance to any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the company, or is
or was serving at the request of us as a director or executive officer of
another company, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefore,
all expenses incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under the bylaws or otherwise.
Our bylaws provide that no advance shall be made by it to an officer of the
company except by reason of the fact that such officer is or was a director of
the company in which event this paragraph shall not apply, in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the company.
47
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We have expended, or will expend fees in relation to this registration statement
as detailed below:
================================================================= =========================================
EXPENDITURE ITEM AMOUNT
----------------------------------------------------------------- -----------------------------------------
Attorney Fees $35,000
----------------------------------------------------------------- -----------------------------------------
Audit Fees $20,000
----------------------------------------------------------------- -----------------------------------------
Transfer Agent Fees $ 2,500
----------------------------------------------------------------- -----------------------------------------
SEC Registration and Blue Sky Registration fees (estimated) $ 5,000
----------------------------------------------------------------- -----------------------------------------
Printing Costs and Miscellaneous Expenses (estimated) $ 6,000
------
----------------------------------------------------------------- -----------------------------------------
TOTAL $68,500
================================================================= =========================================
RECENT SALES OF UNREGISTERED SECURITIES
We have sold securities within the past three years without registering the
securities under the Securities Act of 1933 as shown in the following table:
(Comment #67)
- ------------------- --------------------------------------------------------------------------------------------------
NAME COMMON SHARES "A" WARRANTS "B" WARRANTS "OTHER" ($) PAID DATE OF EXEMPTION
WARRANTS PER SHARE PURCHASE
- ------------------- --------------------------------------------------------------------------------------------------
Neil A. Cox 500,000 $.01 4/2005 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
John N. Harris 500,000 $.01 4/2005 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
James C. McLennan 25,000 $.01 4/2005 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Dale Stonedahl (1) 60,000 60,000 60,000 $.50 3/10/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Dale Stonedahl 50,000 $.01 4/2005 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
George W. 50,000 50,000 50,000 $.50 2/22/06 Rule 506
Wanberg and
Cynthia B.
Wanberg (1)
- ------------------- --------------------------------------------------------------------------------------------------
George W. 25,000 $.01 4/2005 Section
Wanberg and 4(2)
Cynthia B. Wanberg
- ------------------- --------------------------------------------------------------------------------------------------
Jolaine Roth 25,000 $.01 4/2005 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Mark S. 25,000 $.01 4/2005 Section
Kachun 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
James B. 25,000 $.01 4/2005 Section
Sebastian 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
William H. 25,000 $.01 4/2005 Section
Reilly 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Douglas F. 200,000 $.01 4/2005 Section
Fleet 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Barbara C. 50,000 $.01 4/2005 Section
Kurczodyna 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
J. Randall 50,000 $.01 4/2005 Section
Thrall 4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Gary Stonedahl 20,000 20,000 20,000 $.50 3/10/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Lee A. Milo TR UA 100,000 100,000 100,000 $.50 3/13/06 Rule 506
12052002, George
Wanberg TTEE
- ------------------- --------------------------------------------------------------------------------------------------
48
- ------------------- -------------------------------------------------------------------------------------------------
Matthew Ray Frigm 20,000 20,000 20,000 $.50 3/14/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
William J. Clayton 30,000 30,000 30,000 $.50 3/17/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
Richard C. 50,000 50,000 50,000 $.50 3/19/06 Rule 506
Erickson
- ------------------- -------------------------------------------------------------------------------------------------
Carmine Tirone 30,000 30,000 30,000 $.50 3/20/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
Willie Gibson 10,000 10,000 10,000 $.50 3/21/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
Leroy Padilla 10,000 10,000 10,000 $.50 3/30/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
Nagle Family Trust 50,000 50,000 50,000 $.50 5/31/06 Rule 506
- ------------------- -------------------------------------------------------------------------------------------------
David W. Lane 100,000 100,000 100,000 $.50 7/13/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Robert E. 100,000 100,000 100,000 $.50 7/28/06 Rule 506
Maciorowski
- ------------------- --------------------------------------------------------------------------------------------------
James Scanlon 200,000 200,000 200,000 $.50 7/28/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Mike Scanlon 200,000 200,000 200,000 $.50 7/31/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Michael J. Keate 200,000 200,000 200,000 $.50 7/31/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Roland Rosenboom 200,000 200,000 200,000 $.50 7/31/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
James V. Bickford 100,000 100,000 100,000 $.50 7/31/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Lawrence M. Elman 50,000 50,000 50,000 $.50 7/31/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Richard Gardner 10,000 10,000 10,000 $.50 8/1/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Robert E. Dettle, 50,000 50,000 50,000 $.50 8/4/06 Rule 506
Trustee
- ------------------- --------------------------------------------------------------------------------------------------
William H. & Gale 10,000 10,000 10,000 $.50 8/7/06 Rule 506
S. Kendall
- ------------------- --------------------------------------------------------------------------------------------------
William R. Talbert 10,000 10,000 10,000 $.50 8/29/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
John Gersman 10,000 10,000 10,000 $.50 8/30/06 Rule 506
- ------------------- --------------------------------------------------------------------------------------------------
Dulcinea A. 10,000 10,000 10,000 $.50 8/30/06 Rule 506
Hansard
- ------------------- --------------------------------------------------------------------------------------------------
Steve E. Hatch 50,000 50,000 50,000 $.50 8/30/06 Rule 506
- ----------------------------------------------------------------------------------------------------------------------
Capital Merchant Banc 600,000 $.00001 8/31/06 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Garden State Securities 60,000 $.00001 8/31/06 Section
4(2)
- ------------------- --------------------------------------------------------------------------------------------------
Employee/ 150,000 $.001 8/31/06 Section
Consultant Stock 4(2)
Options
- ------------------- --------------------------------------------------------------------------------------------------
Dale Stonedahl 50,000 50,000
- ------------------- --------------------------------------------------------------------------------------------------
William Reilly 100,000 100,000
- ------------------- --------------------------------------------------------------------------------------------------
(Comment #69)
(1) Mr. Dale Stonedahl and Mr. George Wanberg were both purchasers of
stock ($0.01) and both also purchased units ($0.50) in the Private
Placement Memorandum.
EXEMPTIONS FROM REGISTRATION FOR UNREGISTERED SALES
(Comment #67)
1. All Common Shares sold at $.01 were sold to the initial founding shareholders
under Section 4(2) and to private investors at $0.05 per Share pursuant to an
exemption under Rule 504 of Regulation D.
A Private Placement Memorandum was used together with a Subscription Agreement
for the Offering in which the investors represented thus understood the
securities were unregistered and that they had no liquidity and must be held for
an indefinite period of time, and that they were not purchasing with the intent
to resell promptly.
2. All Units consisting of Common Shares and Warrants were sold at $0.50 per
Unit pursuant to an exemption under Rule 506 of Reg. D.
The Warrants sold to Capital Merchant Banc, Garden State Securities and certain
Employee/Consultant Stock Options were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Each of the
recipients of Warrants or Stock Options received such in consideration of
services rendered:
1. Capital Merchant Banc - (Comment #68) consulting services on business
model and plan
2. Garden State Securities - additional compensation to Registered Broker
Dealer for acting as Placement Agent (Comment #68)
3. Employee/Consultant received Options for services rendered to our
Company. (Comment #68)
49
EXHIBITS
------------ ---------------------------------------------------- ---------------------------
NUMBER DESCRIPTION
3.1 Articles of Incorporation. *
3.2 Articles of Amendment - Name Change *
3.3 Bylaws of Tombstone Cards, Inc. *
5 Opinion re: Legality Filed Herewith
10.1 "A" Warrant Form *
10.2 "B" Warrant Form *
10.3 Capital Merchant Banc Warrant Form *
10.4 Employee Stock Warrant Form *
10.5 William H. Reilly Warrant Form *
10.6 Dale Stonedahl Warrant Form *
10.7 Revised Garden State Securities Warrant Form Filed Herewith
10.8 Consulting Agreement with Capital Merchant Banc, *
LLC
10.9 Garden State Securities Finder's Fee Agreement *
10.10 2006 Tombstone Cards, Inc. Option Plan *
23.1 Consent of Attorney Filed Herewith
23.2 Consent of Accountant Filed Herewith
------------ ---------------------------------------------------- ---------------------------
* Incorporated by reference to the Form SB-2 Registration Statement
(#333-138184) filed with the Securities and Exchange Commission on October 24,
2006.
50
UNDERTAKINGS
Tombstone Cards, Inc. hereby undertakes the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
For determining liability under the Securities Act, to treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 424(b) (1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission declared it
effective.
51
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Longmont, Colorado, on January 8, 2007.
TOMBSTONE CARDS, INC.
/s/John N. Harris January 8, 2007
- ----------------------------------------
John N. Harris
President
/s/Neil A. Cox January 8, 2007
- ------------------------------------
Neil A. Cox
Chief Financial Officer
/s/William H. Reilly January 8, 2007
- ------------------------------------
William H. Reilly
Chief Operating Officer, Chief Technology Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/John N. Harris January 8, 2007
- ----------------------------------------
John N. Harris, President and Director
/s/Neil A. Cox January 8, 2007
- ------------------------------------
Neil A. Cox, Chairman and
Chief Financial Officer and Director
(Comment #72)
/s/William H. Reilly January 8, 2007
- ------------------------------------
William H. Reilly, Chief Operating
Officer, Chief Technology Officer and
(Comment #72)
Director
52
EXHIBIT 5.1
EXHIBIT 23.1
Michael A. Littman
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
303-422-8127 * 303-431-1567 fax
January 8, 2007
Tombstone Cards, Inc.
5380 Highlands Drive
Longmont, CO 80503
Re: SB-2/A Registration Statement for common shares of Tombstone Cards, Inc.
Gentlemen:
At your request, I have examined Registration Statement No. 333-138184
which is being filed with the Securities and Exchange Commission ("SEC"), on
Form SB-2/A (the "Amended Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 1,790,000 Units
consisting of one common share and one "A" Warrant and one "B" Warrant,
1,500,000 Shares of Common Stock of Selling Shareholders, 1,790,000 shares
comprising part of the Units being Registered, 1,790,000 "A" Warrants, 1,790,000
"B" Warrants, 1,790,000 common Shares underlying "A" Warrants at $2.00 per
Share, 1,790,000 common Shares underlying "B" Warrants at $5.00 per Share,
600,000 common Shares underlying Consultant Warrants at $0.55 per Share, 60,000
common Shares underlying Placement Agent Warrants at $0.60 per Share and 150,000
Employee/Consultant Option Shares at $0.55 per Share (the "Stock").
In rendering the following opinion, I have examined and relied only upon
the documents, and certificates of officers and directors of the Company as are
specifically described below. In my examination, I have assumed the genuineness
of all signatures, the authenticity, accuracy and completeness of the documents
submitted to me as originals, and the conformity with the original documents of
all documents submitted to me as copies. My examination was limited to the
following documents and not others:
a. Certificate of Incorporation of the Company, as amended to date;
b. Bylaws of the Company, as amended to date;
c. Certified Resolutions adopted by the Board of Directors of the Company
authorizing the issuance of the Stock.
d. The Amended Registration Statement as filed with the SEC as of the
date hereof.
I have not undertaken, nor do I intend to undertake, any independent
investigation beyond such documents and records, or to verify the adequacy of
accuracy of such documents and records.
Based on the foregoing, it is my opinion that the Stock being registered
under the Amended Registration Statement, as issued, is and will be duly and
validly authorized, fully paid and non-assessable under Colorado Laws.
I express no opinion as to compliance with the Securities Acts or "blue
sky" laws of any state in which the Stock is proposed to be offered and sold or
as to the effect, if any, which non-compliance with such laws might have on the
validity of transfer of the Stock.
I consent to the filing of this opinion as an exhibit to any filing made
with the Securities and Exchange Commission or under any state or other
jurisdiction's securities act for the purpose of registering, qualifying or
establishing eligibility for an exemption from registration or qualification of
the Stock described in the Amended Registration Statement in connection with the
offering described therein.
This opinion covers only matters of Colorado law and nothing in this
opinion shall be deemed to imply any opinion related to the laws of any other
jurisdiction. Nothing herein shall be deemed to relate to or constitute an
opinion concerning any matters not specifically set forth above.
The information set forth herein is as of the date of this letter. I
disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Amended Registration Statement.
Sincerely,
/s/Michael A. Littman
------------------------
Michael A. Littman
Exhibit 10.7
WARRANT CERTIFICATE
___________________ Warrants
TOMBSTONE CARDS, INC.
REDEEMABLE
UNIT PURCHASE WARRANT
Warrant Number
W- U1 CUSIP:
_______________ _________________
Warrants for the Purchase of Units of the
no par value Common Stock of
TOMBSTONE CARDS, INC.
1. This is to certify that, when this Warrant has been countersigned as
hereinafter provided,
GARDEN STATE SECURITIES, INC.
-----------------------------------
("Registered Holder")
or registered assigns, is entitled to purchase, subject to the terms and
conditions hereinafter set forth, at any time from and after August 31, 2006 for
a three-year period until August 31, 2009, which three-year period may be
extended by the Company upon written notice to the Registered Holder hereof,
one (1) Unit, consisting of one Share of Common Stock and two Warrants, an "A"
Warrant and a "B" Warrant to purchase common Stock at $2.00 and $5.00,
respectively ("Unit") of Tombstone Cards, Inc. each one (1) Warrant exercised,
at a purchase price of $0.60 per share, and receive a certificate(s) for the
Units and Warrants so purchased, upon presentation and surrender to the Company,
with the subscription duly executed, and accompanied by payment of the purchase
price of each Unit purchased, either in cash, certified funds, bank cashiers
check or bank check, payable to the order of the Company. Fractional Units will
not be issued upon the exercise of this Warrant.
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2. The Company covenants and agrees that all shares of Common Stock or Warrants
which may be delivered upon the exercise of this Warrant will, upon delivery, be
free from all taxes, liens and charges with respect to the purchase thereof
hereunder. However, the Company shall not be obligated to deliver any Units,
Shares and Warrants pursuant to the exercise of this Warrant, unless and until,
a current Registration Statement under the Securities Act of 1933, as amended,
with respect to such Units, Shares, and Warrants remains effective. The Company
covenants and agrees and will use its best efforts to cause its current
Registration Statement to become effective. This Warrant shall not be
exercisable in any state where such exercise would be unlawful. The Company will
attempt to qualify the shares represented by this Warrant for sale in all
jurisdictions where holders of the Company's Warrants reside.
3. The number of Units and resulting Shares of Common Stock and Warrants
purchasable upon the exercise of this Warrant and the purchase price shall be
subject to adjustment from time to time as set forth below:
REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any recapitalization, reclassification or reorganization of
the capital stock of the Company, or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially
all of its assets or other transaction shall be effected in such a way
that holders of Common Stock shall be entitled to receive stock,
securities, or other assets or property (an "Organic Change"), then, as
a condition of such Organic Change, lawful and adequate provisions
shall be made by the Company whereby the Holder hereof shall thereafter
have the right, upon exercise of this Warrant, to purchase and receive
(in lieu of the Shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant) such Shares of stock, Units, securities or
other assets or property as may be issued or payable with respect to or
in exchange for a number of outstanding shares of such Common Stock
equal to the number of Shares or Units of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant. In the event of any Organic Change,
appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of Shares or Units
purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, in relation to any Shares of stock, Units,
securities or assets thereafter deliverable upon the exercise hereof.
The Company will not effect any such consolidation, merger or sale
unless, prior to the consummation thereof, the successor corporation
(if other than the Company) resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument
executed and mailed or delivered to the Holder hereof at the last
address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder, upon Holder's exercise of this
Warrant and payment of the purchase price in accordance with the terms
hereof, such Shares of stock, Units, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled
to purchase.
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No adjustment of the Exercise Price, however, shall be made in
an amount less than $.01 per Unit, but any such lesser adjustment shall
be carried forward and shall be made at the time and together with the
next subsequent adjustment which together with any adjustments so
carried forward shall amount to $.01 per Unit or more.
4. This Warrant shall be callable and redeemable by the Company upon 30 days
written notice to the Registered Holder of this Warrant at $0.001 per warrant,
if not exercised prior thereto.
5. The Company agrees at all times to reserve or hold available a sufficient
number of shares of its Common Stock to cover the number of shares issuable upon
the exercise of this and other Warrants of like tenor then outstanding.
6. This Warrant does not entitle the Registered Holder hereof to any voting
rights or other rights as a shareholder of the Company, or to any other rights
whatsoever except the rights set forth in this Warrant, and no dividend shall be
payable or accrue in respect of this Warrant or the interest represented hereby,
or the share purchasable hereunder, until or unless, and except to the extent
that, this Warrant shall be exercised.
7. This Warrant is exchangeable upon the surrender hereof by the Registered
Holder to the Warrant Agent for new Warrants of like tenor and date,
representing in the aggregate the right to purchase the number of shares
purchasable hereunder, each of such new Warrants to represent the right to
purchase such numbers as may be designated by the Registered Holder at the time
of such surrender. From the date this offering is closed, this Warrant and all
rights hereunder shall be transferable separately from the stock certificate to
which it is attached by the Registered Holder hereof in person or by duly
authorized attorney on the books of the Company upon surrender of this Warrant,
properly endorsed, to the Company. The Company may deem and treat the Registered
Holder of this Warrant at any time as the absolute owner hereof for all purposes
and shall not be affected by any notice to the contrary.
8. REGISTRATION RIGHTS
(a) If at any time the Company proposes to register the sale of Units
or Shares of Common Stock (whether for itself or any of its security holders)
under the Securities Act and the registration form to be used may be used for
the registration of shares underlying this Warrant (a "Piggyback Registration"),
the Company shall give prompt written notice to the Holder of its intention to
effect such a registration and, subject to Section 8 (b) below, shall include in
such registration all Units or Shares of Common Stock underlying this Warrant
with respect to which the Company has received Holder's written request for
inclusion in such registration, provided that such request must be received by
Company within 20 days after the date of the Company's notice to Holder. The
Registration Expenses in all Piggyback Registrations shall be paid by the
Company.
-3-
(b) If a Piggyback Registration is an underwritten primary registration
on behalf of the Company or a successor, and the managing underwriters advise
the Company in writing that in their opinion the number of shares of Common
Stock requested to be included in such registration exceeds the number which can
be sold in such offering without adversely affecting the marketability of the
offering, the Company shall exclude from such registrations the excess amount of
shares of Common Stock, and shall include in such registration (i) first, the
securities the Company proposes to sell; (ii) second, shares of Common Stock
requested to be included in such registration by the holders of all securities
of the Company having registration rights, pro rata among the owners of such
securities on the basis of the number of shares of Common Stock or equivalent
shares of Common Stock owned by each such owner, and (iii) third, other
securities requested to be included in such registration, in the Company's
discretion.
(c) Whenever the Holder has requested that any shares of Common Stock
underlying this Warrant be registered pursuant to this Section 8, the Company
shall use its best efforts to effect the registration and the sale of such Units
or Shares in accordance with the intended method of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(i) notify the Holder of the effectiveness of each registration
statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective for a period
of not less than 180 days and comply with the provisions of
the Securities Act with respect to the disposition of all
securities covered by such registration statement during
such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such
registration statement;
(ii) furnish the Holder such number of copies of such
registration statement, each amendment and supplement
thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in
order to facilitate the disposition of the shares of Common
Stock underlying this Warrant;
(iii)use its best efforts to register or qualify the Units,
Warrants or Shares of Common Stock underlying this Warrant
under such other securities or blue sky laws of such
jurisdictions as Holder reasonably requests and do any and
all other acts and things which may be reasonably necessary
or advisable to enable Holder to consummate the disposition
in such jurisdictions of the shares of Common Stock
underlying this Warrant (provided that the Company shall not
be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to
qualify but for this subsection, (B) subject itself to
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taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction);
(iv) notify Holder, at any time when a prospectus relating
thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains
an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading,
whereupon Holder shall cease distributing any shares of
Common Stock until, at the request of Holder, the Company
shall prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such
shares of Common Stock, such prospectus shall not contain an
untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not
misleading; and
(v) use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and
in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related
prospectus or suspending the qualification of any equity
securities included in such registration statement for sale
in any jurisdiction, the Company shall use its best efforts
promptly to obtain the withdrawal of such order.
(d) All expenses incident to the Company's performance of or compliance
with this Section 8, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, NASD
fees, printing expenses, messenger and delivery expenses, fees arid
disbursements of custodians, and fees and disbursements of counsel for the
Company and all independent certified public accountants, fees (up to $5,000),
and disbursements of one counsel for the Holder, underwriters (excluding
discounts and commissions) and other persons retained by the Company (all such
expenses being herein called "Registration Expenses"), shall be borne by the
Company as provided in this Section 8.
(e) The Company agrees to indemnify, to the extent permitted by law,
Holder, its officers and directors and each person who controls Holder (within
the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement filed by the Company,
prospectus prepared by the Company or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by Holder expressly for use
therein or by Holder's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the Company has
furnished Holder with a sufficient number of copies of the same. In connection
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with an underwritten offering, the Company shall indemnify such underwriters,
their officers and directors and each person who controls such underwriters
(within the meaning of the Securities Act) to at least the same extent as
provided above with respect to the indemnification of the Holder issued by the
Company.
(f) In connection with any registration statement in which Holder is
participating, each Holder shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and officers and
each person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by Holder.
(g) Any person entitled to indemnification under this Section 8 shall
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice shall not impair any person's right to indemnification hereunder
to the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for any
settlement made by the indemnified party without its consent. An indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
shall not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(h) The indemnification provided for under this Section 8 shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and shall survive the transfer of securities. In order to
provide for contribution in any case in which either (i) Holder makes a claim
for indemnification pursuant to this Section 8 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 8 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of Holder in
circumstances for which indemnification is provided under this Section 8; then,
in each such case, the Company and Holder will contribute to the aggregate
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losses, claims, damages or liabilities which they would otherwise be obligated
to indemnify under Sections 8(e) and 8(1) (after contribution from others) in
such proportions so that Holder is responsible for the portion of such aggregate
losses, claims, damages or liabilities represented by the percentage that the
public offering price of its shares of Common Stock offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
(i) Holder may not participate in any registration under this Section 8
which is underwritten unless Holder (i) agrees to sell Holder's shares of Common
Stock on the basis provided in any underwriting arrangements approved by the
Company and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be endorsed
by the facsimile signatures of its duly authorized officers, and to be sealed
with the facsimile seal of the Company
TOMBSTONE CARDS, INC. ATTESTED BY:
- -------------------------------- --------------------------------
President Secretary
- -------------------------------- --------------------------------
Date Date
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SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Tombstone Cards, Inc. (the "Company")
The undersigned ___________________________ (Social Security number
_____________or taxpayer identification number of Subscriber:
_________________________) hereby irrevocably elects to exercise the right of
purchase represented by this Warrant for, and to purchase thereunder,
____________ shares of the Common Stock (the "Common Stock") provided for
therein and tenders payment herewith to the order of the Company in the amount
of $______________, such payment being made as provided on the face of this
Warrant.
The undersigned requests that certificates for such shares of Common Stock be
issued as follows:
Name: ______________________________________________________________________
Address: ______________________________________________________________________
______________________________________________________________________
Deliver to: ____________________________________________________________________
Address: ______________________________________________________________________
______________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: ______________________
Signature ___________________________
Note: The signature on this Subscription Form must
correspond with the name as written upon the face
of this Warrant in every particular, without
alteration or enlargement or any change whatever.
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
this Warrant, and appoints __________________________________________ to
transfer this Warrant on the books of the Company with the full power of
substitution in the premises.
Dated: _____________________
In the presence of:
- ----------------------------------------
-----------------------------------------------
(Signature must conform in all respects to the
name of the holder as specified on the face of
this Warrant without alteration, enlargement or
any change whatsoever, and the signature must be
guaranteed in the usual manner)
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use, in the amended registration statement on Form SB-2/A of
Tombstone Cards, Inc., of our report dated December 22, 2006 on our audits of
the financial statements of Tombstone Cards, Inc. as of September 30, 2006 and
December 31, 2005, and the related statement of operations, changes in
shareholders' equity, and cash flows for the nine months ended September 30,
2006, the period from April 29, 2005 (inception) through December 31, 2005, and
the period from April 29, 2005 (inception) through September 30, 2006, and the
reference to us under the caption "Experts".
/s/Cordovano and Honeck, LLP
- -------------------------------
Cordovano and Honeck, LLP
Englewood, Colorado
January 8, 2007