MICHAEL A. LITTMAN
Attorney at Law
7609 Ralston Road
Arvada, CO 80002
(303) 422-8127
Fax (303) 431-1567
April 26, 2007
Securities and Exchange Commission
Attn: Hanna Teshone
Special Counsel
100 F Street, N.E.
Washington, DC 20549-3561
Re: Tombstone Cards, Inc.
Amendment No. 3 to Registration Statement on Form SB-2
File No. 333-138184
Dear Madame,
In response to your comment letter dated March 28, 2007, we have
amended the Registration Statement and respond to the individual comments as
follows:
GENERAL
1. IT APPEARS THAT YOUR DISCLOSURE HAS NOT BEEN REVISED TO COMPLY WITH SOME OF
OUR PRIOR COMMENTS. WE NOTE, FOR EXAMPLE, THAT YOUR DISCLOSURE STILL PROVIDES
DIFFERENT OFFERING PRICES FOR YOUR COMMON SHARES. AS WE INDICATED IN OUR PRIOR
COMMENTS, SINCE THERE IS CURRENTLY NO PUBLIC MARKET FOR YOUR SECURITIES, YOU
MUST SET A FIXED PRICE AT WHICH YOUR SECURITIES MAY BE SOLD UNTIL A MARKET FOR
YOUR SECURITIES DEVELOPS. IN THAT REGARD, WE REISSUE COMMENT 2 FROM OUR LETTER
OF JANUARY 29, 2007. WE SUGGEST THAT YOUR NEXT AMENDMENT PROVIDE CLEAR, ACCURATE
AND LOGICAL DISCLOSURE REGARDING YOUR COMPANY AND THE OFFERING. SOME OF OUR
COMMENTS BELOW ARE DESIGNED TO ASSIST YOU IN THAT REGARD.
Response #1)
We have set a fixed price in the Registration Statement of $0.55 (see
line 2 of Calculation of Registration Fee page ii, "Common Stock by Selling
Shareholders - 3,230,000 - $0.55). We cannot see where there is any omission in
the Registration Statement "Calculation of Registration Fee". All categories
appear to be covered within the Table at the "Registered Prices." I have also
Page 1 of 6
conferred with Joshua Ravitz about this issue and I believe I have covered it in
accordance with the Rules. If I have misunderstood, I will be happy to revise.
COVER PAGE
2. PLEASE CLARIFY TO US WHAT THE PHRASES "FOR UNITS" MEANS AFTER "60,000 COMMON
SHARES UNDERLYING PLACEMENT AGENT WARRANTS" IN THE FIRST SENTENCE. IN ADDITION,
PLEASE CLARIFY TO US WHAT "AT A PRICE OF $5.00 PER SHARE" REFERS TO AT THE END
OF THE FIRST SENTENCE.
Response #2)
We have revised pages 1 (Cover Page) and 5 to add a clause responsive
to your comment where marked "Comment #2." We have deleted "at a price of $5.00
per Share" on page 1 (Cover Page).
3. YOU INDICATE HERE AND IN THE FIRST PARAGRAPH ON PAGE 5 UNDER THE OFFERING
THAT YOU ARE REGISTERING 1,500,000 COMMON SHARES OF SELLING SHAREHOLDERS AND
1,790,000 SHARES "COMPRISING PART OF THE UNITS BEING REGISTERED," FOR A TOTAL OF
3,290,000 SHARES OF SELLING SHAREHOLDERS. HOWEVER, IN THE FEE CHART ON PAGE II
YOU ARE ONLY REGISTERING 3,230,000 SHARES OF COMMON STOCK BY SELLING
SHAREHOLDERS. IN ADDITION, YOU INDICATE THAT THERE ARE 3,230,000 SHARES BEING
OFFERED BY SELLING SHAREHOLDERS IN THE CHART ON PAGE 5 AND ELSEWHERE IN THE
PROSPECTUS. PLEASE REVISE HERE AND THROUGHOUT YOUR FILING TO ELIMINATE THESE
DISCREPANCIES.
Response #3)
We have revised text on pages ii, 1 and 5 where marked "Comment #3" to
respond to your comment.
4. YOU INDICATE THAT YOU ARE SELLING 1,790,000 UNITS, A WARRANTS, AND B
WARRANTS. HOWEVER, THE SELLING SHAREHOLDER CHART ON PAGE 22 LISTS ONLY 1,730,000
UNITS, A WARRANTS AND B WARRANTS IN EACH APPLICABLE COLUMN. PLEASE REVISE TO
ELIMINATE THIS DISCREPANCY OR ADVISE.
Response #4)
We have revised the chart on page 23 where marked "Comment #4" to
respond to your comment in the Garden State Securities category.
5. WE NOTE YOUR RESPONSE TO COMMENT 3 FROM OUR LETTER OF JANUARY 29, 2007, BUT
REISSUE IT, IN PART. PLEASE REMOVE THE PHRASE, "THE PRICE AT WHICH THE WARRANTS
MAY BE SOLD CANNOT BE DETERMINED," OR ADVISE.
Response #5)
We have removed the sentence from page 2 at "Comment #5".
Page 2 of 6
OUR COMPANY, PAGE 4
6. WE NOTE THAT YOU INDICATE IN THE SECOND PARAGRAPH BOTH THAT YOU "HAVE NO
EMPLOYEES AT THE PRESENT TIME" AND THAT YOU "DO HAVE EMPLOYEES AT THE PRESENT
TIME, AS THE THREE EXECUTIVE OFFICERS ARE SALARIED EMPLOYEES." TO RESOLVE THIS
DISCREPANCY, PLEASE CONSIDER LANGUAGE DESCRIBING THAT YOU HAVE NO EMPLOYEES AT
THE PRESENT TIME OTHER THAN YOUR THREE EXECUTIVE OFFICERS. PLEASE ALSO DISCLOSE
HERE THAT THEY CONTRIBUTED THEIR SERVICES UNTIL RECENTLY AND ONLY RECENTLY BEGAN
TO BE COMPENSATED.
Response #6)
We have amended paragraph two on page 4 where marked "Comment #6" to
respond to your comment.
THE OFFERING, PAGE 5
7. PLEASE CLARIFY WHAT THE "810,000 SHARE PURCHASE WARRANTS" ARE THAT YOU REFER
TO IN FOOTNOTE 1.
Response #7)
We have revised text on page 5 where marked "Comment #7" to respond to
your comment.
THE REGULATION OF PENNY STOCKS, PAGE 9
8. PLEASE REVISE THIS RISK FACTOR AND ITS SUBHEADING TO DESCRIBE THE RISKS
ASSOCIATED WITH THE REGULATION OF PENNY STOCKS RATHER THAN USING A CATCH-PHRASE
SUCH AS "CHILLING EFFECT."
Response #8)
The risk factor and subheading have been amended on page 9 where marked
"Comment #8".
OUR PRESENT AND FUTURE SHAREHOLDERS, PAGE 12
9. PLEASE EXPLAIN TO US WHAT THE 150,000 "EMPLOYEE" WARRANTS WERE, AS REFERENCED
IN THE CHART AND FOOTNOTE 1, AND WHETHER THEY ARE THE SAME OR DIFFERENT THAN THE
150,000 EMPLOYEE OPTIONS, OR REVISE.
Response #9)
The chart has been revised where marked "Comment #9" on page 13 to
respond to your comment. They are the same and we have cleaned up the language
to be consistent.
Page 3 of 6
USE OF PROCEEDS, PAGE 14
10. PLEASE EXPLAIN TO US WHAT THE WARRANTS TO "EMPLOYEE/CONSULTANTS" REFERS TO
IN THE SECOND PARAGRAPH, OR REVISE.
Response #10)
The paragraph has been revised where marked "Comment #10" to show
"Options" instead of "Warrants."
11. WE NOTE THE CHANGES YOU HAVE MADE IN RESPONSE TO COMMENT 9 FROM OUR LETTER
OF JANUARY 29, 2007, BUT WE REISSUE IT, IN PART. YOU INDICATE ON PAGE 15 THAT
YOU WILL "REDUCE THE ALLOCATION OF FUNDS RAISED TO THE CATEGORIES SHOWN IN
TABLES II AND III" SHOULD LESS THAN ALL SECURITIES OFFERED BE SOLD, BUT THAT YOU
WILL DO SO "WITHOUT SETTING ANY PRIORITY OF USAGE AT THIS TIME." HOWEVER, TABLES
II AND III, AND THE NARRATIVE THAT FOLLOWS, APPEAR TO SET JUST SUCH PRIORITIES.
PLEASE REVISE OR EXPLAIN.
Response #11)
Please see revised language on page 15 where marked "Comment #11" to
respond to your comment.
12. PLEASE EXPLAIN WHAT THE LAST PARAGRAPH OF THIS SECTION MEANS, OR REVISE.
Response #12)
The entire last paragraph has been eliminated where marked "Comment
#12" on page 17.
DILUTION, PAGE 18
13. WE NOTE YOUR RESPONSE TO COMMENT 10 FROM OUR LETTER OF JANUARY 29, 2007, BUT
WE REISSUE IT, IN PART. YOU INDICATE THAT SHAREHOLDER OTHER THAN YOUR OFFICERS
AND DIRECTORS PURCHASED 500,000 SHARES OF COMMON STOCK FOR $0.01 PER SHARE IN
2005. HOWEVER, THE CHART UNDER RECENT SALES OF UNREGISTERED SECURITIES IN PART
II OF THE REGISTRATION STATEMENT CONTAINS ONLY 475,000 COMMON STOCK PURCHASED BY
SUCH PERSONS. PLEASE REVISE TO ELIMINATE THIS DISCREPANCY.
Response #13)
A clause has been added in the Dilution paragraph where marked "Comment
#13" to respond to your comment on page 18.
Page 4 of 6
14. WE NOTE THAT YOU INDICATE ON THE COVER PAGE AND ELSEWHERE IN THE FILING THAT
THE MAXIMUM AMOUNT YOU COULD RAISE IF ALL WARRANTS AND OPTIONS ARE EXERCISED IS
$12,978,500. HOWEVER, ON PAGE 20 YOU SAY THAT IT IS $13,794,805 "CONSISTING OF
$12,978,500 FROM WARRANT EXERCISES + $816,305 FROM EARLIER INVESTORS." PLEASE
REVISE TO PROVIDE CONSISTENT DISCLOSURE THROUGHOUT THE FILING OR ADVISE.
Response #14)
Text has been deleted on page 20 to respond to your comment. Please see
"Comment #14."
SELLING SHAREHOLDERS, PAGE 20
15. WE NOTE THE CHANGES YOU MADE IN RESPONSE TO COMMENT 11 FROM OUR LETTER OF
JANUARY 29, 2007. PLEASE INDICATE AS A FOOTNOTE TO THE CHART OF SELLING
SHAREHOLDERS THE POSITION, OFFICE, AND ANY OTHER MATERIAL RELATIONSHIP WHICH
WILLIAM H. REILLY HAS HAD WITH TOMBSTONE WITHIN THE PAST THREE YEARS. REFER TO
ITEM 507 OF REGULATION S-B.
Response #15)
Page 20 has been amended to add a paragraph with regards to Mr. Reilly.
Footnote 3 has been added to the chart on page 23. Please see both areas marked
"Comment #15."
PLAN OF OPERATION, PAGE 37
16. YOU INDICATE ON PAGE 38 THAT YOU HAVE $600,000 IN CASH ON HAND AND THAT THIS
AMOUNT "IS SUFFICIENT TO FUND OUR INITIAL CAPITAL REQUIREMENTS ON A LIMITED
BUDGET FOR A PERIOD OF TWELVE MONTHS." HOWEVER, IN THE SUMMARY OF FINANCIAL
INFORMATION CHART ON PAGE 4 YOU INDICATE THAT YOU HAVE $727,523 IN CURRENT
ASSETS. IN ADDITION, IN THE RISK FACTOR ON PAGE 7 THAT BEGINS "WE MAY HAVE A
SHORTAGE OF WORKING CAPITAL," YOU INDICATE THAT YOU HAVE $725,000 IN CASH "AS OF
THE DATE OF THIS REGISTRATION STATEMENT." FINALLY, ON PAGE 35 UNDER "CAPITAL
REQUIREMENTS," YOU INDICATE THAT YOUR INITIAL CAPITAL REQUIREMENTS ARE PROJECTED
AT $800,000. PLEASE REVISE HERE AND THROUGHOUT THE PROSPECTUS TO ELIMINATE THESE
DISCREPANCIES.
Response #16)
We have revised at pages 4, 7, 35 and 38 where marked "Comment #16".
EXECUTIVE AND DIRECTORS COMPENSATION, PAGE 41
17. PLEASE REVISE THE TABLE TO COMPLY WITH THE REQUIREMENTS OF ITEM 402(B) OF
REGULATION SB. YOUR REVISED TABLE SHOULD INCLUDE THE APPROPRIATE COLUMNS AND IT
SHOULD ALSO BE COMPLETE. IN THAT REGARD, IT SHOULD CONTAIN THE INFORMATION YOU
ADDED ON PAGE 21 REGARDING COMPENSATION PAID IN RESPONSE TO COMMENTS 17 AND 18
FROM OUR LETTER OF JANUARY 29, 2007.
Page 5 of 6
Response #17)
The table on page 41 has been amended as requested where marked
"Comment #17."
RECENT SALES OF UNREGISTERED SECURITIES, PAGE 44
18. WE NOTE THAT IN YOUR RESPONSE TO COMMENT 19 FROM OUR LETTER OF JANUARY 29,
2007 YOU INDICATE THAT MESSRS STONEDAHL AND REILLY "HAVE EMPLOYEE OPTIONS OF
50,000 AND 100,000 SHARES, RESPECTIVELY." HOWEVER, YOU HAVE CONFLICTING
DISCLOSURE ABOUT THIS FACT IN YOUR REGISTRATION STATEMENT. THE CHART HERE
INDICATES THAT BOTH EXERCISED THEIR OPTIONS ON AUGUST 31, 2006 AND NOW OWN THE
SHARES OUTRIGHT, WHILE THE CHART ON PAGE 5 UNDER "THE OFFERING" LISTS THE
150,000 NEXT TO THE HEADING "MAXIMUM SHARES UNDERLYING EMPLOYEE ' OPTIONS,"
INDICATING THAT THEY ARE STILL OUTSTANDING. IN ADDITION, THE SELLING SHAREHOLDER
CHART BEGINNING ON PAGE 22 INDICATES THAT MR. REILLY HAS 100,000 OPTIONS BUT MR.
STONEDAHL HAS 50,000 SHARES. PLEASE REVISE ACCORDINGLY.
Response #18)
Please see the revised areas on pages 22, 44 and 45 where marked
"Comment #18" in response to your comment. We believe this accurately shows the
correct detail necessary to understand the information shown.
SIGNATURES, PAGE 48
19. IT IS UNCLEAR WHO IS SIGNING IN THE CAPACITY OF PRINCIPAL EXECUTIVE OFFICER.
PLEASE REVISE THE SIGNATURE PAGE TO PROVIDE IN PARENTHESIS BELOW EACH SIGNATURE
THE CAPACITY IN WHICH EACH PERSON SIGNS. REFER TO INSTRUCTION 2 TO FORM SB-2.
Response #19)
Please see page 48. It has been amended to add the principal executive
officer's title and parenthesis below each signature per your comment where
marked "Comment #19."
We hope we have adequately responded to your comments. Please let me
know if you have any questions.
Sincerely,
/s/Michael A. Littman
Michael A. Littman
MAL:cc
Page 6 of 6
As filed with the Securities and Exchange Commission on April 26, 2007
Registration No. 333-138184
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 3
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
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
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 Share- 1,790,000(4) $0.75 $1,342,500 $143.65(3)
holders & underlying Place-
ment Agent Warrants (4)
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
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(3)
Warrants
- ---------------------------- ------------------ ------------------------- --------------------------- ----------------
Selling Shareholders "B" 1,790,000 $0.05 $89,500 $9.58(3)
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.
(3) Amount previously paid with the SB-2/A No. 1 filing.
(4) Includes Units granted to Placement Agent (60,000). (COMMENTS #3 AND #4).
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 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
1,790,000 COMMON SHARES UNDERLYING "B" WARRANTS
60,000 COMMON SHARES UNDERLYING PLACEMENT AGENT WARRANTS
600,000 COMMON SHARES UNDERLYING CONSULTANT WARRANTS
150,000 EMPLOYEE/CONSULTANT OPTION SHARES
We are registering 1,790,000 Units consisting of one common share and one "A"
Warrant and one "B" Warrant, (COMMENT #3) 1,500,000 Shares of Common Stock of
Selling Shareholders, 1,730,000 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 (COMMENT #2) (for Units consisting of Shares and "A"
and "B" Warrants) at $0.60 per Share and 150,000 Employee/Consultant Options at
$0.55 per Share (the "Offering") of our Company, Tombstone Cards, Inc.
("Tombstone") a Colorado corporation. A total of $4,028,500 may be raised by us
if all "A" Warrants, Placement Agent Warrants, Employee Options and Consultant
Warrants and Options described above are exercised. If all of the "B" Warrants
are exercised, we would raise $8,950,000 in addition to other funds raised. We
will NOT receive any proceeds from sales of Shares, Units or Warrants by Selling
Shareholders. If all of the Warrants and Options are exercised we could raise as
much as $12,978,500. Furthermore, given that we have no operating history and no
revenues, it is highly unlikely that our Warrants will be exercised at $2.00 or
$5.00 in the foreseeable future.
Our 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. There are no
transfer limitations on the Units being registered. 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")
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 speculative concept unsupported by any other
comparables. We have set the initial fixed prices as follows:
- ---------------------------------------------- ---------------------------------
TITLE PER SECURITY
- ---------------------------------------------- ---------------------------------
- ---------------------------------------------- ---------------------------------
Common Stock $0.55
- ---------------------------------------------- ---------------------------------
Units $0.75
- ---------------------------------------------- ---------------------------------
"A" Warrants $0.10
- ---------------------------------------------- ---------------------------------
"B" Warrants $0.05
- ---------------------------------------------- ---------------------------------
1
At any time after a market develops, our security holders may sell their
securities at market prices or at any price in privately negotiated
transactions.
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.
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.
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 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 April 26, 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 20
- ------------------------------------------------------------------------------------------- --------------
Plan of Distribution 23
- ------------------------------------------------------------------------------------------- --------------
Legal Proceedings 24
- ------------------------------------------------------------------------------------------- --------------
Directors, Executive Officers, Promoters and Control Persons 24
- ------------------------------------------------------------------------------------------- --------------
Security Ownership of Certain Beneficial Owners and Management 26
- ------------------------------------------------------------------------------------------- --------------
Description of Securities 27
- ------------------------------------------------------------------------------------------- --------------
Interest of Named Experts and Counsel 28
- ------------------------------------------------------------------------------------------- --------------
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 29
- ------------------------------------------------------------------------------------------- --------------
Organization within Last Five Years 29
- ------------------------------------------------------------------------------------------- --------------
Description of Business 29
- ------------------------------------------------------------------------------------------- --------------
Plan of Operation 37
- ------------------------------------------------------------------------------------------- --------------
Description of Property 39
- ------------------------------------------------------------------------------------------- --------------
Certain Relationships and Related Transactions 39
- ------------------------------------------------------------------------------------------- --------------
Market for Common Equity and Related Stockholder Matters 40
- ------------------------------------------------------------------------------------------- --------------
Executive and Directors Compensation 41
- ------------------------------------------------------------------------------------------- --------------
Financial Statements 42
- ------------------------------------------------------------------------------------------- --------------
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 42
- ------------------------------------------------------------------------------------------- --------------
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 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. We
have three (3) employees at the present time, our executive officers, but we
currently do not have other non-executive employees, as described on page 41.
Through the period ended June 30, 2006, the executive officers contributed their
services and only recently began to be compensated. (COMMENT #6)
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.
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
--------------------------- -------------------------------------------
(COMMENT #16) As at December 31, 2006
--------------------------- -------------------------------------------
--------------------------- -------------------------------------------
Total Assets $665,470
--------------------------- -------------------------------------------
Current Liabilities $2,325
--------------------------- -------------------------------------------
Shareholders' Equity $663,145
--------------------------- -------------------------------------------
--------------------------- -------------------------------------------
From April 29, 2005 to December 31, 2006
--------------------------- -------------------------------------------
--------------------------- -------------------------------------------
Revenues $0
--------------------------- -------------------------------------------
Net Loss ($186,985)
--------------------------- -------------------------------------------
As at December 31, 2006, accumulated deficit for our business was ($186,985). 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, 1,730,000 shares (COMMENT #3) 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 (for Units consisting of shares and "A" and
"B" Warrants) (COMMENT #2) at $0.60 per Unit and 150,000 Employee Option Shares
at $0.55 per Share (the "Offering") of our Company, Tombstone Cards, Inc.
("Tombstone") a Colorado corporation. If all "A" Warrants, "B" Warrants and
Warrants and Options are exercised we might raise up to a total amount of
$12,978,500: up to $4,028,500 from "A" Warrants, other Warrants and Options and
up to $8,950,000 if all "B" Warrants are exercised. These funds will be raised
by us only if all Warrants and Options described above are exercised. We will
NOT receive any proceeds from sales of securities by Selling Shareholders and
any proceeds we receive are limited to those achieved from the exercise of
Warrants or Options. 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. There are no
transfer limitations on the Units being registered. 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
for Units @ $0.60 60,000
- --------------------------------------------------------------- ----------
Maximum Shares Underlying Consultant Warrants @ $0.55 600,000
- --------------------------------------------------------------- ----------
Maximum Shares Underlying Employee Options 150,000
- --------------------------------------------------------------- ----------
Maximum Common Shares Outstanding After This Offering (1) 7,620,000
- --------------------------------------------------------------- ----------
Maximum Shares Outstanding if "A" Warrants
are Exercised in this Offering 5,830,000
- --------------------------------------------------------------- ----------
Maximum Shares Outstanding if "B" Warrants
are Exercised in this Offering 7,620,000
=============================================================== ==========
(1) Assuming exercise of all 810,000 Share purchase Warrants/Options consisting
of 150,000 Employee Options, 60,000 Placement Agent Warrants and 600,000
Consultant Warrants (COMMENT #7).
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 1,500,000 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.
OUR BUSINESS IS A DEVELOPMENT STAGE COMPANY AND UNPROVEN AND THEREFORE RISKY.
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.
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.
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.
6
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 $565,000 (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 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, Executive
Officers, Promoters and Control Persons" (page 24), and "Conflicts of Interest."
(page 25) Our officers are spending part-time in this business - up to 30 hours
per week.
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.
OUR WARRANTHOLDERS AND OPTIONHOLDERS MAY NOT EXERCISE THEIR PURCHASE RIGHTS.
It is very unlikely that any security holder would exercise either our Warrants
or the Options.
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.
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 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.
7
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 our officers and
directors for up to 30 hours per week each on a part-time basis. Our directors
are also acting as our officers. We will be heavily dependent upon their skills,
talents, and abilities, as well as several consultants to us, 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.
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 and Directors to our business will be up to 30 hours per week. (See
"Executive Team")
We do not know of any reason other than outside business interests that would
prevent them from devoting full-time to our Company, when the business may
demand such full-time.
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
25)
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.
8
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.
RISK FACTORS RELATED TO OUR STOCK
THE REGULATION OF PENNY STOCKS BY SEC AND NASD MAY DISCOURAGE (COMMENT #8) THE
TRADABILITY OF OUR SECURITIES.
We are a "penny stock" company. None of our securities currently 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 agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of Shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. 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,
9
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
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.
10
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.
11
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 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, $0.60, $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 December 31, 2006 was $0.2053 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
or $0.60 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
- ------------------------------------------ ----------------------- ----------
Book Value per Share Dilution
post offering*
- ------------------------------------------ ----------------------- ----------
Exercise of "Employee" Options (COMMENT $.268 51%
#9) @ $0.55/Share (1)
- ------------------------------------------ ------------------------ --------
Exercise of "Placement Agent" Warrants $.268 51%
for Units @ $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 of the Securities underlying the Warrants for
sale in all of the states in which the Warrantholders reside, the Warrantholders
in those states may have no choice but to either sell their Warrants or permit
them to expire. 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
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 for Units at $0.60 per
Share, $82,500 from sale of Shares underlying Options @ $0.55 per Share to
Employee,(COMMENT #10) $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.
TABLE I
- -------------------------------- ---------------------------- ----------------
"A" WARRANTS PROCEEDS "B" WARRANTS
(INCLUDING PLACEMENT AGENT PROCEEDS
WARRANTS, CONSULTANT
WARRANTS AND EMPLOYEE
CONSULTANT WARRANTS)
- -------------------------------- ---------------------------- ----------------
- -------------------------------- ---------------------------- ----------------
Salaries $1,309,059 $2,600,000
- -------------------------------- ---------------------------- ---------------
Equipment $168,750 $458,000
- -------------------------------- ---------------------------- ----------------
Marketing $646,875 $2,417,000
- -------------------------------- ---------------------------- ----------------
General and Administrative $812,242.50 $1,690,00
- -------------------------------- ---------------------------- ---------------
Working Capital $965,218.75 $1,550,000
- -------------------------------- ---------------------------- ----------------
Website Development $126,354.75 $235,000
- -------------------------------- ============================ ================
TOTAL $4,028,500 $8,950,000
- -------------------------------- ---------------------------- ----------------
We anticipate using the funds raised by this Offering to pay listed categories
as shown in Tables below. 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 set budget categories as shown in the Tables II and III and
will prioritize as shown in such tables by the categories under each respective
percentage. (COMMENT #11) If less than all Securities offered by us are sold, we
will reduce the allocation of funds raised to the categories as shown in Tables
II and III, but without setting any priority of usage at this time.
We make no assurance that we will raise the full $12,978,500 as anticipated. The
following Tables II and III show 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 of the "A" Warrant Shares (Table I) and "B" Warrant Shares (Table II),
respectively, is raised:
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 $529,500 $662,875
- ----------------------- ------------------------ -------------------- -------------------- -----------------------
General & $220,598 $441,196 $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
TABLE III
BUDGET ASSUMING "B" WARRANT EXERCISE AT $5.00 PER SHARE
AND THAT PROCEEDS OF "A" WARRANTS EXERCISED HAVE BEEN USED AS
SHOWN IN TABLE II ABOVE.
==================================================== ============= =============== ============= =================
EXPENDITURE ITEM 25% 50% 75% 100%
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Salaries $737,500 $1,475,000 $2,212,500 $2,950,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Equipment $250,000 $500,000 $750,000 $1,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Marketing $750,000 $1,500,000 $2,250,000 $3,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
General & Administrative $225,000 $450,000 $675,000 $900,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Working Capital $250,000 $500,000 $750,000 $1,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Website Maintenance $25,000 $50,000 $75,000 $100,000
- ---------------------------------------------------- ============= =============== ============= =================
TOTAL $2,237,500 $4,475,000 $6,712,500 $8,950,000
---------- ---------- ---------- ----------
==================================================== ============= =============== ============= =================
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.
16
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.
[DELETE] (COMMENT #12)
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17
DETERMINATION OF OFFERING PRICE
We have no established market for our Common Stock, Units or Warrants.
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 speculative concept unsupported by any other
comparables.
- ------------------------------ ------------------------------------
TITLE PER SECURITY
- ------------------------------ ------------------------------------
- ------------------------------ ------------------------------------
Common Stock $0.55
- ------------------------------ ------------------------------------
Units $0.75
- ------------------------------ ------------------------------------
"A" Warrants $0.10
- ------------------------------ ------------------------------------
"B" Warrants $0.05
- ------------------------------ ------------------------------------
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 previously 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 1,025,000 shares @ $0.01 per share and other Shareholders have
purchased Shares of its Common Stock for $.01 per Share for 500,000 Shares in
2005 (this number includes William Reilly who purchased 25,000 shares in April
2005, and who in 2006 became an Officer and a Director). (COMMENT #13) In 2006
Shareholders purchased 1,730,000 Shares as part of Units offered for $0.50 per
Unit and Garden State Securities received, as compensation, a Warrant to
purchase 60,000 Units each Unit consisting of one Share and one "A" and one "B"
Warrant which Units, Shares and Warrants and Shares Underlying the Warrants, we
are including in the Registration Statement.
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.
18
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
NUMBER PERCENT (2) AMOUNT PERCENT PRICE/SHARE
(3)
============================================================
1) EXISTING SHAREHOLDERS 3,230,000 81% $816,305 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
"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.
(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 $0.16 $0.16 $0.16 $0.16
Stock Sale(1)
-------------------------------------------- --------------- --------------- -------------- ---------------
Net Tangible Book Value Per Share Prior to $0.22 $0.22 $0.22 $0.22
Stock Sale, assuming the Exercise of
Certain Warrants (2)
-------------------------------------------- --------------- --------------- -------------- ---------------
Net Tangible Book Value Per Share After
Stock Sale
-------------------------------------------- --------------- --------------- -------------- ---------------
"A" Warrant Only $0.34 $0.49 $0.62 $0.73
-------------------------------------------- --------------- --------------- -------------- ---------------
"A" Warrant and "B" Warrant $0.46 $0.76 $1.03 $1.26
-------------------------------------------- --------------- --------------- -------------- ---------------
Average Cost of Shares owned by existing $0.25 $0.25 $0.25 $0.25
stockholders per Share
-------------------------------------------- --------------- --------------- -------------- ---------------
Avg. Cost Per Share as if the "A" Warrants
are exercised $0.46 $0.60 $0.72 $0.81
-------------------------------------------- --------------- --------------- -------------- ---------------
Avg. Cost per Share as if the "A" and "B"
Warrants are exercised $0.87 $1.27 $1.57 $1.80
-------------------------------------------- --------------- --------------- -------------- ---------------
19
(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 December 31, 2006, the net tangible book value of our stock was $0.2053
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 $816,305 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
$12,978,500. (COMMENT #14) 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%.
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
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 $0.01 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, significant 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.
William Reilly became an Officer (COO and CTO) and a Director in early 2006. Mr.
Reilly was previously a shareholder having purchased 25,000 shares @ $0.01 in
April 2005. Mr. Reilly also has 100,000 Employee options exercisable to purchase
shares at $0.55. (COMMENT #15) We sold 500,000 Shares to other Shareholders in
2005 at $.01 per share.
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
20
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, CFO and COO/CTO contributed their management services to our
business until June 30, 2006, and were not paid until August 2006. The President
and CFO were paid for July 2006 and August 2006 at the rate of $3,000 per month.
The COO/CTO was paid for July 2006 and August 2006 at the rate of $3,500 per
month. The President and CFO were paid a bonus also of $3,000 for deferring
salaries until August 2006 and the COO/CTO (William Reilly) was paid a bonus of
$3,500 for deferring salaries until August 2006.
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 except those persons who are our salaried employees or directors. 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.
All of the Securities listed below are being registered in this Registration
Statement, which include all of the securities outstanding as of date hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ---------- ----------
NAME SECURITIES UNITS COMMON % OWNED % OWNED "A" "B" "OTHER" SHARES % OWNED SHARES
BY EACH OFFERED SHARES BEFORE BEFORE WARRANTS WARRANTS WARRANTS/ UNDERLYING AFTER OWNED
SHARE- BY OFFERED OFFERING WARRANT OFFERED OFFERED OPTIONS/ WARRANTS OFFERING AFTER
HOLDER SHARE- FOR EXERCISE BY SHARE- BY SHARES OR OF CLASS OFFERING
BEFORE HOLDER SHARE- HOLDERS SHARE- OPTIONS, OF
OFFERING HOLDERS HOLDERS IF SECURITIES
ACCOUNT EXERCISED (ASSUMING
ALL
WARRANTS
& OPTIONS
ARE
EXERCISED)
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Neil A. 500,000 500,000 14% 14% 0 0 0% 0
Cox (1) Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
John N. 500,000 500,000 14% 14% 0 0 0% 0
Harris (2) Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
James C. 25,000 25,000 * * 0 0 0% 0
McLennan Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Dale 110,000 60,000 110,000 3% 3% 60,000 60,000 0 120,000 0% 0
Stonedahl (50,000
Shares/
60,000
Units)
---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
50,000
Options 3% 3% 0 0 50,000 50,000 0% 0
(COMMENT
#18)
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
George W. 75,000 50,000 75,000 2% 2% 50,000 50,000 100,000 0% 0
Wanberg and (25,000
Cynthia B. Shares/
Wanberg 50,000
Units)
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Jolaine 25,000 25,000 * * 0 0 0% 0
Roth Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Mark S. 25,000 25,000 * * 0 0 0% 0
Kachun Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
James B. 25,000 25,000 * * 0 0 0% 0
Sebastian Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
William H. 25,000 25,000 * * 0 0 100,000 100,000 0% 0
Reilly (3) Shares/
100,000
Options
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Douglas F. 200,000 200,000 6% 6% 0 0 0% 0
Fleet Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Barbara C. 50,000 50,000 1% 1% 0 0 0% 0
Kurczodyna Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
J. Randall 50,000 50,000 1% 1% 0 0 0% 0
Thrall Shares
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Gary 20,000 20,000 20,000 * * 20,000 20,000 40,000 0% 0
Stonedahl Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Lee A. Milo 100,000 100,000 100,000 3% 3% 100,000 100,000 200,000 0% 0
TR UA Units
12052002,
George
Wanberg TTEE
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Matthew Ray 20,000 20,000 20,000 * * 20,000 20,000 40,000 0% 0
Frigm Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
William J. 30,000 30,000 30,000 * * 30,000 30,000 60,000 0% 0
Clayton Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Richard C. 50,000 50,000 50,000 1% 1% 50,000 50,000 100,000 0% 0
Erickson Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Carmine 30,000 30,000 30,000 * * 30,000 30,000 60,000 0% 0
Tirone Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Willie 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Gibson Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Leroy 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Padilla Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
Nagle Family 50,000 50,000 50,000 1% 1% 50,000 50,000 100,000 0% 0
Trust Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
David W. 100,000 100,000 100,000 3% 3% 100,000 100,000 200,000 0% 0
Lane Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ----------- ----------- --------
22
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Robert E. 100,000 100,000 100,000 3% 3% 100,000 100,000 200,000 0% 0
Maciorowski Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
James 200,000 200,000 200,000 6% 6% 200,000 200,000 400,000 0% 0
Scanlon Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Mike Scanlon 200,000 200,000 200,000 6% 6% 200,000 200,000 400,000 0% 0
Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Michael J. 200,000 200,000 200,000 6% 6% 200,000 200,000 400,000 0% 0
Keate Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Roland 200,000 200,000 200,000 6% 6% 200,000 200,000 400,000 0% 0
Rosenboom Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
James V. 100,000 100,000 100,000 3% 3% 100,000 100,000 200,000 0% 0
Bickford Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Lawrence M. 50,000 50,000 50,000 1% 1% 50,000 50,000 100,000 0% 0
Elman Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Richard 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Gardner Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Robert E. 50,000 50,000 50,000 1% 1% 50,000 50,000 50,000 0% 0
Dettle, Units
Trustee
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
William H. & 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Gale S. Units
Kendall
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
William R. 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Talbert Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
John Gersman 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Dulcinea A. 10,000 10,000 10,000 * * 10,000 10,000 20,000 0% 0
Hansard Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Steve E. 50,000 50,000 50,000 1% 1% 50,000 50,000 100,000 0% 0
Hatch Units
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Garden State 60,000 0% 0% 0 60,000 60,000
Securities Warrants
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
(COMMENT #4) Warrants 60,000 60,000 * * 60,000 60,000 120,000 0% 0
for 60,000
Units
---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
Capital 600,000 0% 0% 0 600,000 600,000
Merchant Warrants
Banc
- ------------ ---------- -------- --------- -------- --------- ---------- --------- ---------- ---------- ---------- ----------
*Less than 1%
MATERIAL RELATIONSHIPS
(1) CFO and Director since inception in 2005
(2) President and Director since inception in 2005
(3) COO, CTO and Director since 2006 (COMMENT #15)
None of the selling Shareholders are registered broker-dealers except Garden
State Securities which may sell 60,000 Shares underlying Warrants and none of
the selling Shareholders are affiliates of Registered Broker Dealers.
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 transactions at
$0.75 per Unit, $0.55 per Share, $0.10 per "A" Warrant, $0.05 per "B" Warrant or
market sales if a market ever develops hereafter at prices they negotiate or in
private transactions. 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
23
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 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 for the securities at this time and our pricing is arbitrary
with no relation to market value, liquidation value, earnings or dividends.
Until a public market develops, we are registering our securities at the
following prices:
- --------------------- -------------------------
TITLE PER SECURITY
- --------------------- -------------------------
- --------------------- -------------------------
Common Stock $0.55
- --------------------- -------------------------
Units $0.75
- --------------------- -------------------------
"A" Warrants $0.10
- --------------------- -------------------------
"B" Warrants $0.05
- --------------------- -------------------------
At any time after a market develops, our security holders may sell their
securities at market prices or at any price in privately negotiated
transactions.
The prices were arbitrarily set based upon a slight premium to the previous
private placement price of $0.50 per Unit and the components of the Unit. The
Warrant exercise price was arbitrarily determined based on speculation.
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 or Option exercise proceeds from anyone. All subscription checks for
Warrant or Option exercises will be made payable to us. We will receive NO
proceeds from sales of securities by our Selling Shareholders. Proceeds to
Company will be limited to exercises price of Options and Warrants.
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
Our officers are spending up to 30 hours per week on our business.
CHAIRMAN OF THE BOARD 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. 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 had
24
been self-employed with Rocky Mountain Securities and Investments, Inc. until
2002, a registered broker-dealer; and from 2002-2004, Mr. Cox was self-employed
with Moloney Securities Co., Inc., a registered broker-dealer. Since 2004, Mr.
Cox has been an independent insurance broker (Life, Health, & Accident) who has
represented many Life and Health Insurance Companies and is also an independent
business consultant.
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.
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.
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
up to 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.
25
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF DECEMBER
31, 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 currently known by us and if all
Options exercisable within 60 days pursuant to Rule 13d-3(d)(1) are exercised:
Title of Class Name and Address Amount and Nature Percent of Percent of Class
Of Beneficial Owner of Beneficial Class assuming
Owner exercise of
all Warrants
and Options
- --------------------------------------------------------------------------------------------
Common Shares Neil A. Cox 500,000 15.4% 6.5%
Chairman and CFO
5380 Highlands Drive
Longmont, CO 80503
Common Shares John N. Harris 500,000 15.4% 6.5%
President
P.O. Box 1547
Lyons, CO 80540
Common Shares Capital Merchant Banc 600,000 15.6% 7.8%
(Beneficially owned by Warrants
Joseph E. Kurczodyna
660 N. Bradley Rd.
Lake Forest, IL 60045
26
(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 December 31, 2006 and assuming exercise of all Options
and Warrants.
Title of Class Name and Address Amount and Nature Percent of Percent of
Of Beneficial Owner of Beneficial Owner Class assuming
Currently exercise of
all Warrants
and Options
- ---------------------------------------------------------------------------------------------
Common Shares Neil A. Cox 500,000 15.4% 6.5%
Chairman and CFO
5380 Highlands Drive
Longmont, CO 80503
Common Shares John N. Harris 500,000 15.4% 6.5%
President
P.O. Box 1547
Lyons, CO 80540
Common Shares William H. Reilly 125,000 3.8% 1.6%
COO/CTO (including
4859 Dakota Blvd. 100,000
Boulder, CO 80304 Options)
All Directors and Executive 1,025,000 34.6% 14.6%
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
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
27
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, PLACEMENT AGENT, 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.
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 Options exercisable at
$0.55/per Share.
CLASS "A" WARRANTS
We have outstanding Class "A" Common Stock purchase Warrants which entitle 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
We have outstanding Class "B" Common Stock purchase Warrants which entitle 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.
28
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.
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 39.
DESCRIPTION OF BUSINESS
CONCEPT AND FORMATION
In early 2005, our founders Neil A. Cox and John Harris explored a business
opportunity: customized playing cards. They believed that by working with
state-of-the-art printers that fully utilize digital technologies, that they
could reduce cycle times for full-color customized printing from a standard
three to five weeks to just three to five days. In addition, they believed that
digital presses could allow product runs in small quantities and at lower
prices.
In view of the continued growth surrounding poker, 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.
29
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.
As of the date hereof we have not offered any products and have no functioning
website upon which to order any products.
BACKGROUND
Based upon our research, since 2003 the poker-playing and gaming markets have
grown as evidenced by the various televised poker tournaments. This has 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.
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.
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
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
provides customers the ability to make personal statements about themselves,
design unique gifts, advertise their business with an item that is both "cool"
and "fun" in addition to the cards being an ancillary product that can generate
revenues for them.
BUSINESS MODEL
Our business model is focused on extensively using the Internet for most
commercial functions, including 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.
30
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. 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 from competitors.
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.
MARKETING PLAN POTENTIAL
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 advantages 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.
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 offering our products through our website..
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 custom playing cards. One of the keys of the strategy is
not to compete on price alone, thus avoiding any comparison in which we 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
31
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 will be able to determine the effectiveness of various
initiatives. This will allow us to adjust the budget allocation appropriately to
improve marketing efforts.
While some organizations break out public relations costs and strategies under
separate categories, we believe that the interrelationship of advertising and
public relations demands that they be linked in budget and in strategic
implementation.
SALES STRATEGY
Our products will be available over the Web and through direct sales efforts for
commercial and business accounts.. 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.
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 will be offered to and paid for by the
customer and processed through our Web site.
MARKET ANALYSIS
INDUSTRY ANALYSIS
We believe that 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.
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. Based upon our research we
believe that millions of Americans play poker on a regular basis and are
potential customers.
STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS (SWOT ANALYSIS)
STRENGTHS
o 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.
32
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
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 AND RISKS 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
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 Tombstone's new offering provided
that we can clearly and succinctly demonstrate the product advantages.
PRODUCT STRATEGY
CURRENT PRODUCT
Our playing cards, our sole current product, consists of a standard deck of
poker-sized cards, printed in full color and packaged in pre-printed
Tombstone-branded tuck boxes that allow 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.
33
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 trademark 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.
We have completed the development of our custom "pip" design for the faces of
the cards, (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})We are in the process of developing proprietary templates and an
associated customization process for the Web.
PRODUCT LIFE CYCLES
The life cycle for the customized playing cards depends on how and when they are
used. 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.
TESTING
Our Web technology is being developed to allow products customized via the
Internet, along with the integration of an existing product that supports an
e-commerce solution. We expect this to be ready for market testing in February,
2007.
We intend to test the following tasks and operations in the pilot production
process:
TASK/OPERATION
o Product technology and methods
o Key vendors
o Processing sequence and repeatability
o Specifications and control measures
o Production lead time and volume standards
Processes are being tested 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, Internet shopping cart, and
credit verification systems.
34
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
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 a
preprinted finished inventory of playing cards.
KEY SUPPLIERS
Key suppliers may include:
o StoreFront Software (under contract)
o Viatek - Web hosting/application servers (under contract)
o 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.
UNIT COST
We project that unit cost will be approximately $2.60 per unit at startup. We
believe that we can reduce this cost as we ramp up and gain economies of scale
in purchasing and production.
INVENTORY COSTS
The only inventory costs we will have will consist of the pre-printed tuck boxes
discussed earlier.
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 $565,000, (COMMENT #16)
which we believe is sufficient for operations for the balance of calendar 2007
under our initial budget.
35
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.
Currently, our Web site is a demo version only. It is in the process of
finalization and will be completed by the beginning of third quarter, 2007.
PRICING
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.
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 the end of 2nd quarter 2007, we plan to have designed and
developed the infrastructure necessary to support our 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 $2 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.
36
PLAN OF OPERATION
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 as shown in Tables V and VI, without any
priority to category. 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 February 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 March, we will 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. The capital cost associated with each new hire is
expected to be $2400 per employee, and will include costs for a computer,
software licensing, and office furniture.
We intend to occupy rented office space by end of March, 2007. We believe that
2400 square feet should provide room for our anticipated growth over the next 24
months. At the current market rate, we believe we will pay no more than $3,600
per month in rent.
Office occupancy will require lease expenses for copiers and capital expenses
for network printers and a VoIP (Voice over Internet Protocol) phone system. The
capital expense is projected to be under $20,000 for office furniture and
equipment.
Computer systems, including software and servers required for back-office
operations are already purchased and in place and are being hosted in a secure
data center in Westminster, Colorado. While our 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. Our monthly costs for hosting and IT
support is currently running less than $1000 per month.
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 volume 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 continually analyze customer purchases,
focusing on the use of our pre-designed templates that allow a high level of
customization. Based on these observations we will add to our library of
templates, adding more choices to the most popular areas, making alterations in
or eliminating templates for low sellers. We anticipate adding additional
functionality to our proprietary design tool by September, 2007 in time for the
2007 holiday season. All changes will be tested in an off-line environment
before integration into the live site.
37
We plan an advertising campaign to be made in time for the holiday season in
2007.
We have already tested the design, production and delivery of our customized
playing Cards and, therefore, do not anticipate any additional product research
and development.
Because our production is outsourced, we do not anticipate any significant
purchases of equipment or real property in order to implement our business plan.
Early investment will continue to be in the development of the web site and the
supporting software. With most of the work already completed, and beta testing
already under way, we have budgeted $15,000 for the deployment of our
proprietary design tool, systems integration and continued development of our
design templates. This amount will be spent in the period up to May 31, 2007.
The following table presents the projected Budget for the next twelve months, of
which we have approximately $565,000 on hand at April 23, 2007, (COMMENT #16)
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 as shown in Tables IV and V
without ascribing any priority to category. 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.
TABLE IV
LIMITED OPERATIONS BUDGET
(ASSUMING NO OTHER CAPITAL IS RAISED)
- ----------------------------------------------- --------------------------
Categories CASH ON HAND
- ----------------------------------------------- --------------------------
- ----------------------------------------------- --------------------------
Salaries $100,000
- ----------------------------------------------- --------------------------
Equipment $50,000
- ----------------------------------------------- --------------------------
Marketing $175,000
- ----------------------------------------------- --------------------------
General and Administrative $75,000
- ----------------------------------------------- --------------------------
Working Capital $150,000
- ----------------------------------------------- --------------------------
Website Development $50,000
- ----------------------------------------------- ==========================
TOTAL $600,000
- ----------------------------------------------- --------------------------
We reserve the right to reallocate the funds according to changing events. We
believe the cash on hand is insufficient to fund our initial capital
requirements on a limited budget for a period of twelve months and we may have a
shortfall of about $35,000 under the budget set forth above. (COMMENT #16) 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.
The Company currently has no plans to raise additional capital other than
through Warrant or Option exercises. Based upon the launching of its web site
and marketing efforts to commence in May 2007, it is anticipated that revenues
resulting in positive cash flow will generate sufficient funds for current
operations and projected growth. If additional capital is required, the Company
could create a debt instrument, a private placement offering targeting
accredited investors or if a successful market should occur, the exercise of its
"A" Warrants or "B" Warrants.
In the event we are unable to achieve additional capital raising through our
Warrants exercise, 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 our
business can be operated with a skeleton staff and have limited
38
advertising/marketing budget, which could cause us to remain unprofitable and
eventually fail.
TABLE V
BUDGET ASSUMING "A" WARRANTS AND "OTHER" WARRANTS ARE EXERCISED
==================================================== ============= =============== ============= ===================
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 $529,500 $662,875
- ---------------------------------------------------- ------------- --------------- ------------- -------------------
General & Administrative $220,598 $441,196 $662,875 $812,242.50
- ---------------------------------------------------- ------------- --------------- ------------- -------------------
Working Capital $253,125 $506,250 $759,375 $965,218.75
- ---------------------------------------------------- ------------- --------------- ------------- -------------------
Website Development $50,000 $50,000 $75,000 $126,354.75
- ---------------------------------------------------- ============= =============== ============= ===================
TOTAL $1,007,125 $2,014,250 $3,021,375 $4,028,500
---------- ---------- ---------- ----------
==================================================== ============= =============== ============= ===================
TABLE VI
BUDGET ASSUMING "B" WARRANT EXERCISE AT $5.00 PER SHARE
AND THAT PROCEEDS OF "A" WARRANTS EXERCISED HAVE BEEN USED AS
SHOWN IN TABLE V ABOVE.
==================================================== ============= =============== ============= =================
EXPENDITURE ITEM 25% 50% 75% 100%
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Salaries $737,500 $1,475,000 $2,212,500 $2,950,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Equipment $250,000 $500,000 $750,000 $1,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Marketing $750,000 $1,500,000 $2,250,000 $3,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
General & Administrative $225,000 $450,000 $675,000 $900,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Working Capital $250,000 $500,000 $750,000 $1,000,000
- ---------------------------------------------------- ------------- --------------- ------------- -----------------
Website Maintenance $25,000 $50,000 $75,000 $100,000
- ---------------------------------------------------- ============= =============== ============= =================
TOTAL $2,237,500 $4,475,000 $6,712,500 $8,950,000
---------- ---------- ---------- ----------
==================================================== ============= =============== ============= =================
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.
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.
39
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. Capital Merchant Banc Warrants are vested upon completion of the
consulting services for: 1. Product Public Relations Program; 2. Sales Program
design; 3. Corporate Awareness Program and structure advice which we deem to be
substantially complete.
The President, CFO and COO/CTO contributed their management services to our
business until June 30, 2006. The President and CFO were paid for July 2006 and
August 2006 at the rate of $3,000 per month in August 2006, plus a bonus of
$3,000 for deferring payment until August 2006. The COO/CTO was paid for July
2006 and August 2006 at the rate of $3,500 per month in August 2006, plus a
bonus of $3,000 for deferring payment until August 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.
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
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
40
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.
EXECUTIVE AND DIRECTORS COMPENSATION
COMPENSATION
SUMMARY OF SCHEDULED EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
Name & Principal Position Fiscal Salary ($) Bonus ($) Other Annual Restricted Securities LTIP All Other
Year Compensation Stock Underlying Payouts Compen-
2006 ($) Award(s) ($) Options/ ($) sation ($)
SARS (#)
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
Neil A. Cox, Chairman & CFO & $36,000 $3,000 $0 $0 0 $0 $0
Director
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
John N. Harris, President & Director $36,000 $3,000 $0 $0 0 $0 $0
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
William H. Reilly, COO & CTO & $42,000 $3,500 $0 $0 100,000 (1) $0 $0
Director
- ------------------------------------- ------- ---------- ---------- ------------- ------------- ----------- ------------ -----------
(1) Options to purchase Shares at $0.55 per Share. (COMMENT #17)
The President, CFO and COO/CTO contributed their management services to our
business until June 30, 2006, and were not paid until August 2006. The President
and CFO were paid for July 2006 and August 2006 at the rate of $3,000 per month.
The COO/CTO was paid for July 2006 and August 2006 at the rate of $3,500 per
month.
41
The President and CFO were paid a bonus also of $3,000 for deferring salaries
until August 2006 and the COO/CTO (William Reilly) was paid a bonus of $3,500
for deferring salaries until August 2006. Up until June 30, 2006 our officers
had served without salary and contributed their services, and thereafter we have
paid the President and CFO at a rate of $3,000 per month on a month to month
basis without contract. The COO/CTO is paid at a rate of $3,500 per month on a
month to month basis without contract.
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 could 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.
42
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
December 31, 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 Sheet at December 31, 2006...........................................................................F-3
Statements of Operations for the year ended December 31, 2006, from April 29,
2005 (Inception) through December 31, 2005 and
from April 29, 2005 (Inception) through December 31, 2006................................................F-4
Statement of Changes in Shareholders' Equity for the period from
April 29, 2005 (Inception) through December 31, 2006.....................................................F-5
Statements of Cash Flows for the year ended December 31, 2006, from April 29,
2005 (Inception) through December 31, 2005 and
from April 29, 2005 (Inception) through December 31, 2006................................................F-6
Notes to Financial Statements................................................................................F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Tombstone Cards, Inc.:
We have audited the accompanying balance sheet of Tombstone Cards, Inc.
(Formerly Stack the Deck, Inc.) (A Development Stage Company) as of December 31,
2006, and the related statements of operations, changes in shareholders' equity,
and cash flows for the year ended December 31, 2006, the period from April 29,
2005 (inception) through December 31, 2005, and the period from April 29, 2005
(inception) through December 31, 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
December 31, 2006, and the results of its operations and its cash flows for the
year ended December 31, 2006, the period from April 29, 2005 (inception) through
December 31, 2005, and the period from April 29, 2005 (inception) through
December 31, 2006, in conformity with accounting principles generally accepted
in the United States of America.
Cordovano and Honeck LLP
Englewood, Colorado
March 19, 2007
F-2
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 2006
ASSETS
Current assets
Cash and cash equivalents....................................................................... $ 634,400
Inventory, at lower of cost or market (Note 3).................................................. 5,297
Prepaid expenses................................................................................ 9,412
--------------------
Total current assets................................................................. 649,109
Equipment, net of accumulated depreciation of $825 (Note 4)..................................... 16,361
--------------------
Total assets......................................................................... $ 665,470
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................................................ $ 2,325
--------------------
Total liabilities.................................................................... 2,325
--------------------
Shareholders' equity (Note 5):
Common stock, no par value; 100,000,000 shares authorized,
3,230,000 shares issued and outstanding....................................................... 816,305
Additional paid-in capital...................................................................... 33,825
Deficit accumulated during development stage.................................................... (186,985)
--------------------
Total shareholders' equity........................................................... 663,145
--------------------
Total liabilities and shareholders' equity........................................... $ 665,470
====================
See accompanying notes to financial statements.
F-3
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
APRIL 29, 2005 APRIL 29, 2005
FOR THE (INCEPTION) (INCEPTION)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006
------------------ ------------------ -----------------
Expenses:
Contributed services by founders (Note 2)................... $ 10,000 $ 10,000 $ 20,000
Share-based payment (Note 5):
Common stock options...................................... 13,825 -- 13,825
Selling, general and administrative expenses................ 157,381 8,252 165,633
------------------ ------------------ -----------------
Loss from operations............................. (181,206) (18,252) (199,458)
Other income:
Interest income............................................. 12,473 -- 12,473
------------------ ------------------ -----------------
Loss before income taxes......................... (168,733) (18,252) (186,985)
Income tax provision (Note 6)................................... -- -- --
------------------ ------------------ -----------------
Net loss......................................... $ (168,733) $ (18,252) $ (186,985)
================== ================== =================
Basic and diluted loss per share................................ $ (0.08) $ (0.01)
================== ==================
Basic and diluted weighted average
common shares outstanding................................... $ 2,069,872 $ 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 CHANGE IN SHAREHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Additional During
------------------------------- 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 2 and 5)............ 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 $60,695
in offering costs (Note 5).................. 1,730,000 804,305 -- -- 804,305
May 2006, stock options granted (Note 5)........ -- -- 4,800 -- 4,800
August 2006, stock options and warrants vested
(Note 5).................................... -- -- 9,025 -- 9,025
Contributed services by founders (Note 2)....... -- -- 10,000 -- 10,000
Net loss........................................ -- -- -- (168,733) (168,733)
------------- ---------------- ---------------- ---------------- -------------
Balance at
December 31, 2006........................... 3,230,000 $ 816,305 $ 33,825 $ (186,985) $ 663,145
============= ================ ================ ================ =============
See accompanying notes to financial statements.
F-5
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
APRIL 29, 2005 APRIL 29, 2005
FOR THE (INCEPTION) (INCEPTION)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2006
------------------ ------------------ -----------------
Cash flows from operating activities:
Net loss................................................. $ (168,733) $ (18,252) $ (186,985)
Adjustments to reconcile net loss to net cash
used in operating activities:
Contributed services (Note 4)........................ 10,000 10,000 20,000
Stock-based compensation (Note 5).................... 13,825 -- 13,825
Depreciation expense................................. 825 -- 825
Changes in operating assets and liabilies:
Increase in inventory........................... (5,297) -- (5,297)
Increase in prepaid expenses.................... (9,412) -- (9,412)
Decrease in accounts payable.................... (213) 2,538 2,325
------------------ ------------------ -----------------
operating activities........................ (159,005) (5,714) (164,719)
------------------ ------------------ -----------------
Cash flows from investing activities:
Purchase of property and equipment....................... (17,186) -- (17,186)
------------------ ------------------ -----------------
investing activities........................ (17,186) -- (17,186)
------------------ ------------------ -----------------
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)
------------------ ------------------ -----------------
financing activities........................ 804,305 12,000 816,305
------------------ ------------------ -----------------
cash equivalents............................ 628,114 6,286 634,400
Cash and cash equivalents:
Beginning of period...................................... 6,286 -- --
------------------ ------------------ -----------------
End of period............................................ $ 634,400 $ 6,286 $ 634,400
================== ================== =================
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 $583,487 cash
equivalents at December 31, 2006.
INVENTORIES
Inventories are stated at the lower of cost or market.
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.
FINANCIAL INSTRUMENTS
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash and cash
equivalents, and accounts payable approximate fair value due to the short-term
maturity of the instruments.
INCOME TAXES
We account for income taxes under the provisions of SFAS No. 109, ACCOUNTING FOR
INCOME TAXES (SFAS 109). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
ADVERTISING
All advertising costs are expensed as incurred. Advertising expenses were
$11,667, $1,029 and $12,696 respectively, for the year ended December 31, 2006,
the period from April 29, 2005 (inception) through December 31, 2005, and the
period from April 29, 2005 (inception) through December 31, 2006, respectively.
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 December 31, 2006, there were no variances between basic and diluted loss per
share as the impact of the 4,270,000 options, warrants and warrant units
outstanding would have been anti-dilutive.
SHARE-BASED PAYMENT
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.
NEW ACCOUNTING STANDARDS
In July 2006, the Financial Accounting Standards Board (FASB) issued two related
standards that address accounting for income taxes: FASB Interpretation (FIN)
48, Accounting for Uncertainty in Income Taxes , and FASB Staff Position (FSP)
FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash
Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction .
Among other things, FIN 48 requires application of a "more likely than not"
threshold to the recognition and derecognition of tax positions and that changes
related to prior years' tax positions be recognized in the quarter of change.
FSP FAS 13-2 requires a recalculation of returns on leveraged leases if there is
a change or projected change in the timing of cash flows relating to income
taxes generated by the leveraged lease. Both new standards became effective for
us on January 1, 2007. The FASB is currently engaged in a project to provide
implementation guidance on FIN 48. While the effects of FIN 48 will depend
somewhat upon this implementation guidance, we expect the transition effects of
these standards to be modest and consist of reclassification of certain
liabilities on our Statement of Financial Position and an adjustment to the
opening balance of retained earnings. Prior periods will not be restated as a
result of these required accounting changes.
In February 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) 155, Accounting for Certain Hybrid Financial Instruments - an Amendment
of FASB Statements No. 133 and 140 (SFAS 155). This Statement amended SFAS 133
to include within its scope prepayment features in newly created or acquired
retained interests related to securitizations. SFAS 155 will have the effect of
F-8
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
changing, from level yield to fair value, the basis on which we recognize
earnings on these retained interests. We expect these effects to be immaterial
to our 2007 operations.
(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.
The President, CFO and COO/CTO contributed their management services to our
business from April 29, 2005 (date on inception) through June 30, 2006. The
services are reported as contributed services with a corresponding credit to
additional paid-in capital totaling $10,000 for the year ended December 31,
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
December 31, 2006.
(3) INVENTORIES
At December 31, 2006, inventory consisted of:
Raw materials.................................. $5,297
(4) PROPERTY AND EQUIPMENT
At December 31, 2006, major classes of property and equipments were:
Computer equipment............................. $ 12,488
Software....................................... 4,698
-------------------
17,186
Less: accumulated depreciation................. (825)
-------------------
16,361
===================
Depreciation expense was $737, $88 and $825, respectively, for the year ended
December 31, 2006, the period from April 29, 2005 (inception) through December
31, 2005, and the period from April 29, 2005 (inception) through December 31,
2006.
(5) 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
F-9
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 was valued at $0.50 per share 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
share-based payment in the accompanying financial statements during the year
ended December 31, 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, of
which $8,125 in share-based payment in the accompanying financial statements for
the year ended December 31, 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
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 December 31, 2006.
F-10
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 December 31, 2006:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE EXERCISE REMAINING
---------------- PRICE PRICE CONTRACTUAL
SHARES 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 $0.55 - $5.00 $ 2.94 2.58 years
Exercised.................................. - - $ - N/A
Cancelled/Expired.......................... - - $ - N/A
--------------- ----------------- ------------ ----------------
Outstanding at December 31, 2006........... 4,270,000 $0.55 - $5.00 $ 2.94 2.58 years
=============== ================= ============ ================
Exercisable at December 31, 2006........... 3,610,000 $0.55 - $5.00 $ 2.94 2.58 years
=============== ================= ============ ================
APRIL 29, 2005
YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2006 2005
-------------------- -------------------
Total fair value of options vested during the period....................$ 13,825.00 $ -
==================== ===================
Common stock awards consisted of the following options and warrants:
F-11
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 60,000 4,270,000
Exercised........................................... - - - -
Cancelled/Expired................................... - - - -
-------------- -------------- --------------- --------------
Outstanding at December 31, 2006.................... 150,000 4,060,000 60,000 4,270,000
============== ============== =============== ==============
(6) INCOME TAXES
A reconciliation of U.S. statutory federal income tax rate to the effective rate
follows:
APRIL 29, 2005
YEAR (INCEPTION)
ENDED THROUGH
DECEMBER 31, DECEMBER 31,
2006 2005
------------------- -------------------
U.S. statutory federal rate......................... 27.50% 15.00%
State income tax rate............................... 3.36% 5.10%
Permanent difference - Contributed services......... -1.90% 0.00%
Net operating loss for which no tax
benefit is currently available................... -28.96% -20.10%
------------------- -------------------
0.00% 0.00%
=================== ===================
At December 31, 2006, deferred tax assets consisted of a net tax asset of
$47,099 due to operating loss carryforwards of $180,912 which was fully allowed
for, in the valuation allowance of $47,099. The valuation allowance offsets the
net deferred tax asset for which there is no assurance of recovery. The change
in the valuation allowance for the year ended December 31, 2006 totaled $45,536.
The net operating loss carryforward expires through the year 2026.
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 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.
F-12
TOMBSTONE CARDS, INC.
(FORMERLY STACK THE DECK, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.
(7) 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 $534,400 at
December 31, 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-13
[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.
43
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 $68,500
============================================================ ===================
RECENT SALES OF UNREGISTERED SECURITIES
We have sold securities within the past three years without registering the
securities under the Securities Act of 1933 as shown in the following table:
- ------------------- ---------------- -------------- --------------- --------------- ---------- ---------- ------------
NAME COMMON SHARES "A" WARRANTS "B" WARRANTS "OTHER" ($) PAID DATE OF EXEMPTION
WARRANTS PER PURCHASE
SECURITY
- ------------------- ---------------- -------------- --------------- --------------- ---------- ---------- ------------
- ------------------- ---------------- -------------- --------------- --------------- ---------- ---------- ------------
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)(2) 60,000 60,000 60,000 $.50 3/10/06 Rule 506
- ------------------- ---------------- -------------- --------------- --------------- ---------- ---------- ------------
Dale Stonedahl 50,000 $.01 4/2005 Section
(1)(2) (COMMENT #18) 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(2)(COMMENT #18) 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
- ------------------- ---------------- -------------- --------------- --------------- ---------- ---------- ------------
44
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
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 600,000 $.00001 8/31/06 Section
Banc 4(2)
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
Garden State 60,000 $.00001 8/31/06 Section
Securities 4(2)
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
Employee Stock
Options
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
Dale Stonedahl 50,000 50,000 50,000 $.001 8/31/06 Section
(2) 4(2)
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
William Reilly 100,000 100,000 100,000 $.001 8/31/06 Section
(2) 4(2)
- ------------------- --------------- --------------- --------------- --------------- ---------- ---------- -----------
(1) Mr. Dale Stonedahl and Mr. George Wanberg were both purchasers of stock
($0.01) in 2005 and both also purchased units ($0.50) in the Private
Placement Memorandum in 2006. (COMMENT #18)
(2) In addition, Dale Stonedahl and William Reilly have Employee Stock
Options of 50,000 Shares and 100,000 Shares, respectively, at $0.55 per
Share. The Stock Options have not been exercised. (COMMENT #18)
EXEMPTIONS FROM REGISTRATION FOR UNREGISTERED SALES
1. Common Shares sold at $.01 were sold to the initial founding shareholders
under Section 4(2) and to private investors at $0.01 per Share pursuant to an
exemption under Rule 504 of Regulation D in 2005.
2. Units consisting of Common Shares and Warrants were sold at $0.50 per Unit
pursuant to an exemption under Rule 506 of Reg. D in 2006.
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.
3. The Warrants sold to Capital Merchant Banc, Garden State Securities and
certain Employee Stock Options were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933 in 2006. Each of
the recipients of Warrants or Stock Options received such in consideration of
services rendered:
45
1. Capital Merchant Banc -consulting services on business model and plan,
sales implementation and product public relations design program -
600,000 Warrants at $0.55
2. Garden State Securities - additional compensation to Registered Broker
Dealer for acting as Placement Agent - 60,000 Warrants at $0.60
3. Employees received Options for services rendered to our Company. 50,000
- Dale Stonedahl / 100,000 - William Reilly
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 **
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.
** Incorporated by reference to the Form SB-2 Registration Statement
(#333-138184) filed with the Securities and Exchange Commission on January 8,
2007.
46
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.
47
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 April 26, 2007.
TOMBSTONE CARDS, INC.
/s/John N. Harris April 26, 2007
- ----------------------------------------
John N. Harris
(Principal Executive Officer, President
and Chief Executive Officer) (COMMENT #19)
/s/Neil A. Cox April 26, 2007
- ------------------------------------
Neil A. Cox
(Chief Financial Officer/Principal
Accounting Officer)
/s/William H. Reilly April 26, 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 April 26, 2007
- ----------------------------------------
John N. Harris, Director
/s/Neil A. Cox April 26, 2007
- ------------------------------------
Neil A. Cox, Director
/s/William H. Reilly April 26, 2007
- ------------------------------------
William H. Reilly, Director
48
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
April 26, 2007
Tombstone Cards, Inc.
5380 Highlands Drive
Longmont, CO 80503
Re: SB-2/A #2 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, 1,730,000 "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 (for Units consisting of
Shares and "A" and "B" Warrants) at $0.60 per Share and 150,000 Employee Options
at $0.55 per Share (the "Shares").
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 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 March 19, 2007 on our audits of the
financial statements of Tombstone Cards, Inc. as of December 31, 2006 and
December 31, 2005, and the related statement of operations, changes in
shareholders' equity, and cash flows for the year ended December 31, 2006, the
period from April 29, 2005 (inception) through December 31, 2005, and the period
from April 29, 2005 (inception) through December 31, 2006, and the reference to
us under the caption "Experts".
/s/Cordovano and Honeck, LLP
- -------------------------------
Cordovano and Honeck, LLP
Englewood, Colorado
April 26, 2007