UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011ended:
oor
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________January 1, 2014, to __________June 30, 2014
Commission File Number: 000-53548
Calibrus, Inc.GROW CONDOS, INC.
(Exact (Exact name of registrant as specified in its charter)
| Nevada | | 86-0970023 |
| (State or other jurisdiction of | incorporation or organization) | (I.R.S. Employer I.D.Identification No.) |
incorporation or organization | | |
| | |
1225 West Washington Street, Suite 213, Tempe, AZ | | 85281 |
(Address of principal executive offices) | | (Zip Code) |
Issuer's722 W. Dutton Road
Eagle Point, OR 97524
(Address of principal executive offices)
541-879-0504
(Registrant’s telephone number, including area code: (602) 778-7500code)
Securities registered pursuant to sectionSection 12(b) of the Act: None
Title of each class | Name of each exchange on which registered |
None | N/A |
Securities registered pursuant to sectionSection 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class) $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Act. Yes o[ ] No x[X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act
Exchange Act. Yes o[ ] No x[X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes x[X] No o[ ] (2) Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).files. Yes [X] No [ ]
Yes x No o
Indicate by check mark if disclosure of delinquent filers in responsepursuant to Itemitem 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.company:
Large Accelerated filer | o | |
| Large accelerated filer [ ] | Accelerated filer | ofiled [ ] |
| Non-accelerated filer | o | (Do not check if a smaller reporting company)[ ] | Smaller reporting company | x [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o[ ] No x[X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked pricesprice of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: quarter.
The Company’smarket value of the voting and non-voting common stock last tradedis $9,998,261, based on April 13, 2011 at $.15 per share giving the20,404,614 shares held by non-affiliates a value of $1,512,723. Sincenon-affiliates. The shares were valued at $0.49 per share, that being the Registrant does not have an active trading market these numbers may not be a reliable indicationclosing price on June 30, 2014, the last business day of the share price.registrant’s transition period.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of April 4, 2012,October 14, 2014, the Registrantregistrant had 13,808,58041,568,494 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., part I, part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or other information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933: NONESee Part IV, Item 15.
PART I
FORWARD LOOKING STATEMENTS
In this Annual Report, references to “Grow Condos,” the “Company,” “we,” “us,” “our” and words of similar import) refer to Grow Condos, Inc., a Nevada corporation, the registrant and, when appropriate, its subsidiary.
Statements made in this Form 10-K which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of Grow Condos. Such forward-looking statements include those that are preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in this Annual Report: general economic or industry conditions nationally and/or in the communities in which we conduct business; legislation or regulatory requirements, including environmental requirements; conditions of the securities markets; competition; our ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services and prices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. Grow Condos does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
ITEM 1. BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSItem 1. Description of Business
This periodic report contains certain forward-looking statements with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management. Statements in this periodic report that are not historical facts are hereby identified as “forward-looking statements.”History
Overview
Calibrus,Grow Condos, Inc. is(the “Company”) was incorporated on October 22, 1999, in the State of Nevada. From its inception, the Company was a technology basedcall center that contracted out as a customer contact center for a variety of business clients throughout the United States. Over time our main business became a third party verification service. After making a sale on the telephone, a company established in 1999. We have two business units that leverage our technology capabilities. We have provided Hosted Business Solutions for ten years and now plan to expand our offerings to offer a social networking site called JabberMonkey (Jabbermonkey.com) and a location-based, social networking application for smart phones called Fanatic Fans.
Through our Hosted Business Solutions, we provide Third Party Verification (TPV) Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to some telecom, cable and insurance companies. We estimate that we have processed over 50 million live agent calls/recordings and 5 million IVR calls/recordings to date serving these companies. With over 75 employees,would send the latest equipment and in-house designed software and solutions, we are the hosted solution company that companies can trust with their data.
Our technology provides us with the ability to provide fully-integrated live voice, data, and automated services and combinations of services out of a unified platform. Our system’s processes and functionality allow our IT staff to easily design and build systems that satisfy clients’ process requirements. Using our technology has allowed us to develop and build customized web-based solutions incorporating call recording, “click to call” and voice message broadcast functionality.
Calibrus has leveraged our technology capabilities to expand into the growing market of social marketing. Leveraging the software development experience we have obtained over the last 10 years, we created the site JabberMonkey.com. JabberMonkey is a site where users can have an interactive experience of asking questions of other members, post comments and have ongoing interactive video and text chats. We have also developed a location based social networking application that focuses on live events such as sporting events and music concerts.
Calibrus Products and Services - Calibrus Hosted Third Party Verification (TPV) Services
Calibrus' Third Party Verification service is easy to use and offers both Live Operator and IVR/VRU Third Party Verification services. Calibrus’ Live Operators process thousands of TPV calls daily. To date, Live Operator TPV has been the solution of choice for several of our largest customers. Live operators offer the best customer experience and typically higher success rates over IVR/VRU solutions. Our Automated IVR (Interactive Voice Response)/ VRU (Voice Recognition Unit) solution offers a low-cost alternative to a live voice agent while ensuring compliance with both FCC and State PUC (Public Utility Commission) Third Party Verification requirements. Our IVR systems feature intuitive scriptingCompany operator to automatically ensureconfirm the correct questions are asked. Our custom IVR solutions enable client’s customers to easily opt-out to a live agent at any time if they require personal attention.
What is Third Party Verification?
Third Party Verification is the confirmation of a customer’s order by an independent third party.order. This process protectsprotected both the customer and the company selling services from fraud and slamming/cramming of products onto their lines. Once the sale has been made, the customer is transferred to an independent Third Party, such as Calibrus, that will read a pre-determined script to which the customer will answer yes or no.
In 1996, the Federal Communications Commission, FCC, enacted the Telecommunications Act which forced the Regional Bell Operating Companies to open their lines to competition. Accordingly, telecom companies were required to allow competitors to lease their lines and provide service to customers at a rate set by each individual State’s Utility Commission. This was to promote competition and help new competitors compete with the larger telecom companies on a level playing field. Unfortunately, this led to another phenomena called slamming, customers being switched from one company to another without their approval, and sometimes without any knowledge whatsoever until they received their bill.telephone sales fraud.
In responseWhile continuing to slamming, legislation was enacted that required companies that were changing a customer’s dial tone or long distance to their services would have to first obtain the customer’s approval in one of three ways:
· | A written and signed Letter of Authorization indicating that customer agrees to the change. |
· | An automated or live agent independent third party that the customer is transferred to for the verification. |
· | An electronic Signature on an electronic Letter of Authorization, usually done on websites. |
Calibrus fulfills the second requirement, providing both automated IVR/VRU and Live Agent Third party Verification Services for our clients.
Automated IVR/VRU Service Highlights
· | Dual Channel Recording to Eliminate the Loss of Interactions/Customer Statements |
· | Very Low Implementation and Ongoing Cost |
· | Simple to Set Up, Implement and Launch |
· | Close to Real-Time Call Record and File Retrieval and Posting |
· | Dedicated Management and IT Resources, 24/7 Availability |
· | Superior Value and Cost Competitive IVR Services |
Our automated IVR verification method provides customers with a pre-determined script to comply with each client’s unique verification requirements. The following diagram demonstrates our basic Automated IVR Process Method:
Our Automated IVR/VRU TPV services are priced on per transaction or per minute usage.
Live Operator TPV
In addition to our automated TPV services, we also offer Live Operator TPV Service. When customers want to provide live interactions with ultimate flexibility, our Live Operator Services can be used in conjunction with our automated TPV services oroperate as a stand alone service. Customers that selectcall center, in 2008 we expanded our Live Operator service offering will see several benefits, such as:
· | Better Customer Experience |
· | Superior Universal Language Coverage (i.e. Spanish, Chinese, Japanese, Korean, etc.) |
· | Documented Higher Success Rates (success rates average over 96%)
|
· | Higher Success Rates Mean: |
o | Less Back Room Clean-up Expense |
o | Fewer Lost Sales due to Non-Verified TPV’s |
· | Close to Real-Time Call Record and File Retrieval and Posting |
· | Cost Competitive Live Operator Answering Service |
Calibrus has developed a TPV process that allows for a very efficient transfer of data from a sales agentbusiness plan to a Calibrus Live Operator. This process reduces call lengths, agent errors, and TPV costs. The following is a diagram of our Live Operator TPV Process Method.
Our Live Operator Third Party Verification solution helps our customers meet compliance requirements and improve their overall business processes. TPV revenue accounted for approximately 98.5% ofinclude the Company’s total revenue. For 2011, 77.1% of our TPV revenue was derived from Live Operator services and 21.6% was derived IVR/VRU services. Our TPV services are priced on per transaction or per minute usage.
VOIP Verifications
Calibrus Live Agent VOIP Verifications provide a solution for customers that want to provide live interactions with the ultimate flexibility. Automated IVR Verifications is a low-cost alternative to a live voice agent that still complies with both FCC and State PUC Third Party Verification requirements. Intuitive scripting ensures the correct questions are automatically asked. Customers can easily opt-out to a live agent at any time if they require personal attention.
Hosted Call Recording
Calibrus’ Call Recording service is easy to use and cost-effective and offers a number of features necessary for a superior call recording solution. Calibrus’ Hosted Call Recording solutions are an alternative for companies that do not wish to invest in expensive hardware, maintenance and supportdevelopment of a state-of-the-art call recording system.
Our Hosted Call Recording Features include:
· | All Inclusive Pay-As-You-Go Pricing Model by the Minute or by the Transaction/Call |
· | No Maintenance, Upgrade, Programming, Site/Seat Licensing or Change Fees |
· | Call Record & File Access 24/7 Via a Secured Website for Easy Retrieval |
· | Customized Reporting Options |
· | High Quality Recording with Redundant Systems and Disaster Recovery |
· | Compatible and Flexible Process can be used with Virtually Any System |
· | Optional Quality Control Monitoring and Evaluation Services |
Hosted Call Recording for the Insurance Industry
Our call recording solution assists insurance companies to record and retain valuable, mission critical conversations that occur during claim statements and interviews, while, we believe, improving efficiencies and reducing costs in the claims process.
Calibrus’ recording process is easy to use, secure and completely customizable. Insurance adjusters can set up a call and start recording quickly without expensive equipment. The Calibrus system ties important information for the claim, claim number, interviewee name, and other information to the file so customers can sort it later. The adjustor dials into Calibrus and records the conversation with the claimant and simply hangs up when finished. The recording will be processed and available within minutes after the call is finished and accessible via the reporting website. If necessary, Calibrus can send a confirmation email to the adjuster that includes a hyperlink to the recording for easy retrieval.
Once the recording has ended a secure password protected web-based reporting website allows claims managers, compliance officers and executives to access the recordings of the claim statements and interviews in seconds. Indexing of the data such as claim number, insured name, interviewee name, and adjuster ID allows authorized individuals the ability to search on things such as claim number and find all associated recordings for that claim. The reporting website serves as a quality assurance and management tool as well, providing the ability to pull up all recordings for an adjuster ID, and listen to every call that a particular adjuster did that day.
For independent/contracted adjusters out in the field, Calibrus has developed an upload tool to provide insurance companies with the ability to combine all of their digital claims recordings, whether done internally or externally by contracted companies, into one database. The Calibrus upload capability allows external adjustors/interviewers to record interviews “on the street” and then upload them to the Calibrus database using a secure web portal. Independent adjusters can use any handheld recorder that can download a recording into a .wav file format onto their computers.
The upload process is very simple to use: Access the secure web portal, enter in the information into the portal to be tied to the recording, mark the “Upload” existing file checkbox, identify the file and hit submit. The file is then uploaded into the Claims Recording Database and is then available to pull in the reporting website. Calibrus offers insurance companies the ability to switch to a hosted solution without having to invest heavily into an internal recording solution. By using our hosted solution, customers forgo having to invest in hardware, software,social networking site licenses, continuous upgrades, storage facilities and dedicated IT support. We handle all of that for our customers, and get a recording solution in place within weeks. Other benefits of using our solution are immediate access for playback of the recorded statement, back up redundancy of the digital .wav file for security purposes, enhanced call tracking and data analysis, ability by managers to quickly review calls and provide coaching easily, and customizable report capabilities. For 2011, .94% of our total revenue was derived from Call Recording services.
Voice Message Broadcasting (VMB)
Our web-based voice message broadcasting solution has the ability to contact hundreds to thousands of people in seconds. We can create dialing parameters based upon dialing lists, the message to be sentcalled JabberMonkey (Jabbermonkey.com) and the times to call out on, which can be adjusted to fit time zones across the nation. Customers can broadcast caller id and change and record their message in a matter of minutes.
Our voice message broadcasting programs can assist in:
· | Direct Customers to your Website |
· | Relationship Calls – Happy Birthday, Anniversary, etc. |
· | Political Campaigns – Get out to Vote |
· | Customer Loyalty Campaigns to Repeat Customers |
· | Meeting/Conference Notifications |
· | Sports Team Advertising |
· | School and Emergency Notifications |
Calibrus Click-To-Call Services “ClickTalk”
Calibrus “ClickTalk” service allows customers to put a button or icon on a website or web-listing that will allow customers to contact others by telephone automatically and anonymously. The “ClickTalk” functionality has a variety of uses:
· | Save Sales on Cancellations |
When someone presses the Calibrus “ClickTalk” button a pop up appears so that they can enter their phone number. Once a phone number is entered and they hit the submit button, the Calibrus system places an outbound call to them and once they have answered our system places a second call to a pre-programmed number and connects you with the customer. Currently we are not providing any click to call services.
Call Center Services
Calibrus, Inc. has been delivering call center services since 1999 to large and small businesses. Calibrus live operator agents can provide call center services to customers who want to grow their business or handle temporary, seasonal or overflow volume.
Several call center services Calibrus can provide are:
Outbound | Inbound |
| |
Cold Calls | Customer Support/Help Desk |
| |
Outbound Telemarketing | Order Taking/Fulfillment |
| |
Phone Surveys | Answering Service |
| |
Lead Qualifying | Sales Verifications |
| |
Direct Mail Follow up | Seminar Sign-up |
| |
Fundraising | |
| |
Political Campaigns | |
| |
Internet Sales Verifications | |
| |
Collections | |
For 2011, the Company was running one Customer Support program for a customer in the healthcare industry. Revenue related to this program totaled $4,626.
SpeechTrack.com
Calibrus has developed a hosted call recording utility that anyone can use from any phone. Through the SpeechTrack.com website anyone can record a phone conversation whether they are at work, home or on a cell phone. SpeechTrack enables phone conversations to be recorded easily, and securely, at a low per minute cost. SpeechTrack is an ideal solution for any individual, independent professional or small business owner. SpeechTrack is a hosted solution that requires no hardware or software to be purchased. SpeechTrack can also be used for dictation purposes. Customers can access their recordings online on SpeechTrack’s secure website. Customers can add notes to the recording file to keep track of their calls and they can also download the recordings to their computer. Our plan is to market SpeechTrack.com to small to midsize businesses and individual professionals through several different marketing channels, including internet advertising, radio ads, forums, blogs and traditional print media.
Businesses and individuals use SpeechTrack for:
Staffing and Training
Protection/Disputes/Resolution – Prove “who said what” in a dispute
Confirmation of Agreements or Document Replacement
Compliance
Best Practice/Advice or Instructions
SpeechTrack users use our service for a myriad of purposes. Below is a partial list of just some of the types of independent professionals/small business owners that may utilize Speechtrack.
Attorneys
Accountants
Contractors/Vendors
Doctors
Executive Coaching
Service Providers
Sales Professionals
Private Investigators
Project Manager/Coordinators
Insurance Agents
Mortgage/Financial Brokers
Conference Calls
Market Researchers
Technology
Using software based PBX (public exchange system – best known as a telephone switch), ACD (automated call distribution), network equipment, data storage arrays, and servers; we have developed object oriented software application building blocks and relational databases. Because we record every verification conversation digitally, our system allows clients to be actively involved in monitoring and managing our services through secure Internet sites, VPN (virtual private networks), and dedicated point-to-point connectivity. By allowing near real time review of data and verification conversations, this infrastructure allows our clients to actively participate in the management of their programs. We virtually eliminate data errors because the majority of the data is transferred electronically.
Redundancy and Safeguards
Calibrus has worked diligently to provide the necessary redundancy and disaster recovery requirements to our clients. We offer a number of safeguards for our clients including separate power generation units in the event of a failure by the utility; we have UPS’s (uninterrupted power supply) for all network and telecom equipment; we have a UPS on every agent station and our system up-time was over 99.9% for the last two years. For telecom access Calibrus utilizes two separate long distance providers that both have multiple access points into the Phoenix Metro area. One telecom company provides the primary number while the second provides the back-up number to prevent any downtime that could arise in a particular company’s network.
Calibrus’ facilities, equipment and technology are structured to ensure uptime and eliminate the worry of fiber cuts which could disrupt our business. Since Calibrus is connected to the telecom’s network, we are able to install additional T1’s or PTP (point-to-point) data circuits on a significantly reduced timeframe. It is common to have new circuits delivered and functioning within 10 business days, much quicker than the 30-45 business days most companies will receive. Calibrus uses multiple telephone switches, firewalls, routers and networks; and have automated tape back-up guards against data loss, corruption and down time.
The Company’s technology is capable of receiving and interpreting automatic number identification information. Calibrus can then use this information in conjunction with our computer telephone integration functionalities for reporting and indexing functionality.
Security
Calibrus understands the need to protect data belonging to our customers. With that understanding, we have developed strict guidelines to protect customer information. Controlled access to data centers, physical security measures, and strong passwords on all network equipment ensures that only authorized personnel can gain entrance to sensitive areas and protects Calibrus’ internal vulnerabilities. Firewalls, Access Control Lists and VPNs ensure that data is safe from external vulnerabilities.
We do offer several levels of securing access to our client’s data, as it can vary from client to client. With the web based utility that some clients utilize we offer password protection and unique individual logins that can be completely
controlled and maintained by the client by a custom interface, which can also be password protected, if necessary. Some of our clients find that task to be burdensome due to their number of agents and managers. For those specific clients, if they are coming through a proxy, we can limit access to the websites, both agent entry and to trusted internet protocol. This would limit the access to only those that are coming through the company’s client side channel to the Calibrus website.
Reporting
Calibrus custom builds all reports to suit our client’s needs because we have found that the information that each customer requires may be different from the information required by another customer. All telephone switches are centralized in our server databases and therefore, we can easily relate customer data with call data. As a result, we can custom build reports to the specifications of our clients and provide the data in any format to the client: Excel, fixed length and comma delimited, and deliver it in multiple ways, such as through a website, Web Service, e-mail, connect direct or FTP (file transfer protocol). We build all return files to client specifications and can deliver them at the times the client requests.
Regulations
Third Party Verification is mandated by both the FCC and State PUC agencies. Third Party Verification is the confirmation of a customer’s order by an independent third party. This process protects both the customer and the company selling from fraud and slamming/cramming of products onto their lines. Once the sale has been made the customer is transferred to an independent Third Party that will read a pre-determined script to which the customer will answer yes or no.
In 1996, the Federal Communications Commission, FCC, enacted the Telecommunications Act which forced the Regional Bell Operating Companies to open their lines to competition. Accordingly, they were required to allow competitors to lease their lines and provide service to customers at a rate set by each individual State’s Utility Commission. This was to promote competition and help new competitors compete with the large corporations on a level playing field.
This led to another phenomena called slamming, customers being switched from one company to another without their approval, and sometimes without any knowledge whatsoever until they received their bill.
In response to this, legislation was enacted that required companies that were changing a customer’s Dial Tone or Long Distance to their services would have to first obtain the customer’s approval in one of three ways.
· | A written and signed Letter of Authorization indicating that customer agrees to the change. |
· | An automated or live agent independent third party that the customer is transferred to for the verification. |
· | An electronic Signature on an electronic Letter of Authorization, usually done on websites. |
Calibrus fulfills the second requirement, providing both automated IVR, and Live Agent Third Party Verifications Services for our clients. Third Party Verification though intended to be a protection for the customer, is also a protection for the company initiating the switch as well. The necessity for TPV prevents companies from switching customers without their approval, and it also prevents a customer, or another company, from alleging that the company switched a customer without their approval. The protection that TPV provides for the company is critical as the fines levied by the FCC and the State PUCs can run in the millions of dollars and also include the loss of the ability to sell telecommunications products in a specific area.
Even though Calibrus acts as a Third Party Verification provider, Calibrus is not directly subject to any regulations. The service or process that we provide for our clients does have several defined rules and regulations that must be followed. For example, scripts that are implemented and used in both our Live Operator and IVR/VRU TPV services must be read verbatim to the customer. There are certain pre-defined questions that must be asked to the customer and certain types of information must be gathered from the customer in order for the TPV to be verified. The FCC and each State PUC has varying requirements in regards to the information that must be communicated to the customer and the information that must be captured. In addition, there are record keeping requirements for both data and voice for each Third Party Verification transaction. Whether the TPV is conducted by a Live Operator or IVR/VRU TPV there must be a voice recording of the customer responding to the script and the data that was captured during the transaction must also be recorded. The voice recordings and associated data must be archived and made available for up to thirty six (36) months.
Competitors
Calibrus faces numerous competitors both within and outside the United States. Many of Calibrus’ competitors are much larger and better financed. The only barrier to entry in Calibrus markets is sufficient start up capital to buy initial equipment and such costs are not substantial. With the low barriers to entry, Calibrus faces competition from a large number of competitors with similar capabilities. Most call centers, both inside and outside the United States, either have similar technology or could develop similar technology. We initially were able to stay ahead of competitors by having a low cost business model but many competitors have reduced their costs to be similar to our costs. As such, the competition for customers has become more competitive.
Some of Calibrus’ competitors include VoiceLog, now owned and operated by BSG Group, 3PV and Data Exchange. Although these are some of the larger competitors there are a substantial number of competitors of similar size to Calibrus that we compete against. Calibrus competes with these competitors for business by offering superior quality of service that is reliable and low cost in the market. Even with quality of services that we believe we offer, competition in our industry generally comes down to pricing. As such, there is constant pressure on margins and the need to keep costs low to be able to effectively compete in our industry.
Concentration of Customers
As the number of telecommunications companies has decreased, we have seen a concentration of revenues coming from two primary customers. In 2007 AT&T Communications and Cox Communications exceeded approximately eighty percent of our revenues for the first time. In 2011 Frontier Communications experienced a high volume and revenue increase due to their acquisition of 13 Verizon states land line operations. As a result of this they have decreased our concentration in AT&T and Cox. Currently nearly eighty percent of our revenues are still derived from three customers. For the years ended December 31, 2011 and 2010, AT&T Communications accounted for 50.6% and 68.1% and Cox Communications 16.7% and 16.6%, respectively, of our revenues. Frontier Communications accounted for 15.0% and 1.5% in 2011 and 2010, respectively. This revenue is derived from our TPV business. If we were to lose one of these customers before our other business lines start generating more revenue, it could have a detrimental effect on our ability to stay in business. We are actively moving away from the TPV business being our primary operations and are hopeful that we will be able to reduce our reliance on these customers. We made the decision to diversify our product offerings based on our belief that consolidation in the telecommunications industry has reduced the number of telephone customers changing carriers. As such, the need for third party verification has decreased. We believe there will continue to be customers changing phone carriers but as the number decreases the revenue we receive from our third party verification business continues to decline. We believe it is prudent to seek other sources of revenue.
Our contract with AT&T expired on December 31, 2009. We signed two short-term contract extensions with modified pricing through March 2010. On April 8, 2010 the Company signed a new contract with AT&T. The contract sets forth our pricing terms and provides the conditions on which we are to provide service to AT&T including that our services are deemed performed when provided. AT&T renewed the contract for a one year period in 2011. The renewal included a 2.5% pricing discount per the terms of the original contract signed in 2010. The Company also signed a new contract with Frontier Communications in May of 2011 which was done in conjunction with Frontier’s acquisition of 13 Verizon State landline operations.
Calibrus Social Media Products and Services - JabberMonkey.com and Fanatic Fans
Fanatic Fans
In the second half of 2010 we commenced development of a location based social networking application for smart phones called Fanatic Fans. The Fanatic Fans application has been live
JabberMonkey is a social expression site that features questions on issues and topics that are current and relevant to its members. JabberMonkey questions are on pertinent issues that in many instances evoke emotional responses from its members. Many of the Apple App Store and Android Marketplace since April of 2011. questions on JabberMonkey provide the individuals voting with a voice to cause an action or affect a result.
Fanatic Fans informsaim is to inform fans about upcoming live events in the Sportssports and Musicmusic industries by giving users the ability to interact with live events, share their experiences, and earn rewards for attending live events. Users canare able to browse a calendar of upcoming events which can be segmented by region and artist. UsersFrom here users can get detailed information on the event and discuss the event with other fans.
In March of 2014 the Company found an opportunity to acquire WCS Enterprises, LLC which is a real estate purchaser, developer and manager of specific use industrial properties providing “Condo” style turn-key grow facilities to support cannabis growers. In June 2014, we acquired 100% of the ownership of WCS Enterprises, LLC.
Fanatic Fans
In the second half of 2010 we commenced development of a location based social networking application (“App”) for smart phones called Fanatic Fans. The Fanatic Fans application was live on the Apple App Store and Android Marketplace since April 2011, however due to a lack of operating system upgrades, the applications have recently become unavailable on the App Store and Android Marketplace.
Fanatic Fans informs fans about upcoming live events in the Sports and Music industries. While at an event, users can share their experiences with social networks Facebook and Twitter, and communicate with other people at the event. Users can unlock virtual awards and earn virtual points in recognition of attending events. Within their profile, users can browse and view the items they have unlocked and receive news on their favorite artists. Finally, users can redeem their virtual points for food/drinks, apparel and purchase event tickets in the application award section.
Fanatic Fans rewards fans for their support of their favorite sports team, music artist or band. National and local businesses market to fans that attend the events by listing promotions (goods and services) on our application. Businesses list their promotions (i.e. After the Diamondbacks Game Come to Hanney’s Restaurant and Receive “One Free Beer” or “50% Off any Appetizer!” Redeem for 50 Points) and users can view and redeem these promotions and offers that are specific to their interests. Fanatic Fans offers contests and provides recognition to the most Fanatic Fans.
Functionality
When a user is at an event the app automatically determines the event their attending using the phones GPS. The user is able to view information on the show including a list of the artists performing at the show. There is a forum that users can make comments about upcoming events which also allows fans to interact with one another while at the show. Comments made by users can go directly to Facebook and Twitter if the user choose to link their Fanatic Fans account. While attending an event users can check in. By checking in the user will unlock a virtual award which can also be published to Facebook and Twitter. Users also earn virtual currency by checking into a location. After checking in the user will return to the comments page where they can continue to read and add comments about the show.
When users are not at a show they use Fanatic Fans to locate upcoming shows. They browse a calendar of all upcoming shows and sort by location and the artists that they follow. Users get information on the show including; time, location, and performing artists. Users can view tips created by other members and add tips of their own. Finally users confirm that they are going to attend an event and tell their friends by publishing to Facebook and Twitter.
Fanatic Fans features a profile page which allows users to view their past activity within the app and receive news updates on their favorite artists. They are able to view all of the awards that they have unlocked, and all the shows that they have attended. They also receive the latest news posts of some of their favorite music artist. Finally, users can adjust their personal settings from their profile including which artists they wish to follow, their home town, and their Facebook and Twitter account information.
Basic Functionality of Fanatic Fans
Check into an event
Get information on the event
Communicate with other fans at the event using a messaging board
Post comments, pictures and videos
Post comments, pictures and videos to Facebook and Twitter
Unlock virtual awards
Earn virtual points and badges
Look up upcoming events in your area, and entire tour schedules of your artists
View all your awards and your rank among other users
Redeem your points for goods
Vendor/Business can list promotions for users to redeem Fanatic Fan virtual points
Buy tickets to live events through a third party
Fanatic Fans Website
Live event content that is posted from users using Fanatic Fans is available to view on the Fanatic Fans website. Comments, pictures and videos uploaded to the Fanatic Fans app by fans using their mobile phone attending live events are instantly saved on the FanaticFans.com website. Users can watch videos, view pictures and see what people are saying about live sports or music events in real-time. As fans express and share their excitement, users can join in and make comments, upload pictures and videos before, during and after the live event and share to Facebook and Twitter.
Additionally, on FanaticFans.com website users can view a complete listing of discount offers by merchants on food, drinks, merchandise and tickets. Users can check out all upcoming sports and music events in their area and other cities around the nation and review all of their live event comments, pictures and videos in their profile page.
Fanatic Fans Facebook Application
The Fanatic Fand Facebook application allows sports and music fans to view user generated content and experience the live event on Facebook using the Fanatic Fans Facebook app. Fanatic Fans Facebook app allows Facebook users to access all live event sports and concert content without ever having to leave Facebook. Users can see photos and videos that fans took of their favorite sports team and/or music artist in real-time and hear what they thought of the big game or concert.
With the Fanatic Fans Facebook app Facebook users can see their favorite live events. Fanatic Fans app features a calendar of all sports and music events by region. Users can look up the location and time of an event and get a map with directions showing them exactly how to get there. When a user sees an event they are interested in they can share it with their Facebook friends, buy tickets to the event, make comments, post videos and pictures before, in real-time during, and after the event.
Facebook users can earn rewards for attending their favorite live events and using the Fanatic Fans Facebook or mobile applications. Facebook users can access a complete listing of merchant discount offers on food, drinks, merchandise and tickets and look up discounts nearby and redeem rewards using the Fanatic Fans mobile application.
Competition
Fanatic Fans will be entering intois part of one of the fastest growing segments of location based social networking and as such will face intense competition from applications such as Foursquare and Gowalla. Competitors in this space are very well financed and have the advantage of having already captured consumers that may be unwilling to switch to a new application. At this time, we have no intellectual property protection and are only now preparing preliminary patent and trademark filings. It is still unknown if any of our filings will lead to actually receiving provisional patents or final patents or trademarks.
Start-ups, such as SuperGlued and Flow'd, are recognizing the opportunities presented in specific market verticals related to check-in. Niche strategy is likely to be the next wave in location-based social-networking and we believe this is where the greatest opportunity for frequent sustained usage exists.
Marketing
Fanatic Fans marketing will develop awareness by cultivating partnerships with Universities, utilizing traditional advertising mediums and implementing web 2.0 marketing techniques with the goal of delivering Fanatic Fans to the right people at the right place. We will utilize in-house personnel and outside agency’sagencies to make Fanatic Fans relevant to its target audience. Fanatic Fans is a global application but our arketingmarketing strategies will initially be very targeted to just several geographic locations.
Fanatic Fans haspreviously partnered with Grand Canyon University, a school with 5,000 students in Phoenix, AZ and Denver University a school with 12,000 students in Denver, CO. Fanatic Fans has signed a Co-marketingco-marketing agreement with each school which calls for the following marketing initiatives by the Universities.
· | Promotion of Fanatic Fans at home games |
o | Co-develop unique promotions or contests to help increase user sign-up’s and fan loyalty within its fan base. |
o | Advertising for Fanatic Fans pre-event and during live events in the form of announcements, electronic display, and other appropriate forms as determined by the University. |
o | Provide booth space for Fanatic Fans at University events |
· | Fanatic Fans Promotion by University |
o | Market Fanatic Fans to Student Body fan club |
o | Market Fanatic Fans to Alumni |
o | Market Fanatic Fans to Season ticket holders |
o | Market to current University Vendors that advertise at the live events |
o | Marketing is to include the following: |
▪ | Email notifications making the University fan base aware of the Fanatic Fans partnership and benefits. |
▪
| Posts on the University athletics social network pages including Facebook and Twitter. |
▪
| Articles and advertisements in applicable University print media. |
· | Allow Fanatic Fans rewards points to be used for discounts on University tickets and merchandise. |
· | Place a Fanatic Fans link on University athletics website. |
· | Fanatic Fans will be able create Press Releases announcing our partnership with the University. |
school. The co-marketing agreements have expired.
Fanatic Fans hashad engaged the Artigue Agency, a local marketing company in Phoenix, AZ, to assist with the Fanatic Fans Marketing & Public Relations campaign. Fanatic Fans will utilizeutilized the Artigue Agency in certain marketing areas that providesprovided the best value and highest impact for creating Fanatic Fans app awareness and obtaining downloads.
The Artigue Agency, along with IMG, performed Event Marketing at every home football game of the Arizona State University Football games during September 2011– December 2011.Company has suspended any marketing and public relations related to Fanatic Fans was positioned in front of the college football target audiences by participation in various media advertisements.
Additionally, Fanatic Fansuntil it has developed a Fanatic Fans website and Facebook application whereby individuals can access the websitesufficient capital to view Fanatic Fans event content from the online website as well as Facebook users can access the Fanatic Fans content posted on Fanatic Fans without ever having to log out from their Facebook account. Facebook users will be able to access live event content such as comments, pictures and videos posted by Fanatic Fans. The Fanatic Fans Facebook app is currently available for download in the App section of Facebook.commence these activities.
Revenue Model
Our initial revenue model will be based on advertising. As such, we do not anticipate any revenue for some time. To be able to sell advertisements we will need to have a certain level of users. If we are not able to attract sufficient users, we will not be able to sell any advertisements.
The Company also intends on generating revenue from monthly fees for businesses listing promotions inside of the application. To be able to charge businesses a monthly fee we will need to have a certain level of users on the app.
If we are not able to attract sufficient users, we will not be able to charge a monthly fee.
Lastly, we intend to partner with one or several ticketing companies and achieve a revenue share agreement for tickets that are sold to live events through the Fanatic Fans application. To be able to achieve a revenue share agreement we will need to have a certain level of users on the app. If we are not able to attract sufficient users, it may be unlikely that we can achieve a revenue share agreement with any ticketing company.
Technology
The Fanatic Fans application can be used by Apple and Android Smart Phones. The application will utilize GPS functionality built into smart phones along with existing data and Wi-Fi capabilities.
Development
The Company has developed both an iphoneiPhone and Android version of Fanatic Fans and the Fanatic Fans website and Fanatic Fans Facebook Application. We currently have a development team continuingDue to limited cash flow, the Company has ceased current development on new enhancementsits Fanatic Fans project, but intends to bothcommence development if and when sufficient capital can be obtained.
To gain exposure for our iphonesocial networking websites, we applied in November 2013 for an office space at RocketSpace, a technology co-working space that unites tech startups in San Francisco CA. The Company was accepted by RocketSpace in November 2013. Only 5% of all companies that apply to RockeSpace get accepted. The Company has office space and Android apps and website and maintenancepays rent for office space at RocketSpace. The Company applied for office space at RocketSpace in hopes of finding software engineers to further the development of the Fanatic Fans applications.and JabberMonkey projects and to find others that may have an interest in our social networking projects. Brian Holmes, one of our employees working with Fanatic Fans moved to San Francisco to occupy and run the RocketSpace office. The Company pays expenses for Brian Holmes while at RocketSpace (i.e. Rent, conference/seminars fees, travel). Brian Holmes attends conferences and seminars to meet other people that could help grow Fanatic Fans and JabberMonkey.
JabberMonkey.com
As stated previously, JabberMonkey is a social expression site that features questions on issues and topics that are current and relevant to its members. JabberMonkey questions are on pertinent issues that in many instances evoke an emotional response from its members. Many of the questions on JabberMonkey provide the individuals voting with a voice to cause an action or affect a result.
There are many emotional issues or events that occur around the world that JabberMonkey posts questions about allowing JabberMonkey members to express themselves, participate and cause an action or outcome. One could imagine what some of these might be:
·A famous rock band might participate with JabberMonkey and allow JabberMonkey members to vote on the songs and the order the songs would be played at their next concert.
· A business wants to get individuals to provide feedback and name their next product. JabberMonkey members can vote, provide feedback about the product and name the new product.
·A famous sports athlete through a video blog asks the question “if I win the US Open Golf Tournament what charity should I donate $250,000 of the $1,000,000 prize money?” Whichever charity has the most votes, wins and that is who will get the money.
a)American Red Cross
b)PETA
c)The Make a Wish Foundation
d)Boys and Girls Club of America
e)Breast Cancer Research Foundation
JabberMonkey members vote and provide their comments on an issue and then see instant feedback on how others are feeling about a topic or issue and view comments made by others. JabberMonkey members express themselves by answering questions, posting their own questions, text blogging, video blogging, participating in forums, creating profiles, posting videos, photos, audio files, and rate other JabberMonkey membersmembers’ questions and content.
JabberMonkey members are able to meet new people and make new friends. When answering a question or participating in a group, members can meet people with similar interests and are able to become friends on JabberMonkey. They can then communicate via messaging, chat, and video voice calling as well as sharing photos, videos and other electronic media.
JabberMonkey questions range across all categories of life, and run the gamut from serious to silly. The categories and sub-categories will allow for targeted feedback. Categories range from Entertainment to Music and Business, etc. Each category contains subcategories to encompass a wide range of topics and interests.
In addition to being able to conduct polls and questions, JabberMonkey offers a unique user experience by being able to offer interactive communication and high definition video. While most social networking sites offer only a static page for the user, JabberMonkey offers video communications between multiple users at once, the ability to quickly load video, and the ability to set up groups or companies into secure sites. JabberMonkey also takes advantage of other companies’ storage by allowing links to other web sites such as YouTube or Google.
Calibrus’ focus has been to develop and distinguish JabberMonkey from the other social networking sites, which are very static and rely only on instant messaging and fixed web pages. Calibrus feels it has designed a site that is easy to use and is video intensive with user friendly software for video attachment and conferencing.
JabberMonkey completed its alpha testing and moved into beta testing in December 2009. The Beta testing ran through the end of November 2010 and the first official non-beta version of the website was released in December 2010. We do not have the capital required to commence our marketing plan related to the website and thus do not anticipate any revenue from JabbberMonkey until we can sufficiently launch a marketing campaign.
Competition
JabberMonkey will be entering intois in one of the fastest growing segments of the internet and as such will face intense competition from sites such as MySpace and Facebook. Although CalibrusGrow Condos believes the JabberMonkey site offers new features, it is likely the other sites will soon be able to offer similar features. Competitors in this space are very well financed and have the advantage of having already captured consumers that may be unwilling to switch to a new site. At this time, we have no intellectual property protection and are only now preparing preliminary patent and trademark filings. It is still unknown if any of our filings will lead to actually receiving provisional patents or final patents or trademarks. Although we believe our site offers unique features, we cannot say if other companies are developing similar features to their social networking sites. Additionally, many of the features of our site could be developed by other sites with variations that could possibly get around any intellectual property protections we are able to obtain.
The competition we face will make it difficult to attract customers from established sites such as Facebook and MySpace given their financial capabilities. Additionally, we believe we have only a small window to establish our site as being unique before the other social networking sites are able to come up with similar offerings. If we are unsuccessful in the short term in establishing a unique site that draws consumers, it will be difficult to compete against the other sites that we assume are working on similar interactive features. Additionally, some of these sites are backed by the largest players in the industry such as Google which can provide financial support far beyond anything we can raise at this time or in the perceived future.
Marketing
Our initial marketing will behas been aimed at attracting consumers from focusing on affinity sites and limited advertising on college and sports talk shows. We believe initial consumers can be attracted through links on web pages at Facebook, MySpace and Twitter. However, to attract these users we first must establish JabberMonkey as a unique interactive experience that differs from the other social networking sites.
This initial marketing effort will be directed at targeted groups and communities which would see the advantage of being able to communicate on their topic areas and have on-line conversations. Such groups would be gamers, sports enthusiast, school communities, clubs and political or civic organizations. To this end, we are reviewing the cost to advertise on radio, particularly sports radio, and on certain online sites. As our capital for marketing is very limited, we may have to focus initially on one advertising market or focus on slow growth and word of mouth communications depending on the final development cost of the JabberMonkey site and how much capital we were able to raise.
Currently, due to a lack of sufficient capital, no marketing activities are being pursued. However, we hope to gain exposure to and opportunity for JabberMonkey through our office space at RocketSpace in San Francisco.
Revenue Model
Our initial revenue model is based on advertising. As such, we do not anticipate any revenue for some time. To be able to sell advertisements on our site, we will need to have a certain level of users. If we are not able to attract sufficient users, we will not be able to sell any advertisements.
We will also look at data mining as another source of revenue. With our existing product line, we have gained some limited experience in data mining and believe it offers another revenue source to be able to obtain information from consumers using the JabberMonkey site and sell such information to companies that would be able to use the information in their advertising or other business needs. This would not be an initial source of revenue as we will have to have sufficient users to make data mining effective and it will have to be developed with a view to not drive away potential users.WCS Enterprises
We also are analyzing charging consumersOur wholly-owned subsidiary, WCS Enterprises, LLC (“WCS Enterprises”) is an Oregon limited liability company which was formed on September 9, 2013 and was acquired by us in June 2014 in exchange for certain featuresshares of our site butcommon stock. The acquisition of WCS Enterprises resulted in a change of control of the Company and at this time,or shortly after the closing of such acquisition, the persons designated by WCS Enterprises became the officers and directors of the Company. As a result of our acquisition of WCS Enterprises in June 2014, we became engaged in the real estate purchaser, developer and manager of specific use industrial properties business and continue to develop and operate our social networking projects.
WCS Enterprises Business Operations
Through WCS Enterprises, we are a real estate purchaser, developer and manager of specific use industrial properties providing “Condo” style turn-key grow facilities to support cannabis growers in the United States cannabis industry. We intend to own, lease, sell and manage multi-tenant properties so as to reduce the risk of ownership and reduce costs to the tenants and owners. We will offer tenants the option to lease, lease to purchase or buy their condo warehouse space that is divided into comparable 1,500- 2,500 square foot condominium units. Each Condo unit will be uniquely designed and have all necessary resources as an optimum stand-alone grow facility. We believe it is more importantthat Cannabis farmers will pay an above market rate to drive consumerslease or buy our condo grow facility. We will purchase and develop buildings that are divisible into separate units to attract multiple farmers and reduce the risk of single tenant leases. In addition to our site“Condo” turn-key growing facilities we intend to provide marijuana grow consulting services and will make everything availableequipment and supplies as part of our turn-key offerings. We are aggressively out looking for freeour next property in the western area of the United States where medical cannabis has been legalized and focus on advertising revenues. Once we obtain a certain levelwhere recreational cannabis has been or is in the process of users, we may start offering more products that we believe we can charge for such as storage or secure web pages for communications. At this time, we do not know when we would be able to start charging for such product offerings, if ever.
Development
legalization. The Company closed the alpha testing phase of development during December, 2009. The site reached the beta testing phaseis not directly involved in the first partgrowing, distribution or sale of December, 2009 and ran through November 2010. The first non-beta version of the website went into operation in December 2010. To date the Company has not begun to aggressively market the website due to a lack of sufficient capital.Cannabis.
During our alpha development we started limited testing on the software and functionality developed to run the JabberMonkey site. At this phase of development we had limited number of individuals, primarily our employees, testing the site and giving feedback as to its functionality. We also revised the software and tried to work out any issues found in the initial development. The beta stage of testing and development commenced in December 2009 and ran through November 2010. During the beta phase of development we expanded the number of users and continued testing and added enhancements to the functionality of the website.
Owned Properties
Even after completingWe have secured real estate in Eagle Point in Jackson County, Oregon representing our sole operating location. The building is 15,000 square feet and zoned to meet the beta phase, we could still have softwarerequirements for specific purpose industrial use and hardware development problems onceis divided into four 1,500 square feet condo style grow rooms which, is being leased to four tenants and one 7,500 square feet grow facility leased, for which the full launch of the siterent has not yet begun, to one tenant that is made and additional users are added. We cannot say how our software and hardware will function under the strain of a large number of users. related party.
Currently, JabbeMonkey is not engaged in new development but we do have several developers that maintain the JabberMonkey website.Sales & Leasing
Intellectual PropertyWe develop, lease, own and provide investment sales opportunities for commercial industrial properties focused in the cannabis production arena. The company has relationships with tenants, brokers and investors across the cannabis industry to leverage successful transactions for both lease-to-own option as well as investors looking to purchase facilities with qualified tenants providing positive cash-flow backed by commercial property.
In addition to our own development team, we have contracted with Meomyo Development out of India to assist in the development of our JabberMonkey website. Meomyo has expertise in the development of websites and interactive solutions for websites which our internal developers did not currently possess. Meomyo’s contract gives the work product and intellectual property rights to Calibrus. However, even with the rights provided to Calibrus, we cannot prevent them from taking their knowledge gained by working on the JabberMonkey site and applying it to other web developments. The contract does attempt to limit the ability of Meomyo to provide services to competitors of Calibrus but given the geographical difficulty of policing an India company with offices in Dubai, it may not be possible to stop Meomyo from providing services. Consulting
We will provide cannabis businesses with turnkey cultivation and processing management services, including facility design, licensing support, and the operational management required to produce premium cannabis and related products in an efficient manner to allow the user quicker access to market and professional-managed facilities.
Supplies and Equipment
We intend to provide operators state-of-the art equipment and methodology to provide efficient implementation for client to realize stabilized operations faster.
Financing
We intend to assist tenants with financing for space build-out as well as acquisition of commercial property.
Marketing
Our initial marketing will be dependentaimed at attracting customers through networking with real estate agencies, agents, commercial brokers and consulting groups that are involved in many ways,the cannabis industry. We will target specific trade shows, conferences and seminars associated with cannabis growers. As our capital for marketing is very limited we are reviewing the cost of advertising on the radio or in print or running ads on certain cannabis industry online websites.
Employees
We currently have two employees each of whom is an officer of the company. Our employees are not represented by unions and we consider our abilityrelationship with our employees to launchbe good.
Facilities
Our office is located at 722 W. Dutton Rd, Eagle Point, Oregon 97524 and is in the building that we own. We currently pay no rent. We believe this facility will be adequate for our siteneeds for the next twelve months.
Competition
The commercial real estate market is highly competitive. We believe finding properties that are zoned for the specific use of allowing cannabis growers may be limited as more competitors enter the market. Initially we will aggressively target states in the western US that legally allow for medical and attract consumers before ourrecreational cannabis to be grown. We have identified several competitors can develop features which would bethat appear to have offerings similar to ours. They are Cannabis-RX, Inc. (CANA), The Cannabis Business Group, Inc. (CBGI), Zoned Properties, Inc. (ZDPY), MJ Holdings, Inc. (MJNE), Home Treasure Finders, Inc. (HMTF) and Advanced Cannabis Solutions, Inc. Cannabis-Rx, Inc. – Cannabis-Rx, Inc. focuses on acquiring and selling/leasing real estate properties for licensed marijuana growers and dispensary owners. Cannabis-Rx currently is not a direct competitorfully reporting company. The Cannabis Business Group, Inc. - The Cannabis Business Group, Inc. operates as a real estate acquisition, leasing, and management company focusing on zoning issues in the United States. The Company acquires commercial property or land, and leases out the facilities for customers in the agricultural, industrial, commercial, and retail sectors.
Zoned Properties, Inc. - Zoned Properties, Inc., a real estate investment firm, focuses on acquiring free standing buildings, land parcels, and greenhouses in order to the features in our site. At this time, our abilityhave them re-zoned to be able to attract consumerscarry out aeroponic agricultural grow operations. It plans to operate primarily in Arizona, Illinois, Nevada, and Colorado. MJ Holdings, Inc. – MJ Holdings, Inc. acquires and leases real estate to licensed marijuana operators, including but not limited to providing complete turnkey growing space and related facilities to licensed marijuana growers and dispensary owners. Additionally, MJ Holdings plans to explore ancillary opportunities in the regulated marijuana industry.
Home Treasure Finders, Inc. – Home Treasure Finders, Inc. is unknown as weengaged in a real estate lead referral business in Colorado. It focuses on buying and selling properties; and leasing its real estate properties to cannabis growers for cannabis cultivation. The company also manages 55 rental units. Home Treasure Finders, Inc. was founded in 2008 and is based in Denver, Colorado. Advanced Cannabis Solutions, Inc. – Advanced Cannabis Solutions, Inc. a development stage company, focuses on providing real estate leasing services to the regulated cannabis industry in the United States. It plans to purchase real estate assets; and lease growing space and related facilities to licensed marijuana growers and dispensary owners for their operations. The company was founded in 2013 and is headquartered in Colorado Springs, Colorado.
Government Regulation
Currently, there are approximately twenty states plus the District of Columbia that have only just completed the beta phaselaws and/or regulations that recognize in one form or another legitimate medical uses for cannabis and consumer use of development and released the website for general use andcannabis in connection with medical treatment. Fifteen other states are not certainconsidering legislation to similar effect. As of the acceptancedate of our web sitethis writing, the policy and interactive features.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreementsregulations of the Federal government and its agencies is that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited on the basis of federal law and may or Labor Contracts, including Durationmay not be permitted on the basis of state law.
We protect somedo not produce, market, or sell cannabis. We are limiting ourselves to states where the state law allows for the production of cannabis. Beyond the state law allowing for cannabis production our construction must comply with all state and local building requirements as well as zoning requirements. We work closely with the local authorities regarding zoning and work closely with the local building inspectors to comply in every way with building regulations.
Legal Proceedings
We are not a party to any material legal proceedings and, to the best of our technology as trade secrets and, where appropriate, we use trademarks or register trademarks in connection with products and our core name. We currentlyknowledge, no such legal proceedings have two patent applications on file with the US Patent and Trademark Office related to our JabberMonkey social expression website. We have two trademarks covering our name “Calibrus” and “JabberMonkey” and have also applied for a trademark covering “Fanatic Fans”.been threatened against us.
Research and Development Costs During the Last Two Fiscal Years
For the years ended December 31, 2011 and 2010 the Company incurred Research and Development Costs of $1,472,113 and $232,327, respectively. Research and Development expenses related to the continued development of the Company’s JabberMonkey website and its additional project Fanatic Fans. We expect as we expand into new markets we will continue to incur additional research and development costs.
ITEM 1A. RISK FACTORS
Calibrus’ operations are subject to a number of risks including, but not limited to:
Management’s focus will be on the development and operations of JabberMonkey and Fanatic Fans, both of which are new businesses and we do not know if consumers will like the site or that we will be able to monetize the site to produce revenues.
Management made the determination in late 2008 that its existing business model was going to face continued revenue reduction due to the consolidation in the telecommunication industry. As such, management set out to develop alternative business operations that utilized the core expertise of Calibrus employees and technology. The result of this development was Fanatic Fans, a location based social networking applicationNot required for smart phones, and JabberMonkey, a social networking site that features interactive communications among its participants as opposed to the more traditional static pages found on most social networking sites. As Fanatic Fans and JabberMonkey will increasingly be the focus of the business going forward, we will face competition from well established and fundedsmaller reporting companies. Additionally, as a new business there is no guarantee our Fanatic Fans and JabberMonkey offerings will be successful in attracting users. These factors create substantial risk for investors and the strong likelihood that any investment could result in the loss of an investor’s entire investment.
Both Fanatic Fans and JabberMonkey, are entering a very crowded social networking marketplace where existing competitors have years of experience, are well financed and have the name recognition to draw consumers none of which we possess.ITEM 1B. UNRESOLVED STAFF COMMENTS
Management has determined that the future direction of Calibrus will focus on its Fanatic Fans and JabberMonkey offerings. This puts Calibrus’ business focus in a very competitive field dominated by several very large and well financed companies such as Facebook, MySpace and Twitter and a number of mobile social networking applications for smart phones, such as Fouresquare and Gowalla. These companies have established an online presence and community that have become destinations in themselves and it will be difficult to make inroads into this space. Calibrus will be dependent on a new twist to entry into this space but in the end, all social networking sites have similar features and it is likely that if any part of the Calibrus offering becomes compelling, the competitors will adjust their offerings to be directly competitive with Calibrus. This creates substantial uncertainty on Calibrus’ ability to survive in this space or to be able to attract enough users to be able to monetize its site to produce revenues.None
The revenue models for Fanatic Fans and JabberMonkey require we first obtain a sufficient number of users before we can sell advertisements or generate other revenue and it will take time to generate such users and to then monetize the site.
Fanatic Fans and JabberMonkey will be dependent on selling advertisements and finding other ways to monetize our users by selling add-on services. For a social networking site or application to be able to sell advertisements, they first must attract a sufficient number of users to gain the interest of advertisers in buying ads on the sites. It will take time and money to bring users to our site and application and there is no assurance any users will come. These time frames along with the general state of development create additional uncertainty as to the potential success of Calibrus. The site and application may not work as we plan and even if they do there can be no assurance any users will come, that advertisers will want to advertise or that Calibrus can monetize them. Additionally, it will be costly to maintain the offerings and market them to attract users.
We currently do not have any patents associated with our Fanatic Fans or JabberMonkey site and if we are not able to develop intellectual property protection around the offerings, we may not be able to prevent competitors from recreating our product offering.
We have filed for a trademark on our JabberMonkey name and received approval during the year ended December 31, 2010. We filed for a trademark for Fanatic Fans in July 2010. We do not have any intellectual property protection on the features and software behind Fanatic Fans or JabberMonkey. We have filed two patent applications with the US Patent and Trademark Office on various features of our JabberMonkey site. However, we do not know at this time if such applications will result in patents being issued. Even if we receive patent applications, there is no guarantee that one of our competitors will not be able to find a variation on our services that are not patent protected and be able to directly compete with our take on the social networking experience.
Calibrus’ projections do not show revenue from Fanatic Fans or JabberMonkey for some time and it will be dependent on additional capital to fund operations and continued improvements until such revenue can be generated.
Since a certain level of consumers must become users of Fanatic Fans and JabberMonkey before we can be monetized to produce revenue, management is of the belief that it will have to raise substantial more capital to reach profitability and drive users to the offerings. With a lack of capital to execute on the marketing plans of the offerings it is unknown when and if the we will be able to attract the required number of users to successfully monetize them. It is likely stockholders will suffer further dilution as we raise additional capital and if management cannot raise additional capital stockholders would likely lose their most, if not all, of their investment. There is no guarantee that we could raise such future capital.
Our existing management team has no experience in operating a social networking business or any other web based business.
Our current management does not have any experience in operating a social networking site and has never operated a web based business. Our software developers experience has been in developing tools for businesses and focusing on call center software. We will be expanding on our internal capabilities and be dependent on outside software engineers to drive our development. If our management is not able to execute on our business plan, it is likely stockholders would lose their entire investment.
Our existing business has seen decreasing revenues
Our current revenue stream from TPV is decreasing and although management has worked to reduce expenses, we are losing money and anticipate we will continue to lose money for the foreseeable future. We cannot project when the new product offerings will be successful or if we will be able to return to profitability.
We currently have losses from operations and will need additional capital to execute our business plan.
We had losses from operations with a loss from operations of $3,316,838 and a net loss of $6,331,971 for the year ended December 31, 2011, and we have had to rely on new and existing capital to cover the losses. For the year ended December 31, 2011, our current assets have increased to $551,072. As consolidation has come over the telecommunications business, our TPV business has been reduced. We have been leveraging our technology capabilities to expand into new areas but it will take some time for the new areas to replace the loss in business from our TPV operations. If we are not able to generate sufficient revenues, we will be forced to seek additional capital to fund potential shortfalls. There can be no assurance that we will be able to raise additional capital or that we will be able to raise capital on terms that are favorable to Calibrus and current stockholders.
If we are not able to stop our losses or successfully expand into new areas, we may be forced to terminate operations.
With revenues from our main business, TPV, being reduced as a result of consolidation in the telecommunications’ industry, we have had to look to expand into new areas. Our TPV revenue has seen year over year declines from a high of approximately $11,300,000 in 2003 to revenues of approximately $3,563,265 in 2011. There was a reduction of approximately $182,611 from revenues from 2010 to 2011. If our expansion efforts with JabberMonkey or Fanatic Fans do not prove successful, our ability to stay in operation is questionable. We have already reduced our expenses related to TPV to be able to make a profit for this segement at anticipated revenue levels. Even with the reduced expenses, we still operate at a net loss. Our future success will depend, to a great extent, on the success of JabberMonkey or Fanatic Fans. Since we have not began to the marketing of JabberMonkey or Fanatic Fans, prospective investors will not be able to rely on an operating history when evaluating our potential. If our expansion efforts do not prove successful, it is likely we would only be able to operate the TPV segement of the business at a small profit.
With our expansion into new business areas, our ability to raise additional capital may be key to our success and without additional capital, we may not be able to stay in business.
We have been losing money and need to expand into new business areas as our TPV business, which has been our primary operations, has declining revenue and only small operating profits. Even if we leverage our current technology and infrastructure, without additional capital it will be difficult for us to enter into new business markets. With the current credit crisis in the United States, it may be difficult to raise capital and we do not think traditional forms of financing, such as bank loans, will be available for us. Given the current economic times, we would anticipate it being difficult to raise any capital and believe the terms we could obtain may not be very favorable, possibly resulting in substantial dilution to current shareholders. There can be no assurance that we will be able to raise the required capital.
Our inability to adequately retain or protect our employees, customer relationships and proprietary technology could harm our ability to compete.
Our future success and ability to compete depends in part upon our employees and their customer relationships, as well as our proprietary technology. Despite our efforts, we may not prevent third parties from soliciting our employees or customers or infringing upon or misappropriating our intellectual property. Our employees, customer relationships and intellectual property may not provide us with a competitive advantage adequate to prevent the competitors from entering the markets for our products and services. Additionally, our competitors, which are larger and better financed, could independently develop non-infringing technologies that are competitive with, and equivalent or superior to our technology.
We face numerous competitors and as a result, we may not get the business we seek.
We have many competitors with comparable technology and capabilities that compete for the same group of customers. Our competitors are competent and experienced and are continuously working to take projects away from us. Many of our competitors have greater financial, technical, marketing and other resources than we do. Our ability to compete effectively may be adversely affected by the ability of these competitors to devote greater resources to the sale and marketing of their products and services.
We currently depend upon a single customer segment, the telecommunication market, for the majority of revenues and a decrease in its demand for our services or pricing modifications in this segment would have a material adverse effect on our business, operations, and financial condition.
Currently, a substantial part of our revenue sources come from our TPV business related to telecommunications. As the telecommunication business has consolidated, we have seen a reduction in revenue. If this market segment continues to consolidate, we could see a further reduction in the TPV revenue from telecommunications. Although we have moved to expand our product offerings, it will take time for our new offerings to gain acceptance in the marketplace and there can be no assurances that the new product offerings will prove successful. Accordingly, it is possible, we could see further reduction in business and increased losses if the TPV business is reduced further.
Almost 83% of our revenues are derived from three customers and the loss of any of these customers would have a material adverse effect on our business, operations and financial condition.
Currently, almost 83% of our revenues are derived from AT&T Communications, Cox Communications and Frontier Communications. For the year ended December 31, 2011 AT&T Communications accounted for 50.6% of our revenue, Cox Communications accounted for 16.7% of our revenues and Frontier Communications accounted for 15.0% of our revenues. For 2010 AT&T Communications accounted for 68% of our revenue, Cox Communications accounted for 16.6% of our revenues and Frontier Communications accounted for 1.5%. It is unlikely we could replace any these customers in the short term and may not have the resources to survive long enough to add additional product offerings without the ongoing revenue from these customers.
We may not be able to adapt quickly enough to changing customer requirements and industry standards.
We are in an industry dependent on technology and the ability to adapt this technology to changing market needs. We may not be able to adapt quickly enough to changing customer requirements and preferences and industry standards. Competitors are continually introducing new products and services with new technologies. These changes and the emergence of new industry standards and practices could render our existing products obsolete and will require us to spend funds on research and development to stay competitive.
Efforts to expand will place a significant strain on our management, operational, financial and other resources.
We plan to expand our operations by aggressively marketing JabberMonkey and Fanatic Fans, which will place a significant strain on our management, operations, technical performance and financial resources. There can be no assurance that we will be able to manage expansion effectively. Our current and planned personnel, systems, procedures, and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in multiple geographic locations. We may not be able to hire, train, retain, motivate, and manage required personnel, which may limit our growth. If any of this were to occur, it could damage our reputation, limit our growth, negatively affect our operating results and harm our business. We do not currently have the required capital to market either of the offerings.
We have limited funds upon which to rely for adjusting to business variations and for growing new business.
We have been experiencing losses, with a net loss of $6,331,971 and $128,263 for the years ended December 31, 2011 and 2010, respectively. These losses are the result of consolidation in the telecommunication business and our continuing research and development expenses related to new business lines as well as expenses related to the Company’s conversion of its debt to equity. We are actively diversifying our product offerings to adjust to changes in our customers and the telecommunications’ industry. We had negative working capital of $824,196 at December 31, 2011. Given our limited working capital, if we were to lose existing customers, it could further hurt our ability to continue in business. It is likely we will have to seek additional capital in the future as we seek to expand our product offerings. There can be no assurance we will be able to raise additional capital and even if we are successful in raising additional capital, that we will be able to raise capital on reasonable terms. If we do raise capital, our existing shareholders will incur substantial and immediate dilution.
We may issue more stock without shareholder input or consent which could dilute the book value for stockholders.
The board of directors has authority, without action by or vote of the shareholders, to issue all or part of the authorized but unissued shares. In addition, the board of directors has authority, without action by or vote of the shareholders, to fix and determine the rights, preferences, and privileges of the preferred stock, which may be given voting rights superior to that of the common stock. Any issuance of additional shares of common stock or preferred stock will dilute the ownership percentage of shareholders and may further dilute the book value of Calibrus’ shares. It is likely we will seek additional capital in the future to fund operations. Any future capital will most likely reduce current investors’ percentage of ownership.
We have not and do not intend to pay dividends in the foreseeable future.
Calibrus has not paid, and does not plan to pay, dividends in the foreseeable future, even if it were profitable. Earnings, if any, are expected to be used to expand operations, for research and development and for general corporate purposes, rather than to make distributions to stockholders.
Shares which may be available for resale could have a depressive affect on our stock price if we were to become listed on an exchange or market.
Calibrus has previously issued shares of Common Stock that constitute “restricted securities” as that term is defined in Rule 144 adopted under the Securities Act. Subject to certain restrictions, such securities may generally be sold in limited amounts six months after their acquisition. Sales of these restricted securities under Rule 144 or otherwise by current stockholders of Calibrus could have a depressive effect on any trading market for Common Stock that may exist now or develop in the future.
It is likely, even if our common stock becomes listed on an exchange or market, that it would be subject to the “penny stock” rules limiting the ability of prospective investors to purchase our shares creating potential liquidity issues for our stockholders.
Calibrus’ Common Stock is covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). 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. Consequently, the rule may affect the ability of broker-dealers to sell Calibrus’ securities and also may affect the ability of persons now owning or subsequently acquiring Calibrus’ securities to resell such securities in any trading market that may develop.
We may issue additional shares of our common or preferred stock which potentially could have a dilutive effect on current stockholders.
Calibrus currently has authorized 45,000,000 shares of Common Stock of which 13,808,580 shares are issued and outstanding. The board of directors has authority, without action by or vote of Calibrus’ stockholders to issue all or part of the authorized but unissued shares. It is likely that Calibrus will seek additional equity capital in the future as it develops and markets additional products. Any issuance of additional shares of Common Stock will dilute the percentage ownership interest of stockholders and may further dilute the book value of Calibrus shares.
Management is reviewing the recently enacted legislation related to healthcare and its impact on Company results.
Calibrus management is currently reviewing the recently enacted healthcare package and its effect on future financial results of the Company. At this time it has not been determined whether this will have a material effect on financial results. It is possible it may have a material effect on financial results.
For all of the foregoing reasons and others set forth herein, an investment in these securities involves a high degree of risk.
Employees
As of March 31, 2012, we had 61 full-time employees and 18 part-time employees.
Offices
Our offices are located at 1225 West Washington Street, Tempe, Arizona 85281 where we lease approximately 7,767 square feet. Our lease runs through October 31, 2015 at a lease rate of approximately $19 per square foot, including common area charges, for an annual lease amount of approximately $140,000, or approximately $12,000 per month. Management believes our current lease will serve current and future expansion plans through its term.
ITEM 2.2: PROPERTIES
Our offices are locatedWe own a building at 1225 West Washington Street, Tempe, Arizona 85281 where722 W. Dutton Road, Eagle Point, OR 97524 representing our sole operating location for WCS Enterprises. The building is 15,000 square feet and zoned to meet the requirements for specific purpose industrial use and is divided into four 1,500 square feet condo style grow rooms which, is being leased to four tenants and one 7,500 square feet grow facility leased, for which the rent has yet begun, to one tenant that is a related party.
As of June 30, 2014, we lease approximately 7,767 square feet. Our lease runs through October 31, 2015, at a lease ratehad two mortgages on the property, both to the People’s Bank of approximately $19 per square foot, including common area charges, for an annual lease amount of approximately $140,000 or approximately $12,000 per month. Management believes our current lease will serve current and future expansion plans through the termCommerce in Medford, Oregon, secured by all of our lease.land, buildings and improvements. The mortgages payable were comprised of the following:
| 1. | Bank term loan, prime rate plus 1.75%, currently 5%, P&I payments of $5,946 due monthly, and a balloon payment of $802,294 due June 28, 2018; and |
| 2. | Bank term loan, prime rate plus 3.00%, currently 6.25%, P&I payments of $883 due monthly, and a balloon payment of $104,329 due October 15, 2018. |
We maintain our corporate offices in the building.
ITEM 3.3: LEGAL PROCEEDINGS
On September 13, 2010, a former employee filed a lawsuit inThe Company is not the Superior Courtsubject of any pending legal proceedings and, to the Stateknowledge of Arizona, in and for the County of Maricopa (Case No. CV2010-027027) against the Company. The complaint was hand-written and did not itemize the specific legal claims, but could include (1) discrimination (no statute identified), (2) failure to pay minimum wage or overtime (no statute identified), (3) retaliation, (4) assault, and (5) intentional infliction of emotional distress. On May 22, 2011 the suit was dismissed with prejudice.management, no proceedings are presently contemplated.
ITEM 4.4: MINE SAFETY DISCLOSURES
Not Applicable.
PART IIapplicable.
ITEM 5.5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Calibrus’Market Information
Our shares of common stock isare quoted onby the OTC Bulletin Board,Markets Group Inc. of the Financial Industry Regulatory Authority, Inc. (“FINRA”) under the symbol “CALB.” Our“GRWC”. Set forth below are the high and low closing bid prices for our common stock is traded onfor each quarter of 2012 and 2013 and for each quarter of the OTCBB but has had limited trading activity. Since our stock was included in thesix month transition period ended June 30, 2014. These bid prices were obtained from OTC Bulletin Board in December 2009, but was not eligible for trading until February 2010. The first trades in the Company’s common stock did not occur until April 2010.
| Quarter Ended | | High Bid | | Low Bid |
| March 31, 2010 | | * | | * |
| June 30, 2010 | | $1.01 | | $0.45 |
| September 30, 2010 | | $0.75 | | $0.51 |
| December 31, 2010 | | $0.54 | | $0.30 |
| March 31, 2011 | | $0.45 | | $0.30 |
| June 30, 2011 | | $0.55 | | $0.30 |
| September 30, 2011 | | $0.32 | | $0.20 |
| December 31, 2011 | | $0.45 | | $0.15 |
At April 4, 2012, the bid and asked price for the Company's Common Stock was $0.15 and $0.20, respectively.MarketsGroup Inc. All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions with retail customers. Since its inception, Calibrustransactions.
| Period | High | Low |
| | | |
| January 1, 2012 through March 31, 2012 | $0.30 | $0.14 |
| | | |
| April 1, 2012 through June 30, 2012 | $0.25 | $0.15 |
| | | |
| July 1, 2012 through September 30, 2012 | $0.65 | $0.25 |
| | | |
| October 1, 2012 through December 31, 2012 | $0.25 | $0.15 |
| | | |
| January 1, 2013 through March 31, 2013 | $0.25 | $0.15 |
| | | |
| April 1, 2013 through June 30, 2013 | $0.24 | $0.15 |
| | | |
| July 1, 2013 through September 30, 2013 | $0.48 | $0.11 |
| | | |
| October 1, 2013 through December 31, 2013 | $0.40 | $0.10 |
| | | |
| January 1, 2014 through March 31, 2014 | $0.75 | $0.29 |
| | | |
| March 31, 2014 through June 30, 2014 | $0.75 | $0.40 |
Holders
The number of record holders of the Company’s common stock as of the date of this Report is approximately 193 not including an indeterminate number who may hold shares in “street name.”
Common Stock Dividends
The Company has not paiddeclared any cash dividends on shares ofwith respect to its common stock and Calibrus does not anticipate that it will payintend to declare dividends in the foreseeable future. At December 31, 2011, we had approximately 140 shareholders of record. As of December 31, 2011, Calibrus had 13,808,580 shares ofThere are no material restrictions limiting, or that are likely to limit, our common stock issued and outstanding. At April 4, 2011, Calibrus had 13,808,580 shares of its common stock issued and outstanding.
Possible Sale of Common Stock Pursuantability to Rule 144
Calibrus has previously issued shares of common stock that constitute restricted securities as that term is defined in Rule 144 adopted under the Securities Act. Subject to certain restrictions, such securities may generally be sold in limited amounts under Rule 144. Except for 1,200,000 shares of Calibrus’ common stock issued in 2011, all of Calibrus issued 13,808,580 shares would meet the time test of Rule 144 and potentially be available for resale. With the number of shares potentially becoming available for resale, there could be a depressive effectpay dividends on any market that may develop for Calibrus’our common stock.
Reports to ShareholdersSecurities Authorized for Issuance Under Equity Compensation Plans
This report will beThe Company had adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available overfor grant under the internet2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock. The maximum term of the options is five years, and they vested at various times according to the SecuritiesOption Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock. The maximum term of the options is five years and Exchange Commission website www.sec.gov.they vested at various times according to the Option Agreements. Both of the above mentioned plans have expired and no further options are available for grant. In July 2012 the Board of Directors adopted the 2012 Stock Option and Restricted Stock Plan and the shareholders approved it in August 2012. Under such Plan, the Company has 3,000,000 shares available for future grants. The Company has made no grants under the Plan.
Recent Sales of Unregistered Securities
We issued optionsBetween April 13, 2014 and June 25, 2014, the Company sold an aggregate of 2,019,307 shares of common stock at $0.325 per share to our advisory board members during the year ended December 31, 2011 and, accordingly, we believe all issuances area total of 25 persons. The securities were exempt from the registration provisionsunder Section 5 of the Securities Act of 1933. We1933 (the “Act”) pursuant to Rule 506 of Regulation D promulgated under the Act since all of the elements of Rule 506 were satisfied.
Between May 31, 2014 and June 25, 2014, the Company issued an aggregate of 23,952 shares of common stock related to the exercise of warrants for total proceeds of $7,784 to a total of 500,000 options in 2011.4 persons. The exercise price of each warrant was $0.325. The securities were exempt from registration under Section 5 of the Act pursuant to section 4(2) of the Act since there was no public offering of the securities.
On January 31, 2011,June 26, 2014, the Company issued a promissory note in the principal amount $50,000an aggregate of 1,615,385 shares to evidence a loan made toofficers and directors of the Company by Jeff W. Holmes,as bonuses to a total of 8 persons. The shares were valued at $0.50 per share – the Company’s CEO and a beneficial owner. The termtrading price of the note is 1 year with interest at 12% per annum, with interest due monthly.shares on June 26, 2014. The loan also included warrants to purchase 50,000 sharessecurities were exempt from registration under Section 5 of the Company’s common stock withAct pursuant to section 4(2) of the Act since there was no public offering of the securities.
On June 27, 2014, the Company issued an exercise priceaggregate of $.501,000,000 shares for the retirement of $250,000 of related party notes payable of GCI. The shares were issued to a total of six persons and/or entities. The securities were exempt from registration under Section 5 of the Act pursuant to section 4(2) of the Act since there was no public offering of the securities.
On June 30, 2014 the Company issued 497,495 shares for the settlement of $161,686 in accounts payable to two vendors. The shares were valued at $0.325 per share. The warrants havesecurities were exempt from registration under Section 5 of the Act pursuant to section 4(2) of the Act since there was no public offering of the securities.
During the period ended June 30, 2014, the Company issued an aggregate of 858,489 shares for the conversion of $279,009 in notes payable and accrued interest related to those notes to a 3 year term.total of 6 persons. The conversion price of the debt and interest was $0.325 per share. The securities were exempt from registration under Section 5 of the Act pursuant to section 4(2) of the Act since there was no public offering of the securities.
Use of Proceeds from Registered Securities
During the six month transition period ended June 30, 2014, we did not receive any proceeds from the sale of registered securities.
On February 16, 2011, the Company issued a promissory note in the principal amount $50,000 to evidence a loan made to the Company by an existing shareholder. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 50,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $5,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 5,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On July 6, 2011, the Company issued 37,500 shares of its Common Stock in payment of services.
Through October 31, 2011, the Company sold 315 units, at $5,000 per unit, consisting of five thousand dollars ($5,000) in Convertible Debentures (“the Debentures”) of Calibrus and twenty five hundred (2,500) common stock purchase warrants (the “Units”) for total proceeds of $1,575,000. Each convertible debenture was convertible into shares of common stock of Calibrus at the lower of $1.50 per share or the price of any additional private placement of Calibrus in the next twelve months and bears interest at the rate of 12% per annum. Each common stock purchase warrant entitles the holder to purchase one share of Calibrus’ common stock for each warrant held at the warrant exercise price of the lower of (i) one dollar and ninety-five cents ($1.95) per share, or (ii) one hundred thirty percent (130%) of the per share price paid by any investor in a private placement by Calibrus of shares of our common stock at any time in the next twelve months (the “Warrants”). The Warrants are only exercisable if the Debentures, which are part of the underlying Unit, are converted into shares of Calibrus’ common stock. As of April 4, 2012 a total of 777,500 warrants related to the units remain outstanding with 770,000 being currently exercisable.
On August 29, 2011 the Company’s Board of Directors elected to reprice the conversion price for the Company’s convertible debt from $1.50 per share to $0.25 per share and such conversion price was only valid through October 31, 2011. The repricing was effective as of October 31, 2011 for holders electing to accept the reduced conversion price. This repricing is considered an induced conversion of debt. Therefore, the value of the additional shares received upon conversion in excess of the original conversion formula are treated as an inducement expense at the time of conversion. The Company converted a total of $1,540,000 in principal amounts of the convertible debentures in addition to $204,120 in accrued interest related to the debentures. This resulted in the issuance of 6,976,480 shares of the Company’s common stock. Following the conversion the Company had $25,000 in principal amount debentures outstanding of which $15,000 remains as of April 12, 2012.
On October 31, 2011 the Company issued an additional 102,088 warrants to those debenture holders who converted. One warrant was issued for each $2.00 in accrued interest at October 31, 2011. The warrants have a three year term and have an exercise price of $.325 per share.
On August 29, 2011 the warrant exercise price related to the Company’s convertible debentures was reset from $1.95 to $.325 per share. Only those debenture holders who converted are affected by the exercise rate change.
Securities Authorized for Issuance under Equity Compensation Plans
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and right | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
| | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | 2,244,167 | | $1.03 | | 2,605,833 |
| Total | 2,244,167 | | $1.03 | | 2,605,833 |
The Company also has 500,000 options issued outside of the compensation plans with a weighted average exercise price of $.25. These options have a three-year term.
ITEM 6.6: SELECTED FINANCIAL DATA Summary of Financial Information
We had revenues of $3,563,265 and a net loss of ($6,331,971) for the year ended December 31, 2011. At December 31, 2011, we had cash and cash equivalents of $11,065 and negative working capital of ($824,196), which represented an increase in working capital of $868,567 from the amount reported at December 31, 2010, of ($1,692,763).
The following table shows selected summarized financial data for Calibrus at the dates and for the periods indicated. The data should be read in conjunction with the financial statements and notes included herein beginning on page F-1.
STATEMENT OF OPERATIONS DATA:
| | | For the Year Ended December 31, 2011 | | | For the Year Ended December 31, 2010 | |
| Revenues | | $ | 3,563,265 | | | $ | 3,745,876 | |
| Cost of Revenues | | | 1,293,801 | | | | 1,334,272 | |
| Research and Development | | | 1,472,113 | | | | 232,327 | |
| General and Administrative Expenses | | | 2,356,291 | | | | 2,195,023 | |
| Impairment Expense | | | 1,757,898 | | | | - | |
| Net Loss | | | (6,331,971 | ) | | | (128,263 | ) |
| Basic and Diluted Loss per Share | | | (0.79 | ) | | | (0.02 | ) |
| Basic and Diluted Weighted Average Number of Shares Outstanding | | | 7,978,820 | | | | 6,794,600 | |
| | | | | | | | | |
BALANCE SHEET DATA: | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2010 | |
| Total Current Assets | | $ | 551,072 | | | $ | 400,642 | |
| Total Assets | | | 620,786 | | | | 3,152,453 | |
| Total Current Liabilities | | | 1,375,268 | | | | 2,093,405 | |
| Working Capital | | | (824,196 | ) | | | (1,692,763 | ) |
| Stockholders’ Equity (Deficit) | | | (754,482 | ) | | | 1,059,048 | |
ITEM 7. MANAGEMENT'S7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION
Certain statementsForward-looking Statements
Statements made in this Report constitute “forward-looking statements.”Form 10-K which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of Grow Condos. Such forward-looking statements include those that are preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.
Forward-looking statements involve knowninherent risks and unknown risks, uncertainties, and otherimportant factors (many of which are beyond our control) that maycould cause our actual results performance or achievements to bediffer materially different from any future results, performance or achievements expressed or implied by suchthose set forth in the forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating tostatements, including the following: general economic and business conditions;or industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements conditions nationally and/or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptancecommunities in which we conduct business; legislation or installationregulatory requirements, including environmental requirements; conditions of our products and services; our ability to repay our debt obligations; changes in government regulations; availability of management and other key personnel;the securities markets; competition; our ability to raise additional capitalcapital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and the availabilityother economic, competitive, governmental, regulatory and terms of such capital, if available; relationships with third-party equipment suppliers;technical factors affecting our operations, products, services and worldwide political stability and economic growth. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-lookingprices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Readers are cautioned not to place undue reliance on these forward-lookingForward- looking statements which speak only as of the date they are made. Grow Condos does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the statement was made.date of such statements.
Reverse Acquisition
On June 30, 2014, the Company entered into a definitive agreement with the members of WCS Enterprises LLC (“WCS”) for the acquisition of all of the outstanding membership interests of WCS in exchange for 20,410,000 restricted shares of the Company’s common stock. The shares were issued to a total of three persons pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933. In connection with the Agreement, one member of WCS gained control of the Company by virtue of his stock ownership in the Company received in the acquisition. This member acquired 18,369,000 shares of the Company’s common stock on June 30, 2014, in exchange for his ownership share of WCS. The shares received under the Agreement gave this member effective control of the Company by virtue of holding approximately 44% of the Company’s voting stock. In addition, on June 30, 2014, the Company’s CEO, President and CFO resigned and the WCS officers were appointed to fill these position by the board of directors of the Company. In total, the WCS members hold 51.67% of the post-acquisition common stock of the Company and the Company’s officers are the former officers of WCS, making the transaction a reverse acquisition.
Financial Statements
The consolidated financial statements which are a part of this Transition Report are as of June 30, 2014, and for the period from September 9, 2013 through June 30, 2014 (the “Relevant Period”). The consolidated financial statements are those of WCS for the results of operations because of the reverse acquisition. Following is management’s discussion and analysis of those financial statements.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the audited Financial Statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions which are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. Calibrus believes there have been no significant changes to accounting policies and estimates made during the year ended December 31, 2011. Calibrus believes that the following represents Calibrus’ most critical accounting policies.
We recognize revenue in accordance with FASB ASC 605-10-S99, Revenue Recognition (formerly “SAB 104”). Under this guidance revenue is recognized at the point of passage to the customer of title and risk of loss, when there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. Our customers are charged either on a per call basis or per minute basis according to the terms of the contract and the service provided to that customer. Live agent TPV customers are generally charged on a per call basis which is defined as a call that is answered by the Company’s agent. Call recording services are charged on a per minute basis for the length of the call being recorded.
The Company from time to time executes outbound sales campaigns for customers, primarily for the sale of telecommunications services. Although this revenue source has been immaterial, the Company recognizes the commissions earned on these campaigns on a net basis in accordance with FASB ASC 605-45 Reporting Revenue Gross as a Principal versus Net as an Agent. The Company is not currently operating any outbound calling campaigns.
Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.
Stock-Based Compensation. The Company has stock-based compensation plans. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant date fair value estimated in accordance with the Black Scholes Pricing Model. The value of the compensation cost is amortized on a straight-line basis over the requisite service periods of the award (the option vesting term).
Assumptions used in the Black Scholes Pricing Model to estimate compensation expense are determined as follows:
· | Expected term is determined using an average of the contractual term and vesting period of the award; |
· | Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices, which are publicly traded, over the expected term of the award; |
· | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and, |
· | Forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures. |
We account for income taxes in accordance with FASB ASC 740 (formerly SFAS No. 109). Under this guidance, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.
The Company capitalizes certain software costs in accordance with FASB ASC 350 40 Internal-Use Software. The JabberMonkey website was under development through November 2010 and reached availability for general commercial use in December 2010. Capitalized costs will be amortized over the estimated economic life of the product which is estimated to be 3 years. Amortization expense for the year ended December 31, 2011 was $917,164.
On December 31, 2011 the Company reviewed the carrying value of its capitalized software development and decided to record an impairment against the remaining value. This determination was predicated by the fact that the Company currently lacks sufficient funds to actively market the product. Given the lead time necessary to market the product, develop a client base and generate a revenue stream, it could not generate sufficient cash flows to offset the remaining two years of its estimated life. Therefore, management determined that an impairment was justified at this time. The Company recorded impairment expense of $1,757,898 related to this impairment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Third Party Verification market size has been shrinking over the last four (4) years. Calibrus’ business has been severely impacted by industry consolidation and increased competition. The telecommunications industry has been experiencing consolidation between the major Incumbent Local Exchange Carriers (ILEC). Over the past decade the major telecommunications players have been Verizon, SBC Communications, BellSouth Communications, AT&T, Sprint, MCI, Adelphia Communications and Qwest Communications. In the past three years SBC Communications acquired AT&T and Bellsouth Communications. CenturyLink and Qwest have merged. Adelphia Communications and MCI are no longer in business. The remaining players are Verizon, AT&T, Sprint and Frontier. The result is that the number of potential Calibrus ILEC/ TPV customers has declined and may shrink even further over the next several years, reducing the overall TPV market size even further.
Calibrus’ overall business has also been affected by increased competition from Wireless, Cable and Broadband Industries which have reduced revenue and market share for our business. For sometime the ILEC’s have been experiencing tremendous pressure in their core business offerings (Local and Long Distance phone service). Wireless, Cable and Broadband companies are impacting the way in which customers are buying communication services. VOIP is also beginning to add to existing pressures on the Telecommunications companies’ revenue growth and creating upward pressures on capital spending. In order to fight the increased competition the ILEC’s are reinventing their business models by expanding their offerings from Local and Long Distance phone service. ILEC’s are providing a multi-service offering, i.e. Local and Long Distance phone service, Broadband, VOIP and TV services to their customers. ILEC’s have just begun to incorporate a business strategy of “bundling” services, where a service provider includes DSL service, Cable or Satellite TV along with Telephone or VOIP services all at discounted rates. This is a proven strategy designed to increase revenue per customer, promote customer loyalty and increase retention, making it more difficult for customers to switch to another company. It is clear to us that our TPV volume will continue to decrease due to increased competition from service providers offering multiple services to customers.
Our contract with AT&T expired on December 31, 2009. We signed two short-term contract extensions with modified pricing through March 2010. On April 8, 2010 the Company signed a new contract with AT&T. The contract sets forth our pricing terms and provides the conditions on which we are to provide service to AT&T including that our services are deemed performed when provided. AT&T renewed the contract for a one year period in 2011. The renewal included a 2.5% pricing discount per the terms of the original contract signed in 2010. The Company also signed a new contract with Frontier Communications in May of 2011 which was done in conjunction with Frontier’s acquisition of 13 Verizon state landline operations.
With the decline of the TPV market, Calibrus is looking to penetrate new markets with its products and services. Over the next twelve (12) months Calibrus will be focusing on more Automated Hosted Business Solutions that require little to no labor involvement. Calibrus’ management strongly believes in trying to significantly reduce one of its highest costs, its Live Operator workforce. Industries that we have targeted for our Automated Hosted Business solutions are the Insurance, Internet, Real Estate, and Financial Industries. Automated Hosted Business programs while typically generating less top line revenue tend to have significantly higher margins. Going forward, Calibrus plans to focus its time and efforts into pursuing these types of products and services that shall return a higher margin than what we are able to achieve from Live Operator programs.
The Company did generate positive cash flow from the TPV and hosted call recording operations for the year ended December 31, 2011.
It is anticipated that additional hardware and software may be required, as well as additional employees, particularly software programmers and web developers, may be needed in order to complete certain products and services. We believe within the next twelve (12) months in order to further develop, implement, market and sell Automated Hosted Business services we will need to raise additional capital. We currently anticipate it will cost an additional $1,000,000 to successfully market our new product. This is only an estimate and may change substantially as we move forward with our new products. Additionally, with the current economic conditions facing the country, we may have to raise more funds if we are not able to generate sufficient revenues from the new and existing product lines. There can be no assurance that we will be able to raise any funds or that the funds raised will be sufficient to cover ongoing expenses.
With the launch of JabberMonkey in 2010 and Fanatic Fans in 2011 we will begin to focus more time and capital on the social networking side of our operations and ancillary offerings related to software development and marketing related to social networking. We believe this will take an increasing amount of our management time and financial resources, but believe it offers long term opportunities that the Hosted Business Solutions does not offer.
The Company has no acquisition plans at this time.
Results of Operations
December 31, 2011The consolidated financial statements demonstrate a loss from operations for the Relevant Period of $11,189,976. Non-cash components of the loss include $10,266,365 from the impairment of goodwill, $900,090 from stock issued for services and $20,043 in depreciation expense totaling $11,186,498. Management does not expect the non-cash expenses to be reoccurring in the future in the same amounts.
ForOn June 30, 2014, the year ended December 31, 2011, we had revenues of $3,563,265 compared to revenues of $3,745,876 for the year ended December 31, 2010, a decrease of 4.87%. The reduction in revenues is the result of less third party verification work available as the telecommunication industry continued to consolidate and our overall call volumes continue to decline. Year over year call volumes related to our largest 5 customers decreased by 2.01% from 2010 to 2011. Since we currently represent somelast day of the largest telecommunication companies, we do not believe we will see a significant increase in revenues fromTransition Period covered by this source. Accordingly, we are actively expanding our product offerings to leverage our core technology and capabilities to cover other needs of businesses. Since these efforts to expand our products and services have only recently begun, we cannot say if we will be successful in bringing in additional revenues.
Overreport, the last two years we have been successful at reducing our core operating expenses to better match our current revenue stream and signed new contracts or contract extensions with existing customers that provide for higher pricingCompany underwent the reverse acquisition as discusseddescribed above. As such, out cost of revenues, as a percentage of sales have remained consistent at 36% over the last two years. Research and development expense for the year ended December 31, 2011 was $1,472,113 as compared to $232,327 for the year ended December 31, 2010. This increase was the resultThe social media assets of the Company capitalizingcontinue to not generate income at this time. Accordingly, all Company revenue from business operations for the foreseeable future will come from the business operations of WCS which is now a subsidiary of the Company.
At the present time the Company, which includes WCS, has fixed monthly operating costs relatedof approximately $10,500. The monthly, fixed operating expenses are comprised of $6,829 in monthly mortgage payments on our building, $665 for building security, $2,500 per month for the salary of our CEO and approximately $500 in utilities. Accordingly, expenses associated with maintaining the building are $8,000 per month. The Company also has variable expenses relating to the development of its JabberMonkey.com website through Novemberbusiness plan and the payment of 2010. Substantially, all researchprofessional fees. The amount and developmentextent of the variable expenses in 2011 related directlyover the next 12 months are unknown at this time.
The Company has fixed monthly income from rents and option payments of approximately $5,000 per month which are paid to the Fanatic Fans mobile application. GeneralCompany by the tenants in our building. It is projected that when the building is fully leased and administrativeall tenants are paying monthly lease payments assuming current market rates, monthly revenue will total $8,300 which will make the building self-sustaining since current expenses for 2011 remained largely flat when comparedtotal $8,000 per month.
The Company is in the process of seeking additional properties to 2010. On December 31, 2011purchase after the model of our current building. However, it is the desire of management to purchase new properties outright with funds obtained by selling equity in the Company. If the Company reviewedis successful in raising working capital in this manner, it follows that new properties will eventually present the carrying valueCompany with positive cash flow.
Liquidity and Capital Resources; Going Concern
At June 30, 2014, the Company had cash on hand of approximately $155,153. This is sufficient to sustain the day to day operations of the Company for approximately 90 days. It is not likely that operating revenues will increase in the near future to a sufficient extent to cover the operating expenses of the Company. Therefore it will be necessary to obtain additional capital from the sale of equity or debt securities.
Buildings the Company is seeking to purchase and retrofit for use by the Company are expecting to cost approximately $1,000,000 each after improvements. The Company hopes to acquire four such properties during the coming 12 months. To do so, the Company will need to raise $4,000,000 through the sale of equity capital which it expects to do through a private placement of its capitalized software development and decided to record an impairment against the remaining value. This determination was predicated by the fact thatcommon stock. If successful, the Company currently lacks sufficient fundsprojects each building will bring positive net monthly cash flow to actively market the product. GivenCompany of approximately $7,000 after acquisition and continuing thereafter.
Management believes in the leadfuture of the Company and in its ability to grow its business and to raise capital as needed until such time necessaryas the business operations of the Company become self-sustaining.
In their report dated October 14, 2014, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to market the product, develop a client base and generate a revenue stream, it could not generate sufficient cash flows to offset the remaining two years of its estimated life. Therefore, management determined that an impairment was justified at this time. The Company recorded impairment expense of $1,757,898 related to this impairment. Interest expenseour financial statements for the year was significantly higher, primarily dueperiod from date of inception (September 9, 2013) to increased interest related toJune 30, 2014 concerning the Company’s convertible debentures and the inclusion of $2,735,189 in conversion expense relatedassumption that we will continue as a going concern. Our ability to the conversion of the debentures. The Company will likely see large reductions in interest expense for the year ended December 31, 2012continue as the Company reduced its debta going concern is an issue raised as a result of the conversion of $1,540,000 of debt to equity.
The Company had negative cash-flow from operations of approximately $1,033,172 for the year ended December 31, 2011. With the exception of research and development expenses related to Fanatic Fans, the Company would have generated positive cash flow from operations for the year ended December 31, 2011 of approximately $439,000 (unaudited). Thisoperating with an industry that is indicative of the Company’s success in stabilizing the TPV business even given the downturn in volumes and revenues through increased pricing and higher volumes of IVR services. The Company believes that it is in a position to dramatically reduce or eliminate its R&D expenses and cash flows attributable to its social networking projects at any time and operate in a cash flow positive state if needed.
Seasonality and Cyclicality
We do not believe our business is cyclical.
Liquidity and Capital Resources
As of December 31, 2011 we had cash on hand of $11,065 and negative working capital of $824,196 with current assets of $551,072 and current liabilities of $1,375,268.
Our working capital as of December 31, 2011, decreased from negative working capital of $1,692,763 at December 31, 2010, largely as a result of conversion of existing debt to equity. However, the Company continued to invest resources into the development of our social networking product offerings. We have been working to reduce our dependence on third party verification revenues by expanding our product offerings and generating alternative revenue sources. This expansion has increased our usage of capital. From December 31, 2011 through April 4, 2012 the Company has received an additional $45,000 in short-term advances from the Company’s CEO.
The Company believes it is in a position to dramatically reduce or eliminate expenditures related to its JabberMonkey website and Fanatic Fans mobile application if the need arises or the Company is not able to raise additional capital to fund these projects. Research and development expense related to the projects for the year ended December 31, 2011 totaled $1,472,113. With the exception this expense, the Company would have generated positive proforma cash flow of approximately $439,000 (unaudited).
Althoughillegal under federal law, we have been expanding our product offerings, which have increased our need for capital,yet to achieve profitable operations, we have also reduced our long term expenses by reducing the amount of rentable square feet in our current location. We were also able to reduce expenses through a reduction in our workforce. Wesignificant accumulated deficit and are hopeful these changes along with our new product offerings, which are not as labor intensive, will allow us to return to profitability, but can offer no assurances in this regard.
As we try to expand our product offerings, we will need to seek additional capital. As of April 4, 2012, we believe we have sufficient capital to fund operations for the next 12 months baseddependent on our current cashflow from operations and management’s expectation of its ability to raise additional capital and reduce expenses relatedfrom stockholders or other sources to our social networking projects. Management intends to raise additional capital either through an equity or debt placement to help expand our marketing effortssustain operations and to be ableultimately achieve viable profitable operations. These factors raise substantial doubt about the Company's ability to aggressively market our new product offerings, including JabberMonkey and Fanatic Fans. We have estimated our capital needs based on the potential revenues from existing clients and our current burn rate over the previous monthscontinue as we continuea going concern. Management's plans in regard to investment moneythese matters are described in Note 1 in the development of our social networking projects. Our monthly burn rate is averaging $50,000 beyond our cash receipts as of April 4, 2012. We have been able to fund these negative amounts through cash flows from our existing core business and through the financing of $1,575,000 via the issuance of Debentures through October 31, 2011. The Company has received an additional $45,000 short-term advance from its CEO through April 4, 2012. We anticipate that expenditures related to the development of JabberMonkey and Fanatic Fans will be further reduced and focus more on maintenance and improvements to the developed product as well. However, we will need to increase expenditures in marketing to successfully attract users to both products. Our revenue figures may not come to fruition given the current economic conditions in the United States and the world in general. If we have revenue short falls, we may have to reevaluate our ability to survive unless we have additional revenue sources on line. This may cause us to curtail or cease development and marketing expenditures related to our social networking projects. There can be no guarantee our new products will increase revenues or that we can achieve profitability before our assets are depleted.
We estimate we will need an additional $1,000,000 in capital to cover our ongoing expenses and to successfully market our new product offerings. This is only an estimate and may change as we receive feedback from customers and have a better feel of the demand and revenues from our new products. Our estimates assume that prior discussions with interested potential customers will lead to sales and that we will be able to maintain current revenue figures and gross profit margins, although we can offer no assurances in this regard. With the current economic conditions, both of these factors may change and we may not be able to raise the necessary capital and if we are able to, that it may not be at favorable rates.
Given the current state of Calibrus and our revenues, we do not believe bank financing will be feasible and if we need additional capital it will be in the form of an equity or debt offering. To this end, management has made the decision to position Calibrus to be more attractive to investors, particularly angel investors.accompanying consolidated financial statements.
Off-Balance Sheet Arrangements
We havehad no off balanceoff-balance sheet arrangements.arrangements of any kind for the transaction period ended June 30, 2014.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8.8: FINANCIAL STATEMENTS AND SUPPLEMENATRYSUPPLEMENTARY DATA
The financial statements of the Company are set forth immediately following the signature page to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its independent registered public accounting firm with respect to accounting practices or procedures or financial disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2011 that our disclosure controls and procedures were effective at the reasonable assurance level over disclosure controls.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011 and determined that our controls and procedures were effective at the reasonable assurance level. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
We have assessed the effectiveness of our internal control over financial reporting as of December 31, 2011, the period covered by this Annual Report on Form 10-K, as discussed above. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on these criteria and our assessment, we have determined that, as of December 31, 2011, our internal control over financial reporting was effective.
Changes in internal control over financial reporting
There have been no changes in internal control over financial reporting that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information with respect to the officers and directors of Calibrus. Calibrus’ directors serve for a term of one year and thereafter until their successors have been duly elected by the shareholders and qualified. Calibrus’ officers serve for a term of one year and thereafter until their successors have been duly elected by the Board of Directors and qualified.
Name | | Age | | Positions |
| | | | |
Jeff W. Holmes | | 58 | | CEO, Director |
Greg Holmes | | 48 | | President |
Kirk Blosch | | 57 | | Director |
Charles House | | 71 | | Director |
Christian J. Hoffmann, III | | 64 | | Director |
Michael Myers | | 43 | | Director |
Kevin Asher | | 36 | | CFO |
Tom Harker | | 38 | | CTO |
Jeff W. Holmes – Chairman and C.E.O. Jeff Holmes is a founder of Calibrus and has been active in the roles of President, C.E.O. and Chairman of the Board of Directors since Calibrus’ inception in 1999. For the past 25 years Mr. Holmes has been active in developing technologies that improve the efficiencies of business processes in the Healthcare, Internet, Computer (hardware and software) and Telecommunications industries. He graduated in 1976 with a B.S. in Marketing and Management from the University of Utah. The Company believes that because of Mr. Holmes’ role as a founder and his experience with microcap public companies he is qualified to be a director.
Greg W. Holmes – President. Greg Holmes is a founder of Calibrus and has served in several positions during his Calibrus tenure which began in 1999. Most recently, Mr. Holmes served as Director of Business Development, working on developing new business opportunities and strategic relationships. In 2003, Mr. Holmes served as Production Manager over Calibrus’ Papago Facility, managing activities related to client call volumes, staffing levels, scheduling and Quality Assurance issues for Fortune 1000 clients at Calibrus Corporate headquarters in Tempe, AZ. From January 2001 to February 2003, Mr. Holmes was the Director of Human Resources for Calibrus. He was also responsible for managing accounts receivable, accounts payable and invoicing. From 1996 to 1999, Mr. Holmes was head of Internet Business Development & Research for J.W. Holmes & Associates and The Scottsdale Equity Growth Fund. Responsibilities included conducting research and analysis for existing portfolio companies and companies seeking investment capital. From 1995 to 1996, Mr. Holmes was Director of Finance & Director of Human Resources for Pro Tour Tennis in which he handled the accounts payable, payroll, budget forecasting, financial statements and human resource duties. He earned his Bachelors degree in Geography and a minor in Finance from the University of Utah in 1995.
Kirk Blosch – Director. Mr. Blosch is a general partner and founder of Blosch and Holmes LLC, a business consulting and private venture funding general partnership established in 1984. Mr. Blosch is and has been, since October 1999, a member of the board of directors of Calibrus, Inc. From the first quarter of 1997 through the second quarter of 2000, Mr. Blosch was a director of Zevex International, a medical product company specializing in medical devices and ultrasound technology. Zevex (ZVXI) was traded on NASDAQ prior to its sale. Mr. Blosch also served on the board of directors of OCIS, Inc. from 2003 through July 2007. Mr. Blosch graduated from the University of Utah in 1977 with a B.S. degree in Speech Communications. The Company believes that because of Mr. Blosch’s role as a founder and his experience with microcap public companies he is qualified to be a director.
Christian J. Hoffmann, III – Director. Mr. Hoffmann, Director is a lawyer specializing in corporate, securities, mergers and acquisitions and venture capital. He has been a Director at Calibrus since 2001. He has been a partner with Quarles & Brady, LLP and its predecessor in Phoenix, Arizona since November 1995. He graduated magna cum laude from Georgetown University with Bachelors of Science in Business Administration in 1969 and from the Georgetown University Law Center with a juris doctorate in 1973. The Company believes that Mr. Hoffmann’s extensive experience as a securities attorney gives him the qualifications and skills to serve as a director.
Charles House – Director. Mr. House has served as Chancellor of Cogswell College in Sunnyvale, CA since July 2011. Mr. House was Executive Director for Media X at Stanford University, as well as Senior Research Scholar in the H-STAR (Human Science and Technologies Advanced Research) Division between November, 2006 and July, 2011. Before joining Stanford, he was at Intel Corporation, as co-founding Director of their Research Collaboratory in 2003. He joined Intel when they bought Dialogic Corporation in 1999 where House headed Corporate Engineering. From 1995 to 1997, House was President of Spectron Microsystems, a wholly-owned subsidiary of Dialogic that was sold to Texas Instruments. Prior, House was President of the Vista Division of Veritas Software (1993-1995), and the R&D Vice President for Informix (1991-1993) after many years in a variety of roles for Hewlett-Packard (1962-1991). House is an IEEE Fellow and ACM Fellow, a past President of ACM, and chair for many years of the Information Council for CSSP in Washington D.C. He holds numerous technology awards for his work, including the Computer Hall of Fame, the Entrepreneur’s Hall of Fame, and the Smithsonian “Wizards of Computing”. The Company believes that Mr. House’s broad technical expertise and experience qualify him to serve as a director
Michael Myers – Director. Mr. Myers became a Director in November 2010 and is a consultant with Local Matters, Inc. in Denver, Colorado. Additionally, Mr. Myers has been an adjunct professor at University of Denver’s Daniels College of Business since 2009, where he teaches MBA courses on information technology strategy. From 2008 through 2010, Mr. Myers worked for Ontargetjobs, Inc. as a manger and business analyst. From 2006 through 2008, Mr. Myers worked for Freshcurrent, Inc. as vice president of strategic marketing. From 2004 through 2005, Mr. Myers worked for Spiremedia, Inc. as vice president of professional services and from 1998 through 2004, Mr. Myers was operations manager for Experian eMarketing Solutions, Inc. Mr. Myers has an MBA from the Daniels College of Business of the University of Denver and a Bachelor of Science from the University of Colorado. The Company believes that Mr. Myers’ broad technical expertise and experience qualify him to serve as a director.
Kevin J. Asher - Chief Financial Officer. Mr. Asher has held the position of Chief Financial Officer since February 2008. Prior to joining Calibrus, from March 2006 to February 2008, he was the Principal, General Manager and CFO of an operator of five medical spa clinics in the greater Phoenix metropolitan area. Mr. Asher was responsible for all aspects of the business including finance, accounting, human resources and daily operations. From February 2005 through March 2006, Mr. Asher was Vice President of Finance for AirLink Mobile, Inc., an industry leading MVNO (mobile virtual network operator) and provider of prepaid wireless telephone service where he was responsible for all aspects of accounting and finance including financial reporting, treasury management, financial analysis, financial projections, payroll, regulatory reporting and daily accounting. From September 2003 to February 2005, Mr. Asher was a director of MCA Financial Group Ltd. of Phoenix, Arizona which provides advisory services to businesses, financial institutions and investor groups in the areas of financial restructuring, mergers and acquisitions, business oversight, and corporate and capital formation. His responsibilities included representation of debtors and creditors in the areas of business turnarounds, financial restructuring, chapter 11 business reorganizations, divestures, mergers and acquisitions, business valuations, financial management, and performance improvement. He advised clients in a variety of industries including aviation, aerospace and defense, retail, homebuilding, construction and manufacturing. Prior to his position at MCA Financial, Mr. Asher worked in the public accounting industry primarily as an audit manager. Mr. Asher has a Bachelor of Science degree in accountancy from Northern Arizona University at Flagstaff, Arizona and is a Certified Public Accountant.
Tom Harker – Chief Technology Officer. Mr. Harker has served as Director of Software Development and CTO at Calibrus since 2000. Tom’s responsibilities are to oversee all aspects of design and implementation of IT systems. Prior to coming to Calibrus, Tom served as Division Software Manager at ACS (Affiliated Computer Services) for 2 years. Mr. Harker has been involved deeply in the Third Party Verification (TPV) process for the past 9 years with an understanding of the TPV process and FCC requirements.
Key Employees:
Michael J. Brande, MCSE14 - Vice President of Network Operations. For the past 6 years, Michael Brande has served as the Director of Network Operations and Facilities at Calibrus. His team is responsible for all aspects of the data and telecom networks at Calibrus - from cabling to wiring, and switches and routers, to the servers, PBX’s and PC workstations. Mr. Brande directs and cultivates many key business relationships for Calibrus and its Vendor Partners. His responsibilities range from procurement, to services, to facilities and equipment maintenance. Prior to his employment with Calibrus, Michael was employed by ACS (Affiliated Computer Services) TeleSolutions as the Division Network Manager and was part of a team that designed a new and better process for Third Party Verification. He has over 12 years experience in the call center industry.
Michael Rae - Vice President of Software Development. Mr. Rae received his Bachelor of Science in Computer Information Systems in 1999. Prior to working at Calibrus he worked at a software development company where he was responsible for developing a large scale web application used to organize and track volunteers. Mr. Rae has been working as a Senior Systems Architect for Calibrus since 2000. His responsibilities include designing and developing all web related technologies/products for clients and internal management as well as serving as a technical contact for clients. Mike Rae accepted the position of Vice President of Software Development in 2006.
Kelly M. Robinson – Director of TPV Operations. Mr. Robinson joined the Calibrus team in 2003. His background includes developing and managing Third Party Verification operations for major telecommunications companies including BellSouth, Verizon and SBC/AT&T Communications, Cox Communications, CenturyTel, Frontier and others. He has also directed Customer Service and Lead Generation programs for Oakwood Corporate Housing, Grainger Tools, Lucent Technologies/Avaya and others. He has worked within the TPV industry for the last 11 years at Calibrus and previously at ACS (Affiliated Computer Services) and understands the nuances of Third Party Verification processes and its importance to the overall sales process.
Family Relationships
Except for Jeff Holmes and Greg Holmes, who are brothers, there are no family relationships between our officers and directors.
None of the officers and directors has filed for bankruptcy, been convicted in a criminal proceeding or been the subject of any order, judgment, or decree permanently, temporarily, or otherwise limiting activities (1) in connection with the sale or purchase of any security or commodity, or in connection with any violation of Federal or State securities laws or Federal commodities laws, (2) engaging in any type of business practice, or (3) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of an investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity.
Board of Directors Independence
The Board of Directors is currently comprised of five members, three of which are independent and two that are not. Christian J. Hoffmann, Charles House and Michael Myers are considered independent members of the Board and Kirk Blosch and Jeff Holmes are not considered independent.
Board Meetings and Committees and Annual Meeting Attendance
The Board of Directors is currently comprised of five members, two of which are independent and two that are not. Christian J. Hoffmann, Charles House and Michael Myers are considered independent members of the Board and Kirk Blosch and Jeff Holmes are not considered independent.
TABLE OF CONTENTS FOR FINANCIAL STATEMENTS
Audit Committee
The Audit Committee of the board of directors is made up of Christian J. Hoffmann, Charles House and Kirk Blosch. Kirk Blosch is the Chairman of the Audit Committee. The Board determined that Mr. Hoffmann qualifies as an “audit committee financial expert” as defined under the rules and regulations of the Securities and Exchange Commission and is independent. The Audit Committee met four times in 2011 and all members were present. The Audit Committee of the Board’s responsibility to oversee management’s conduct of the corporation’s financial reporting process, the financial reports and other financial information provided by the corporation to the Securities and Exchange Commission and the public, the Corporation’s system of internal accounting and financial controls, and the annual independent audit of the Corporation’s financial statements. Members of the Committee are reelected annually.
Compensation Committee
The Compensation Committee of the Board of Director’s is made up of Christian J. Hoffmann and Kirk Blosch, who is Chairman of the Committee. Members are reelected on an annual basis by the Board. The Committee reviews annually compensation related to key employees and Officers of the Company. The Compensation Committee met two times in 2011 and all members were present.
Stockholder Communications with the Board of Directors
Stockholders may communicate with the Board of Directors by writing to us as follows: Calibrus, Inc., attention: Corporate Secretary, 1225 West Washington Street, Suite 213, Tempe, AZ 85281. Stockholders who would like their submission directed to a particular member of the Board of Directors may so specify and the communication will be forwarded as appropriate.
Process and Policy for Director Nominations
Our full Board will consider candidates for Board membership suggested by Board members, management and our stockholders. In evaluating the suitability of potential nominees for membership on the Board, the Board members will consider the Board's current composition, including expertise, diversity, and balance of inside, outside and independent directors. The Board considers the general qualifications of the potential nominees, including integrity and honesty; recognized leadership in business or professional activity; a background and experience that will complement the talents of the other board members; the willingness and capability to actively participate in board and committee meetings; the extent to which the candidate possesses pertinent technological, business or financial expertise and experience; the absence of realistic possibilities of conflict of interest or legal prohibition; the ability to work well with the other directors; and the extent of the candidate's familiarity with issues affecting our business.
While the Board considers diversity and variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen solely or mainly because of race, color, gender, national origin or sexual identity or orientation. Thus, although diversity may be a consideration in the Board's process, it does not have a formal policy regarding the consideration of diversity in identifying director nominees.
Stockholder Recommendations for Director Nominations.
Our Board of Directors does not have a formal policy with respect to consideration of any director candidate recommendation by stockholders. While the Board of Directors may consider candidates recommended by stockholders, it has no requirement to do so. To date, no stockholder has recommended a candidate for nomination to the Board. Given that we have not received director nominations from stockholders in the past and that we do not canvass stockholders for such nominations, we believe it is appropriate not to have a formal policy in that regard. We do not pay a fee to any third party to identify or evaluate or assist in indentifying or evaluating potential nominees.
Stockholder recommendations for director nominations may be submitted to the Company at the following address: Calibrus, Inc., attention: Corporate Secretary, 1225 West Washington, Suite 213, Tempe, AZ 85281. Such recommendations will be forwarded to the Board for consideration, provided that they are accompanied by sufficient information to permit the Board to evaluate the qualifications and experience of the nominees, and provided that they are in time for the Board to do an adequate evaluation of the candidate before the annual meeting of stockholders. The submission must be accomplished by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected and to cooperate with a background check.
Stockholder Nominations of Directors.
The Company provides that in order for a stockholder to nominate a director at an annual meeting, the stockholder must give timely, written notice to the Secretary of the Company and such notice must be received at the principal executive offices of the Company not less than 120 days before the date of its release of the proxy statement to stockholders in connection with its previous year’s annual meeting of stockholders. Such stockholder’s notice shall include, with respect to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person, including such person’s written consent to being named in the proxy statement as a nominee, serving as a director, that is required under the Securities Exchange Act of 1934, as amended, and cooperating with a background investigation. In addition, the stockholder must include in such notice his name and address, as they appear on the Company’s records, of the stockholder proposing the nomination of such person, and the name and address of the beneficial owner, if any, on whose behalf the nomination is made, the class and number of shares of capital stock of the Company that are owned beneficially and of record by such stockholder of record and by the beneficial owner, if any, on whose behalf the nomination is made, and any material interest or relationship that such stockholder of record and/or the beneficial owner, if any, on whose behalf the nomination is made may respectively have in such business or with such nominee. At the request of the Board of Directors, any person nominated for election as a director shall furnish to the Secretary of the Company the information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.
To be timely in the case of a special meeting or if the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, a stockholder’s notice must be received at the principal executive offices of the Corporation no later than the close of business on the tenth day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting date was made.
Board of Directors’ Role in the Oversight of Risk Management
We face a variety of risks, including credit, liquidity and operational risks. In fulfilling its risk oversight role, our Board of Directors focuses on the adequacy of our risk management process and overall risk management system. Our Board of Directors believes that an effective risk management system will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.
Our Board of Directors oversees risk management for us. Accordingly, the Board schedules time for periodic review of risk management, in addition to its other duties. In this role, the Board receives reports from management, certified public accountants, outside legal counsel, and to the extent necessary, from other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.
Board Leadership Structure
Our Board of Directors does not have a policy on whether or not the roles of Chief Executive Officer and Chairman of the Board of Directors should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee. Our Board of Directors believes that it should be free to make a choice from time to time in any manner that is in the best interests of us and our shareholders. The Board of Directors believes that Mr. Holmes's service as CEO and Chairman of the Board is in the best interest of us and our shareholders. He possesses detailed knowledge of the issues, opportunities and challenges we face and is thus best positioned to develop agendas that ensure the Board's time and attention will be focused on the most critical matters. Our Board has determined that our Board leadership structure is appropriate given the size of our Board and the nature of our business.
Code of Ethics and Conduct
Our Board of Directors has adopted a Code of Ethics and Conduct that is applicable to all of our employees, officers and directors. Our Code of Ethics and Conduct is intended to ensure that our employees act in accordance with the highest ethical standards. A copy of our Code of Ethics and Conduct may be obtained by sending a written request to us at 1225 West Washington Street, Suite 213, Tempe, AZ 85281, Attn: Corporate Secretary and the Code of Ethics and Conduct is filed as an exhibit to this Annual Report on Form 10-K.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company is not aware of any reports not filed by officers, directors and ten percent stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Calibrus’ chief executive officer and each of the other executive officers that were serving as executive officers at December 31, 2011 (collectively referred to as the "Named Executives"). No other executive officer serving during 2011 received compensation greater than $100,000.
SUMMARY COMPENSATION TABLE
| Name and Principal Position | | Year | | Salary | | | Bonus | | | Stock Awards | | | Option Awards | | | Non-Equity Incentive Plan Compensation | | | Nonqualified Deferred Compensation | | | All Other Compensation | | | Total | |
| (a) | | (b) | | (c) | | | (d) | | | (e) | | | (f) (1) | | | (g) | | | (h) | | | (i) (2) | | | (j) | |
| Jeff W. Holmes, CEO | | 12/31/2011 | | $ | 79,250 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,363 | | | $ | 83,613 | |
| | | 12/31/2010 | | $ | 194,593 | | | $ | 0 | | | $ | 0 | | | $ | 27,000 | | | $ | 0 | | | $ | 0 | | | $ | 4,054 | | | $ | 225,647 | |
| Greg W. Holmes, President | | 12/31/2011 | | $ | 54,163 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,393 | | | $ | 58,556 | |
| | | 12/31/2010 | | $ | 131,201 | | | $ | 0 | | | $ | 0 | | | $ | 20,250 | | | $ | 0 | | | $ | 0 | | | $ | 4,120 | | | $ | 155,571 | |
| Thomas Harker, CTO | | 12/31/2011 | | $ | 102,400 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,460 | | | $ | 106,860 | |
| | | 12/31/2010 | | $ | 123,290 | | | $ | 0 | | | $ | 0 | | | $ | 7,125 | | | $ | 0 | | | $ | 0 | | | $ | 4,123 | | | $ | 134,538 | |
| Kevin J. Asher, CFO | | 12/31/2011 | | $ | 100,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,372 | | | $ | 104,372 | |
| | | 12/31/2010 | | $ | 126,250 | | | $ | 0 | | | $ | 0 | | | $ | 13,500 | | | $ | 0 | | | $ | 0 | | | $ | 4,120 | | | $ | 143,870 | |
(1) The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 915,000 options as of April 4, 2012, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,329,167 as of April 4, 2012, all with an exercise price of $1.00. The maximum term of the options is five years and they vest at various times according to the Option Agreements. All forfeited and expired options are added back into the plan and become immediately available for issuance.
(2) The amounts shown include Company-paid portion of health insurance for the fiscal years ended 2011 and 2010.
Outstanding Equity Awards At Fiscal Year-End
| | | Stock Awards | | | | Stock Awards | |
| Name | | Number of securities underlying unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) | |
| Jeff W. Holmes | | | 70,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | |
| CEO | | | 300,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | |
| Greg W. Holmes | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | |
| President | | | 225,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | |
| Tom Harker | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | |
| CTO | | | 79,167 | | | | - | �� | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | |
| Kevin Asher | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 11/18/2013 | | | - | | | | - | | | | - | | | | - | |
| CFO | | | 25,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | |
| | | | 150,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | |
Compensation of Directors
| Name | | Year | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($) | | | Option Awards ($)(1) | | | Non-Equity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
| (a) | | (b) | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | |
| Kirk Blosch (2) | | 12/31/2011 | | | - | | | | - | | | $ | 0 | | | | - | | | | - | | | | - | | | | - | |
| | | 12/31/2010 | | | - | | | | - | | | $ | 13,050 | | | | - | | | | - | | | | - | | | | 13,050 | |
| Charles House (2) | | 12/31/2011 | | | - | | | | - | | | $ | 0 | | | | - | | | | - | | | | - | | | | - | |
| | | 12/31/2010 | | | - | | | | - | | | $ | 13,050 | | | | - | | | | - | | | | - | | | | 13,050 | |
| Christian J. Hoffmann, III (2) | | 12/31/2011 | | | - | | | | - | | | $ | 0 | | | | - | | | | - | | | | - | | | | - | |
| | | 12/31/2010 | | | - | | | | - | | | $ | 17,550 | | | | - | | | | - | | | | - | | | | 17,550 | |
| Michael Myers (2) | | 12/31/2011 | | | - | | | | - | | | $ | 0 | | | | - | | | | - | | | | - | | | | - | |
| | | 12/31/2010 | | | - | | | | - | | | $ | 2,250 | | | | - | | | | - | | | | - | | | | 2,250 | |
(1) This column represents the aggregate grant date fair value of the awards granted in 2011 and 2010, respectively. Therefore, the values shown here are not representative of the amounts that may eventually be realized by a director. Pursuant to the rules of the Securities and Exchange Commission, we have provided a grant date fair value for option awards in accordance with the provisions of FASB ASC 718 Share-based Payments. For option awards, the fair value is estimated as of the date of grant using the Black-Scholes option pricing model, which requires the use of certain assumptions, including the risk-free interest rate, dividend yield, volatility, expected term and forfeitures. Expected term is determined using an average of the contractual term and vesting period of the award. Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices, which are publicly traded, over the expected term of the award. Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards and forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures. For further information on these calculations, please refer to the notes to our financial statements, Notes 1 and 12 included in Item 8 of this Form 10-K.
(2) As of December 31, 2011, Kirk Blosch had 280,000 options outstanding, Charles House had 280,000 options outstanding, Christian J. Hoffmann, III had 330,000 options outstanding and Michael Myers had 25,000 options outstanding. No director had any stock awards outstanding.
Option/SAR Grants in Last Fiscal Year
In fiscal 2011 no options were granted. In fiscal 2010, 984,167 options were granted out of Calibrus’ Incentive Option Plan and 510,000 options were granted out of the Non-Qualified Option Plan.
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 915,000 as of April 4, 2012, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,329,167 as of April 4, 2012, all with an exercise price of $1.00. The maximum term of the options is five years and they vest at various times according to the Option Agreements. All forfeited and expired options are added back into the plan and become immediately available for issuance.
The Company also issued a total of 500,000 options outside of the existing plans to members of the Company’s Advisory Board. The Options were issued on December 31, 2011 and have a term of three years and an exercise price of $.25.
Stock Option Exercise
In fiscal 2011, none of the named executives exercised any options to purchase shares of common stock.
Long-Term Incentive Plan (“LTIP”)
There were no awards granted during fiscal year 2011 or 2010.
Board of Directors Compensation
Each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board or directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore. For 2011, no Directors received compensation. For 2010 each director received options during the year with Kirk Blosch and Charles House each receiving 145,000 options, Christian J. Hoffmann, III receiving 195,000 options and Michael Myers receiving 25,000 options. No other compensation arrangements exist between Calibrus and our Directors.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
Calibrus has agreements with all officers and those employees identified herein as key employees. All of our agreements contain language assigning all inventions over to Calibrus, they also contain non-compete agreements. Additionally, on termination, if not for cause and Calibrus is cash flow and earnings positive, our officers and key employees will receive up to three months salary as severance. On a change of control of Calibrus, which results in termination of the officer or key employee and Calibrus is cash flow positive and has positive earnings per share at the time of the change of control, the officer or key employee will receive a three months salary as severance based on the officers or employees’ current salary. Employment contracts are entered into for two, three or four year periods with automatic two, three or four one year extensions depending on the officer or key employee. Except for terms and salary, all of our employment contracts contain the same material terms. A summary of the officers’ employment contracts are below:
| Employee | | Beginning Date | | Annual Salary | |
| Jeff W. Holmes | | 1/1/2005 | | $ | 220,000 | |
| Greg W. Holmes | | 1/1/2005 | | $ | 150,000 | |
| Kevin J. Asher | | 2/5/2008 | | $ | 130,000 | |
| Tom Harker | | 1/10/2007 | | $ | 140,000 | |
| Michael Brande | | 1/10/2007 | | $ | 105,000 | |
| Michael Rae | | 1/10/2007 | | $ | 90,000 | |
| Kelly Robinson | | 6/28/2004 | | $ | 90,000 | |
During the years ended December 31, 2011 and 2010, each of the employees listed above took salary decreases due to limited cash flow in the Company. Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.
Report on Repricing of Options/SARs
We have not adjusted or amended the exercise price of stock options or SARs previously awarded to any executive officers.
Report on Executive Compensation
The Compensation Committee of the Board of Directors determines the compensation of Calibrus’ executive officer and president and sets policies for and reviews with the chief executive officer and president the compensation awarded to the other principal executives, if any. The board of directors has two committees, the audit and compensation committee which are made up of non-employee directors. Our Compensation Committee is composed of Kirk Blosch and Charles House. Our Audit Committee is composed of Kirk Blosch, Charles House and Christian J. Hoffmann, III.
The compensation policies utilized by the Board of Directors are intended to enable Calibrus to attract, retain and motivate executive officers to meet our goals using appropriate combinations of base salary and incentive compensation in the form of stock options. Generally, compensation decisions are based on contractual commitments, if any, as well as corporate performance, the level of individual responsibility of the particular executive and individual performance. During the fiscal year ended December 31, 2011, Calibrus’ chief executive officer was Jeff W. Holmes, our President was Greg W. Holmes and Kevin J. Asher was CFO.
Base salaries for Calibrus’ executive officers are determined initially by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive marketplace for management talent, including a comparison of base salaries for comparable positions at comparable companies within Calibrus’ industry. | Page |
| Report of Independent Registered Public Accounting Firm | 16 |
| |
| Consolidated Balance Sheet | 17 |
| |
| Consolidated Statement of Operations | 18 |
| |
| Statement of Changes in Stockholders' Equity | 19 |
| |
| Consolidated Statement of Cash Flows | 20 |
| |
| Notes to Consolidated Financial Statements | 21 |
Annual salary adjustments are determined by evaluating the competitive marketplace, the performance of Calibrus, the performance of the executive, particularly with respect to the ability to manage the growth of Calibrus, the length of the executive's service to Calibrus and any increased responsibilities assumed by the executive.
During the year ended December 31, 2011 each of the Company’s executives took salary decreases due to limited cash flow in the Company. Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
Option Plans
Calibrus has 4,850,000 shares reserved for issuance under stock option plans with 2,244,167 stock options issued and outstanding. The board of directors has the authority to issue the options at their sole discretion.
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 915,000 as of April 4, 2012, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,329,167 as of April 4, 2012, all with an exercise price of $1.00. The maximum term of the options is five years and they vest at various times according to the Option Agreements. All forfeited and expired options are added back into the plan and become immediately available for issuance.
The Company also issued a total of 500,000 options outside of the existing plans to members of the Company’s Advisory Board. The Options were issued on December 31, 2011 and have a term of three years and an exercise price of $.25.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of April 12, 2012, with respect to the beneficial ownership of Calibrus’ Common Stock by each director of Calibrus and each person known by Calibrus to be the beneficial owner of more than 5% of Calibrus’ outstanding shares of Common Stock. At December 31, 2011 and April 12, 2012, there were 13,808,580 shares of common stock outstanding.
For purposes of this table, information as to the beneficial ownership of shares of common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Except as otherwise indicated, all shares of our common stock are beneficially owned, and sole investment and voting power is held, by the person named. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock, which such person has the right to acquire within 60 days after the date hereof. The inclusion herein of such shares listed as beneficially owned does not constitute an admission of beneficial ownership.
All percentages are calculated based upon a total number of 13,808,580 shares of common stock outstanding as of April 4, 2012, plus, in the case of the individual or entity for which the calculation is made, that number of options or warrants owned by such individual or entity that are currently exercisable or exercisable within 60 days.
| Title of Class | | Name of Beneficial Owner | | Number of Shares Owned | | Percent of Class |
| | | Principal Shareholders | | | | |
| Common | | Jeff W. Holmes 1225 West Washington Street Suite 213 Tempe, Arizona 85281 | | 2,407,064 | | 16.85% |
| Common | | Kirk Blosch 2081 S. Lakeline Drive Salt Lake City, Utah 84109 | | 1,675,334 | | 11.89% |
| Common | | Christian J. Hoffmann, III (4) 1225 W. Washington Street Suite 213 Tempe, Arizona 85281 | | 430,000 | | 3.04% |
| | | Directors | | | | |
| Common | | Jeff W. Holmes (1) | | -----See above----- | | |
| Common | | Kirk Blosch (2) | | -----See above----- | | |
| Common | | Charles House (3) | | 280,000 | | 1.99% |
| Common | | Christian J. Hoffmann, III (4) | | -----See above----- | | |
| Common | | Michael Myers (5) | | 25,000 | | 0.18% |
| Common | | All Officers and Director as a Group (five persons) | | 4,817,398 | | 31.65% |
(1) Shares include 370,000 stock options which are exercisable now at prices ranging from $1.00 to $1.52. Shares also include 50,000 warrants issued to Mr. Holmes which are now exercisable at $.50 per share. Shares also include 437,093 shares and 54,637 warrants issued to Scottsdale Equity Growth Fund, LLC in which Mr. Holmes is the Managing Member, which are exercisable now at $.325 per share. Mr. Holmes owns 1,495,334 shares exclusive of the options. In calculating Mr. Holmes’ percentage the 370,000 shares issuable upon exercise of options and 104,637 shares issuable upon exercise of warrants has been added to the 13,808,580 shares currently outstanding.
(2) Shares include 280,000 stock options which are exercisable now at prices ranging from $1.00 to $1.52. Mr. Blosch owns 1,395,334 shares exclusive of the options. In calculating Mr. Blosch’s percentage, the 280,000 shares issuable upon exercise of options have been added to the 13,808,580 shares currently outstanding.
(3) Shares include 280,000 stock options which are exercisable now at prices ranging from $1.00 to $1.52. Mr. House owns no shares. The shares shown are the options he can exercise. In calculating Mr. House’s percentage, the 280,000 shares issuable upon exercise of options have been added to the 13,808,580 shares currently outstanding.
(4) Shares include 330,000 stock options which are exercisable now at prices ranging from $1.00 to $1.52. Shares also include 25,000 warrants that are immediately exercisable at $.50 per share. Hoffmann owns 75,000 shares exclusive of the options. In calculating Mr. Hoffmann’s percentage, the 355,000 shares issuable upon exercise of the options and warrants have been added to the 13,808,580 shares currently outstanding.
(5) Shares include 25,000 stock options which are exercisable now at $1.00. Mr. Myers owns no shares. The shares shown are the options he can exercise. In calculating Mr. Myers’ percentage, the 25,000 shares issuable upon exercise of the options have been added to the 13,808,580 shares currently outstanding.
Control by Existing Shareholders
Given the large percentage of stock owned by current management, they most likely will be able to control any shareholder vote. As a result, the persons currently in control of Calibrus will most likely continue to be in a position to elect at least a majority of the Board of Directors of Calibrus, to dissolve, merge or sell the assets of Calibrus, and generally, to direct the affairs of Calibrus.
Dividends
We have not declared any cash dividends with respect to our common stock, and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our securities.
Securities Authorized for Issuance under Equity Compensation Plans
Plan Category | | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
| | | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders | | 2,244,167 | | $1.03 | | 2,605,883 |
| Total | | 2,244,167 | | $1.03 | | 2,605,883 |
The Company also has 500,000 options issued outside of the compensation plans with a weighted average exercise price of $.25. These options have a three-year term.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We believe that all purchases from or transactions with affiliated parties were on terms and at prices substantially similar to those available from unaffiliated third parties.
Other than listed below, there were no material transactions, or series of similar transactions, during our Company’s last fiscal year, or any currently proposed transactions, or series of similar transactions, to which our Company was or is to be a party, in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years and in which any director, executive officer or any security holder who is known to us to own of record or beneficially hold more than five percent of any class of our common stock, or any member of the immediate family of any of the foregoing persons, had an interest.
On January 31, 2011, the Company issued a promissory note in the principal amount $50,000 to evidence a loan made to the Company by Jeff W. Holmes, the Company’s CEO and a beneficial owner. The terms of the note are 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 50,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The terms of the note are 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The terms of the note are 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $5,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The terms of the note are 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 5,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On August 19, 2011, the Company issued a promissory note in the principal amount of $200,000 to evidence a loan made to the Company by Greg W. Holmes, President of the Company. The terms of the note is 6 months with a stated interest of 12% per annum and an effective interest rate of 71.78%, with discount, with interest due monthly. The Company received gross proceeds from the note of $150,000 with $50,000 being retained by Mr. Holmes as an origination fee. The $50,000 note discount is being amortized over the life of the loan or at the rate of $8,333 per month.
As of December 31, 2011 the Company had received a $32,400 short term advance from its CEO.
As of December 31, 2011 the Company had received a $57,000 short-term advance from the mother of the CEO and President.
As of December 31, 2011 the Company had received a $20,000 short-term advance from its President.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
1) Audit Fees - The aggregate fees incurred for each of the last two fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements and review of our quarterly financial statements is approximately $55,000 and $40,000 for each of the years ending December 31, 2011 and 2010.
2) Audit-Related Fees. $0 and $0.
3) Tax Fees. $2,800 and $2,800.
4) Other. $0 and $0
5) Approval Policy. Our entire Board of Directors approves in advance all services provided by our independent registered public accounting firm. All engagements of our independent registered public accounting firm in fiscal years 2011 and 2010 were pre-approved by the Audit Committee.
6) Not Applicable.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included in this report:
The following financial statements, notes thereto, and the related independent registered public accounting firm’s report contained on page F-1 to our financial statements are herein incorporated:
December 31, 2011 and 2010
Report of Independent Registered Public Accounting Firm
Balance Sheets15 - December 31, 2011 and December 31, 2010
Statements of Operations - Years ended December 31, 2011 and 2010
Statements of Changes in Stockholders' Equity – Years ended December 31, 2011 and 2010
Statements of Cash Flows – Years ended December 31, 2011 and 2010
Notes to Financial Statements – Years ended December 31, 2011 and 2010
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules are included as part of this report:
None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
| | | SEC | | | | |
| Exhibit | | Reference | | | | |
| No. | | No. | | Title of Document | | Location |
| | | | | | | |
| 3(i) | | 3.01 | | Articles of Incorporation of Calibrus | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 3(ii) | | 3.02 | | Amendment to Articles of Incorporation Calibrus-Name Change | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 3(iii) | | 3.03 | | Bylaws of Calibrus | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 4 | | 4.01 | | Specimen Stock Certificate | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.01 | | Lease Agreement – Paragon | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.02 | | AT&T Services, Inc.-Agreement | | Confidentiality |
| | | | | | | |
| | | | | | | |
| 10 | | 10.03 | | Magnet Warrant | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.04 | | Employment Agreement-Jeff Holmes | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.05 | | Employment Agreement-Greg Holmes | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.06 | | Employment Agreement-Kevin Asher | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.07 | | Incentive Stock Option Plan | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.08 | | Non-Qualified Stock Option Plan | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.09 | | Form of Options | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.1 | | MeoMyo, LLC Development Contract | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.11 | | Form of Convertible Debenture | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 10 | | 10.12 | | Form of Warrant | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 14 | | 14.01 | | Code of Ethics | | Incorporated by |
| | | | | | | Reference* |
| | | | | | | |
| 31 | | 31.01 | | CEO certification | | This Filing |
| | | | | | | |
| 31 | | 31.02 | | CFO certification | | This Filing |
| | | | | | | |
| 32 | | 32.01 | | CEO and CFO certification | | This Filing |
| | | |
| * Incorporated by reference from the Company's registration statement on Form 10 filed with the Commission, SEC file no. 000-53548. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to by signed on its behalf by the undersigned, thereunto duly authorized.
| Company Name | | |
| | | | |
| By: | /s/ | | Date: April 16, 2012 |
| | Jeff W. Holmes, CEO | | |
| | | | |
| By: | /s/ | | Date: April 16, 2012 |
| | Kevin J. Asher, CFO | | |
| | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates stated.
Signature | | Title | | Date |
| | | | |
/s/ | | Director, CEO | | April 16, 2012 |
Jeff W. Holmes | | | | |
| | | | |
/s/ | | Director | | April 16, 2012 |
Kirk Blosch | | | | |
| | | | |
/s/ | | Director | | April 16, 2012 |
Christian Hoffmann, III | | | | |
| | | | |
/s/ | | Director | | April 16, 2012 |
Charles House | | | | |
| | | | |
/s/ | | Director | | April 16, 2012 |
Michael Myers | | | | |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Grow Condos, Inc. and subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
We have audited the accompanying consolidated balance sheetssheet of Grow Condos, Inc. and subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.) as of December 31, 2011 and 2010June 30, 2014, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended.period from date of inception (September 9, 2013) to June 30, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit.
We conducted our auditsaudit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grow Condos, Inc. and subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.) at December 31, 2011 and 2010,June 30, 2014, and the results of its operations, changes in stockholders' equity (deficit) and its cash flows for the years then endedperiod from date of inception (September 9, 2013) to June 30, 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company operates with an industry that is illegal under federal law, has yet to achieve profitable operations, has a significant accumulated deficit and is dependent on its ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable profitable operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Semple, Marchal & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
April 16, 2012October 14, 2014
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
CONSOLIDATED BALANCE SHEET
June 30, 2014
CALIBRUS, INC.BALANCE SHEETS
December 31, 2011 and 2010
| ASSETS | ASSETS | ASSETS | |
| | | 2011 | | | 2010 | | | | |
| Current Assets | | | | | | | | | |
| Cash and cash equivalents | | $ | 11,065 | | | $ | 21,519 | | | $ | 155,153 | |
| Accounts receivable - trade, net | | | 526,413 | | | | 372,990 | | |
| Lease receivables | | | | 950 | |
| Prepaid expenses | | | 13,094 | | | | 6,133 | | | | 404 | |
| Deferred financing fees | | | 500 | | | | - | | |
| | | | | | | | | | | | | |
| Total Current Assets | | | 551,072 | | | | 400,642 | | | | 156,507 | |
| | | | | | | | | | | | | |
| Property and equipment, net | | | 41,065 | | | | 47,357 | | | | 1,201,850 | |
| Software development, net | | | - | | | | 2,675,062 | | |
| Deposits | | | 28,649 | | | | 29,392 | | | | 818 | |
| | | | | | | | | | | | | |
| Total Assets | | $ | 620,786 | | | $ | 3,152,453 | | | $ | 1,359,175 | |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| LIABILITIES AND MEMBER’S EQUITY | | LIABILITIES AND MEMBER’S EQUITY | |
| | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | | | | |
| Convertible notes payable - current portion | | $ | 10,000 | | | $ | 605,000 | | |
| Convertible related party notes payable - current portion | | | 15,000 | | | | 405,000 | | |
| Note payable - current portion | | | 50,000 | | | | - | | |
| Related party note payable, net of discount - current portion | | | 367,733 | | | | - | | |
| Due to factor | | | 238,966 | | | | 132,729 | | |
| Accounts payable - trade | | | 476,699 | | | | 684,570 | | |
| Accounts payable, trade | | | $ | 35,851 | |
| Accrued liabilities | | | 216,870 | | | | 266,106 | | | | 13,506 | |
| Mortgages payable, current portion | | | | 29,841 | |
| | | | | | | | | | | | | |
| Total Current Liabilities | | | 1,375,268 | | | | 2,093,405 | | | | 79,198 | |
| | | | | | | | | | | | | |
| Mortgages payable, less current portion | | | | 997,948 | |
| Customer deposits | | | | 3,600 | |
| Deferred option revenue | | | | 3,900 | |
| | | | | | |
| Total Liabilities | | | 1,375,268 | | | | 2,093,405 | | | | 1,084,646 | |
| | | | | | | | | | | | | |
| | | | | | | | | | |
| Stockholders' Equity (Deficit) | | | | | | | | | |
| Stockholder’s Equity | | | | | |
| Preferred stock, $.001 par value, 5,000,000 shares authorized, | | | | | | | | | | | - | |
| none issued or outstanding | | | - | | | | - | | | | | |
| Common stock, $.001 par value, 45,000,000 shares authorized, | | | | | | | | | | | | |
| 13,808,580 and 6,794,600 shares issued and outstanding | | | 13,809 | | | | 6,795 | | |
| 41,435,709 shares issued and outstanding | | | | 41,436 | |
| Additional paid-in capital | | | 9,277,185 | | | | 4,765,758 | | | | 11,422,282 | |
| Accumulated deficit | | | (10,045,476 | ) | | | (3,713,505 | ) | | | (11,189,189 | ) |
| | | | | | | | | | | | | |
| Total Stockholders' Equity (Deficit) | | | (754,482 | ) | | | 1,059,048 | | |
| Total Stockholder’s Equity | | | | 274,529 | |
| | | | | | | | | | | | | |
| Total Liabilities and Stockholders' Equity (Deficit) | | $ | 620,786 | | | $ | 3,152,453 | | |
| Total Liabilities and Stockholder’s Equity | | | $ | 1,359,175 | |
The Accompanying Notes are an Integral
Part of the Consolidated Financial Statements
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
CALIBRUS, INC.
STATEMENTSCONSOLIDATED STATEMENT OF OPERATIONS
For The Years Ended December 31, 2011 and 2010From the Date of Inception (September 9, 2013) through June 30, 2014
| | | 2011 | | | 2010 | |
| | | | | | | |
| Revenues | | $ | 3,563,265 | | | $ | 3,745,876 | |
| | | | | | | | | |
| Cost of revenues | | | 1,293,801 | | | | 1,334,272 | |
| | | | | | | | | |
| Gross profit | | | 2,269,464 | | | | 2,411,604 | |
| | | | | | | | | |
| General and administrative expenses | | | 2,356,291 | | | | 2,195,023 | |
| Impairment expense | | | 1,757,898 | | | | - | |
| Research and development | | | 1,472,113 | | | | 232,327 | |
| | | | | | | | | |
| Loss from Operations | | | (3,316,838 | ) | | | (15,746 | ) |
| | | | | | | | | |
| Other Income (Expense): | | | | | | | | |
| Interest income | | | 23 | | | | 591 | |
| Interest expense | | | (3,015,156 | ) | | | (113,108 | ) |
| | | | | | | | | |
| | | | (3,015,133 | ) | | | (112,517 | ) |
| | | | | | | | | |
| Loss before income taxes | | | (6,331,971 | ) | | | (128,263 | ) |
| | | | | | | | | |
| Income tax benefit (expense) - deferred | | | - | | | | - | |
| | | | | | | | | |
| Net Loss | | $ | (6,331,971 | ) | | $ | (128,263 | ) |
| | | | | | | | | |
| Loss per Common Share: | | | | | | | | |
| Basic and Diluted | | $ | (0.79 | ) | | $ | (0.02 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Weighted Average Common Shares Outstanding: | | | | | | | | |
| Basic and Diluted | | | 7,978,820 | | | | 6,794,600 | |
| | | | | |
| Rental revenues | | $ | 11,750 | |
| | | | | |
| Total revenues | | | 11,750 | |
| | | | | |
| Operating expenses | | | 927,361 | |
| Impairment of goodwill | | | 10,266,365 | |
| | | | | |
| Loss from operations | | | (11,181,976) | |
| | | | | |
| Interest expense | | | (7,213) | |
| | | | | |
| Loss before provision for income taxes | | | (11,189,189) | |
| | | | | |
| Provision for income taxes | | | - | |
| | | | | |
| Net loss | | $ | (11,189,189) | |
| | | | | |
| Net loss per common share: | | | | |
| Basic and diluted | | $ | (0.61) | |
| | | | | |
| Weighted average common shares; basic and diluted | | | 18,461,343 | |
| | | | | |
The Accompanying Notes are an Integral
Part of the Consolidated Financial Statements
CALIBRUS,GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For The Years Ended December 31, 2011 and 2010
From the Date of Inception (September 9, 2013) through June 30, 2014
| | | | | | Additional | | | | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity (Deficit) | |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 6,794,600 | | | $ | 6,795 | | | $ | 4,640,812 | | | $ | (3,585,242 | ) | | $ | 1,062,365 | |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants issued for services | | | - | | | | - | | | | 426 | | | | - | | | | 426 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock based compensation | | | - | | | | - | | | | 124,520 | | | | - | | | | 124,520 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended | | | | | | | | | | | | | | | | | | | | |
| December 31, 2010 | | | - | | | | - | | | | - | | | | (128,263 | ) | | | (128,263 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | | 6,794,600 | | | | 6,795 | | | | 4,765,758 | | | | (3,713,505 | ) | | | 1,059,048 | |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants issued with bridge loans | | | - | | | | - | | | | 3,316 | | | | - | | | | 3,316 | |
| | | | | | | | | | | | | | | | | | | | | |
| Convertible debt warrants | | | - | | | | - | | | | 104,821 | | | | - | | | | 104,821 | |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants issued with debt conversion | | | - | | | | - | | | | 14,191 | | | | - | | | | 14,191 | |
| | | | | | | | | | | | | | | | | | | | | |
Stock issued upon conversion of debt and interest | | | 6,976,480 | | | | 6,976 | | | | 1,737,144 | | | | - | | | | 1,744,120 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | Additional | | | | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance at date of inception (September 9, 2013) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Founding contributed capital and debt forgiveness | | | 18,369,000 | | | | 18,369 | | | | 142,662 | | | | - | | | | 161,031 | |
| | | | | | | | | | | | | | | | | | | | | |
| Common Stock for cash and debt forgiveness | | | 204,082 | | | | 204 | | | | 99,796 | | | | - | | | | 100,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| for services | | | 1,836,918 | | | | 1,837 | | | | 898,253 | | | | - | | | | 900,090 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued in reverse acquisition | | | 21,025,709 | | | | 21,026 | | | | 10,281,571 | | | | - | | | | 10,302,597 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the period ended June 30, 2014 | | | - | | | | - | | | | - | | | | (11,189,189 | ) | | | (11,189,189 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2014 | | | 41,435,709 | | | $ | 41,436 | | | $ | 11,422,282 | | | $ | (11,189,189 | ) | | $ | 274,529 | |
| | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes are an Integral
Part of the Consolidated Financial Statements
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
CALIBRUS, INC.CONSOLIDATED STATEMENT OF CASH FLOWS
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)From the Date of Inception (September 9, 2013) through June 30, 2014
For The Years Ended December 31, 2011 and 2010
| Cash flows from operating activities: | | | |
| Net loss | | $ | (11,189,189 | ) |
| | | | | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | | 20,043 | |
| Stock issued for services | | | 900,090 | |
| Impairment of goodwill | | | 10,266,365 | |
| Changes in assets and liabilities | | | | |
| Lease receivable | | | (950 | ) |
| Prepaids | | | (404 | ) |
| Accounts payable | | | 3,805 | |
| Accrued liabilities | | | 3,842 | |
| Customer deposits | | | 3,600 | |
| Deferred option revenue | | | 3,900 | |
| | | | | |
| Net cash provided by operating activities | | | 11,102 | |
| | | | | |
| Cash flows from investing activities: | | | | |
| Purchase of property and improvements | | | (294,946 | ) |
| Cash acquired in reverse acquisition | | | 76,774 | |
| Net cash used by investing activities | | | (218,172 | ) |
| | | | | |
| Cash flows from financing activities: | | | | |
| Proceeds from mortgage | | | 120,000 | |
| Repayments of mortgages | | | (18,808 | ) |
| Proceeds from stockholders’ loans | | | 292,128 | |
| Repayment of stockholders’ loans | | | (81,097 | ) |
| Sale of common stock | | | 50,000 | |
| | | | | |
| Net cash provided by financing activities | | | 362,223 | |
| | | | | |
| Net increase in cash and cash equivalents | | | 155,153 | |
| | | | | |
| Cash and cash equivalents at beginning of period | | | - | |
| | | | | |
| Cash and cash equivalents at end of period | | $ | 155,153 | |
| | | | | |
| Supplemental disclosure of cash flow information: | | | | |
| | | | | |
| Cash paid during the period for; | | | | |
| Interest | | $ | 3,371 | |
| Taxes | | $ | - | |
| | | | | |
| Supplemental disclosure of non-cash investing and financing items | | | | |
| | | | | |
| Building purchase and assumption of mortgage | | $ | 926,597 | |
| Stockholders’ loans converted to equity | | $ | 211,031 | |
| | | | | | | | | Additional | | | | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity (Deficit) | |
| | | | | | | | | | | | | | | | |
| Conversion expense | | | - | | | | - | | | | 2,616,177 | | | | - | | | | 2,616,177 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock issued for services | | | 37,500 | | | | 38 | | | | 14,962 | | | | - | | | | 15,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Stock based compensation | | | - | | | | - | | | | 20,816 | | | | - | | | | 20,816 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | - | | | | - | | | | - | | | | (6,331,971 | ) | | | (6,331,971 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2011 | | | 13,808,580 | | | $ | 13,809 | | | $ | 9,277,185 | | | $ | (10,045,476 | ) | | $ | (754,482 | ) |
The Accompanying Notes are an Integral
Part of the Consolidated Financial Statements
CALIBRUS, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2011 and 2010
| | | 2011 | | | 2010 | |
| | | | | | | |
| Increase (decrease) in cash and cash equivalents: | | | | | | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net Loss | | $ | (6,331,971 | ) | | $ | (128,263 | ) |
| | | | | | | | | |
| Adjustments to reconcile net loss to net cash (used) provided by | | | | | | | | |
| operating activities: | | | | | | | | |
| Depreciation and amortization | | | 946,375 | | | | 132,388 | |
| Amortization of financing costs | | | 2,816 | | | | - | |
| Amortization of debt discount | | | 33,333 | | | | - | |
| Options expense | | | 20,816 | | | | 124,520 | |
| Conversion expense | | | 2,735,189 | | | | - | |
| Interest converted to equity | | | 204,120 | | | | - | |
| Stock issued for services | | | 15,000 | | | | - | |
| Warrants issued for services | | | - | | | | 426 | |
| Impairment expense | | | 1,757,898 | | | | | |
| Bad debt expense | | | - | | | | 8,526 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable - trade | | | (153,423 | ) | | | 207,497 | |
| Prepaid expenses | | | (6,961 | ) | | | 86,480 | |
| Deposits | | | 743 | | | | 477 | |
| Accounts payable - trade | | | (207,871 | ) | | | 429,892 | |
| Accrued liabilities | | | (49,236 | ) | | | (18,277 | ) |
| Net cash provided (used) by operating activities | | | (1,033,172 | ) | | | 843,666 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of fixed assets | | | (22,919 | ) | | | (22,140 | ) |
| Capitalized software development | | | - | | | | (1,737,164 | ) |
| Net cash used by investing activities | | | (22,919 | ) | | | (1,759,304 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from issuance of debt | | | 1,320,400 | | | | 630,000 | �� |
| Repayment of debt | | | (381,000 | ) | | | - | |
| Proceeds from factoring line | | | 2,590,867 | | | | 403,025 | |
| Repayments of factoring line | | | (2,484,630 | ) | | | (270,296 | ) |
| Net cash provided by financing activities | | | 1,045,637 | | | | 762,729 | |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | | (10,454 | ) | | | (152,909 | ) |
| | | | | | | | | |
| Cash and cash equivalents at beginning of year | | | 21,519 | | | | 174,428 | |
| | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 11,065 | | | $ | 21,519 | |
| | | | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | | | |
| | | | | | | | | |
| Non-cash Disclsoures | | | | | | | | |
| Conversion of debt and interest to equity | | $ | 1,744,120 | | | $ | - | |
| Warrants issued as a discount on debt | | $ | 3,316 | | | $ | - | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| | | | | | | |
| Cash paid during the year for: | | | | | | |
| Interest | | $ | 112,417 | | | $ | 11,680 | |
| Income taxes | | $ | 50 | | | $ | 50 | |
The Accompanying Notes are an Integral
Part of the Financial Statements
CALIBRUS,GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NoteNOTE 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Customer Contact Support Services
Calibrus,Grow Condos, Inc. (“Calibrus”GCI” or the “Company”) GCI (f/k/a Fanatic Fans Inc. and Calibrus, Inc.) was incorporated on October 22, 1999, in the State of Nevada. The Company’s principal business purpose isRecently, GCI through Fanatic Fans Inc. had made a decision to operatefocus on its Social Networking operations which includes Fanatic Fans, a customer contact center formobile smartphone application centered around live sporting and entertainment events, and JabberMonkey, a variety of clients who are located throughout the United States. The Company provides customer contact support services for various companies wishingsocial expression website centered around gathering public opinion on current events. Then Fanatic Fans Inc. management decided to outsource these functions. (See Note 2 – Concentrations of Risk)combine operations with WCS Enterprises, LLC (“WCS”).
Our subsidiary, WCS is an Oregon limited liability company which was formed on September 9, 2013. WCS is a real estate purchaser, developer and manager of specific use industrial properties providing “Condo” style turn-key aeroponic grow facilities to support cannabis farmers. WCS intends to own, lease, sell and manage multi-tenant properties so as to reduce the risk of ownership and reduce costs to tenants and owners.
On June 30, 2014, GCI entered into a definitive agreement (the “Agreement”) with the members of WCS for the acquisition of all of the outstanding membership interests of WCS in exchange for 20,410,000 restricted shares of GCI’s common stock. The shares were issued to a total of three persons pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933. In connection with the Agreement, one member of WCS gained control of GCI by virtue of his stock ownership in the Company received in the acquisition. This member acquired 18,369,000 shares of GCI common stock on June 30, 2014, in exchange for his ownership share of WCS. The shares received under the Agreement gave this member effective control of GCI by virtue of holding approximately 44% of GCI’s voting stock. In addition, on June 30, 2014, the GCI CEO, President and CFO resigned and the WCS officers were appointed to fill these position by the board of directors of GCI. In total, the WCS members hold 51.67% of the post-acquisition common stock of GCI and GCI’s officers are the former officers of WCS, making the transaction a reverse acquisition.
As of the consummation of the transaction on June 30, 2014, the financial statements of WCS are consolidated with the financial statements of GCI under the name of GCI but the financial statements are the continuation of WCS with the adjustment to reflect the legal capital of GCI. The assets and liabilities of WCS are measured at their pre-combination carrying amounts and the assets and liabilities of GCI are accounted for at fair value as required under the purchase method of accounting under a reverse acquisition. The results of operations of GCI (formerly Fanatic Fans, Inc. f/k/a Calibrus, provides Third Party Verification (TPV) Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to certain telecom, cable and insurance companies.Inc.) are included in the consolidated financial statements from the closing date of the acquisition.
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the Company has alsoin accordance with accounting principles generally accepted in the past conducted outbound salesUnited States (“GAAP”), and customer service campaigns. Althoughpursuant to the Company does notrules and regulations of the Securities and Exchange Commission (the "SEC").
Consolidation
These consolidated financial statements include the accounts of Grow Condos, Inc., and its wholly-owned subsidiary, WCS. All significant intercompany accounting transactions have any current outbound calling campaign contracts it may again in the future.been eliminated as a result of consolidation.
Third Party VerificationOperating Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the confirmation of a customer’s order by an independent third party. This process protects both the customer, and the company selling their service, from fraud and slamming and/chief operating decision maker, or cramming of products onto their lines. Once a sale has been made the customer is transferreddecision making group, in deciding how to allocate resources to an independent third party verification source such as Calibrus that will read a pre-determined script to whichindividual segment and in assessing the customer will answer yes or no to verify their acceptanceperformance of the service. This service has typically been performedsegment. Given the nature of the reverse acquisition consummated on June 30, 2014 with WCS, the financial statements represent the operating activities of WCS for telecommunications providers.the period from the date of inception (September 9, 2013) to June 30, 2014 and primarily the operating assets of WCS, which operates as one segment.
Calibrus’ Hosted Call Recording service offers a number of features necessary for a superior call recording solution. Calibrus’ Hosted Call Recording solutions are an alternative for companies that do not wish to invest in expensive hardware, maintenance, personnel and support of a technology based call recording system.
IVR or Interactive Voice Response allows customers to offer customer service or verification services without the need of a live agent. Calibrus’ automated IVR/VRU verification method provides customers with a pre-determined script to comply with each client’s unique verification requirements.
Our technology provides us with the ability to provide fully-integrated live voice, data, and automated services and combinations of services out of a unified platform. Our system’s processes and functionality allow our IT staff to easily design and build systems that satisfy client’s process requirements. Using our technology has allowed us to develop and build customized web-based solutions incorporating call recording, “click to call” and voice message broadcast functionality.
JabberMonkey.com
JabberMonkey is a social expression site that features questions on issues and topics that are current and relevant to its members. JabberMonkey questions will be on pertinent issues that in many instances may evoke an emotional response from its members. Many of the questions on JabberMonkey will provide the individuals voting with a voice to cause an action or effect a result.
In addition to being able to conduct polls and questions, JabberMonkey offers a unique user experience by being able to offer interactive communication and high definition video. While most social networking sites offer only a static page for the user. JabberMonkey offers video communications between multiple users at once, the ability to quickly load video, and the ability to set up groups or companies into secure sites. JabberMonkey also takes advantage of other companies’ storage by allowing links to other web sites such as YouTube or Google.
JabberMonkey has completed its alpha testing and moved into beta testing during December 2009. The Company ran its beta testing phase through November 2010 and released the first non-beta version of the website for general commercial use in December 2010.
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JabberMonkey members will vote and provide their comments on an issue and then see instant feedback on how others are feeling about a topic or issue and view comments made by others. JabberMonkey members will be able to express themselves by answering questions, posting their own questions, text blogging, video blogging, participating in forums, creating profiles, posting videos, photos, audio files, and rating other JabberMonkey members’ questions and content.
JabberMonkey members will also be able to meet new people and make new friends. When answering a question or participating in a group, members will be able to meet people with similar interests, and will then be able to become friends on JabberMonkey. They can then communicate via messaging, chat, and video voice calling as well as sharing photos, videos and other electronic media.
Categories include Entertainment, Music, Business, etc. Each category will also contain subcategories to encompass a wide range of topics and interests.
Fanatic Fans
Fanatic Fans informs fans about upcoming live events in the Sports and Music industries by giving users the ability to interact with live events, share their experiences, and earn rewards for attending live events. Users can browse a calendar of upcoming events which can be segmented by region and artist. Users can get detailed information on the event and discuss the event with other fans. While at an event users can share their experiences with social networks Facebook and Twitter, and communicate with other people at the event. Users can unlock virtual awards and earn virtual points in recognition of attending events. Within their profile users can browse and view the items they have unlocked and receive news on their favorite artists. Finally, users can redeem their virtual points for food/drinks, apparel and purchase event tickets in the application award section.
Fanatic Fans rewards fans for their support of their favorite sports team, music artist or band. National and local businesses market to fans that attend the events by listing promotions (goods and services) on our application (“app”). Businesses list their promotions and users can view and redeem these promotions and offers that are specific to their interests. Fanatic Fans offers contests and provides recognition to the most Fanatic Fans.
Fanatic Fans Application
When a user is at an event the app automatically determines the event the user is attending using the phones GPS capability. The user is able to view information on the show including a list of the artists performing at the show. There is a forum that users can make comments about upcoming events which also allows fans to interact with one another while at the show. Comments made by users can go directly to Facebook and Twitter if the user choose to link their Fanatic Fans account. While attending an event users can check in. By checking in the user will unlock a virtual award which can also be published to Facebook and Twitter. Users also earn virtual currency by checking into a location. After checking in the user will return to the comments page where they can continue to read and add comments about the show.
When users are not at a show they use Fanatic Fans to locate upcoming shows. They browse a calendar of all upcoming shows and sort by location and artists that they follow. Users get information on the show including; time, location, and performing artists. Users can view tips created by other members and add tips of their own. Finally users confirm that they are going to attend an event and tell their friends by publishing to Facebook and Twitter.
Fanatic features a profile page which allows users to view their past activity within the app and receive news updates on their favorite artists. They are able to view all the awards that they have unlocked, and all the shows that they have attended. They also receive the latest news posts of some of their favorite music artist. Finally, users can adjust their personal settings from their profile including which artists they wish to follow, their home town, and their Facebook and twitter account information.
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Fanatic Fans Website
Live event content that is posted from users using Fanatic Fans is available to view on the Fanatic Fans website. Comments, pictures and videos uploaded to the Fanatic Fans app by fans using their mobile phone attending live events are instantly saved on the FanaticFans.com website. Users can watch videos, view pictures and see what people are saying about live sports or music events in real-time. As fans express and share their excitement users can join in and make comments, upload pictures and videos before, during and after the live event and share to Facebook and Twitter.
Additionally, on the FanaticFans.com website users can view a complete listing of discount offers by merchants on food, drinks, merchandise and tickets. Users can check out all upcoming sports and music events in their area and other cities around the nation and review all their live event comments, pictures and videos in their profile page.
Fanatic Fans Facebook Application
The Fanatic Fand Facebook application allows sports and music fans to view user generated content and experience the live event on Facebook using the Fanatic Fans Facebook app. The Fanatic Fans Facebook app allows Facebook users to access live event sports and concert content without ever having to leave Facebook. Users can see photos and videos that fans took of their favorite sports team and/or music artist in real-time and hear what they thought of the big game or concert.
With the Fanatic Fans Facebook app Facebook users can see their favorite live events. The Fanatic Fans app features a calendar of all sports and music events by region. Users can look up the location and time of an event and get a map with directions showing them exactly how to get there. When a user sees an event they are interested in they can share it with their Facebook friends, buy tickets to the event, make comments, post videos and pictures before, in real-time during, and after the event.
Facebook users can earn rewards for attending their favorite live events and using the Fanatic Fans Facebook or mobile applications. Facebook users can access a complete listing of merchant discount offers on food, drinks, merchandise and tickets and look up discounts nearby and redeem rewards using the Fanatic Fans mobile application.
Reclassifications
Certain balances in the accompanying financial statements were reclassified to conform to the current year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.We believe that it is at least reasonably possible that the effect on the financial statements of a condition, situation, or set of circumstances that existed at the date of the financial statements will change in the near term due to one or more future confirming events and the effect of the change would be material to the financial statements. Significant estimates include, but are not limited to, the estimate of the allowance for doubtful accounts, income taxes, recoverabilityequity compensation, allocation of software development, the fair value of stock based compensationpurchase price for acquired assets, and depreciable lives of long lived assets.
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments purchased with an initiala maturity of three (3) months or less.less at the time of purchase.
Lease Receivables
Lease receivables are recognized when rents are due, and for the straight-line adjustment to rents over the term of the lease less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer's willingness or ability to pay, the Company's compliance with lease terms, the effect of general economic conditions and the ongoing relationship with the customer. Accounts Receivablewith outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off lease receivables when it determines that they have become uncollectible after all reasonable collection efforts have been made. If we record bad debt expense, the amount is reflected as a component of operating expenses in the statements of operations. As of June 30, 2014, no allowance for doubtful accounts was recorded as none was considerd necessary.
Investment In and Valuation of Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition (excluding acquisition related expenses), construction costs, mortgage interest during the period the facilities are under construction and prior to readiness for occupancy, and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance are expensed as incurred.
The Company provides for potentially uncollectible accounts receivable by useis required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life of the allowance method. The allowance is provided based uponassets. Real estate assets, other than land, are depreciated on a reviewstraight-line basis over the estimated useful life of the individual accounts outstanding, andasset. The estimated useful lives of the Company's prior history of uncollectible accounts receivable. As of December 31, 2011 and 2010, a provision for uncollectible trade accounts receivable has been established in the amount of $50,000. The Company does not accrue interest charges or fees on delinquent accounts receivable. The accountsCompany’s real estate assets by class are generally unsecured.as follows:
Land Indefinite
Buildings 40 years
Tenant improvements Lesser of useful life or lease term
Intangible lease assets Lease term
Note 1GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property and EquipmentAllocation of Purchase Price of Real Assets
PropertyUpon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land, buildings, improvements, and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful livesidentified intangible assets and liabilities, consisting of the assets. The average lives range from three (3) to five (5) years. Leasehold improvements are amortized on the straight-line method over the lesser of the lease term or the useful life. Maintenance and repairs that neither materially add to the value of above market and below market leases and the value of in-place leases, based in each case on their respective fair values. We may utilize independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property nor appreciably prolong its life are charged(which includes land and building). The information available to expenseour management, is used in estimating the amount of the purchase price that is allocated to land. Other information, such as incurred. Betterments or renewals are capitalized when incurred. Forbuilding value and market rents, is used by our management in estimating the years ended December 31, 2011allocation of purchase price to the building and 2010, depreciation expense was $29,211to intangible lease assets and $54,791, respectively.
Software Developmentliabilities. If an appraisal firm is used, the firm would have no involvement in management’s allocation decisions other than providing this market information.
The Company capitalizesfair values of above market and below market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) an estimate of fair market lease rates for the corresponding in-place leases, which will generally be obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease including any bargain renewal periods, with respect to a below market lease. The above market and below market lease values are capitalized as intangible lease assets or liabilities, respectively. Above market lease values are amortized as a reduction to rental income over the remaining terms of the respective leases. Below market lease values are amortized as an increase to rental income over the remaining terms of the respective leases, including any bargain renewal periods. In considering whether or not we will expect a tenant to execute a bargain renewal option, we will evaluate economic factors and certain softwarequalitative factors at the time of acquisition, such as the financial strength of the tenant, remaining lease term, the tenant mix of the leased property, our relationship with the tenant and the availability of competing tenant space. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market or below market lease values relating to that lease would be recorded as an adjustment to rental income in the period of termination.
The fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income, which are avoided by acquiring a property with an in-place lease. Direct costs associated with obtaining a new tenant include commissions and other direct costs and are estimated in accordancepart by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. The intangible values of opportunity costs are calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. The building acquired in 2013 had no leases in place as of the date of acquisition; therefore, the entire amount of the fair value of the mortgage assumed was allocated to land and buildings. The improvements made by us for the current tenants were capitalized to building improvements.
We estimate the fair value of assumed mortgage notes payable based upon indications of current market pricing for similar types of debt financing with FASB ASC 350-40 Internal-Use Software. The JabberMonkey website was under development through November 2010similar maturities. Assumed mortgage notes payable will initially be recorded at their estimated fair value as of the assumption date, and reached availability for general commercial use in December, 2010. Capitalized costsany difference between such estimated fair value and the mortgage note’s outstanding principal balance will be amortized to interest expense over the estimated economic lifeterm of the product which is estimated to be 3 years. Amortization expense for the year ended December 31, 2011 and 2010 was $917,164 and $76,430, respectively.
Intangible Assetsrespective mortgage note payable.
The intangibledetermination of the fair values of the real estate assets are comprisedand liabilities acquired requires the use of branding costs and the Company’s “Calibrus” website. The intangible assets are being amortized using the straight-line method over its economic life, which is estimated to be seven (7) years. As of December 31, 2010 the amount relatedsignificant assumptions with regard to the Company’s branding costcurrent market rental rates, rental growth rates, capitalization and company website have been fully amortized. Amortization expensediscount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of our purchase price, which could impact our results of operations.
Capitalized Interest
The Company capitalizes interest costs to buildings on expenditures made in connection with construction projects for buildings that are not subject to current depreciation. Interest is capitalized only for the year ended December 31, 2010period that activities are in progress to bring these facilities to their intended use. The Company capitalized $39,286 of mortgage interest during the period of the build out of our current facility. Interest capitalization ceased and depreciation began when the facility was $1,167.available for rent.
Advertising- 23 -
We expense advertising
GROW CONDOS, INC. and marketing costs as incurred. Advertising costs include trade show fees, online advertising, etc. Advertising expenses were approximately $68,100Subsidiary (f/k/a Fanatic Fans Inc. and $22,000 for the years ended December 31, 2011 and 2010, respectively.Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
We recognize revenue only when all of the following criteria have been met:
| · | persuasive evidence of an arrangement exists; |
| · | use of the real property has taken place or services have been rendered; |
| · | the fee for the arrangement is fixed or determinable; and |
| · | collectability is reasonably assured. |
RevenuePersuasive Evidence of an Arrangement – We document all terms of an arrangement in a real property lease signed by the tenant prior to recognizing revenue.
Use of the Real Property or Services Have Been Performed – Tenants occupy our facility or we perform all services prior to recognizing revenue. Services are deemed to be performed when the services are complete.
The Fee for inbound callsthe Arrangement is recordedFixed or Determinable – Prior to recognizing revenue, a customer’s fee is either fixed or determinable under the terms of the signed real property lease.
Collectability Is Reasonably Assured – We assess collectability on a per-call or per-minutecustomer by customer basis based on criteria outlined by management.
Our real property lease agreements, which are governed by the laws of the state of Oregon, usually are non-cancellable and range from six to thirty-six months with a cash security deposit and personal guarantee required. We account for our leases in accordance with Accounting Standard Codification (“ASC”) Topic 840, Leases, as operating leases. Leases may include escalating rental rates, an option to extend the rates establishedterm of the lease at a fixed rental rate, and an option to purchase the portion of the building being leased at the end of the lease term. Leases may be assigned with our approval. Common area maintenance and water are paid by the Company with the tenant responsible for maintenance, repairs and liability insurance associated with their specific unit within the building. Cash received for purchase options is recorded as deferred option revenue in the respective contracts. Revenueaccompanying consolidated financial statements. These amounts are recorded to revenue upon the exercise of the option by the tenant or the expiration of the unused option. Rental revenue includes $1,800 of revenue from forfeited option payments received in cash during the period ended June 30, 2014.
Future minimum lease payments to be received under non-cancelable real property leases are as follows as of June 30, 2014 for outbound calls isthe fiscal year ending in:
2015 $ 42,000
2016 36,900
2017 29,700
Total $ 108,600
Properties may have leases where minimum rental payments increase during the term of the lease. We record rental income for the full term of each lease on a commission basis, with revenue being recognizedstraight-line basis. When we acquire a property, the terms of existing leases are considered to commence as of the commission is earned. As the Company’s customers are primarily well established, creditworthy institutions, Management believes collectability is reasonably assured at the time of performance. The Company, from time to time, executes outbound sales campaigns for customers, primarilyacquisition date for the salepurpose of telecommunications services. Although this revenue source has been immaterial,calculation. We defer the Company recognizesrecognition of contingent rental income, such as percentage rents, until the commissions earned on these campaignsspecific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period when such costs are incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was de minimis for the period from date of inception (September 9, 2013) to June 30, 2014.
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
We adopted ASC Topic 820 for financial instruments measured at fair value on a net basisrecurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with FASBaccounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 605-45 Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of lease receivables, accounts payable, accrued liabilities, and mortgages payable approximate fair value given their short term nature or effective interest rates, which constitutes level three inputs.
Business Combinations
Reporting Revenue GrossWe account for an acquisition of a business in accordance with ASC Topic 805, Business Combinations. Intangible assets that we acquire are recognized separately if they arise from contractual or other legal rights or if they are separable and are recorded at fair value. Goodwill is recorded as the excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquired entity over the (ii) fair value of the net identifiable assets acquired.
The following table summarizes the aggregate consideration paid for the reverse acquisition of WCS, and the amounts of the GCI assets acquired and liabilities assumed at the fair value on the acquisition date:
Consideration:
| Equity instruments (21,025,709 common shares of the Company) issued | | | 10,302,597 | |
| Fair value of total consideration transferred | | $ | 10,302,597 | |
| Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | |
| Cash | | $ | 76,774 | |
| Property, plant, and equipment | | | 350 | |
| Deposits | | | 818 | |
| Accounts payable and accrued liabilities assumed | | | (41,710 | ) |
| Total identifiable net liabilities | | | 36,232 | |
| Goodwill | | | 10,266,365 | |
| Total purchase price allocated | | $ | 10,302,597 | |
GROW CONDOS, INC. and Subsidiary (f/k/a Principal versus Net as an Agent.Fanatic Fans Inc. and Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets
We do not amortize goodwill; however, we annually, or whenever there is an indication that goodwill may be impaired, evaluate qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company reviewsmeasures the carrying amount of the asset against the estimated discounted future cash flows associated with it. Should the sum of the expected future net discounted cash flows be less than the carrying value of its long-livedthe asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the assets at least annually, orexceeds implied fair value. Our test of goodwill impairment includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Based on our analysis as of June 30, 2014, the Company recorded goodwill impairment in the amount of $10,266,365. Any future increases in fair value would not result in an adjustment to the impairment loss that was recorded in our consolidated financial statements.
We analyze intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an assetamounts may not be recoverable. RecoverabilityWe review the amortization method and period at least at each balance sheet date. The effects of any revision are recorded to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets to be held and used is measured by a comparisonless than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceedsover the fair value of thesuch assets.
On December 31, 2011 the Company reviewed the carrying value of its capitalized software development and decided to record an impairment against the remaining value. This determination was predicated by the fact that the Company currently lacks sufficient funds to actively market the product. Given the lead time necessary to market the product, develop a client base and generate a revenue stream, it could not generate sufficient cash flows to offset the remaining two years of its estimated life. Therefore, management determined that an impairment was justified at this time. The Company recorded impairment expense of $1,757,898 related to this impairment.
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and the State of Arizona. The Company is subject to federal, state and local income tax examinations by tax authorities for approximately the past three years, or in some instances longer periods.
Deferred income taxes are provided using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Net deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates at the date of enactment.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured, if any, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interests and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. During the years ended December 31, 2011 and 2010period from inception (September 9, 2013) through June 30, 2014, there were no interest or penalties incurred related to income taxes. The Company is no longer subject to U.S. federal, state, or non-U.S. income tax examinations by tax authorities for tax years before 2010, except that earlier years can be examined for the sole purpose of challenging the net operating loss carry-forwards arising in those years.
Fair Value of Financial Instruments- 26 -
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties
GROW CONDOS, INC. and cannot be determined with precision. The carrying amounts of accounts receivable, notes payable, accounts payable, accrued liabilities approximate fair value given their short term nature or effective interest rates.
Research and Development
Research and development expenses include third-party development and programming costs, localization costs incurred to translate software for international markets, the amortization of purchased software code and services content, and in-process research and development. During the years ended December 31, 2011 and 2010, Research and Development Expense totaled $1,472,113 and $232,327, respectively. All Research and Development Expense was related to the ongoing development of the Company’s social expression website, JabberMonkey, and its location-based, social networking smart phone application, Fanatic Fans. The Company has entered into Subsidiary (f/k/a time and materials agreement with MeoMyo, LLC to develop the JabberMonkey website and Fanatic Fans application. Contract work is performed as authorizedInc. and the contract is cancellable on 30-days written notice.Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share
Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, using the treasury stock method for stock options and warrants and the if-converted method for convertible debt.
The following datatable shows the amounts used in computing basic and diluted earningsnet loss per share andshare. For the effect on income and the weighted average number of shares ofperiod ended June 30, 2014 all potentially dilutive common stock.
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
securities are anti-dilutive due to the Company’s loss from operations.
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | | | | | |
| Loss available to common stockholders | | $ | (6,331,971 | ) | | $ | (128,263 | ) |
| | | | | | | | | |
| Weighted average number of common shares | | | | | | | | |
| used in basic earnings per share | | | 7,978,820 | | | | 6,794,600 | |
| | | | | | | | | |
| Effect of dilutive securities: | | | | | | | | |
| Stock options | | | - | | | | - | |
| Stock warrants | | | - | | | | - | |
| Convertible debt | | | - | | | | - | |
| | | | | | | | | |
| Weighted average number of common shares | | | | | | | | |
| and dilutive potential comon stock used in | | | | | | | | |
| diluted earnings per share | | | 7,978,820 | | | | 6,794,600 | |
| | | June 30, | |
| | | 2014 | |
| | | | |
| Net loss | | $ | (11,189,189 | ) |
| | | | | |
| Weighted average number of common shares | | | | |
| used in basic earnings per share | | | 18,461,343 | |
| | | | | |
| Effect of dilutive securities: | | | | |
| Stock options | | | - | |
| Stock warrants | | | - | |
| | | | | |
| Weighted average number of common shares | | | | |
| and dilutive potential comon stock used in | | | | |
| diluted loss per share | | | 18,461,343 | |
| | | | | |
All dilutive common stock equivalents are reflected in our earningsnet loss per share calculations. Anti-dilutive common stock equivalents are not included in our earningsloss per share calculations. For the year ended December 31, 2011,At June 30, 2014, the Company had outstanding options to purchase 2,744,1671,795,000 shares of common stock at a per share weighted average exercise price of $.89$0.79 and outstanding warrants to purchase 1,026,588910,636 shares of common stock at a weighted average exercise price of $.39. For the year ended December 31, 2010, the Company had outstanding options to purchase 2,512,499 shares of common stock at a per share weighted average exercise price of $1.08 and outstanding warrants to purchase 514,500 shares of common stock at a weighted average exercise price of $1.95 per share. Neither amounts were included in the earnings per share calculation as they were anti-dilutive. As of December 31, 2011, the Company had $25,000 of principal value of convertible debentures which are convertible into 16,666 shares of the Company’s common stock, which were also antidilutive. As of December 31, 2010, the Company had $1,010,000 of convertible debentures which are convertible into 673,333 shares of the Company’s common stock, which were also antidilutive.$0.35.
Stock-Based Compensation
The Company has stock-based compensation plans. Stock-based compensation expense for all stock-based compensation awards granted is based on the grant date fair value estimated in accordance with the Black Scholes Pricing Model. The value of the compensation cost is amortized on a straight-line basis over the requisite service periods of the award (the option vesting term).
Assumptions used in the Black Scholes Pricing Model to estimate compensation expense are determined as follows:
| · | Expected term is generally determined using an average of the contractual term and vesting period of the award; |
| · | Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices,the Company’s common stock shares, which are publicly traded, over the expected term of the award; |
| · | Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and, |
| · | Forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures. |
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company operates within an industry that is illegal under federal law, has yet to achieve profitable operations, has a significant accumulated deficit and is dependent on our ability to raise capital from stockholders or other sources to sustain operations and ultimately achieve viable profitable operations. As reported in these consolidated financial statements, the Company has not yet achieved profitable operations and has an accumulated deficit of $11,189,189, which we have determined raises substantial doubt about the Company’s ability to continue as a going concern.
Further, marijuana remains illegal under federal law as a schedule-I controlled substance, even in those jurisdictions in which the use of medical or recreational marijuana has been legalized at the state level. A change in the federal attitude towards enforcement could cripple the industry. The medical and recreational marijuana industry is our primary target market, and if this industry was unable to operate, we would be subject to all potential remedies under federal law and lose the majority of our potential clients, which would have a negative impact on our business, operations and financial condition.
The ability of the Company to continue as a going concern is dependent on our ability to raise adequate capital to fund operating losses until we are able to engage in profitable business operations and the continuation of the current regulatory and enforcement environment. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing our services and meeting our obligations.
Management’s plans to address these matters include maintaining an awareness of the current regulatory and enforcement environment, controlling costs, evaluating our projected expenditures relative to our available cash and evaluating additional means of financing in order to satisfy our working capital and other cash requirements. The accompanying consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
Recently Issued Accounting Pronouncements
In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern and 2014-10, Development Stage Entities both of which have been adopted by the Company in the accompanying consolidated financial statements.
In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company beginning July 1, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting this new accounting standard on our consolidated financial statements.
NOTE 2 – PROPERTY AND EQUIPMENT, NET
Property and improvements consisted of the following as of June 30, 2014:
| Buildings and improvements | | $ | 1,066,317 | |
| Land | | | 155,576 | |
| | | | 1,221,893 | |
| Less: accumulated depreciation | | | (20,043 | ) |
| | | $ | 1,201,850 | |
Note 1
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
SummaryNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
After the building was available for its intended use, and through June 30, 2014, $20,043 of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
depreciation expense was recorded.
Pending Accounting PronouncementsNOTE 3 – CONCENTRATIONS OF RISK
There have been no accounting pronouncements or changes in accounting principles during the year ended December 31, 2011 that are of significance, or potential significance, to us.
Note 2
Concentrations of Risk
During the year ended December 31, 2011, the Company rendered a substantial portion of its services to its three largest customers representing 50%, 17% and 15% of total revenues. As of December 31, 2011, the amounts due from these customers were $199,535, $78,813 and $202,967, respectively.
During the year ended December 31, 2010, the Company rendered a substantial portion of its services to its two largest customers representing 68% and 17% of total revenues. As of December 31, 2010, the amounts due from these customers were $266,261 and $72,680, respectively.
The Company maintains cash and cash equivalents at various financial institutions. Deposits not to exceed $250,000 at each financial institution are insured by the Federal Deposit Insurance Corporation. At December 31, 2011 and 2010,June 30, 2014, the Company had no uninsured cash and cash equivalents.equivalents
Note 3
Property and Equipment
NOTE 4 – MORTGAGES PAYABLE
PropertyAs of June 30, 2014, we had two mortgages payable, both to the People’s Bank of Commerce in Medford, Oregon, secured by all of our land, buildings and equipmentimprovements. The mortgages payable were comprised of the following:
| Bank term loan, prime rate plus 1.75%, currently 5%, P&I payments of $5,946 due monthly, balloon payment of $802,294 due June 28, 2018, secured by property | | $ | 910,967 | |
| | | | | |
| Bank term loan, prime rate plus 3.00%, currently 6.25%, P&I payments of $833 due monthly, balloon payment of $104,329 due October 15, 2018, secured by property | | | 116,822 | |
| | | | | |
| Less: current portion | | | (29,841 | ) |
| | | $ | 997,948 | |
Future maturities of long term debt are as follows as of December 31, 2011 and 2010June 30, 2014 for the fiscal year ending in:
2015 $ 29,841
2016 �� 31,415
2017 33,067
2018 828,678
2019 104,788
Total $1,027,789
NOTE 5 – INCOME TAXES
At June 30, 2014, deferred tax assets consist of the following:
| | | 2011 | | | 2010 | |
| | | | | | | |
| Computer hardware | | $ | 2,142,455 | | | $ | 2,120,537 | |
| Furniture and fixtures | | | 244,785 | | | | 243,785 | |
| Leashold improvements | | | 156,144 | | | | 156,144 | |
| Software costs | | | 1,195,761 | | | | 1,195,761 | |
| | | | 3,739,145 | | | | 3,716,227 | |
| Less: accumulated depreciation | | | (3,698,080 | ) | | | (3,668,870 | ) |
| | | | | | | | | |
| | | $ | 41,065 | | | $ | 47,357 | |
Note 4
Software Development
At December 31, 2011 and 2010, software development consists of the following:
| | | 2011 | | | 2010 | |
| | | | | | | |
| JabberMonkey website development | | $ | 2,751,492 | | | $ | 2,751,492 | |
| Less: accumulated amortization | | | (993,594 | ) | | | (76,430 | ) |
| Less: impairment | | | (1,757,898 | ) | | | - | |
| | | | | | | | | |
| | | $ | - | | | $ | 2,675,062 | |
Note 4
Software Development (Continued)
The Company reached technical feasibility of its social networking website JabberMonkey.com on June 1, 2009 with the release of its alpha site. Costs associated with the development beginning June 1, 2009 through the official launch of the website, December 1, 2010, were capitalized. Capitalized software costs related to the JabberMonkey project will be amortized using the straight-line method over three years and commenced on December 1, 2010. Amortization expense related to the JabberMonkey website totaled $917,164 and $76,430 for the years ended December 31, 2011 and 2010, respectively.
On December 31, 2011 the Company reviewed the carrying value of its capitalized software development and decided to record an impairment against the remaining value. This determination was predicated by the fact that the Company currently lacks sufficient funds to actively market the product. Given the lead time necessary to market the product, develop a client base and generate a revenue stream, it could not generate sufficient cash flows to offset the remaining two years of its estimated life. Therefore, management determined that an impairment was justified at this time. The Company recorded impairment expense of $1,757,898 related to this impairment.
Note 5
Convertible Notes Payable
From October 2009 through October 31, 2011, the Company sold 315 units, at $5,000 per unit, consisting of five thousand dollars ($5,000) in Convertible Debentures (the “Debentures”) of Calibrus and twenty five hundred (2,500) common stock purchase warrants (the “Units”) for total proceeds of $1,575,000. Each Debenture was convertible into shares of common stock of Calibrus at the lower of $1.50 per share or the price of any additional private placement of Calibrus in the next twelve months and bears interest at the rate of 12% per annum. Each common stock purchase warrant entitled the holder to purchase one share of Calibrus’ common stock for each warrant held at the warrant exercise price of the lower of (i) one dollar and ninety-five cents ($1.95) per share, or (ii) one hundred thirty percent (130%) of the per share price paid by any investor in a private placement by Calibrus of shares of our common stock at any time in the next twelve months (the “Warrants”). The Warrants were only exercisable if the Debentures, which are part of the underlying Unit, are converted into shares of Calibrus’ common stock.
On August 29, 2011 the Company’s Board of Directors elected to reprice the conversion price for the Company’s convertible debt from $1.50 per share to $0.25 per share and such conversion price was only valid through October 31, 2011. The repricing was effective as of October 31, 2011 for holders electing to accept the reduced conversion price. This repricing is considered an induced conversion of debt. Therefore, the value of the additional shares received upon conversion in excess of the original conversion formula are treated as an inducement expense at the time of conversion. The Company converted a total of $1,540,000 in principal amounts of the convertible debentures in addition to $204,120 in accrued interest related to the debentures. This resulted in the issuance of 6,976,480 shares of the Company’s common stock. As of December 31, 2011 the Company had $25,000 in principal amount debentures outstanding. The Company recognized induced conversion expense, included in interest expense, at the time of the conversion of $2,616,177. In addition the Company valued a total of 770,000 warrants which became exercisable at the time of conversion and recorded $104,821 of conversion expense related to this. The Company also issued 102,088 warrants for accrued interest converted resulting in additional conversion expense of $14,191. Total conversion expense related to the warrants and convertible debt conversion was $2,735,189 and was included in interest expense.
Note 5
Convertible Notes Payable (Continued)
As of December 31, 2011 and 2010 notes payable were comprised of the following:
| | | 2011 | | | 2010 | |
| | | | | | | |
| | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | |
| November 16, 2010, unsecured. | | $ | 10,000 | | | $ | 250,000 | |
| | | | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | | | |
| December 31, 2010, unsecured. | | | - | | | | 130,000 | |
| | | | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | | | |
| March 31, 2011, unsecured. | | | 15,000 | | | | 370,000 | |
| | | | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | | | |
| June 30, 2011, unsecured. | | | - | | | | 115,000 | |
| | | | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | | | |
| July 31, 2011, unsecured. | | | - | | | | 135,000 | |
| | | | | | | | | |
| Various notes payable to convertible debenture holders, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and accrued interest due | | | | | | | | |
| November 30, 2011, unsecured. | | | - | | | | 10,000 | |
| | | | 25,000 | | | | 1,010,000 | |
| | | | | | | | | |
| Less: current portion | | | (25,000 | ) | | | (1,010,000 | ) |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
Subsequent to December 31, 2011 the Company paid the $10,000 debenture dated November 16, 2009 along with accrued interest. The remaining $15,000 in principal is due to the Mother of the Company’s CEO and President. The Company has received a verbal extension on this debt through June 30, 2012.
Interest expense related to the debentures for the years ended December 31, 2011 and 2010 was $114,284 and $92,901, respectively. Accrued interest related to the debentures at December 31, 2011 and 2010 was $5,564 and $96,600, respectively.
Note 6| Current portion: | | | | |
| Net operating loss carryforwards | | $ | 2,920,000 | |
| | | | | |
| | | | 2,920,000 | |
| Less: valuation allowance | | | (2,920,000) | |
| | | | | |
| Deferred tax asset-current portion | | $ | - | |
Notes Payable
On January 31, 2011, the Company issued a promissory note in the principal amount $50,000 to evidence a loan made to the Company by Jeff W. Holmes, the Company’s CEO and a beneficial owner. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 50,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On February 16, 2011, the Company issued a promissory note in the principal amount $50,000 to evidence a loan made to the Company by an existing shareholder. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 50,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $10,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 10,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On March 16, 2011, the Company issued a promissory note in the principal amount $5,000 to evidence a loan made to the Company by an entity controlled by Christian J. Hoffmann, III, a Director. The term of the note is 1 year with interest at 12% per annum, with interest due monthly. The loan also included warrants to purchase 5,000 shares of the Company’s common stock with an exercise price of $.50 per share. The warrants have a 3 year term.
On August 31, 2011, the Company issued a promissory note in the principal amount of $200,000 to evidence a loan made to the Company by Greg W. Holmes, President of the Company. The term of the note is 6 months with a stated interest rate of 12% per annum and an effective interest rate of 71.78%, with discount, with interest due monthly. The Company received gross proceeds from the note of $150,000 with $50,000 being retained by Mr. Holmes as an origination fee. The $50,000 note discount is being amortized over the life of the loan or at the rate of $8,333 per month.
The Company has received a written extension on the non-related party $50,000 note through June 30, 2012 and verbal extensions through June 30, 2012 from the remaining related party debt holders.
Note 6
Notes Payable (Continued)
At December 31, 2011 and 2010 Notes Payable consisted of the following:
| | | 2011 | | | 2010 | |
| | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly | | | | | | |
| principal and accrued interest due of 12%, January 31, 2012 extended to June 30, 2012 | | $ | 50,000 | | | $ | - | |
| | | | | | | | | |
| Note payable, interest rate of 12% accrued monthly | | | | | | | | |
| principal and accrued interest due of 12%, January 31, 2012 extended to June 30, 2012 | | | 50,000 | | | | - | |
| | | | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly | | | | | | | | |
| principal and accrued interest due of 12%, January 31, 2012 extended to June 30, 2012 | | | 25,000 | | | | - | |
| | | | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly | | | | | | | | |
| principal and accrued interest due of 12%, January 31, 2012 extended to June 30, 2012 | | | 200,000 | | | | - | |
| | | | | | | | | |
| Various short-term advances from related parties | | | 109,400 | | | | | |
| | | | 434,400 | | | | - | |
| | | | | | | | | |
| Less: discount | | | (16,667 | ) | | | | |
| | | | | | | | | |
| Less: current portion | | | (417,733 | ) | | | - | |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
During the year ended December 31, 2010 the Company entered into a Factoring and Security Agreement with Factors Southwest, LLC (FSW). The agreement states that FSW will advance to the Company 80% of eligible accounts receivable upon submission to FSW for funding. Factoring fees related to advances will equal 2.25% for the first 30-day period, .56% for the next 15-day period and .75% for each additional 30-day period following. Advances are made with full-recourse after a 90-day period. The maximum credit under the factoring line is $600,000 and is secured by all assets of the Company and a first priority lien filing on accounts receivable and proceeds. All payments made by customers of the Company on factored invoices are sent directly to FSW. For the year ended December 31, 2011, FSW advanced a total of $2,590,867 of which $2,484,630 was repaid. For the year ended December 31, 2010, FSW advanced a total of $403,025 of which $270,296 had been repaid. Total amounts due to FSW at December 31, 2011 and 2010 was $238,966 and $132,729, respectively. Factoring expense for the years ended December 31, 2011 and 2010 was $111,217 and $11,680, respectively, and was included in interest expense. All factored invoices are full-recourse after 90 days.
Note 8
Accrued Liabilities
| Accrued liabilities as of December 31, 2011 and 2010 consist of: | | | | | | |
| | | 2011 | | | 2010 | |
| | | | | | | |
| Payroll and related taxes | | $ | 62,889 | | | $ | 65,618 | |
| Deferred rent | | | 3,947 | | | | 607 | |
| Accrued vacation | | | 86,900 | | | | 72,475 | |
| Accrued interest | | | 24,296 | | | | 96,600 | |
| Other accrued expenses | | | 38,838 | | | | 30,806 | |
| | | | | | | | | |
| | | $ | 216,870 | | | $ | 266,106 | |
At December 31, 2011 and 2010, deferred tax assets (liabilities) consist of the following:
| | | 2011 | | | 2010 | |
| Current portion: | | | | | | |
| Operating loss carryforwards | | $ | 2,605,000 | | | $ | 2,282,000 | |
| Allowance for doubtful accounts | | | 19,000 | | | | 19,000 | |
| Accrued vacation | | | 34,000 | | | | 28,000 | |
| Deferred rent expense | | | (2,000 | ) | | | - | |
| Software development | | | - | | | | (1,043,000 | ) |
| | | | | | | | | |
| | | | 2,656,000 | | | | 1,286,000 | |
| Less: valuation allowance | | | (2,656,000 | ) | | | (1,286,000 | ) |
| | | | | | | | | |
| Deferred tax asset-current portion | | $ | - | | | $ | - | |
| | | | | | | | | |
| Long-term portion: | | | | | | | | |
| Depreciation and amortization | | $ | (14,000 | ) | | $ | 31,000 | |
| Less: valuation allowance | | | 14,000 | | | | (31,000 | ) |
| | | | | | | | | |
| Deferred tax asset-long term portion | | $ | - | | | $ | - | |
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, uncertainties exist that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of December 31, 2011,June 30, 2014, the Company has net federal operating loss carryforwards of approximately $6.7$7.5 million and state net operating loss carryforwards of approximately $5.5$4.75 million.
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
Note 9NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Below are the federal and state net operating loss carryforwards as of December 31, 2011.June 30, 2014.
| Expiration Date | | Federal NOL Carryforwards | | Expiration Date | | State NOL Carryforwards | |
| 12/31/2021 | | $ | 734,000 | | 12/31/2012 | | $ | 436,000 | |
| 12/31/2022 | | | 443,000 | | 12/31/2013 | | | 1,120,000 | |
| 12/31/2023 | | | - | | 12/31/2014 | | | 1,428,000 | |
| 12/31/2024 | | | - | | 12/31/2015 | | | 1,605,000 | |
| 12/31/2025 | | | - | | 12/31/2016 | | | 928,000 | |
| 12/31/2026 | �� | | - | | | | $ | 5,517,000 | |
| 12/31/2027 | | | 436,000 | | | | | | |
| 12/31/2028 | | | 1,120,000 | | | | | | |
| 12/31/2029 | | | 1,428,000 | | | | | | |
| 12/31/2030 | | | 1,605,000 | | | | | | |
| 12/31/2031 | | | 928,000 | | | | | | |
| | | $ | 6,694,000 | | | | | | |
| Expiration Date | | Federal NOL Carryforwards | Expiration Date | | State NOL Carryforwards |
| 12/31/2021 | | 271,000 | | 12/31/2014 | | 965,000 |
| 12/31/2022 | | 443,000 | | 12/31/2015 | | 1,605,000 |
| 12/31/2023 | | - | | 12/31/2016 | | 928,000 |
| 12/31/2024 | | - | | 12/31/2017 | | 1,250,000 |
| 12/31/2025 | | - | | 12/31/2018 | | - |
| 12/31/2026 | | - | | 6/30/2019 | | 24,000 |
| 12/31/2027 | | 436,000 | | | | $ 4,772,000 |
| 12/31/2028 | | 1,120,000 | | | | |
| 12/31/2029 | | 1,428,000 | | | | |
| 12/31/2030 | | 1,605,000 | | | | |
| 12/31/2031 | | 928,000 | | | | |
| 12/31/2032 | | 1,250,000 | | | | |
| 12/31/2033 | | - | | | | |
| 6/30/2034 | | 24,000 | | | | |
| | | $ 7,505,000 | | | | |
During the year ended December 31, 2011, the Company determined that it was more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has established a valuation allowance as of December 31, 2011June 30, 2014 in the approximate amount of $3,691,000.$2,920,000. The valuation allowance is equal to the full amount of the net deferred tax asset due primarily to the uncertainty of the utilization of operating losses in future periods. Internal Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three year period. Given the acquisition of WCS, such limitation of the net operating losses may have occurred, which the Company has not fully analyzed at this time as the deferred tax asset is fully reserved.
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state statutory income tax rates to pretax income from continuing operations for the years ended December 31, 2011 and 2010period from the date of inception (September 9, 2013) to June 30, 2014 due to the following:
| Federal Tax Benefit at Statutory Rates | | $ | 3,800,000 | |
| State Tax Benefit at Statutory Rates | | | 560,000 | |
| Permanent difference - goodwill not recognized in tax free reorginization | | | (4,354,000 | ) |
| Valuation Allowance Adjustment | | | (6,000 | ) |
| | | | | |
| Net Deferred Tax Benefit | | $ | - | |
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become subject to litigation or claims. The Company is not aware of any pending legal proceedings of which the outcome is reasonably possible to have a material effect on its results of operations, financial condition or liquidity.
| | | 2011 | | | 2010 | |
| | | | | | | |
| Federal Tax Benefit (Expense) at Statutory Rates | | $ | 2,150,000 | | | $ | 45,000 | |
| State Tax Benefit (Expense) at Statutory Rates | | | 317,000 | | | | 8,000 | |
| Meals and Entertainment | | | (1,000 | ) | | | (4,000 | ) |
| Induced Conversion | | | (1,070,000 | ) | | | - | |
| Valuation Allowance Adjustment | | | (1,396,000 | ) | | | (49,000 | ) |
| | | | | | | | | |
| Net Deferred Tax Benefit (Expense) | | $ | - | | | $ | - | |
| | | | | | | | | |
GROW CONDOS, INC. and ContingenciesSubsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Liability Insurance
In connection with the ownership and operation of real estate, the Company potentially may be liable for costs and damages related to environmental matters. In addition, the Company may acquire certain properties that are subject to environmental remediation. The Company carries environmental liability insurance on its properties that will provide limited coverage for remediation liability and pollution liability for third-party bodily injury and property damage claims. The Company is not aware of any environmental matters which it believes are reasonably possible to have a material effect on its results of operations, financial condition or liquidity.
Operating Leases
The CompanyGCI leased office space in Tempe, Arizona, under a five (5) year operating lease agreement which expired in 2010, at a rate of approximately $30,000 per month. During the year ended December 31, 2010 theThe Company signed a five year extension on its leased facility and reduced the rentable square feet from 13,295 to 7,767. As a result of this extension, the Company decreased the monthly rent from approximately $30,000 per month to $12,000 per month. In conjunction with the sale of the Company’s TPV Business the lease was assigned to the purchasers of the Company’s TPV Business. However, in the event the assignee fails to pay rents under the agreement the Company remains liable for these amounts. The Company has not recorded a corresponding liability for this as management estimates the probability of having to perform under the agreement is remote and the related liability is immaterial. As of June 30, 2014, there are no unpaid or accrued rents due under the lease agreement.
A schedule of the potential obligation should the purchaser default on the terms of the lease related to the Company’s former office space is below:
| Period Ended | | | |
| December 31, | | Amount | |
| 2014 | | $ | 72,111 | |
| 2015 | | | 121,450 | |
| | | | | |
| | | $ | 193,561 | |
| | | | | |
NOTE 7 – STOCKHOLDERS’ EQUITY
Common Stock
Below is a summary of transactions that occurred with GCI prior to the acquisition of WCS. The Common Stock activity described below is included in the shares issued in reverse acquisition in the statement of changes in stockholders’ equity.
Between April 13, 2014 and June 25, 2014, the Company sold an aggregate of 2,019,307 shares of common stock at $0.325 per share.
Between May 31, 2014 and June 25, 2014, the Company issued an aggregate of 23,952 shares of common stock related to the exercise of warrants for total proceeds of $7,784. The exercise price of each warrant was $0.325.
On June 26, 2014, the Company issued an aggregate of 1,615,385 shares to officers and directors of the Company as bonuses. The shares were valued at $0.50 per share – the trading price of the shares on June 26, 2014.
On June 27, 2014, the Company issued an aggregate of 1,000,000 shares for the retirement of $250,000 of related party notes payable of GCI.
On June 30, 2014 the Company issued 497,495 shares for the settlement of $161,686 in accounts payable to two vendors. The shares were valued at $0.325 per share.
Note 10
CommitmentsGROW CONDOS, INC. and Contingencies (Continued)
The Company leased office equipment under an operating lease agreement expiring through June 2011, at the rate of approximately $754 per month. In August 2011, the Company signed another operating lease agreement for office equipment at the rate of approximately $415 per month, expiring in July of 2016.
Total rent expense under the aforementioned operating leases was approximately $155,061 and $304,000 for the years ended December 31, 2011 and 2010, respectively.
A schedule of future minimum lease payments is as follows:
| Year Ending | | | |
| December 31, | | Amount | |
| 2012 | | | 145,516 | |
| 2013 | | | 147,337 | |
| 2014 | | | 149,159 | |
| 2015 | | | 126,387 | |
| 2016 | | | 2,880 | |
| | | | | |
| | | $ | 571,279 | |
Employment Agreements
Calibrus has agreements with all officers and those employees identified herein as key employees. All of our agreements contain language assigning all inventions over to Calibrus, and also contain non-compete agreements. Additionally, on termination, if not for causeSubsidiary (f/k/a Fanatic Fans Inc. and Calibrus, is cash flow and earnings positive, our officers and key employees will receive up to three months salary as severance. On a change of control of Calibrus, which results in termination of the officer or key employee and Calibrus is cash flow positive and has positive earnings per share at the time of the change of control, the officer or key employee will receive a three months salary as severance based on the officers or employees’ current salary. Employment contracts are entered into for two, three or four year periods with automatic two, three or four one year extensions depending on the officer or key employee. Except for terms and salary, all of our employment contracts contain the same material terms. A summary of the officers’ employment contracts are below:
Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Employee | | Beginning Date | | Annual Salary | |
| Jeff W. Holmes | | 1/1/2005 | | $ | 220,000 | |
| Greg W. Holmes | | 1/1/2005 | | $ | 150,000 | |
| Kevin J. Asher | | 2/5/2008 | | $ | 130,000 | |
| Tom Harker | | 1/10/2007 | | $ | 140,000 | |
| Michael Brande | | 1/10/2007 | | $ | 105,000 | |
| Michael Rae | | 1/10/2007 | | $ | 90,000 | |
| Kelly Robinson | | 6/28/2004 | | $ | 90,000 | |
During the yearsperiod ended December 31, 2011June 30, 2014, the Company issued an aggregate of 858,489 shares for the conversion of $279,009 in notes payable and 2010, eachaccrued interest related to those notes. The conversion price of the employees listed above took salary decreases duedebt and interest was $0.325 per share.
On June 27, 2014, WCS issued an aggregate of 10% of its membership equity to limitedtwo members for $100,000 in cash flowand conversion of debt to equity which is included in the Company. EachCommon Stock for cash and debt forgiveness in the statement of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
Indemnification Agreements
The Company has agreed to indemnify its officers and directors for certain events or occurrences arising aschanges in stockholders’ equity. As a result of the officer or director servingCompany’s reverse acquisition of GCI, the shares issued for the 10% membership interest in such capacity. The termconnection with the acquisition of WCS were valued based on the quoted market price of GCI as of the indemnification period isdate of the share issuance, which resulted in compensatory expense of $900,090. Compensation expense was determined in accordance with ASC 505 subtopic 50, Equity-Based Payments to Non-Employees, by multiplying the number of GCI shares received by the two members of WCS in the reverse acquisition in exchange for their 10% membership interest multiplied by the trading price of GCI Common Stock on June 27, 2014, less the $100,000 of cash and debt redemption comprising the capital contributions made by the two members for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. As a result of no current or expected litigation, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of December 31, 2011 and 2010.
Note 11
Stockholders’ Equity
10% membership interest.
Warrants
At December 31, 2011 and 2010,June 30, 2014, the Company had 1,026,588 and 514,500, respectively,910,636 warrants outstanding to purchase common stock. The warrants are convertible into one share of common stock at a prices ranging between $.325$0.325 and $1.95$0.50 per share. As of December 31, 2011, 1,014,088 of the 1,026,588 were exercisable. As of December 31, 2010, 9,500 of the 514,500June 30, 2014, all 910,636 warrants were exercisable.
In conjunction withDuring the conversion price adjustmentsix month period ended June 30, 2014, the Company extended the maturity dates of 420,000 warrants that were set to expire at various times during the period.
Between May 31, 2014 and subsequent conversionJune 25, 2014, the Company issued an aggregate of $1,540,000 of convertible debentures into common23,952 shares of common stock related to the Company, theexercise of warrants for total proceeds of $7,784. The exercise price of the warrants, for those debenture holders who converted, were adjusted to $.325 per share from the previous exercise price of $1.95 per share and became immediately exercisable. The Company recorded conversion expense related to the price adjustment of $104,821.
In addition, for those debenture holders who converted, 1each warrant was issued for each $2.00 in accrued interest that was converted. A total of 102,088 warrants were issued in relation to the accrued interest converted and conversion expense of $14,191 was recorded in relation to these warrants. These warrants were immediately exercisable and had a three year term.$0.325.
| | | | | | | | | Weighted Average | | | | |
| | | | | | | | | Remaining | | | Aggregate | |
| | | Number of | | | Weighted Average | | | Contractual Term | | | Intrinsic | |
| | | Warrants | | | Exercise Price | | | (in years) | | | Value | |
| | | | | | | | | | | | | |
| Outstanding at September 9, 2013 | | | 942,088 | | | | 0.36 | | | | | | | |
| | | | | | | | | | | | | | | |
| Granted | | | - | | | | - | | | | | | | |
| Exercised | | | (23,952 | ) | | | 0.33 | | | | | | | |
| Forfeited | | | (7,500 | ) | | | 0.33 | | | | | | | |
| | | | | | | | | | | | | | | |
| Outstanding at June 30, 2014 | | | 910,636 | | | $ | 0.35 | | | | 0.34 | | | $ | 127,489 | |
| | | | | | | | | | | | | | | | | |
| Exercisable at June 30, 2014 | | | 910,636 | | | $ | 0.35 | | | | 0.34 | | | $ | 127,489 | |
| | | | | | | | | | | | | | | | | |
Options
The Company also issued 125,000 warrants related to bridge loans obtained throughout the year. These warrants were immediately exercisable at $.50 per share and had a three year term. The Company recorded a total of $3,316 in deferred financing costs related to these warrants and is being amortized over the life of the loans.
The Company also issued a total of 7,500 placement agent warrants during the year as commissions for raising $75,000 in the Company’s convertible debenture offering. The warrants have a three year term and an exercise price of $1.95 per share. No expense was recorded at the time of issuance as the warrants were deemed to have minimal value.
| | | | | | | | | Weighted Average | | | Aggregate | |
| | | Number of | | | Weighted Average | | | Remaining | | | Intrinsic | |
| | | Warrants | | | Exercise Price | | | Contractual Term | | | Value | |
| Outstanding at December 31, 2009 | | | 190,000 | | | $ | 0.37 | | | | | | | |
| Granted | | | 324,500 | | | | 0.41 | | | | | | | |
| Exercised | | | - | | | | - | | | | | | | |
| Forfeited | | | - | | | | - | | | | | | | |
| | | | | | | | | | | | | | | |
| Outstanding at December 31, 2010 | | | 514,500 | | | $ | 0.40 | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Granted | | | 517,088 | | | | 0.39 | | | | | | | |
| Exercised | | | - | | | | - | | | | | | | |
| Forfeited | | | (5,000 | ) | | | 1.95 | | | | | | | |
| | | | | | | | | | | | | | | |
| Outstanding at December 31, 2011 | | | 1,026,588 | | | $ | 0.39 | | | | 1.90 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2011 | | | 1,014,088 | | | $ | 0.37 | | | | 1.89 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
Note 11
Stockholders’ Equity (Continued)
The fair value of each warrant valued during the year ended December 31, 2011 and 2010 is estimated on the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions:
| | | 2011 | | 2010 |
| Expected Volatitlity | 24.85% - 24.90% | | 40.17% - 29.11% |
| Risk-free interest rate | 0.89% - 0.25% | | 0.89% |
| Expected dividends | - | | - |
| Expected life | 2 - 3 Years | | 2 years |
| Fair value | | $0.00 - $0.15 | | $0.05 |
A summary of the status of the Company’s non-exercisable warrants as of December 31, 2011 and 2010 and changes during the years ended December 31, 2011 and 2010 is presented below:
| | | | | | Weighted-Average | |
| | | | | | Grant-Date | |
| | | Warrants | | | Fair Value | |
| Non-exercisable at December 31, 2009 | | | 190,000 | | | | 0.05 | |
| | | | | | | | | |
| Granted | | | 324,500 | | | | 0.05 | |
| | | | | | | | | |
| Exercisable | | | (9,500 | ) | | | 0.05 | |
| | | | | | | | | |
| Forfeited | | | - | | | | - | |
| | | | | | | | | |
| Non-exercisable at December 31, 2010 | | | 505,000 | | | $ | 0.05 | |
| | | | | | | | | |
| Granted | | | 517,088 | | | | 0.01 | |
| | | | | | | | | |
| Exercisable | | | (1,004,588 | ) | | | 0.03 | |
| | | | | | | | | |
| Forfeited | | | (5,000 | ) | | | 0.05 | |
| | | | | | | | | |
| Non-exercisable at December 31, 2011 | | | 12,500 | | | $ | 0.05 | |
On October 31, 2011 the Company revalued a total of 770,000 warrants related to its convertible debenture which became exercisable upon conversion. The weighted average fair value of the warrants at the time of valuation was $.14.
Options
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock. The maximum term of the options is five years, and they vestvested at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock. The maximum term of the options is five years and they vestvested at various times according to the Option Agreements. Both of the above mentioned plans have expired and no further options are available for grant. In July 2012 the Board of Directors adopted the 2012 Stock Option and Restricted Stock Plan and the shareholders approved it in August 2012. Under such Plan, the Company has 3,000,000 shares available for future grants. The Company has made no grants under the Plan.
GROW CONDOS, INC. and Subsidiary (f/k/a Fanatic Fans Inc. and Calibrus, Inc.)
Note 11
Stockholders’ Equity (Continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following is a table of activity for all options granted under these PlansPlans:
| | | | | | | | | Weighted | | | | |
| | | | | | | | | Average | | | | |
| | | | | | Weighted | | | Remaining | | | Aggregate | |
| | | Number of | | | Average | | | Contractual | | | Intrinsic | |
| | | Options | | | Exercise Price | | | Term (in years) | | | Value | |
| | | | | | | | | | | | | |
| Options outstanding at September 9, 2013 | | 1,795,000 | | | 0.79 | | | | | | | |
| | | | | | | | | | | | | |
| Granted | | | - | | | | - | | | | | | | |
| Exercised | | | - | | | | - | | | | | | | |
| Forfeited | | | - | | | | - | | | | | | | |
| | | | | | | | | | | | | | | |
| Options outstanding at June 30, 2014 | | | 1,795,000 | | | $ | 0.79 | | | | 1 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Options exercisable at June 30, 2014 | | | 1,795,000 | | | $ | 0.79 | | | | 1 | | | $ | - | |
NOTE 8 – RELATED PARTY TRANSACTIONS
The Chief Executive Officer (“CEO”) and Chief Financial Officer, who are siblings, provided services and the use of their facilities to the Company at no costs to the Company since our inception. Please see additional discussion of related party transactions described in the notes above.
Our CEO, through an entity that he controls, has entered into a lease for 7,500 square feet of space in our facility. The lease term begins once tenant improvements are completed and the premises are occupied, and continues for a period of 36 months. The lease agreement requires no rental payments for the first 12 months of the lease and rental payments of $54,000 per year for the second and third year of the lease. The lease term has not begun as of duringJune 30, 2014 and no revenue associated with this lease has been recorded in the years ended December 31, 2011 and 2010:accompanying financial statements.
| | | | | | | | Weighted | | |
| | | | | | | | Average | | |
| | | | | | Weighted | | Remaining | | Aggregate |
| | | Number of | | | Average | | Contractual | | Intrinsic |
| | | Options | | | Exercise Price | | Term (in years) | | Value |
| | | | | | | | | | |
| Options outstanding at December 31, 2009 | | | 1,383,332 | | | | 1.29 | | | | |
| | | | | | | | | | | | |
| Granted | | | 1,494,167 | | | | 1.00 | | | | |
| Exercised | | | - | | | | - | | | | |
| Forfeited | | | (365,000 | ) | | | 1.52 | | | | |
| | | | | | | | | | | | |
| Options outstanding at December 31, 2010 | | | 2,512,499 | | | $ | 1.08 | | | | |
| | | | | | | | | | | | |
| Granted | | | 500,000 | | | | 0.25 | | | | |
| Exercised | | | - | | | | - | | | | |
| Forfeited | | | (268,332 | ) | | | 1.52 | | | | |
| | | | | | | | | | | | |
| Options outstanding at December 31, 2011 | | | 2,744,167 | | | $ | 0.89 | | 3.02 | | |
| | | | | | | | | | | | |
| Options Exercisable at December 31, 2011 | | | 2,744,167 | | | $ | 0.89 | | 3.02 | | |
| | | | | | | | | | | | |
During the year ended December 31, 2011After June 30, 2014, the Company issued 500,000 options to members131,785 shares of its Advisory Board. The total fair valueCommon Stock upon exercise of options vested duringwarrants and received $42,830 of cash proceeds from the year ended December 31, 2011 was $20,816 and included $4,319exercise transactions. In addition, the CEO purchased 1,000 shares of expense related to 50,000 options granted in 2010 that became vested during the year.
Of the 1,494,167 options issued in 2010, 1,444,167 were immediately vested. The total fair value of the options vested during the year ended December 31, 2010 was $124,520. As of December 31, 2010, 50,000 options remained unvested.
The fair value of each option granted is estimated on the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions during the year ended December 31, 2011 and 2010:Common Stock after June 30, 2014.
| | | 2011 | | 2010 | |
| Expected Volatility | | 26.65% | | 37.68% | |
| Risk-free interest rate | | 0.36% | | 0.88% | |
| Expected dividends | | - | | - | |
| Expected life | | 3 years | | 2.5 years | |
| Value per option | | $0.03 | | $0.09 | |
On September 13, 2010, a former employee filed a lawsuit in the Superior Court of the State of Arizona, in and for the County of Maricopa (Case No. CV2010-027027) against the Company. The complaint was hand-written and did not itemize the specific legal claims, but could include (1) discrimination (no statute identified), (2) failure to pay minimum wage or overtime (no statute identified), (3) retaliation, (4) assault, and (5) intentional infliction of emotional distress. On May 22, 2011 the suit was dismissed with prejudice.
Note 13
Segment Information
Calibrus, Inc. operates two separate segments of its business. Corporate and Third Party Verification (TPV) are combined as entirely all corporate overhead and expenses are attributable to the TPV operation.
Expenses related to the Social Networking Segment include two full-time employees and related payroll expenses as well as marketing, travel, amortization of the capitalized software and all research and development expenses.
The Social Networking Segment began operations at the end of fiscal 2009.
At December 31, 2011 and 2010 capitalized software development belongs to our Social Networking Segment as well as prepaid expenses related to a video license for us in the Fanatic Fans application.
The following is a summary of certain financial information for areas of our operations:
| | | For the Year Ended | | | | | | | | | | |
| | | Gross Revenues | | | Income (Loss) From Continuing Operations Before Income Taxes | | | Depreciation and Amortization | | | Purchases of Property and Equipment and Software Development | | | Identifiable Assets | |
| | | | | | | | | | | | | | | | |
| December 31, 2011 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Corporate and TPV | | $ | 3,563,265 | | | $ | (1,983,054 | ) | | $ | 29,211 | | | $ | 22,919 | | | $ | 610,786 | |
| | | | | | | | | | | | | | | | | | | | | |
| Social Networking Segment | | | - | | | | (4,348,917 | ) | | | 917,164 | | | | - | | | | 10,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Calibrus, Inc. | | $ | 3,563,265 | | | $ | (6,331,971 | ) | | $ | 946,375 | | | $ | 22,919 | | | $ | 620,786 | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2010 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Corporate and TPV | | $ | 3,745,876 | | | $ | 365,297 | | | $ | 55,958 | | | $ | 22,140 | | | $ | 477,391 | |
| | | | | | | | | | | | | | | | | | | | | |
| Social Networking Segment | | | - | | | | (493,560 | ) | | | 76,430 | | | | 1,737,164 | | | | 2,675,062 | |
| | | | | | | | | | | | | | | | | | | | | |
| Calibrus, Inc. | | $ | 3,745,876 | | | $ | (128,263 | ) | | $ | 132,388 | | | $ | 1,759,304 | | | $ | 3,152,453 | |
Subsequent to December 31, 2011 the Company received an over-advance on its factoring line from Factors Southwest, LLC in the amount of $115,000. Interest on the over-advance is 5% per 30-day period. As of April 13, 2012 the Company has paid down the over-advance by $20,000 with the remaining $95,000 still outstanding.
Note 14
Subsequent Events (Continued)
SubsequentITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We intend to December 31, 2011maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Company receivedSecurities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our Chief Executive Officer (“Principal Executive Officer”) and our Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Principal Executive and Financial Officers, conducted an additional $45,000 short-term advance from its CEO.evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act). Based on this evaluation, our Principal Executive and Financial Officer concluded that, as of June 30, 2014, our disclosure controls and procedures were not effective, for the reasons discussed below, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal Executive and Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Principal Executive and Financial Officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). In connection with our evaluation, we identified a material weakness in our internal control over financial reporting as of June 30, 2014.
A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner. The material weakness related to our company was due to not having the adequate personnel to address the reporting requirements of a public company and to fully analyze and account for our transactions. We do not believe that this material weakness has resulted in deficient financial reporting because we have worked through the year end close process performing additional review and analysis to assure compliance with accounting principles generally accepted in the United States (“GAAP”) and SEC reporting requirements.
Accordingly, while we identified a material weakness in our system of internal control over financial reporting as of June 30, 2014, we believe that we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with GAAP. We are committed to remediating the control deficiencies that constitute the material weaknesses by implementing changes to our internal control over financial reporting. Management is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses.
We plan to implement measures to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses through additional training efforts as well as ensuring appropriate review of the related significant accounting policies by the members of management with the requisite level of knowledge, experience and training to appropriately apply GAAP. We plan to undertake additional review processes to ensure the related significant accounting policies are implemented and applied properly on a consistent basis throughout the Company. We believe these measures will remediate the control deficiencies. However, we have not completed all of the corrective processes, procedures and related evaluation or remediation that we believe are necessary. As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weaknesses, we may determine to take additional measures to address the control deficiencies.
This Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
We established our internal control over financial reporting during the period from the date of inception (September 9, 2013) to June 30, 2014.
Inherent Limitations on Effectiveness of Controls and Procedures
Our management, including our Principal Executive and Financial Officers, do not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
This Transition Report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.
ITEM 9B: OTHER INFORMATION
None
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
The following table sets forth the names of all current directors and executive officers of the Company. These persons will serve until the next annual meeting of the stockholders or until their successors are elected or appointed and qualified, or their prior resignation or termination.
| Name | Positions Held | Date of Election or Designation | Date of Termination or Resignation |
| Wayne A. Zallen | President and CEO | July 22, 2014 | * |
| Joann Z. Cleckner | Secretary, Treasurer and CFO | July 22, 2014 | * |
| Carl S. Sanko | Director | July 22, 2014 | * |
| Jeff Holmes | Director | October 22, 1999 | * |
* These persons presently serve in the capacities indicated.
Background and Business Experience
Wayne A. Zallen – From 10/2013 - present Mr. Zallen bought an unfinished industrial warehouse Condominium project from the bank and developed it into a safe haven for medical marijuana growers. Mr. Zallen developed a workable lease option model that benefits the grower as well as the investor. From 4/2009 – present Mr. Zallen developed an aeroponic growing method that produces superior quality medical marijuana in a minimum amount of time. From 2006 to present Mr. Zallen was the President of Sigclo Enterprises, Inc a business incubator specializing in importing and distributing goods through a multitude of web based consumer channels. Prior to that Mr. Zallen specialized in buying, building or assisting startup companies in achieving their untapped potential then selling them to sound operators. To date these businesses continue to operate profitably. From 1986 to 2000 Mr. Zallen was a successful member of the financial services industry, owning one of Allstate’s first insurance franchises, and achieving a top 1% national ranking. Later he established a San Francisco Bay Area regional office of American National Financial, Inc., where he hired, trained and motivated sales agents to originate over $8 million per/month in wholesale and retail loans across Northern California. During the early 1980’s Mr. Zallen was a Business Manager/ Account Executive for John Rhein Advertising and was responsible for business management, budgeting, media evaluation and procurement. At John Rhein Advertising he developed exclusive advertising campaigns syndicated nationwide. In 1977 Mr. Zallen obtained a Industrial Design Bachelor of Science degree from The Ohio State University. Mr. Zallen is 60 years of age.
Joann Z Cleckner – From 1990 thru present – Joann has been the owner of Joann Z Cleckner, CPA, an accounting firm specializing in small business consulting, tax planning, tax preparation as well as providing bookkeeping services to small business clients. In addition to her accounting practice, from 2011 through 2012, Joann was an intern with the Sonoma County District Attorney, providing legal research in criminal matters, writing briefs and making court appearances. Joann is licensed to practice accountancy in the states of California and Oregon. Joann is 65 years of age.
Carl S. Sanko – Carl has been self-employed as Carl S. Sanko CPA for last 5 years, providing tax, accounting, and consulting services, including the past 1 1/2 years as contract CFO, Secretary, and Director of Kush (a Nevada corporation). Also, during the past 5 years Carl has been a real estate Broker, working under his name, Carl Sanko. Carl is 59 years of age.
Jeff Holmes - Jeff Holmes is a founder of the Company and has been active in the roles of President, C.E.O. and Chairman of the Board of Directors since the Company’s inception in 1999. On June 30, 2014, Mr. Holmes resigned from all positions with the Company except for the position of Chairman of the Board of Directors. For the past 26 years Mr. Holmes has been active in developing technologies that improve the efficiencies of business processes in the Healthcare, Internet, Computer (hardware and software) and Telecommunications industries. He graduated in 1976 with a B.S. in Marketing and Management from the University of Utah. The Company believes that because of Mr. Holmes’ role as a founder and his experience with microcap public companies he is qualified to be a director.
Significant Employees
Grow Condos has no employees who are not executive officers, but who are expected to make a significant contribution to its business.
Family Relationships
Our Chief Executive Officer and our Chief Financial Officer are brother and sister.
Involvement in Other Public Companies Registered Under the Exchange Act
None
Section 16(a) Beneficial Ownership Reporting Compliance
Our shares of common stock are registered under the Exchange Act, and therefore our officers, directors and holders of more than 10% of our outstanding shares are subject to the provisions of Section 16(a) which requires them to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon review of the copies of such forms furnished to us during the transition period ended June 30, 2014, there were no late filings, no failures to make filings and no unreported transactions during the period.
Code of Ethics
We have adopted a Code of Conduct for our Principal Executive and Financial Officers. See Part IV, Item 15 of this Report.
Corporate Governance
Nominating Committee
We have not established a Nominating Committee because we believe that our Board of Directors is able to effectively manage the issues normally considered by a Nominating Committee. During the transition period ended June 30, 2014, there were no changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Audit Committee
We have adopted an audit committee separate from our Board of Directors consisting of Jeff Holmes, Audit Committee Chairman, and Carl Sanko.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
| Name and Position | Year | Salary($) | All other Compensation($)(3)(4) | Total($) |
| Wayne A. Zallen, CEO (1) | Transition Period | 0 | 0 | 0 |
| | 2013 | 0 | 0 | 0 |
| | 2012 | 0 | 0 | 0 |
| | | | | |
| Joann Z. Cleckner, CFO | Transition Period | 0 | 0 | 0 |
| | 2013 | 0 | 0 | 0 |
| | 2012 | 0 | 0 | 0 |
| | | | | |
| Jeff W. Holmes, CEO (2) | Transition Period | 87,500 | 188,786 | 276,286 |
| | 2013 | 153,722 | 2,406 | 156,128 |
| | 2012 | 96,875 | 4,659 | 101,534 |
| | | | | |
| Greg W. Holmes, President (2) | Transition Period | 78,750 | 123,078 | 201,828 |
| | 2013 | 132,765 | 3,706 | 136,471 |
| | 2012 | 74,792 | 4,729 | 79,521 |
| | | | | |
| Kevin J. Asher, CFO (2) | Transition Period | 35,000 | 100,000 | 135,000 |
| | 2013 | 92,622 | 2,659 | 95,281 |
| | 2012 | 108,750 | 4,660 | 113,410 |
(1) Beginning in July, 2014, Mr. Zallen has been salaried at the rate of $2,500 per month.
(2) Officer resigned his position on June 30, 2014.
(3) Company paid portion of health insurance coverage for Jeff W. Holmes - $4,170.
(4) Restricted stock awards
Outstanding Equity Awards at Fiscal Year End
None
Compensation of Directors
Our directors are not compensated for their service on the board of directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following tables set forth the share holdings of those persons who were the beneficial owners of more than five percent (5%) shareholders of the Company’s common stock as of October 14, 2014:
Ownership of Principal Shareholders
| Title Of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class (1) |
| Common Stock | Wayne A. Zallen 2944 Delta Waters Road Medford, OR 97504 | 18,370,000 Direct | 44.2 % |
| Common Stock | Jeff W. Holmes PO Box 11207 Zephyr Cove, NV 89448 | 2,734,680 (2) | 6.6% |
(1) Based on a total of 41,568,494 shares outstanding.
(2) Of the 2,734,680 shares, 1,927,587 are held directly, 457,093 are held indirectly as they are owned by the Scottsdale Equity Growth Fund LLC, an entity controlled by Mr. Holmes, and the balance of 350,000 can be acquired upon the conversion of derivative securities held by Mr. Holmes.
Security Ownership of Management
The following table sets forth the share holdings of the Company’s directors and executive officers as of October 14, 2014:
Ownership of Officers and Directors
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class |
| Common Stock | Wayne A. Zallen 2944 Delta Waters Road Medford, OR 97504 | 18,370,000 Direct | 44.2% |
| Common Stock | Joann Z. Cleckner 722 W. Dutton Road Eagle Point, OR 97524 | 0 | 0% |
| Common Stock | Jeff W. Holmes PO Box 11207 Zephyr Cove, NV 89448 | 2,734,680 (2) | 6.6% |
| Common Stock | Carl S. Sanko 18301 Ghost Town St Tehachapi, CA 93561 | 408,200 Direct | 1.0% |
| Common Stock | Total Officers and Directors as a group (4 persons) | 21,512,880 | 51.8% |
(1) Based on a total of 41,568,494 shares outstanding.
(2) Of the 2,734,680 shares, 1,927,587 are held directly, 457,093 are held indirectly as they are owned by the Scottsdale Equity Growth Fund LLC, an entity controlled by Mr. Holmes, and the balance of 350,000 can be acquired upon the conversion of derivative securities held by Mr. Holmes.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under 2012 equity compensation plan excluding securities reflected in column (a) |
| | (a) | (b) | (c) |
| Equity compensation plans approved by security holders | 1,295,000 | $1.00 | 3,000,000 |
| Total | 1,295,000 | $1.00 | 3,000,000 |
Equity Compensation Plan Information
The Company had adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock. The maximum term of the options is five years, and they vested at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock. The maximum term of the options is five years and they vested at various times according to the Option Agreements. Both of the above mentioned plans have expired and no further options are available for grant. In July 2012 the Board of Directors adopted the 2012 Stock Option and Restricted Stock Plan and the shareholders approved it in August 2012. Under such Plan, the Company has 3,000,000 shares available for future grants. The Company has made no grants under the Plan.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
Transactions with Related Persons
On June 30, 2014, Wayne A. Zallen, our President and CEO, exchanged his 90% ownership interest in WCS Enterprises, LLC, an Oregon limited liability company (“WCS”), for 18,369,000 common shares of the Registrant. On the same day Carl S. Sanko, a member of our board of directors, exchanged his 2% ownership interest in WCS for 408,200 common shares of the Registrant.
Director Independence
We do not have any independent directors serving on our Board of Directors. The definition the Company uses to determine whether a director is independent is NASDAQ Rule 4200(a)(15). The text of this rule is attached to this Transition Report as Exhibit 99.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of the fees billed to us by our principal accountants during the fiscal years ended December 31, 2012, and 2013 and during the Transition Period:
| Fee Category | | 2012 | | | 2013 | | | Transition Period | |
| Audit Fees | | $ | 55,000 | | | $ | 57,000 | | | $ | 3,850 | |
| Audit-related Fees | | | - | | | | - | | | | - | |
| Tax Fees | | | 2,800 | | | | 2,900 | | | | - | |
| All Other Fees | | | - | | | | - | | | | - | |
| Total Fees | | $ | 57,800 | | | $ | 59,900 | | | $ | 3,850 | |
Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”
Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees,” and “Tax fees” above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We have not adopted an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided to us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)(2) Financial Statements. See the audited financial statements for the Transition Period ended June 30, 2014 contained in Item 8 above which are incorporated herein by this reference.
(a)(3) Exhibits. The following exhibits are filed as part of this Transition Report:
Exhibits
Exhibit Number | Description (1) |
| 3.1 | Articles of Incorporation (2) |
| 3.2 | By-laws (2) |
| 14 | Code of Conduct (2) |
| 31.1 | 302 Certification of Wayne A. Zallen |
| 31.2 | 302 Certification of Joann Z. Cleckner |
| 32 | 906 Certification |
| 99 | NASDAQ Rule 4200(a)(15) |
| 101 INS | XBRL Instance Document* |
| 101 PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
| 101 LAB | XBRL Taxonomy Extension Label Linkbase Document* |
| 101 DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
| 101 CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
| 101 SCH | XBRL Taxonomy Extension Schema Document* |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE
SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.)
DOCUMENTS INCORPORATED BY REFERENCE
(1) Summaries of all exhibits contained within this Report are modified in their entirety by reference to these exhibits.
(2) Filed as an exhibit to the Company's registration statement on Form 10 filed with the Commission, SEC file no. 000-53548.
(3) Current Report on Form 8-K/A filed with the SEC on September 15, 2014.
Current Report on Form 8-K filed with the SEC on July 7, 2014.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GROW CONDOS, INC.
| Date: | October 14, 2014 | | By: | /s/Wayne A. Zallen |
| | | | Wayne A. Zallen, President and CEO |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
GROW CONDOS, INC.
| Date: | October 14, 2014 | | By: | /s/ Wayne A. Zallen |
| | | | Wayne A. Zallen, President and CEO |
| | | | |
| Date: | October 14, 2014 | | By: | /s/Joann Z. Cleckner |
| | | | Joann Z. Cleckner, Secretary, Treasurer and CFO |
| | | | |
| Date: | October 14, 2014 | | By: | /s/ Jeff W. Holmes |
| | | | Jeff W. Holmes, Director |
| | | | |
| Date: | October 14, 2014 | | | /s/ Carl S. Sanko |
| | | | Carl S. Sanko, Director |
